"A week can be a long time in politics", claimed Harold Wilson, now so much has happened in just the past five days. Despite two impeachments, four indictments and his new status as a convicted felon, Trump is set to return to the White House as the 47th President of the United States with Republican control of Senate and the House. Elected to a second term, the Republican has threatened to prosecute his political enemies, send the military into the streets of U.S. cities to target illegal immigrants, introduce mass deportation, impose 10% tariffs on U.S. imports, with a bonus 60% surcharge on imports from China. Many of the agencies central to the federal government will be purged of never Trumpers and replaced with loyalists. Trump advisers believe they wasted early opportunities in his first term, because they were unfamiliar with how to maximize central government power. They're planning a very different outcome this time. The Fed will be subject to Presidential influence on monetary policy, Fed Chair Jerome Powell may be sacked. In his first term, Trump called the Fed an "enemy" of the US and its officials "boneheads" and "pathetic". In August, he said of interest rate decisions: "I feel that the president should have at least a say in there. I feel that very strongly." Internationally, Trump will end the war in Ukraine and the Middle East and accelerate plans to open a Trump hotel in the Kremlin. He will test the commitment to NATO and encourage other member states to "cough up their fair share of costs." In the U.S. Musk and other millionaires and billionaires will ready for a feed fest of payback for election support. After pouring at least $130 million in a pro-Trump campaign effort, Tesla CEO Elon Musk is positioned to be paid back handsomely, it is claimed. More government contracts for Starlink. More support for Tesla in the fight back against Chinese EVs. SpaceX has received more than $19 billion from contracts with the federal government since 2008, including from NASA, the U.S. Air Force and Space Force. EVs imported from China will see their tariffs more than quadrupled from 27.5% to 100%, boosting sales prospects for Tesla. No Nolan principles for the Trump regime. Selflessness, integrity, honesty, accountability and the rest will be tossed into the Rose garden, just behind the compost heap of objectivity and openness. Harris and her fellow Democrats warned during the election, a 248-year-old democracy is on the ballot, and the whole world is watching. The world readies for Trump 2.0. Fed Chair Jerome Powell has said he will not resign. "No", Powell said firmly on Thursday, when asked whether he would step aside, if Trump asked for his resignation. Powell has made it clear he's ready to defend the US central bank from political pressure saying he wouldn't resign if asked, insisting the president doesn't have the power to fire him or other senior Fed leaders. The governor of America's most populous state, California, says he will convene a special session of the legislature to protect state laws from Donald Trump. Gavin Newsom, said Trump's victory threatened the heavily Democrat state's values. "The freedoms we hold dear in California are under attack. We won't sit idle," he said. Other blue states are moving quickly to prepare game plans. In New York, governor Kathy Hochul said she, senior staffers and the attorney general plan to meet regularly to discuss legal strategies to protect "reproductive rights, civil rights, immigration, gun safety, labor rights, LGBTQ rights and our environmental justice". In the wider world, manufacturers in China are accelerating plans to relocate to Cambodia, Vietnam, Brazil and Mexico. China has warned there are no winners in trade wars, announcing a five-year package totaling 10 trillion yuan ($1.4 trillion) to tackle local government debt problems, signalling more economic support would come next year, to boost domestic consumption. British Foreign Secretary, David Lammy, has warned Trump against "hurting" allies with his tariff plan. The Foreign Secretary says "raising levies on foreign goods would not be in the medium or long-term interests of the US." Excellent. Sure to have the ear of the President, (the one not shot at) Lammy has previously described the President elect as "deluded, dishonest, xenophobic, narcissisti and a neo-Nazi sympathising sociopath". Trump may not be so ready to heed the Foreign Secretary's advice. The Bond Vigilantes Are Watching ...
Trump in the end may be constrained by levels of debt and the bond vigilantes. The level of debt in the US has risen to $36 trillion dollars, tha's over 120% of GDP. Trump says he will renew his tax cuts, which are due to run out next year, at a cost of nearly $4 trillion for the next decade, as well as cutting taxes for companies further. That could double the deficit from its current level of 6 per cent to 12 per cent of GDP. His plans to raise tariffs to protect American industry and to kick out immigrants will push up prices further and damage growth. Rising inflation will force the Federal Reserve to raise interest rates, which will further increase the cost of government borrowing, which will further increase the debt. This week, the FOMC cut interest rates by 25 basis points. Markets had expected a further cut in December and more in 2025. Wall Street economists now see Fed policymakers keeping interest rates higher than they otherwise would have, given the likely inflationary effect of Trump policies. Nomura, for example, anticipate only one reduction in 2025, with monetary policy on hold until the inflation shock from tariffs has passed. Ten year bond yields have risen to 4.3% compared to 3.8% at the end of September. We still consider 4.5% ten year bond yields to be the benchmark in the new Trump expansionary era. In a quasi dictatorship, banana republic, the stakes would be even higher. What price the dollar then ...
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The Saturday EconomistAuthorJohn Ashcroft publishes the Saturday Economist. Join the mailing list for updates on the UK and World Economy. Archives
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