So, what financial position should we take now that Trump won the election, has the Supreme Court leaning right, has most of the Governors, held onto the House, won back the Senate, and won the popular vote? To answer this, I’m going to force myself to look at things in order and then try to boil each one down to a “one-liner.” Here we go.
Who is Trump? Well, as I look at his entire life, I can summarize him this way:
“Trump is a pro-growth businessman who regularly used leverage (debt) throughout his career.”
That’s my first one-liner. Let’s move on.
What is Trump proposing? He correctly believes that we grow the economy by reducing the money bureaucrats siphon out of the productive economy. During his campaign he proposed a long list of tax cuts including extending the Tax Cut and Jobs Act tax cuts, allowing companies to immediately expense capital improvement and R&D expenses, eliminating taxes on tips, exempting firemen, active military personnel, and police officers from paying taxes, eliminating taxes on overtime pay, eliminating taxes on social security benefits, decreasing capital gains tax rates, lowering corporate tax, etc. He doesn’t believe that tariffs are taxes so increasing tariffs doesn’t conflict with cutting taxes in his mind. Therefore, I can summarize what he proposes this way:
“Trump believes in dramatically cutting taxes.”
We’ll hold that one-liner along with the first one-liner for later. Let’s move on.
What will cutting taxes do?
“Cutting taxes will reduce the tax revenues for the government.”
That was an easy one-liner. Let’s move on.
What will less tax revenues mean?
“Less revenues mean that the government will need funding from some other source.”
That was another obvious one-liner. Let’s move on.
Where will the government get that funding?
Our government always spends way more than it takes in (deficit spending). So, it borrows the rest from other countries and pays those countries interest. Countries need U.S. dollars because the world uses dollars as the world’s reserve currency as per an international agreement cemented after WWII (1944 Brenton Woods Conference). The dollar being the world’s reserve currency is a huge advantage to the us. And since everyone trades in dollars and store dollars, they need our dollars. And so selling treasuries is how our government has always made up the deficit between tax revenues and overspending, until recently. Something horrible happened during the Ukraine war. Biden broke those international agreements, kicked Russia off the SWIFT system that allows countries to trade back and forth in dollars, and weaponized the world’s reserve currency by stealing $300 billion of Russia’s reserves, reserves denominated in U.S. dollars. Yes, we all oppose Russia’s invasion of Ukraine, but the U.S. also invades other sovereign nations. Anyway, the rest of the world’s countries naturally got worried when they saw what Biden did. If the U.S. could just steal the reserves of other nations, the U.S. might one day steal their money. They decided to all meet in Russia (BRICKS Summit) last month and work together to trade in their own currencies and de-dollarize. This means much less demand for our dollars and thus less ability for us to borrow from others. Without other countries lending us money, our Federal Reserve is going to have to print all the dollars needed to cover our deficit. And the deficit is huge (about $2 trillion/ year and growing). This means that our federal government spends $2 trillion more than it collects in taxes each year. And Trump’s tax cuts will increase this gap. Soon, every dollar we pay in taxes will only cover the interest on our growing $36 trillion dollar debt. That means our entire government will be funded by printing dollars out of thin air. It’s time for a one-liner:
“Our government will soon be funded solely by printing dollars.”
So, what’s the problem? Can’t we just print as many dollars as we need? The answer is yes, we can. But every dollar we print reduces the purchasing power of all other dollars in the world, including the dollars in your pocket and in your bank accounts. Inflation (inflating the money supply) means that your money buys less and less and less over time. Anyone who has shopped for groceries over the past few years knows this. And worse, inflation is cumulative. Even though the inflation rate might come down, inflation doesn’t. Price increases are simply tacked on to past price increases. And this will get worse with the very unlikely and rare combination of Biden breaking our international agreements followed by Trump’s tax cuts. Time for another one-liner:
“The government will find difficulty in paying for its overspending by borrowing due to Biden’s piracy and so will be forced to debase our currency.”
But can’t Elon Musk cut government enough so that it spends less than it collects in taxes? I can write another article to support my thinking on this, but my short answer is “No way.” The problem with having a bloated government is that it is just that… it’s bloated. And the thing that is wrong with it also makes it powerful. It’s too big. OK, one-liner time:
“Elon Musk can’t cut government faster than our national debt is growing.”
The U.S. dollar has already lost 99% of its purchasing power in the past 100 years. What you could buy for a dollar back then, now takes $100. And the very odd combination of Biden followed by Trump will increase the speed at which the dollar heads to zero, just as all fiat currencies have gone throughout human history. Time for another one-liner:
“The purchasing power of our dollars is going to go down, faster.”
And so finally, how should we position ourselves to best protect our families? The answer is to get out of the dollar, drain your savings accounts, and buy assets. Here is a short list in order
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In the very short term, buy crypto currencies that have a cap on the number in existence. Furthermore, Trump said he will create a strategic reserve of Bitcoin. But don’t stay with this trade very long. It is pure speculation.
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Equities. Stock in a company is partial ownership in that company and all its assets. During the hyperinflation in Germany’s Weimar Republic, stocks were a good inflation hedge.
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Precious metals, especially gold. All the gold ever mined in human history fits into two Olympic-sized swimming pools. It is getting more expensive to find and get out of the ground. Also, the world’s central banks don’t store Bitcoin or stocks or diamonds. Their vaults are full of gold.
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Real estate. They aren’t making any more. You get to tell the IRS that your real estate is depreciating, while in reality, it is appreciating. Trump explained this to Hillary Clinton in their presidential debate. And real estate pays a monthly dividend… rent.
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Time for a one-liner:
“Invest in things that can’t be printed.”
Now let’s make a summary using all our one-liners in order:
Trump is a pro-growth businessman who isn’t opposed to debt. He believes in dramatically cutting taxes. Cutting taxes will reduce revenues for the government. Less revenues mean that the government will need funding from some other source. Our government will soon be funded solely by printing dollars because it will find difficulty in paying for its overspending by borrowing, due to Biden’s piracy. The Federal Reserve has no choice. It will be forced to debase our currency. Elon Musk can’t cut government faster than our national debt is growing. And the purchasing power of our dollars is going to go down. So, invest in things that can’t be printed.
Nick Gromicko, 11/7/24
