Well, the election season has come and gone. Donald J. Trump will be the next US President.
Since that became clear late on election night, US financial markets have done quite well. That would seem to put the kibosh on skeptics — including yours truly. To recap, my concerns are about the potential impact of a Trump administration’s trade, immigration, and economic policies, and the effect they could have on dollar-denominated wealth.
I still believe that those effects could be much bigger than anyone realizes… and that now more than ever, prudent steps to diversify your wealth internationally are critical.
How To Move Out of the U.S.
How To Move Out of the U.S.
The policy implications of the last election impacted your retirement funds, taxes, healthcare, and more. But you can protect yourself, your family, your future. In lots of safe, warm, friendly spots abroad, you can live comfortably on a budget from $2,000-$3,800 a month (all-in—housing and extras included). We’ll show you how—and where—to go.
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In my defense, obviously it's early days. Mr. Trump is not yet in office, and the Biden administration's policies are still in effect. Things might turn out to be perfectly fine… although there are some frankly alarming indications that they might not be.
The biggest shocker comes in the realm of foreign policy. Trump campaigned on an isolationist platform, promising to focus on America's internal issues, and to disengage from foreign adventures. But in recent days, he has made some remarkable comments about his foreign policy plans. He sees Canada as a potential 51st state. He wants to buy Greenland, even though it’s not for sale. And of most immediate concern here at International Living, he wants to recover the Panama Canal, by force if necessary.
On top of that, Trump's number one consigliere, Elon Musk, has aggressively intervened in European politics, infuriating the governments of England, France, Germany, and several other countries.
The impact of these words is already being felt. Half a dozen countries, including some of America's closest allies on two continents, are already furious with the US, to the point where they've jettisoned diplomatic language altogether. One Canadian politician quipped that his country could do a deal with the US, taking Alaska and Maine in exchange for certain concessions to Washington. The leaders of Germany and Britain have used exceptionally harsh language about the incoming administration.
Most people shrug and say that wild claims and threats are part of the president-elect’s style. It's part of his salesman personality, what he likes to call “truthful hyperbole.” And my fellow South African Musk is well-known for his trolling style. They assume that in the end, saner heads in cabinet and the bureaucracy will handle negotiations with these countries, and all this bluster will be forgotten.
Perhaps. But remember that politicians are human beings. They get angry just like anyone else. And especially when foreigners threaten their countries, leaders have an incentive to be seen to respond in kind. What are some of the things they could do… and what could that mean for your wealth if it’s tied up in the US and the US dollar?
They could refuse to coordinate with the US government and the Federal Reserve on international monetary matters. They could do anything from refusing to buy Treasury bonds to deliberately weakening their currencies to undercut the US economy.
They could slap retaliatory tariffs, even trade sanctions, on the US if they thought Trump was serious about his foreign policy threats. That would cause economic havoc in the US. It could also have significant implications for the freedom of travel for US passport holders.
More broadly, the US government's ability to influence other countries to support its positions in important international fora like the World Trade Organization, the International Monetary Fund, and the World Bank, would diminish considerably. That could make it tough for the US to maintain a favorable international trading system come up again with serious implications for the US economy.
Look, I’m not raising these issues for political reasons. I’m an old-fashioned economist and economic historian, and I’ve seen this pattern before. It typically doesn’t end well.
An American economist named Hiram Minsky developed what he called the Financial Instability Hypothesis. Essentially what it said is that when people feel really confident about the economy, they overdo things, borrowing too much, speculating, and generally assuming that good times will continue forever. By doing that, they guarantee that good times will end, because financial excess always leads to a crash. Economists now call the time when everything turns south the “Minsky Moment.”
The incoming Trump administration is supremely self confident. The president-elect and his supporters believe they’ve been vindicated, that they have a massive mandate to pursue whatever they feel is right to make America great again. I can’t think of any other reason why a president-elect would threaten our closest neighbors and allies as he has.
Could we be heading for a political Minsky moment? Quite possibly.
The only way to protect yourself from that is to move some of your assets out of the US economy and out of the US dollar. If that’s something you’d like to pursue further, drop me a line, and let’s talk.
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