Trump Wins Yugely

Voters spoke loud and clear at the polls handing Kamala Harris and the Democrats a stunning defeat. They voted to give Donald Trump a remarkable victory in the electoral college and popular vote. In addition to handing the Republicans control of the White House, they also voted to give the GOP control of the House and Senate for a clean sweep. Trump and the Republicans now have a clear mandate.

Signs of a groundbreaking victory could be seen when former Democratic voters were interviewed after they voted and were asked why they abandoned the Democrats at the polls. There was a common theme in their answers, they said that they were better off during the Trump term than during the Biden-Harris term. It really is the economy, stupid.

Government statistics presented a much different story. Biden and Harris had bragged about the statistics saying that they had done a wonderful job and that the economy was the best ever. But voters were not fooled by the statistics. 

Workers know that they have been losing full-time jobs for a long time and had to take on a couple part-time jobs to make less money. Compounding their economic problems is that every time they bought something, they felt severe pain at the cash register due to the devastating effects of rapid inflation growth over the past couple years.

Nobody asked them what it means to lose a full-time job to take on a couple part-time jobs. To add insult to injury, they were told that the jobs market was strong and there was near full employment. They knew something wasn’t adding up. 

They were right and it comes down to the way the BLS comes out with smoke and mirrors numbers that considers a worker who loses a full-time job with benefits to take on two or more part-time jobs as a job gained. They also saw all the people that came into the country due to Biden and Harris’ open border policies to compete for those part-time jobs. 

So they didn’t buy the Biden-Harris pitch that the jobs market was strong and the economy was at near full employment. Rightfully so, because full employment in a healthy economy means that workers have a well paying full-time job, not two part-time jobs that don’t pay them as much.

Consumers also knew that the inflation was much higher than the government statistics were saying it was. They could feel the pain of insidious inflation every time they had to pay for the stuff they buy in the real world. 

They could see they were being sold a bill of goods when it came to inflation. Government statistics on inflation are smoke and mirrors nonsense due to the way they calculate inflation. The government statistics exclude many key things that consumers have to pay for every day. In the real world, consumers don’t get to exclude things, they have to pay the real inflation.

Between elections, politicians can make up whatever economic numbers they want and trot them out to try to fool voters however they want. On election day, the voters have the say, in this election, they said they were worse off during the Biden-Harris term than during Trump’s first term.

Now that Trump has won in such a convincing way. The Federal Reserve has some explaining to do as they used the same government numbers as Biden and Harris to rationalize their actions concerning interest rates.

Trump has expressed his lack of confidence in Powell and his gang at the Fed. My guess is that as soon as he can, he will replace Powell and many of his associates at the Fed. I would love to be a fly on the wall during the open market committee meeting this week. I’m sure there is going to be panic in the room as they look around wondering when they will be fired.

On Thursday, they will come out with their interest rate policy. It sounded like before the election a quarter-point hike was baked in the cake and a half-point cut was off the table. But, who knows, the Fed people will be walking on eggshells during their meeting.

Trump had to be watching the interviews of what voters were saying after they voted about why they abandoned the Democrats to vote for him and the GOP to have control of all the branches of the government. It was a clear message that they are worse off.

They are having problems with their jobs and dealing with interest rates where they are as the Goldilock economy is a lie, and then face the ravages of their purchasing power due to inflation.

Folks at the Fed say their mandate is full employment and price stability. To manage these issues they use interest rates. But, they use the exact same government statistics on jobs, the economy and inflation to justify their interest rate policy. Voters rebuked those statistics when they kicked the Democrats out of controlling the White House, Senate and House. 

There is a new boss in town and all their jobs at the Fed are on the chopping block. If the jobs market and economy are in trouble as voters clearly said they are at the polls, they can no longer pitch the Goldilocks economy pitch. 

Trump certainly doesn’t want to come into office in January to deal with a serious economic slowdown. Powell and his cronies are going to have to get to work to prevent a hard landing by cutting interest rates. My guess is a half-point cut is back on the table to try to save their jobs and make the new boss a happy guy.

While everybody was focusing on the election, something huge was happening in the bond market. Right after the Fed cut rates by a half-point at their September meeting, the yields on bonds went up. As the poll numbers were coming in, the bonds dropped significantly and yields went up even more.

This is a massive problem for the Fed because buyers are on strike and yields are going against the interest rate policy of the Fed. Before the election, the yields on the bonds were telling Powell that they made a mistake by going into a rate cutting cycle. 

Now Powell and the folks at the Fed have a serious dilemma. When they started the rate cutting cycle, he came out in the press conference and used the fake government statistics to pitch that they beat inflation and there is a Goldilocks economy. 

If everything is just fine, then why did they go with an emergency rate cut of a half-point? Maybe Powell slipped up during the press conference when he let it out that the Fed people know that the BLS numbers on employment were manipulated. He called them artificial and said that members of the open market committee adjust them when making their decision on cutting interest rates.

Whether he meant to or not, he effectively admitted that the jobs market and by extension the economy are not as rosy as the statistics from the BLS and other government economic numbers were portraying. Which is exactly why they started a rate cutting cycle.

If they want to keep going with the rate cutting cycle, which they will be under pressure by Trump and his team to do exactly that, they will have to do something about the yields on the bonds. 

Which means that if they want to keep on the path of a rate cutting cycle, they will have to start being the buyer of last resort to force the yields on the bonds down. To do that, they will have to get back in the QE business and crank up their balance sheet. Then spin that cutting rates and filling up their balance sheet is a good thing during the ‘Goldilocks’ economy.

Another key reason that they have to cut rates, despite inflation being persistent, is the Death Spiral of Debt. The debt has gotten so high, that interest on the debt has become the straw that will break the debt camel’s back. Compounding interest is wonderful when you receive, not so much when you pay it and the compounding interest on the debt is unsustainable.

Of course, to really fix the Death Spiral of Debt, requires slashing spending and increasing taxes, while the Fed needs to cut rates back to near zero and get back in the QE business. 

Trump helped cause the Death Spiral of Debt as he was the biggest spender ever for a one-term president. Will he see the error of his past prolific spending ways, I highly doubt it. More likely is that he will increase it to a new record during the four years of his second term. He won’t increase taxes, he will cut them, which will make the debt crisis worse. 

The Death Spiral of Debt is on a path to only being solved by one of two ways. Either a default on the debt or a return to the Gold Standard. Slashing spending and increasing taxes are political suicide so I don’t see Trump and the GOP taking a chance on causing a revolt amongst those that just gave him a huge win.

He will certainly put pressure on Powell with pink slips in hand to push the Fed into cutting rates more aggressively. I imagine that Trump wants a half-point cut this week and many more of those over several of the Fed meetings.

All the best,

Allan Barry Laboucan