Trump Vs Harris – Does it matter? 2.0

The previous 1 part of the article can be accessed here Part 1 This is the second part

I understand this article is not going to go down well with supporters of both Republican and Democrat candidates – almost equally. Perhaps a rarity given the charged atmosphere in which the elections were conducted. Read on.

What is at stake?

The recently concluded elections have been billed as the most crucial ones for the future of the US. As I explained in the article Trump Vs. Harris—Does it Matter v1.0 dated September 15th, this is THE MOST important election for the future of the US, yet at the same time, one of the more inconsequential elections from the perspective of the options in front of the US electorate. As I explained, what is at stake is the US financial bankruptcy and the consequent collapse in the purchasing power of the US Dollar. We are possibly just a few years away from that event, yet this was nowhere on the radar of discussions—both in the primaries and final debates.

There is a remarkable consensus between both parties on the major economic issues I outline below, and hence, the choice between Trump and Harris is really immaterial.

• The Role of the Federal Reserve: For the last several decades, the Federal Reserve has consistently maintained a loose monetary policy, fomenting bubbles one after the other—NASDAQ 2000, the Housing Bubble of 2008, and the current Stocks-Bonds-Housing Bubble. When these bubbles burst, the Federal Reserve, instead of allowing the bust to run its course to clear the artificial boom’s malinvestments, again relied upon monetary inflation to prolong the same. So we end up replacing one bubble with another bigger bubble.
• The Ideal Solution on the Issue of the Federal Reserve. It’s an easy answer once people understand the monetary history and how the US Dollar replaced gold as the Reserve Asset in a very surreptitious manner. Some of the books that explain this would be “End the Fed” by Dr.Ron Paul and “What has Government done to our Money” by Murray Rothbard. There are 4 possible alternatives that I list below, starting with the most desirable one.
  • Option 1—Abolish the Federal Reserve: The Classical Gold Standard (1815-1913): This was the monetary system that prevailed before 1913. Gold and the US Dollar were fixed convertible at $20/oz. Commercial banks were free to issue their currencies, which were convertible to Gold at a fixed exchange rate across the counter. So, currencies just represented a fixed weight of gold bullion.
  • Option 2—The Quasi-Gold Standard (1917-1933): This was the monetary system in which gold was held at the Federal Reserve (ironically, for reasons of “safety and security”), but other features remained the same. This feature enabled a great expansion of the Money Supply using the Fractional Reserve Banking system during WWI. Post-1919, this growth stabilized at the prior levels.
  • Option 3 – Gold Exchange Standard (1933-1971): This system was formalized during the Bretton Woods conference, and currency convertibility to bullion was permitted between the central banks. In some sense, this enabled coordinated monetary inflation, though local constraints did not allow an indefinite continuation of this form of inflation.
  • Option 4—Market-Determined Interest Rates: If a return to the gold standard is not politically palatable, the least ought to be to have a system of market-determined interest rates instead of the Federal Reserve determining them. This would put an end to deficit monetization and force the US federal government to balance its budgets.

Quite obviously, I don’t think any of the four options would be under remote consideration by either of the parties. So, the choice of the winner really doesn’t matter as far as the singularly most crucial aspect of the US Economy, i.e., maintaining the stability of the US Dollar. If anything, Trump would prefer an even more aggressive loosening of the Federal Reserve’s monetary policy.

• The Ballooning of the National Debt: Again, there has been a bipartisan consensus that allows the National debt to be increased without constraints. Since 1960, the debt ceiling has been increased 78 times – 49 times under Republican Presidents and 29 times under Democratic Presidents. Trump holds the infamous honor of increasing the National Debt the most for a single-term President by nearly $7.37 trillion. Truly the “King of Debt”. I have little doubt that he will beat his first-term record by a wide margin this time.
  The Ideal Solution on the Issue of National Debt: Ironically, the ideal solution was proposed by Trump himself. In an interview during March 2016, Trump promised to pay down the debt over the subsequent eight years. Of course, the final numbers indicate what really happened in his first tenure.
  As Thomas Jefferson stated, “I wish it were possible to obtain a single amendment to our constitution; I would be willing to depend on that alone for the reduction of the administration of our government to the genuine principles of its constitution; I mean an additional article taking from the federal government the power of borrowing.”
  Removing the federal government’s power to borrow would be the ideal solution, but of course, that is not even within the realm of possibilities in the current duopoly political system operating in the US.
• The Growth of the US Government as a % of the Economy: This is another truly bipartisan problem i.e. the progression of the Fed’s outlay as a % of the GDP. This was around 2% before WWI and has stayed above 20% since the GFC in 2008. Even at the peak of the GFC crisis, this was less than 25%, while under Trump, it crossed 30% as part of the COVID-19 management. There are no indications that this term under Trump would be any different – either compared to his first term or the previous Democratic administration.
  The Ideal Solution on Government Outlays: Trump has incidentally promised that he will replace the Income Tax with tariffs, and this was indeed the case before 1913. In fact, the Income tax was introduced so that only the rich would be taxed instead of tariffs on imports paid by everybody. The important distinction is that the federal outlays at that point were just 2% compared to 22% today. What is required is a reversion to the single-digit %’s that was the case till the start of WW II. Otherwise, Trump’s plan of replacing Income Tax with tariffs would be a non-starter.

Needless to add, a reduction even below 20% is out of the question under Trump 2.0. In fact, when the current stocks-bonds-housing bubble bursts, we should not be surprised to see this number exceed 35% or even the WW-II high of 40%. .

• Wars: For all the discussions and claims of “No New Wars” made by Trump in his first term, the military budget – both in absolute terms and as a % of the GDP – increased in Trump’s first term. During Biden’s term, though the absolute numbers have continued to escalate, as a % of the GDP, there has indeed been a marginal decline. Though I would treat it as a rounding-off error, especially given that many military expenditures are not part of the official defence outlays.
  The Ideal Solution on Wars: To quote Thomas Jefferson again “Peace, commerce and honest friendship with all nations – entangling alliances with none”. Notwithstanding what has been written above, Trump is marginally better than almost all recent US Presidents on the issue of Wars. But at best, it’s a difference between a grade “C” and a “C Minus”. Trump’s position is nowhere close to the ideal Jefferson’s indicated stance.

Summarising, Trump’s position on the 4 key issues listed above is not philosophically and meaningfully different from the Democratic positions. Sure, there are plenty of differences, as one can make out on most Television channels – either the Messiah has been crowned who will deliver the land of milk and honey OR a fascist dictator has been elected who will push the US into the dark ages.

An objective evaluation would indicate that both the above inferences are incorrect. The US Economy and the US Dollar are inching toward a steep precipice, and Trump’s policies on these critical issues continue to be the same as Biden’s for all practical purposes.

Note:
1. Text in Blue points to additional data on the topic.
2. The views expressed here are those of the author and do not necessarily represent or reflect the views of PGurus.

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