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Exploding Deficits — A Major Component of Donald Trump’s Re-election Strategy

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Exploding Deficits — A Major Component of Donald Trump’s Re-election Strategy

Author: Greg Valliere

July 23, 2019

IT’S ALL PART OF THE PLAN: The Budget Control Act is on life support, spending is about to explode, entitlements are a problem for the next decade, and deficits will far exceed $1 trillion annually for years to come — all part of President Trump’s strategy to turbo-charge U.S. economic policy ahead of the next election.

THIS ISN’T A RANT ABOUT DEFICITS: A dwindling band of scolds has been warning that disaster looms if red ink continues to soar, but no one cares because the impact of deficits has been modest. The public is enjoying easy financing, with the Treasury ten year bond yield just over 2%, and the politicians agreed yesterday to spend with abandon. The real beneficiary is Trump.

AS WE WROTE ON JULY 10, Trump will leave no stone unturned in his drive to goose the economy ahead of the 2020 election. He’s looking like a Keynesian (or a Modern Monetary Theory proponent) as he agrees to enormous new spending, confirming that neither he nor Larry Kudlow ever cared about deficits. In private, they dismiss concern about red ink — and why not? There’s an insatiable demand for Treasuries.

RISING DEFICITS ARE JUST PART OF THE PLAN: Trump also wants super-stimulative monetary policy, so he must have been pleased yesterday to hear Judy Shelton, in line to join the Fed, call for a 50 basis point cut in the federal funds rate. In fact, she told The Washington Post that she would have slashed rates by that amount at the previous meeting, when the FOMC stood pat.

IF THE FED DOESN’T COOPERATE with more stimulus, Trump will probably seek Jerome Powell’s ouster. We’re on record as predicting Powell’s demotion to a mere governor this winter, because there’s no way Powell will ever satisfy Trump, who wants interest rates at European levels.

STILL ANOTHER TRUMP GOAL ahead of the election is a weaker dollar, which he believes will reduce the U.S. trade deficit. Could Steve Mnuchin, an architect of the spending splurge, be persuaded to intervene in currency markets? Anything’s possible in this administration.

ALSO POSSIBLE NEXT YEAR: Calls by Trump for still another tax cut. If the economy looks soggy this winter — despite the spending binge and low interest rates — we think Trump will call for a middle class tax cut. Passage in the House is unlikely, but tax cuts are like catnip in an election year; all he has to do is promise one and then blame Democrats for favoring higher taxes.

TRUMP CONTROLS THE NEWS CYCLE: He could advocate for a tax cut or Powell’s dismissal daily in 2020 because the cable networks — even CNN — are now giving him unlimited exposure as he banters daily with the press. Trump has become his own press secretary, and undoubtedly will control the spin on the China trade war, either hanging tough or, more likely, agreeing to a deal when he most needs one, at some time this winter.

ANOTHER MAJOR TRANSFORMATION: The GOP no longer is the party of geopolitical intervention. Trump is an isolationist, opposed to nation building and foreign adventures — still another stance that should help his re-election campaign. His blue collar base has borne a disproportionate cost in endless Mideast wars, as Trump knows.

BOTTOM LINE: Trump will do anything to get the economy growing by 3% or more ahead of the campaign; it’s almost as if he’s begging for a whiff of inflation. (so is the Fed, ironically). Could there be a hangover in the next decade? Probably, but no one seems to care — the deficit scolds have been routed.


The views expressed in this blog are those of the author and do not necessarily represent the opinions of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies.

The views expressed in this blog are provided as a general source of information based on information available as of the date of publication and should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities. Speculation or stated believes about future events, such as market or economic conditions, company or security performance, or other projections represent the beliefs of the author and do not necessarily represent the view of AGF, its subsidiaries or any of its affiliated companies, funds or investment strategies. Every effort has been made to ensure accuracy in these commentaries at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and AGF accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. Any financial projections are based on the opinions of the author and should not be considered as a forecast. The forward looking statements and opinions may be affected by changing economic circumstances and are subject to a number of uncertainties that may cause actual results to differ materially from those contemplated in the forward looking statements. The information contained in this commentary is designed to provide you with general information related to the political and economic environment in the United States. It is not intended to be comprehensive investment advice applicable to the circumstances of the individual.

AGF Investments is a group of wholly owned subsidiaries of AGF Management Limited, a Canadian reporting issuer. The subsidiaries included in AGF Investments are AGF Investments Inc. (AGFI), AGF Investments America Inc. (AGFA), AGF Investments LLC (AGFUS) and AGF International Advisors Company Limited (AGFIA). AGFA and AGFUS are registered advisors in the U.S. AGFI is a registered as a portfolio manager across Canadian securities commissions. AGFIA is regulated by the Central Bank of Ireland and registered with the Australian Securities & Investments Commission. The subsidiaries that form AGF Investments manage a variety of mandates comprised of equity, fixed income and balanced assets.

About AGF Management Limited

Founded in 1957, AGF Management Limited (AGF) is an independent and globally diverse asset management firm. AGF brings a disciplined approach to delivering excellence in investment management through its fundamental, quantitative, alternative and high-net-worth businesses focused on providing an exceptional client experience. AGF’s suite of investment solutions extends globally to a wide range of clients, from financial advisors and individual investors to institutional investors including pension plans, corporate plans, sovereign wealth funds and endowments and foundations.

For further information, please visit AGF.com.

©2022 AGF Management Limited. All rights reserved.

Written by

Greg Valliere

Greg Valliere

Chief U.S. Policy Strategist

AGF Investments

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