Trump Could Bring Us Economic Stagflation if He Wins

EconomyTrumpland Donald Trump
Trump Could Bring Us Economic Stagflation if He Wins

The voters who believe Donald Trump is better for the economy and inflation by a double-digit margin over Joe Biden are likely to get a rude awakening should the incompetent and gerontocratic Democratic Party blow yet another election they supposedly should win, according to two major financial firms. While they do not use the word “stagflation” in their analysis, they are preparing for the conditions that create this economic poison pill which was once thought to be impossible until it actually happened in the 1970s.

Morgan Stanley and Barclays are both buying inflation hedges in the wake of Joe Biden’s titanically calamitous debate performance, as Americans currently seem far likelier to opt for the convicted criminal over the sleepy old man. Bloomberg’s title for their report is “Morgan Stanley Team’s Trump Trade Hinges on a Worsening Economy”, and the logic at the base of the trade is rock-solid.

The recalibration in bets may complicate the outlook for the US government bond market after it capped a two-month winning streak last week. Traders are pricing in the risk of slower growth and faster inflation as Trump has vowed to deport undocumented immigrants and ramped up threats of increased tariffs against China.

Trump’s beloved tariffs, which no matter how much he wants to deny one of the most basic economic principles in existence, are in fact, broad-based tax increases on everyone purchasing the products he is taxing. The United States is the largest goods and services importer in the world, totaling $3.2 trillion goods and $680.3 billion services in 2022, which would undoubtedly take a hit should Trump drastically increase the cost of doing business. His immigration policy would lead to labor shortages in certain industries and reduced economic output. It would go against pretty much all proven knowledge for these two parts of Trump’s agenda to do anything other than harm the economy.

The whole game here is Gross Domestic Product, or GDP. The four main components which determine it are consumption (which would be expected to fall under “slower growth”), investment (ditto), government spending (have you met a Republican before?) and exports (which would follow the decline in investment). Because we have huge levels of government spending right now, it is not difficult to envision a world where soon after Trump enacts his incredibly restrictive economic agenda next year, we see two quarters in a row of negative GDP growth, which is the definition of a recession. Depending on how destructive his policies are and what skeletons in people’s closets it reveals, this recession could spark a crisis.

As the economy slows, businesses cut back and this will inevitably create a rise in the unemployment rate, completing the third aspect needed for stagflation. There is not a whole lot that capitalism, monetary and fiscal policy have in their bag of tricks to ameliorate the toxic combination of low growth, high inflation and rising unemployment that seems to be the base case for some high-level traders anticipating a Trump presidency. Some may try to affix an asterisk of “a presidency where Trump gets what he wants,” but after yesterday’s Supreme Court decision granting him the legal right to be King, that does not seem like an unreasonable expectation to have.

Capitalism can be grossly simplified as one giant hot ball of money that flows and divides itself into different arenas as the economy evolves, and in pullbacks, those tendrils contract back towards the core as everyone reduces their risk, which becomes exponentially more impactful the more money you have, especially in our modern Gilded Age. The economic data already suggests that this boom is slowing and Trump’s monstrous plan to deport 15 to 20 million people will kneecap an untold number of industries. Restricting immigration would further slow the economy, as it is perhaps America’s biggest economic competitive advantage.

Trump even proposed to eliminate the income tax entirely and replace it with a tariff that will either choke imports to death or not come remotely close to plugging the hole created in the budget by this cockamamie idea to upend a century of progressive taxation. You don’t need to be an economist to understand that taking in less revenue does not help you pay your bills.

And unfortunately for lefties, our run of being perpetually right about the national debt being a big ‘ol nothingburger died along with zero percent interest rates. The national debt is the favored cudgel of those in power to oppose any kind of government expansion that helps anyone with a net worth under six figures, and the only tangible impact of it at this present moment are the annual interest payments made on the debt. When interest rates were historically low, yeah, who gives a shit?

But when interest rates are around five percent? The annual payments on the pretty large mountain of national debt are not cheap, and they are complete wastes of money. As the United States Treasury notes, “As of May 2024 it costs $728 billion to maintain the debt, which is 16% of the total federal spending in fiscal year 2024.”

If the government is taking in less money, but its annual debt payments are increasing while the economy is slowing and battling high inflation, that…that is not good. It’s extremely not good, and is the kind of snowball that could accumulate a lot of speed and mass rolling downhill. If the situation deteriorated enough that it spooked the “world’s largest, most-important financial market” – Treasuries for “risk-free” United States debt – then all bets are off as to how bad this could get.

Predicting the future in a Trump-driven world has already proven to be a fool’s errand. What’s clear is that Trump’s racist immigration policies and idiotic economic theories are very likely to lead to higher inflation and slower economic growth, which would eventually bring rising unemployment along with it, AKA stagflation. In a world still dealing with the gargantuan weight placed on its shoulders during the COVID crisis, and which has scarcely been repaired from the Great Financial Crisis of 2008, the last thing this system creaking under the weight of its own corruption needs is literally the worst thing that can happen to an economy.

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