So it's less than a week away. I mean the big election, of course. The day when registered U.S. voters, those who actually show up to vote, that is, will choose the leader of the so-called free world, of which I am a citizen, but have no vote. And, oh, by the way, the choice won't actually be made by the U.S. voters either, but by the ones they choose to represent them in the Electoral College.
Well, anyway, considering the recent polls, I'm getting nervous. And I have started to fathom what a Trump presidency might mean. I find it scary. A lot of people talk about an end to free trade. They are probably right. At least, he'll probably waste no time in closing the borders to Chinese goods.
However, as important as this is, it's not my only concern. I'm just as concerned, or more so, about the independence and performance of the Federal Reserve. If Trump is elected he'll most certainly not reappoint Janet Yellen for a second term two years from now. In fact, he would most likely ask her to resign right away. Then he'd appoint someone who shares his ideas about monetary policy. I'm not quite sure what that is, but I fear that he'll appoint someone who wants to return to the gold standard. And, of course, a halt to the stimulation of recent years, which Trump calls Democratic politics. Interestingly, he also claims that the Democrats have been kissing up to Wall Street. I don't know what he wants to do in that regard. But I fear that if a new crisis should arrive--and he could very well set one off--he would not lift a finger to keep the systemically important institutions afloat. The result would not be pretty. Not at all. We could see a rerun of the 1930s.
Of course, I don't know this for sure. However, the problem with Trump is that he's completely unpredictable and apparently acts from an urge to get back at his opponents. This predictability is a real threat to global stability, economic as well as political.
One of the things he has threatened is to renege on the U.S. government's commitments to service and repay its sovereign debt. A U.S. default would be really scary. I do hope someone can explain to him the pivotal worldwide role played by U.S. Treasuries as the universally accepted collateral for all sorts of debt and obligations.
Most of all, though, I cling to the hope that Hillary's "firewall" will hold. However, Trump is not the only new force threatening to upend the world economic order that we all have gotten oh-so-used to. Brexit is another one. Although I do sympathise with those who had voted for it out of disappointment with the EU and the globalised economy, I see a big risk that it will spell the beginning of the end of the interconnected world of globalisation that we've gotten used to. The remaining EU member states are still reeling from the refugee crisis; and the Middle East is a terrible mess.
That may serve Russia's and China's political interests. But at the same time I'm worried about the Chinese economy. Growth keeps holding up between 6.5% and 7%, but only because of a steadily growing bubble of real estate, credit an zombie companies. It may burst. The effects would spill over into the global economy.
That is the kind of situation where we would need the institutions we have learned to rely on. The leading central banks, first of all. But their hands are tied even if Clinton wins the election. At today's interest levels, big rate cuts are out of the question all over the advanced world. What we still call unconventional policies have become the new norm. Perhaps we should not call it conventional. It is not without effects, but the effects are pretty weak. Then we are used to relying on the IMF. But there the Chinese are wielding greater power, which they probably want to use in their own political interest rather than that of the world as a whole. And if Trump is elected U.S. president, the IMF will turn into a big battle ground.
Fiscal policy, then? Give me a break. In Frau Merkel's eyes it's the original sin (as the daughter of a Lutheran pastor, she should know). And her Republican counterparts in the U.S. agree with her. Here, I'm not talking about the Trump people--Trump might actually be willing to do some good in this regard. But if the mainstream Republicans retain their control of the House of Representatives, as seems extremely likely, the only change possible in U.S. fiscal policy is tax cuts for the rich.
So, I'm hoping for miracle. Actually, I'd like to pretend that all this isn't happening and go soundly to sleep. Then you could wake me on Wednesday morning and tell me it was all a bad dream.
Is it? I sure hope so.