Now that the results of the US election are in and we are seeing the new Trump Administration start to take shape, we can try to assess where things may be headed. If you frame the political battle as nationalists/populists vs. internationalists/globalists as I do, of course the nationalist populist view prevailed in this election. I believe this is the more accurate way to analyze the two competing power factions rather based on one political party vs. another political party. Although, it is true that at this point the nationalist populist agenda is supported by a solid majority of the Trump led Republican party and the internationalist globalist agenda is supported by the now much more progressive based Democrat party.
With that as our basis for analysis, what might we expect to unfold that could impact the monetary system during this new Trump Administration? The easiest way to look at this is probably just in a Q&A format.
The Trump/nationalist/populist agenda calls for dismantling the so called "deep state" or "draining the swamp" as some like to say. What can we expect to happen related to that agenda?
Based on what I see so far, it appears President elect Trump is determined to surround himself with people loyal to him personally and his "America First" agenda. In Trump's first term, we heard a lot rhetoric and hyperbole about "draining the swamp" and "dismantling the deep state". The reality was quite different.
Trump spent most of his first term on the defensive and having to overcome many of his own appointees not seriously pursuing his stated agenda or even turning against him. So, we should expect that this will continue until proven otherwise. Those who oppose Trump's agenda are likely going to do everything they can to prevent him from moving it forward. I'd expect him to win some battles and lose some battles, but the basic power structure to remain mostly in place (not dismantled). We can expect a Trump Administration to tout any reduction in "deep state" power as being game changing. But will it really be? We probably won't know until six to nine months into his term. I'd expect more of ongoing stalemate until we see proof otherwise. We'll see what happens.
Will a Trump Administration seriously challenge the monetary and financial system status quo?
If you follow some of the strongest core Trump supporters, you will hear them talking about things like ending the Federal Reserve or the US bringing back a monetary system more based on "sound money". However, based upon what Trump and his first round of new appointees are saying, nothing like that appears to be on the agenda.
What we hear being said is that the plan is to support the current US fiat dollar based system by creating enough growth to just continue to sustain rolling over the massive US debt at least another four years. In other words, just more of the status quo with some fringe reductions to spending here and there in some government programs. In a recent Fox Business article , the nominee for Secretary of the Treasury (Scott Bessent) stated the economic plan is 3-3-3 meaning 3% GDP growth, a reduction of annual deficit to 3% of GDP, and a 3 million barrel a day growth in US oil production.
So this is just the "we can grow our way out of the problem" approach under the current system and not any kind of major system overhaul. On top of that he stated that this Administration won't be able to deal with the largest areas of government spending (entitlements) at all and will just have to leave that up to the next Administration. This hardly sounds like any kind of revolutionary upheaval to the present system. It sounds like the plan is to grow enough to keep rolling over the debt another 4 years and then it will be someone else's problem. Until proven otherwise, we should not expect major monetary system changes. Here is the relevant quote from the article above.
"These entitlements are massive. I think the next four years isn't the time to deal with them, that we've got to deal with the discretionary portion of the budget and get that under control. But I think the signal – I always say, crawl, walk, run – we've got to crawl, maybe walk our way to get the current deficits under control, then the next step is for a future administration to have the confidence to be able to deal with entitlements," Bessent said. (article is on Fox Business and may not be accessible from the link above).
Will Congress work with the Trump Administration to make major systemic changes either in government or to the US financial system?
Early indications are that the new Congress will probably pass some of the "easy" things the Trump Administration wants like extension of the previous tax cuts enacted in 2017 and child care tax credit increases, etc. Both the House and the Senate are creating committees said to be ready to work with the unofficial D.O.G.E. led by Elon Musk to make substantial spending cuts (in the trillions according to Musk). So, we just need to watch and see where this goes. Things like this have been talked about for years, but nothing major ever really happens. Will this time be different? We'll just have to see.
We already have the incoming Secretary of the Treasury saying the biggest area of spending (entitlements) is off the table (see above). We can expect all kinds of efforts by Administration opponents to block any kind of really significant government spending cuts. In the past, these simply never happen after a lot of rhetoric and hyperbole about it from the Republican party. The Senate has already positioned the more "anti Trump" Republican Senators in some of the key spots that determine what goes on in the Senate.
Musk has zero authority to actually cut anything, so he will be fully dependent upon Congress (including the Senate) for that. Will anything major really happen or will this end up just being a big PR campaign where any minor cuts will be proclaimed as a major overhaul to the system? Until proven otherwise, history tells us we won't see any real meaningful permanent changes to the system. Politicians love to tout relatively minor achievements (in the big picture of the longer term) as something "historic in nature". In reality, many things they do are quickly reversed once they leave office. But the one constant is the Administrative State which stays in place permanently while politicians come and go.
We'll see if it is "different this time".
Bottom line: The first Trump term was mostly a lot of bark and very little bite in terms of any major changes to the existing system and power structure. Will this second term be different? HIstory says probably not, but we'll see what happens.
Added note 12-1-2024: Trump Issues Tariff Threat to Protect US Dollar and here is Jim Rickards reaction to this threat.
