Perspectives: Donald Trump & Investor Confidence
Being Libertarian Perspectives will serve as a weekly, multi-perspective opinion and analysis piece by members of Being Libertarian’s writing team. Every week the panel, comprised of randomly selected writers, will answer a question based on current events or libertarian philosophy. Assistant Editor Dillon Eliassen will moderate and facilitate the discussion.
Dillon Eliassen: If Donald Trump becomes president, investors will be less likely to buy US debt because they’ll have less confidence that they’ll receive a decent return. In the long run, that’s a good thing because it will force Congress to cut spending. Explain if I am right or wrong, and why.
Alex Merced: You are right. Theoretically, if investors truly are concerned about Trump, treasury yields would rise. This would increase the interest expense to the federal government exponentially since they finance short term (although unfortunately this will also explode the cost for corporations to borrow in the money market, so that’s where a recession may come from). Although this dynamic would force government to have to cut spending or face a collapse, this would also happen when the Fed is forced to raise rates whenever inflation finally takes hold like it did under Volcker in the 80’s. Although, if yields rise enough, the Fed may intervene and begin buying bonds to increase their price & lower yields, although that will lead to the inflation that will force rates up anyways. All this illustrates that it doesn’t matter if you can print money or not, debt matters.
John Engle: Trump may affect treasury yields marginally. But, probably not much and not for long. The US remains the ultimate safe harbor and that is vanishingly unlikely to happen just because a loose cannon is elected. Economic headwinds in the rest of the world, such as in China, fears over the fate of the Euro, and insufficient supply of Bunds and Gilts, will mean there will be a floor under the US bond market for decades. It remains the go-to during flights to quality. Uncertainty over Trump can’t really change that.
Dillon: From the Wall Street Journal: “Mr. Trump also said he supported holding down the value of the dollar in order to help American manufacturing and the economy. ‘If the value of the dollar goes up, it would be at this point not a very good thing,’ he said. Most American presidents typically advocate for a strong dollar.”
What do you think about this? My inkling is that he’s full of shit and he shouldn’t be running on a platform of currency manipulation, but he’s using the magic words of “manufacturing” and “the economy,” so Trump supporters and detractors alike will eat it up.
John: The Fed is independent. It’s not going to run the printing presses because Donald wants it to. Yellen is a policy dove, but she is still aiming to increase inflation to the 2% target. Trying to weaken the dollar would probably be self-defeating anyway as other countries would just increase their quantitative easing.
Nathaniel Owen: The President can’t really do anything unilaterally to affect the value of currency. Monetary levers are the business of the Federal Reserve. But the people who decide to stop increasing the debt ceiling, and the people who decide to print more money, do not work from the same room. The policies of the Federal Reserve are not designed to convince Congress to do anything. Trump is talking out of his ass.
Dillon: He has a great ass, probably one of the best asses, OK? Believe me.
John: Trump labors under the delusion that the president is chief executive of all of America, not just of the administrative arm of the government. And that delusion is sustained by a public perception of the presidency as the only office that matters. There is a self-reinforcing cycle that continues to empower and justify the imperial presidency in principle and in practice.
Dillon: Maybe a happy accident of President Trump would be that Congress will attempt to reassert itself, to exercise the power that it often cedes to the executive branch. Supposedly, Paul
John: Perhaps, but it would take Congress working in concert, not just a majority. Obama’s opposition controls Congress and yet he has gone around them. In fact their obstruction may have made him MORE powerful. And Trump seems likely to be far less squeamish than even Big O to circumvent the Constitution.
Dillon: If a president could unite both parties in Congress to oppose him, wouldn’t it be President Trump? I don’t think Obama is any more powerful thanks to working around Congress. Several things he has done have been both unpopular with voters as well as turned back by the courts.
I know in some ways this topic is completely absurd because we’re trying to parse the comments, and extrapolate what would happen should those comments actually be reified into policy, of a man who says whatever pops into his head at any given time. “Extemporaneous” is a generous way to describe his speaking style. He’s more the equivalent of a child chasing after a butterfly.
John: He’s basically a mercantilist. I’m waiting for him to announce a plan to horde bullion.
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