Should we hope for Trump?
Whoever America votes for, the voters will lose
“G7 faces a $10trn reckoning as the world races to re-arm” to see off the threat of Russia and China, warns a headline on Bloomberg. Re-arm?! When did it dis-arm? The US firepower industry has got more money in real terms since president Dwight Eisenhower cut the military budget after World War II.
Whatever else might go wrong, here come the most predictable crises ever – war and bankruptcy. Last autumn, the US Congressional Budget Office was asked to estimate the growth in US debt. It was not an idle question. Studies done by Hirschmann Capital and others have shown that when government debt reaches 130% of GDP it has always – with one exception – led to a major crash, depression, revolution, default, bankruptcy, hyperinflation, or some other calamity.
When the US will hit 130% debt/GDP is a matter of debate and speculation. The Congressional Budget Office puts it at around 2033, giving us a few years’ grace before the disaster becomes unavoidable. We guess we will hit the point of no return before 2028. Which is why the upcoming presidential election is not just another beauty contest, in which voters choose between two doddering old fools based on their positions on abortion, immigration, silicon chips, or homelessness. In this election, there is something more at stake. And neither of the two leading candidates has any idea of what it is or what to do about it. Most likely, this is the election that will seal America’s fate.
Unless there is a dramatic course correction, US debt will reach 130% of GDP in the next presidential term. When that happens there is no further chance of an “intentional” resolution of the debt problem.
Like a ship that has lost power, the captain can give all the orders he wants, it won’t make any difference; he has no control over where it goes.
In terms of temperament and style, the voters couldn’t ask for two more different candidates. Biden is a go-along, get-along, slick professional politician. He can be counted on to stick with the talking points on his teleprompter, carefully avoiding any original idea or honest thought. He will keep the money flowing, just as he always has.
Trump is another matter. He is not afraid to say what he thinks, which can be refreshing. The trouble is, he doesn’t think very much. He believes that life is essentially a battle in which you win by making the other side lose. And he is so confident in his own instincts that he has never taken the time to develop coherent ideas.
Sometimes, his instincts are decent. And his limitations may be a blessing; as former national security adviser John Bolton put it, Donald Trump “doesn’t have the brains” to be a dictator. But he has plenty of IQ to ruin the country with debt. His experience as a leveraged property speculator, refinancing his real estate and counting on higher prices, made him a “low-interest guy”. When he got to the White House in 2017 the Fed funds rate was under 1%. Still he wanted even lower rates, believing they would spur the economy. The lower rates brought more profits to Wall Street and developers, but left the country with even more debt. Always a fan of big government, Trump was never a conservative. He knows what he likes and doesn’t see anything wrong with using the power of government to get it.
Will either Trump or Biden change course? Not a chance. And US debt will probably exceed the 130%-of-GDP trigger before the end of the next term. Which is to say, whichever of the front runners the voters plump for, the voters lose.
“This election will seal America’s fate”