Presidential Politics and the Economy

Political season is in full swing with the Iowa caucuses and the New Hampshire primaries behind us. Things have shaped up a little differently than most would have predicted a year ago.

It is a year for the outsiders. The candidates that the establishment likes the least are the ones doing the best. That would include Donald Trump and Bernie Sanders, and Ted Cruz to a lesser degree.

Marco Rubio was looking good after the Iowa caucus results. It looked as though the establishment was going to coalesce around Rubio. But then came the debate just before the voting in New Hampshire.

Do you know what Marco Rubio and Peyton Manning have in common? They both like to repeat rehearsed lines.

After Manning won the Super Bowl, he talked about kissing his wife and drinking some Budweiser. He repeated the same line again just minutes later. But Manning isn’t running for political office.

In the last debate, Rubio was talking about how Obama knows exactly what he is doing to the country. Chris Christie then accused Rubio of memorizing talking points and repeating himself. Rubio responded by repeating himself. This had to have been one of the greatest blunders in any presidential debate. It makes Rick Perry look smart.

Christie didn’t do himself any favors, as he has now dropped out of the race. But he did take down Rubio, doing Trump and Cruz a big favor. The establishment doesn’t like either, but they prefer Cruz. They don’t think they can control Trump.

The more candidates that remain in the race, the bigger an advantage it is for Donald Trump. If it were down to two or three people, then the anti-Trump crowd would coalesce around one particular person. Instead, you have Rubio, Bush, and Kasich, and maybe even Cruz, all splitting votes and support from the establishment and the big money.

The reason Trump and Bernie Sanders have done surprisingly well is because they have tapped into the discontent of America. The American middle class in particular is struggling, and these two candidates are the ones who acknowledge it. They may not have the right answers (particularly Sanders and his ideas of redistribution), but at least they are identifying that there is a problem. Many people are fed up with the typical politics.

Look Out, Hillary!

Hillary Clinton is unquestionably the establishment favorite on the Democratic side. The insiders for both parties were probably hoping for a Bush/Clinton matchup. Where have we seen that before?

Instead, they are starting to wonder if they will have a Trump/Sanders matchup.

I don’t think Sanders is likely to get the nomination, but we can’t rule anything out in this election season. Either way, it sure has to be scaring Hillary Clinton.

Clinton has a triple threat against her right now. Sanders is one of them, but probably the least threatening at this point.

Her second threat is the FBI’s investigation of her no-longer-secret emails. When someone gets indicted on federal charges regarding national security, it tends to put a damper on a campaign. We don’t know if Obama would let an indictment go through, but you can never be sure. There has been a rocky relationship in the past between the Obamas and Clintons.

If Clinton somehow gets by the FBI and Bernie Sanders and gets the Democratic nomination, she may have a third threat to deal with: a possible recession.

The way the stock market has behaved over the last six weeks, the economy is not looking upbeat. If we have a full-blown recession before November, this will really hurt Clinton. She is the successor to Obama, whether she likes it or not. She would be seen as a continuation of Obama.

If Sanders somehow gets the nomination, I don’t think he will face the same problem. He is seen as an outsider. It is hard to believe, but he is seen as far to the left of Obama. Therefore, we could hit a recession and it may not hurt Sanders that much.

Still, consider that the economy may ultimately determine the presidential election.

Will the President Impact the Economy?

While the economy will likely impact the presidential race, the presidential race probably won’t impact the economy, or at least not as much as people believe.

This tends to bug Democrats and Republicans alike, but the president just doesn’t have that much of an impact on the economy.

Some people are scared of a Sanders presidency because he calls himself a socialist. He isn’t a socialist in the sense of wanting the government to own everything. He does believe in heavy redistribution.

Consider, though, that the Republicans will likely maintain a majority in Congress. If Sanders is president, it would be mostly business as usual. He would not be able to get any new major program through Congress. The massive spending and massive deficits would continue, but that will be the case with any of them.

This may come as a shock, but the federal budget is mostly set already. It is just tinkering around the edges.

If you add up military spending, Social Security, Medicare, Medicaid, and interest on the national debt, that makes up over 80% of the total federal budget. I haven’t heard any of the candidates speak seriously (if at all) about cutting any of these things.

Even Sanders probably wouldn’t cut military spending by much. He can say what he wants, but he is also subject to the lobbyists and cronyism in Washington, D.C. and has relented to them in the past as a senator. He supported the incredibly expensive F-35 fighter jet project, likely because of the business it would bring to his home state of Vermont.

That leaves less than 20% of the federal budget to tinker with. Even if everything else were completely eliminated, it still might not be enough to balance the federal budget. But we haven’t heard one candidate talk seriously about eliminating the Department of Education, the Department of Transportation, the Department of Agriculture, the FDA, the EPA, or anything else. The Republicans aren’t even capable of cutting off funding to Planned Parenthood, which is a drop in the bucket in terms of the entire federal budget.

In other words, the budget is basically set over the next several years and beyond, unless there really is some kind of revolution. The budget will only be cut when it is forced upon Congress. It won’t be forced on them by the people but by the lack of funds and a spiraling debt with higher interest rates.

In terms of taxation, it probably won’t change much. The people really will revolt if there is any attempt to significantly raise taxes, particularly on the middle class.

Therefore, while the presidential race can be entertaining, I would caution anyone against get their hopes high that anything significant will change depending on who gets elected.

The Most Powerful Woman

The president does have power in terms of foreign policy, but even here it is more likely the advisors and other insiders who determine the actions of the president. In terms of economics, the president can matter, but not nearly as much as people think.

If Hillary Clinton gets past all of her troubles and becomes president, she will not be the most powerful woman in the world in terms of controlling the economy. That honor already lies with Janet Yellen, who chairs the Federal Reserve.

It is the policies of the Fed that impact the economy to a much greater degree than anything any president does. The Fed manipulates interest rates and controls the money supply, which means everything in our economy. The Fed gives us the artificial booms and bubbles, as well as the busts that eventually follow.

If you are worried about your economic well being, you should be paying more attention to the Fed than whether Hillary Clinton or Bernie Sanders may be the next president. Admittedly, it is more fun to watch the political games than to watch Janet Yellen give a press conference.

I recommend that people not make any investment decisions based on who they think will be the next occupant of the White House. Historically, it doesn’t matter that much which party is in the presidency.

Obama just submitted a gargantuan $4.1 trillion budget proposal. We can be sure that the Republicans won’t fight the overall amount too much. There will be some fighting over some of the little details.

The next president is going to face an ever-growing debt. If we hit another recession, the deficits are going to balloon again. We will be looking at trillion-dollar deficits again.

The big question will be whether Janet Yellen and company decide to buy more government debt to help fund the deficits or whether they will tell Congress to figure it out on their own.

We will have to keep a closer eye on Janet Yellen than Hillary Clinton, at least in terms of our money.

Until next time,

Geoffrey Pike for Wealth Daily