Saturday, February 11, 2017

How Will the New Political Environment Impact Things?

Now that Donald Trump has taken office it's fair to ask the question: How will his Administration impact what we follow here? There is no question the political landscape has changed and that there will be policy changes in many areas. But what about the potential for monetary system change during his term? Actually, things are probably simpler to project now. I see two basic scenarios.

Trump Succeeds in Boosting Economic Growth and Job Creation

If the policies Trump puts in place are successful in stimulating significant real economic growth that leads to the creation of good jobs, he will likely stay popular enough to control the agenda for quite some time. I take him to be serious when he says he plans to put "America First" and that we can safely assume that he will not be interested in globally oriented policies that would mean a lessening of American sovereignty. I doubt he will have much interest in many of the global initiatives that some from organizations like the UN, World Bank and the IMF unless he thinks they will serve American interests. If he is successful, it is unlikely that a new major financial crisis will unfold during his term and so he won't have any reason to think about any plan that would replace the US dollar as global reserve currency. 

A New Major Financial Crisis Does Unfold Sometime During Trump's Term

If a new major crisis (along the lines Jim Rickards is predicting) does unfold during Trump's term for any reason, the situation will become less predictable. It does not really matter if Trump's policies cause the crisis or if forces already in place simply rise to the surface and overwhelm the system during his term. If we get this kind of severe crisis, Trump will have to decide how to deal with it. He may just decide to stay with his "America First" plan and just ride out the storm. Alternatively, he may be presented with the option of replacing the current monetary system based on the US dollar with something new. If this happens, we can expect that there will be powerful interests promoting various ideas to replace the existing system. Some will push for a return to a precious metals backed monetary system. Some will push for a new global reserve currency along the lines of the SDR used at the IMF. There may be other competing ideas put forward. Your guess is as good as mine as to which path Trump would choose in this scenario.


I have no idea which scenario above is more likely to unfold. Trump is going to try and make some major policy changes in regards to taxes, regulations, and trade. If his policies work it could create higher growth, reduce the US deficit, and stave off the kind of crisis that might lead to major monetary system change. If his policies do not work or are too late to stave off a crisis from systemic risks already built into the system we have documented, then the crisis may come. There is simply no way to know at this point in time. If there is some kind of plan to try and blame Trump for a crisis as some have suggested, that would not make sense until he has been in office for some time as the public probably would not tie him to the crisis early in his term.

If the first scenario does unfold, eventually this blog not have a reason to continue with new articles. If the second scenario unfolds, the blog will have a purpose in continuing to monitor events and offer information as to what kinds of solutions are put forward to deal with the crisis. We will continue to keep an eye on things here until early 2018 and then assess if there is any reason to continue with new articles and information. Meanwhile, we will just produce a few articles per month based on relevant news that pops up. The information compiled here that documents the systemic risks that exist and some of the potential proposed monetary system changes (such as replacing the US dollar with the SDR) will remain here permanently as an available resource to anyone who can use it.

Added note: Jeffrey D. Sachs (Columbia University) predicts that millennials will reject Donald Trump in this article in Project Syndicate. In my view, whether he will be right or wrong depends on whether or not Trump delivers an improved job market for that generation. If he does, I think he will get their support. If he does not, he probably won't. People in general care more about having a good job than most other issues (including millennials). If the perception is that he improved the job market, he will enhance his support. If the perception is that he failed to improve the job market, he will lose support. I think it really is that simple.

As for all the uproar over whatever Trump does everyday, my reaction is to yawn. Wake me when something of true significance actually happens. Most of what we have seen so far appears to be mostly theater on both sides by professional politicos who are more about obtaining and holding political power than anything else. 

Those kinds of professional political supporters will spin everything he does as positive, professional political haters will spin everything he does as negative. Most people see through all those theatrics and focus on what is most important in their lives, like getting a decent job (no real need for polls to prove this, but here is a full page of them anyway). That's not likely to change unless a new real crisis comes along and Trump gets tagged with it in the public perception. That is what I will be watching for here.

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