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Source: CNN.com
Forget about unemployment rates and a sky-high inflation being the worst nightmares of the Federal Reserve. As presidential candidate Donald Trump seems to be gaining momentum again after the FBI re-opened a case involving old emails from Hillary Clinton, staffers at the Fed are starting to get nervous again as it’s now not so unlikely anymore to see President Trump next week.
Source: culturalmarxism.net
Without going into specifics of the elections and election-related ‘activities’ and ‘mud-throwing campaigns’, the Federal Reserve will want to avoid Trump being elected at any cost. Not only did Trump accuse the Federal Reserve to have a political agenda because it didn’t raise the interest rates (yet), the danger could be far greater.
After all, Trump seems to be holding some sort of grudge against the Federal Reserve and doesn’t trust anything which comes out of it (understandably so, and he’s definitely not the only American citizen who’s wary of the Federal Reserve and its decision-making policy). And he has a point. The most important critical remark he’s making is the fact the interest rates are still extremely low (which is the basic truth), causing the stock market to create a bubble.
A bubble that might pop once the interest rates are indeed increased, and surprise surprise, the market expectations are now aimed at a rate hike in December, the very first month after the presidential elections which lends credibility to the point the Federal Reserve is keeping the interest rates artificially low to let the current president leave office with the economy in ‘good standing’.
Is he wrong? No. Low interest rates indeed give an economy more ‘oxygen’, but the prerequisite for a successful ‘re-vamp’ of a country’s economy is the need for the cash to be well-spent. And we’re sorry but borrowing cash to buy back stock and pay special dividends is NOT a good way to spend the additional cash which would have been much more useful if it would have been invested in the business itself. As the Q3 results are still rolling in, we don’t have data for the third quarter just yet, but there’s a noticeable slowdown in the second quarter of this year, as the share repurchase rate fell to the lowest level in more than three years.
Source: Factset
We expect the repurchase rate to have continued to be slowed down in the third quarter upon renewed Brexit-fears sparking doubts about the world economy, whilst the main indices are supported by just a few companies. After all, less than 20 companies of the S&P index have been able to make 52 week highs lately.
But outside of the corporate sector, the new president will also have to deal with derailing public finances.
Source: forexnewsnow.com
According to the US Debt Clock, the current national debt is 19.81 Trillion (in excess of 5 trillion has been added since the previous chart, which basically means Obama's presidency allowed the government debt to DOUBLE). So for every 0.5% increase in the interest rate on government bonds, the federal reserve will have to pay an additional 100 billion dollar per year in interest expenses. Whoever gets elected, either Trump or Clinton, will have to deal with this serious issue as a (much) higher interest rate will push the USA on the verge of a semi-bankruptcy. As the Net Debt/GDP ratio is already approaching PIGS-levels, the United States no longer is the economic superpower it used to be, and still thinks it is.
And oh, wanna bet Trump would also want to audit the gold inventory levels? A victory for Trump would cause a lot of headaches at the Federal Reserve, that’s for sure.
[ Read our 'Guide to Gold', and be prepared for the turmoil ]
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