As Things Change, Some Things Will Stay the Same

The votes are counted, and the results are in! Donald Trump will occupy 1600 Pennsylvania Avenue for the next four years.

The GOP will also control both houses of Congress. 

Much will change in the next four years. But it’s also important to consider the things that will almost certainly stay the same. 

The Times Are Changing!

The markets were giddy with the Trump victory, embracing a “risk on” mentality. Stocks soared to new records. The Dow was up 1,508 points, a 3.6 percent gain. The S&P 500 and the NASDAQ charted similar gains.

Meanwhile, the safe-haven trade in gold unwound, with the yellow metal dropping by as much as 3 percent during the day.

The dollar charted a four-month high, and bond yields rose, creating additional headwinds for gold and silver.

All of this would seem to indicate rather bullish sentiment toward a Trump presidency.

The optimism isn’t unreasonable. Trump will almost certainly ease some of the regulatory burden on businesses. He is also more likely to cut taxes as opposed to raising them as promised by the Democrats.

Many analysts pointed to the specter of an “America First” policy with higher tariffs as the reason for a much stronger dollar. A more aggressive tariff regime could eventually boost domestic economic output but also introduce more upward price pressures into the economy.

Some Things Will Stay the Same

While a Trump presidency coupled with a Republican-controlled Congress would appear generally bullish for the economy, two significant factors should undercut or at least temper that optimism – and they aren’t likely to change with a Trump administration.

And that’s why I think the rush to sell gold and silver might be a bit premature. 

The first is the ever-growing national debt driven by the fiscal train wreck in Washington, D.C. 

The national debt blew past $35 trillion in July, and it is approaching $36 trillion just four months later. (The debt was $35.9 trillion as of Nov. 5.)

The interest expense on that massive national debt eclipsed $1 trillion for the first time in fiscal 2024. The federal government spent more on interest expense than it did on national defense and Medicare.

If history is any indication, the Trump administration isn’t going to fix the problem. 

In fact, it may get even worse.

Trump and his Republican colleagues were no budget hawks during his first term. The administration added $8.2 trillion to the national debt in four years. The only president who left office with more debt in dollar terms was Barack Obama ($8.3 trillion), and it took him eight years to do it.

Many will rightly point out that Trump was saddled with a pandemic during the last year of his term. Government shutdowns and the ensuing crash in economic output, coupled with massive stimulus programs, exploded the deficit. But the Trump administration was already running massive budget shortfalls before the pandemic. The deficit fell just shy of $1 trillion in fiscal 2019, and it was on track to crack the $1 trillion mark in fiscal 2020 before COVID-19 reared its ugly head. Before this, Obama was the only president to run a deficit of over $1 trillion – four times - all during the Great Recession. Trump was running recession-like deficits when the economy was supposedly “the greatest ever.”

Republicans tend to talk a good game when it comes to cutting spending, but their actions don’t match up with their rhetoric. They may tinker around the edges and cut spending in some departments, but they won’t go after the biggest spending categories – national defense and entitlements. It’s simply not politically expedient to do so. And they can’t do anything about the rising interest expense.

Here's the unpleasant truth – the national debt has expanded under every president since Calvin Coolidge. And Republicans are among some of the biggest debtors. Trump, both Bushes, and Reagan were in the top five debt creators in nominal dollar terms, and Reagan and Bush were in the top five in inflation-adjusted dollars.

We've heard Trump promise both tax and spending cuts. But don't ever forget: cutting taxes is an easy promise to keep. Spending cuts are not. 

No matter how much politicians talk about spending cuts, spending always goes up in absolute terms. Every once in a while, they slow the increase in spending and call it a cut. But in pure dollar terms, more and more money flows out of Washington, D.C., every single year – no matter which party is running the show. Politicians always find new things to spend money on, whether a domestic crisis or a foreign war.

Many analysts think Trump will exacerbate the budget shortfalls with tax cuts. As one analyst put it, “The market anticipates inflationary pressures from potential fiscal spending and tax cuts, which Republicans could advance in a Congress under their control … and a Republican sweep may bring economic growth policies that drive bond yields higher and elevate inflation concerns.”

That means more deficits and more debt. 

This will likely increase inflationary pressure. At some point, the Federal Reserve will have to intervene with quantitative easing (QE) in order to prop up the sagging bond market. The demand for U.S. debt is waning, and America’s fiscal irresponsibility will only exacerbate that problem.

We were already seeing trouble in the bond market before the election, with yields rising despite the recent Federal Reserve rate cuts. (And rising yields mean even higher interest expenses for Uncle Sam.)

The debt isn’t the only problem a Trump administration can’t or won’t address.

We’re due for an economic crash.

Why?

Because we still haven’t reckoned with the underlying wreckage in the economy caused by more than a decade of monetary malfeasance.

The Federal Reserve slashed interest rates to zero in the wake of the 2008 financial crisis and left them there for nearly 10 years. The central bank injected nearly $4 trillion into the economy through QE. When the Fed tried to unwind this unprecedented monetary policy, the economy got shaky, and the stock market crashed (in the fall of 2018.) By 2019, the central bank was cutting interest rates and running QE. This was before the onset of the pandemic policies.

When COVID-19 showed up, the Fed doubled down on the loose monetary policy of the recession years. It slashed rates to zero again and added another $5 trillion to the economy. 

As the pandemic wound down, the inevitable happened – the monetary inflation of the past decade-plus manifested in price inflation. This forced the Fed to raise interest rates and shrink its balance sheet. 

But the Fed never did enough to slay the inflation dragon. Now, it has surrendered to inflation with a supersized rate cut, and it’s in the process of creating more inflation.

Most mainstream analysts think the economy is going to glide into a soft landing. They think the aggressive Fed tightening took down inflation without breaking the economy. But the economy was broken long before the Fed started raising rates. The central bank broke things starting with its unprecedented monetary policy during the Great Recession and then doubled down during the pandemic. All of that easy money (inflation, by definition) is still sloshing around out there, and it has caused all kinds of malinvestments and economic distortions that we have yet to reckon with.

We felt tremors when the Federal Reserve started raising rates, precipitating a banking crisis. The Fed managed to paper over it with a bailout, but the fundamental problems remain.

People are cocky because nothing has happened yet. But these things tend to play out slowly. The Fed was already cutting interest rates in 2007, long before the financial crisis. And everybody was insisting everything was fine.

It wasn’t then.

It’s not now.

And there isn’t a thing that the Trump administration can do about it.

The consequences of this monetary malfeasance will manifest. It’s just a matter of when.

When that happens, you can expect more massive stimulus spending, more quantitative easing, and more artificially low interest rates.

All of that equals more inflation and a further devaluation of the dollar.

 So, you might want to pause before you hit the sell button on your precious metals.

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