In the broadest terms, it seems to me that the overall effect of Trump’s economic strategy will be to decrease economic growth and increase inflation. (“Strategy” might not be the right word for the efforts of a brilliant self-marketer who doesn’t have much career evidence that he can run a successful business, He has, however, shown an incredible knack for offloading losses onto third parties–think Trump University, the Atlantic City casinos, his pandemic denial).

If so, two issues arise:

–about a third of Federal debt matures in less than 12 months. If that remains the case, interest expense on existing debt will rise rapidly as Trump puts his plan in place. Renewing tax cuts for the wealthy, which is also Trump’s apparent plan, would make the situation worse. Presumably, buyers of Treasuries will demand higher interest rates to offset the increasing risk of holding US debt. This implies losses for current holders of long-term bonds, as well as higher overall interest expense for the federal government

–in addition, about a third of existing debt is held by foreigners, who are subject to home-currency losses if the dollar weakens. They also know that during Trump’s first term, the debt/GDP ratio rose from 100% to 125% (it’s about 122% now). Having seen this movie before, they may well sell in the expectation that the debt/GDP ratio will rise again, potentially driving rates higher and the currency lower. We’ve seen this movie before, too, when it produced the Wall Street collapse of 1989. So domestic investors may well be faster to sell, too.

…a move to cryptocurrencies?

more on Monday