Nov/Dec 2016 6 7
US ELECTION
Our world
(and planet)
braces itself
6 8 Nov/Dec 2016
B
Y ALL possible measures the US pres-
idential election of 2016 has set a
record low in the quality of political dis-
course. However, with the outcome
handing the Republicans a decisive victory in
the White House, Senate and House of Representatives
contests, the election will have a lasting and systemic
impact on the development of economic and social poli
-
cies in the US for years to come.
First, the presidential contest failed to develop key
policy proposals that could define the new administra-
tion. In a way, by diverting election debates away from
large-ticket economic and social issues toward person
-
alities, legal and ethical mudslinging, and geopolitical
blame-games, both Donald Trump and Hillary Clinton
have cleared the water for a rudderless new Presidential
Administration. Key issues including immigration,
healthcare, social insurance and taxation, spending and
fiscal policies, and economic strategy were left largely
unaddressed.
This leaves the legislative agenda to the Republican-
controlled Congress. This is a far better outcome than
the commentariat allow, but not as good an outrun as
those of us expecting significant economic change
would have wished for.
Second, for all the differences between them, both
candidates were aligned in one specific area: their pro-
pensity to shower voters with promises irrespective of
their costs.
While Trump mentioned the Federal debt overhang,
his policy priorities included accumulation of more debt
to fund increased social security handouts to interest
groups, massive infrastructure investment, and tax
breaks. His isolationist stance on foreign trade also
implies heavier debt though the effect is unclear. Hillary
Clinton was even more profligate that Trump.
Chart 1 - Key Fiscal Indicators
The US is heading for Government debt of over 108% of
GDP in 2016, and up until 2021. With President Trump
and the Republican-controlled legislature, the likely
Trump
Trump threatens a US economy which
competitiveness, exports, the deficit, education,
interest rates and geopolitics render fragile,
but so did Hillary and Congressional
Republicans may help
by Constantin
Gurdgiev
INTERLOPER
Key Fiscal Indicators for the U.S. economy
0
27.5
55
82.5
110
-14
-10.5
-7
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Governmentnetborrowing,%ofGDP(LHS)
Governmentgrossdebt,%ofGDP(RHS)
Source:WEODatabase,October2016,IMF
Forecasts
CHART
US ELECTION
slump
Nov/Dec 2016 6 9
outcome will be that US Federal debt will remain
high, as the deficit swings from the 3.5% aver-
age expected 2017-2021 to closer to 3.7-3.8
percent. Most of this debt will go to fund military
expenditure (the so-called modernisation of the
US armed forces will take trillions out of the
Treasury, interest groups, and a wave of tax cuts,
primarily targeting capital and financial markets,
as well as the upper-middle class and higher
earners.
Third, neither of the candidates offered a seri-
ous plan to address competitiveness, including
bureaucratic regulations and the tax codes,
especially corporate taxation that incentivises
capital flight and corporate-tax avoidance.
Trump vaguely talked about the need for change,
but never offered specific measures. Hillary Clin-
ton advanced only marginal reforms.
By default, the regulatory and tax agenda will
now shift to Congressional Republicans. As a
result, we are likely to see unwinding of even the
feeble banking and financial-services reforms
currently in train. Clawing back Federal controls
and giving more room to individual States is pref-
erable to the Democrats top-down approach.
Fourth, while both candidates decried the loss
of competitiveness and jobs in the manufactur-
ing sector, neither offered a plausible solution.
Declining labour-productivity growth, stagnant
total-factor productivity, and the challenges of
growing automation and robotisation, including
for many services, remain untouched. And there
was nothing constructive on offer on external
imbalances and the impact of the trade deficit on
the domestic economy.
On balance, therefore, the Democrats loss
across ensures that the gridlock and acrimony
that characterised the presidential contest will
now be past. Much however, remains uncertain,
given the unclear divergence of agendas
between the Republican legislature and the
Republican Presidency.
While the US economy inherited by President
Trump appears to be in much better health than
the one inherited by President Obama in January
2009, US growth has been weak and the risks of
a new economic calamity are rising, not
abating.
Within the last two weeks, the US economy
reported a much better trade deficit for Septem-
ber, down 10 percent compared to August. This
is the best external trade imbalance in 19 months
driven by the fourth straight monthly rise in
exports. Exports rose 0.6 percent on a monthly
basis, reaching the highest level since the
summer of 2015. The silver lining imported a
couple of clouds: much of the recent gains were
driven by lower energy imports and the weaker
dollar, albeit this was moderated by the undesir-
ability of currency volatility. However, since the
dollar is expected to further strengthen as US
monetary policy tightens, the likelihood of these
trade gains continuing is low. A Republican-con-
trolled Federal Government will deliver current
account deficits that remain around 2.5-2.7 per-
cent of GDP over the next four years – below the
3.4 percent average for the last ten years, but
not healthy enough to support export-driven
growth.
Another bright spot in the economy over
recent months has been the labour market.
Based on October figures, US pay levels are
rising at the fastest pace since 2009 and unem-
ployment currently stands at 4.9 percent, a near
eight-year low. Healthcare companies, white-
collar professional services, education and
financial firms now lead job creation: a change
of fortune from the low-wage-jobs growth that
characterised 2015. In line with tight labour mar-
kets, hourly average pay jumped 0.4 percent in
October, to $25.92. This implies we are now wit
-
nessing a change in the US labour market
compared to 2015, when gains in income were
predominantly concentrated amongst the non-
working population. Judging by the headline
numbers, the pace of the jobs recovery since
2008 has been faster than after the 2001 reces-
sion, and is running closer to that of the recovery
of the 1990s - the last ‘golden’ era of growth.
It all sounds wonderful. And yet… those in
unemployment for 27 weeks or longer (the US
definition of the long-term unemployed) cur-
rently account for 40 percent of all unemployed,
the lowest share since 2009, but still well above
the same figure at the same time after previous
recessions. It is also roughly double the average
rate across the growth cycle. This attests to the
severity of the Great Recession, but also reflects
the simple fact that the US economy continues
to deleverage, meaning that the massive fiscal
and monetary stimuli deployed over the years
are having less impact than in normal
recoveries.
The acceleration in robotisation and automa
-
tion of production is playing havoc with the
‘normal’ expectations about the recovery, and,
as noted above, is catching the policymakers off-
guard. As a result, US labour markets are
witnessing growth in low-paid services jobs,
such as for the hospitality sector including res-
taurant staff and bartenders, as well as for
highly-skilled jobs. Those with skills between
the extremes are falling out of the labour force
in record numbers, squeezed by weak domestic
demand and technological changes. These
dynamics existed before the onset of the Great
Recession, but eight years into the recovery, they
are only getting worse.
The new Presidential Administration will
therefore be taking over an economy where
those with post-graduate education are earning
more, the bulk of those with undergraduate
The room for monetary
tightening is about 400
basis points, which will
bring US rates within 75
basis points of historical
standards. Imagine the
havoc such a tightening
could bring about.
The failure of US education to integrate underprivileged
kids costs 3-5 percent of GDP. One indicator of this is
that the labour-force participation rate is now just 62.8
percent, well below pre-crisis levels and worse than in
past recoveries
7 0 Nov/Dec 2016
degrees are witnessing wage stagnation, and
high-school-educated workers are seeing their
real wages falling precipitously. The fact the
economy is now running closer to its full growth
capacity is adding insult to the already grave
injury, for them.
The technology-induced gap in earnings is
unlikely to be reversed by traditional policies
and will require drastic reforms of US education
systems - something that, once again, was not a
part of the election agenda, nor of the Republi
-
can party congressional platforms. Currently,
the US sits around the middle of the OECD distri-
bution for educational attainment. The problem
is exacerbated by the fact that the US education
system inequitably fails to provide access to
high-quality education for economically disad-
vantaged kids. US Census data show that one
quarter of children under the age of six live in
poverty. The likelihood of these children gradu-
ating from a high-quality college is extremely
low. One recent study, conducted by McKinsey,
estimated that the failure of US education sys
-
tems to integrate more underprivileged kids is
costing the US economy some 3-5 percent of
GDP. One indicator of these costs is the fact that
despite tight labour markets, the labour-force
participation rate is now sitting at 62.8 percent,
well below pre-crisis levels and not consistent
with past recoveries.
In the meantime, rising wages (up 2.8 percent
in 2015, the highest rate since mid-2009), create
stronger momentum for the US Fed to raise inter-
est rates now the election is over. The prospect
of such a move is yet another problem to be
inherited by the new Administration. Most recent
signals from the US Fed have been pretty une-
quivocal in signalling rate rises from December
2016. Based on the current labour-market per-
formance and headline growth figures, the room
for monetary tightening is closer to some 400
basis points, which will bring US rates within 75
basis points of historical standards.
Imagine the havoc that such a tightening could
bring about. Raising interest rates will cool off
household and corporate investments, by rais-
ing the cost of borrowing and reducing the funds
available for investment. Further losses will be
triggered by diverting investment away from
financial markets and equity to cash and money
markets. A rising dollar, which will follow any
tightening, will cut US exports and boost US
imports - a twin shock to the economy and, ulti-
mately, to employment.
Worse: as the Fed embarks on its post-elec-
tions rate hikes, US credit markets are bracing
for corporate debt re-pricing. Not only the cost
of raising debt will go up, but default rates are
likely to rise in line with interest rates, as the
recent (post-2009) credit binge has left a mas-
sive mountain of junk debt on US corporate
balance sheets. Based on the latest S&P Global
Market Intelligence data, the US credit downcy
-
cle is now evident 1Q 2016 has “endured the
most significant activity when downgrades out-
numbered upgrades by a 3.2:1 margin… Each
successive quarter reduced the ratio to the third
quarter’s 1.4:1”. Still, 17.6 percent of all rated
firms at the end of 3Q 2016 had either a Negative
Outlook or were on CreditWatch Negative. Only
7.3 percent of firms had a Positive Outlook or are
on CreditWatch Positive”. So, according to S&P,
when it comes to the speculative grade, we can
expect “an increase in defaults over the next
year”.
In simple terms, the economic cycle is
extremely fragile. Like Ronald Reagan, Donald
Trump may be staring at a recession in his first
year in office – a risk that was in place irrespec
-
tive of the outcome of the election. However,
unlike in Reagan’s case, this recession will face
an already exhausted monetary policy space and
an extremely fragile fiscal position.
The triggers for a crisis rest not only within the
US economy (the risks outlined above), but also
in the weak global economic outlook.
Chart 2 - GDP in
constant prices
Global growth has slumped from the 2000-2007
average of 4.5 percent, to 2010-2015 average of
3.8 percent. This year, we are expected to see
global growth hitting the post-crisis low at 3.08
percent. In the US, the dynamics are similar, with
2000-2007 average growth at 2.6%, falling to
the post-crisis average of 2.17% and sitting
below this range for FY 2016 forecasts. Of all G7
economies, only Germany is posting growth
ahead of pre-crisis levels, driven by poor histori-
cal growth as much as by actual economic
strength today. In the developing and emerging
economies, the story is the same, with all BRICS,
from Brazil to South Africa currently exerting a
strong drag on global growth outlook.
The range of risks to even this, relatively lack
-
lustre performance, is huge. It includes the risk
of a Chinese hard landing from a massive prop
-
erty and debt bubble inflated across the Chinese
economy over the last decade. It also includes
the never-abating risk of sovereign and corpo-
rate debt bubbles bursting in the advanced
economies, where years of extremely loose mon-
etary policies have succeeded in inflating
massive debt loads for governments and com-
panies, without improving the growth outlook.
Beyond this, there are political and geopolitical
risks, both with huge economic consequences
in tow. Conflict in Syria, instability in the rest of
the Middle East and across North Africa, the
rising power of Iran in Central and Southern Asia,
a tidal wave of populism sweeping across the
advanced economies and the revival of national-
ism and corporatism in Latin America – could
trigger a new economic crisis.
Whether or not Donald Trump’s presidency will
be able to handle any of these crises and risks
remains open. But, using his Presidential cam
-
paign as a benchmark, the odds are not too great
on America being made great again soon.
Global growth has slumped
4.5% 2000-2007 to 3.8%
in 2015 and 3.08 percent
in 2016. In the US, it was
2.65% 2000-2007, falling
to 2.17% post-crisis and
below this for 2016.
GDP in constant prices
% change
-3
-1.5
0
1.5
3
4.5
6
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
World Worldaverages
U.S. U.S.averages
Source:WEODatabase,October2016,
Forecasts
CHART
US ELECTION
Nov/Dec 2016 7 1
M
ARK SINGER’S ‘Trump and Me’ is
effectively a reprint of his acerbic
essay ‘Madonna’, originally pub-
lished by The New Yorker in 1996,
bookended by two contemporary
essays by Singer on Trump. It’s a reader’s digest,
for anyone trying to get to grips with the new US
president-elect. Singer’s words are a razorblade,
peeling away layers of Trump’s Wisconsin ched-
dar hair, revealing the dearth of soul of a man
built from lewd 1960s commercials.
Trump's sweeping presidential victory
against the Democratic Nominee, Hillary Clin-
ton, is a testament to Singer's observations
that there is no man, only the brand. Singer's
book attempts to peak at the rust beneath the
gold, the only positive unearthed being that it
is a myth that Trump avoided politics of any
sort, before his foray into the ‘Birther’ episode.
Singer usefully lists the private meetings he
held with political figures - including Mikhail
Gorbachev, Richard Nixon, Jimmy Carter, Ronald
Regan and George Bush.
In 1996 Singer was asked by his then editor at
The New Yorker, Tina Brown, to write a profile of
Trump, and to spend several months living in
‘Trump’s world’ as an unblinking ‘fly on the wall’.
This was before ‘The Apprentice’, a weekly-tele-
vised vehicle for Brand Trump, had dropped on
national television. A time when ‘The Donald’
was just getting over what he refers to as a
“blip”, or what the rest of us common folk refer
to as corporate bankruptcy – with, as it turned
out, a lifetime of related tax advantages.
Singer and Trump didn’t get on from the
outset, and this underpins all of the essays.
Singer acerbically concluded that the "vaunted
art of the deal has given way to the art of 'image
ownership". Trump’s impressions of Singer, pub-
lished in 'Trump: The Art of the Comeback', are
also included:
“The next day I got a call from The New York
-
er’s reporter, Mark Singer. When he came into
the office, I immediately sensed that he was not
much of anything, nondescript, with a faint
wiseguy sneer and some kind of chip on his
shoulder”.
At times, an odd-couple friction submerges
this small book in farce; we are
told of Trumps love of Meat Loaf
for dinner, Jean-Claude Van
Damme movies and sports memora-
bilia, but Singer's investigation into
Trump's economic and political manoeuvres
throw up sobering interludes.
For example: New York Times journalist Gail
Collins once received a copy of a column she
wrote for the New York Times with “The Face of
a Dog!” scrawled across her photograph from
Trump, because she referred to him as a “finan-
cially embattled thousandaire”.
Between his debt restructuring in the spring
of 1990 and 1997, Trump’s creditors saw 6 to 8
hundred million dollars “vaporized”. Selling his
half interest in the Grand Hyatt Hotel in 1996:
“enabled Trump to extinguish the remnants of
his once monstrous personally-guaranteed
debt”. However, “the novelty of being unencum-
bered” had Trump “lying awake” at nights.
A potential harbinger of future US economic
policies, Singer reveals: “What most people
would find unpleasantly stimulating - owing
vastly more than you should to lenders who, fig-
uratively, at least, can carve you into small
pieces - somehow engenders in [POTUS-elect] a
soothing narcotic effect”.
The key insight here is the notion of a Trump
continuum. The man never veers from his core
values of the ‘Deal’. It’s only the hat that
changes.
“Of course, the ‘comeback’ Trump is much the
same as the Trump of the 1980s; there is no
‘new’ Trump, just as there was never a ‘new’
Nixon. Rather, all along there have been several
Trumps”.
Though the notion of several Trumps seems a
couple too many.
The perpetual Trump will never sway from
bombasticism, unimaginativeness, crudeness,
chippiness, boastfulness, greed and horrifying
views on other races, and women. In one exam-
ple, Singer was introduced to a recent
chiropractic-college graduate, “Dr Ginger”,
hired by Trump to work at his Mar-a-Lago spa.
Later, after the doctor had departed Singer
asked Trump where she had trained. This
groper responded:
“I’m not sure. Baywatch Medical School?
Does that sound right? I’ll tell you the truth. Once
I saw Dr Ginger’s photograph I didn’t really need
to look at her resumé or anyone else’s. Are you
asking, ‘Did we hire her because she’d trained
at Mount Sinai for fifteen years?’ The answer is
no. And I’ll tell you why: because by the time
she’s spent fifteen years at Mount Sinai, we
don’t want to look at her”.
The latest hat is the Presidency but the con
-
tinuum… continues.
Trump
Continuum
A review of Mark Singer's
‘Trump and Me’
Salesmen, and Trump is
nothing if not a brilliant
salesman, specialise in
simulated intimacy rather
than the real thing. His
modus operandi had a
sharp focus: fly the flag,
never budge from the
premise that the universe
revolves around you, and
above all, stay in character
by
Matthew
Farrelly
BOOK
REVIEW
7 2 Nov/Dec 2016
T
HE ELECTION of Donald Trump is a mile-
stone in the history of American
democracy and also has enormous
implications for the conduct of interna-
tional politics. Trump and the vote in
the United Kingdom to leave the European Union
underline the deep damage caused to societies
by the great recession and the dislocation
caused by the rapid diffusion of globalisation.
Stripped of his controversial statements about
Muslims, Latinos and women Donald Trump is,
by instinct, a deal maker - in other words bliss
-
fully or infuriatingly (depending on your
viewpoint) free of the philosophical or intellec-
tual baggage that most politicians carry around
with them in order to demonstrate they have real
beliefs. Given this absence of hard ideology he
may in fact not represent a conservative revolu
-
tion but merely a nostalgic reprise of the new
right movement ushered in by Ronald Reagan.
Trump began his political life as a New York
Democrat, a liberal, who has become pro-life
having originally been an advocate of a woman's
right to chose. His tactical agility to reverse pre-
vious views may be an advantage in a world that
has become more fragmented and complex. In
Ireland Albert Reynolds’ business skills and abil-
ity to create both new friendships and
hard-nosed deals was critical in the delivery of
the peace process where he and John Major (an
unlikely alliance at the time) brought the IRA to
the negotiating table.
In his rhetoric since becoming President elect
Trump has been sounding more flexible and
amenable to his opponents. His dignified praise
for Hilary Clinton was in stark contrast to his
campaign utterances which were laced with the
suggestion that she was a corrupt insider who
should really be put in jail.
The problem for him now is that in his use of
rhetoric he has created huge expectations for his
supporters. Unlike previous Presidents, for
instance Ronald Reagan and Bill Clinton, he does
not have the valuable excuse frequently
deployed by those who do not deliver for their
radical support base - I tried to do that but Con-
gress would not let me. The Republican
majorities in both houses means he must deliver
on a significant number of his campaign pledges.
If Trump does not deliver on some of his
pledges then he faces the public disenchant
-
ment that has engulfed Syriza in Greece,
Francois Hollande in France and of course, here
in Ireland, the Labour party and Eamon Gilmore
because of his outlandish election claims that
he was going to reverse the austerity put in place
by Fianna Fáil, Germany, and the bailout troika.
The stakes are high because of his populist
approach. A significant and hostile minority of
the US population fulminates, ready to pounce
on him because of the divisive nature of the
campaign.
There is a huge contradiction at the heart of
his domestic politics. To lower corporate taxes
to 15% will involve either massive (and unsus-
tainable) borrowing or additional new taxes on
the wealthy or others. The US is already hugely
over-leveraged because of quantitative easing,
fiscal stimulus and the high cost of bailing out
its toxic banking sector. His policy of imposing a
hard border (or wall) on Mexico might be per-
ceived as tending to resolve the US problem of
immigration - an issue wilfully ignored and
avoided by Washington for the best part of 20
years. However, inconveniently the last few
years have actually seen net emigration of Mexi-
cans and that proud and ancient people will not
be volunteering to pay for any of his construction
schemes.
The only genuine innovation in his policy pro
-
nouncements is his determination to make a
friend of Russia and its leader Vladimir Putin.
The badboy stereotype deployed by Western
propagandists against both Putin and Russia
has not led anywhere. Trump has an immediate
opportunity to defrost the tension between the
US and Russia. This could have the practical ben-
efit of a potential rapid end to the terrible
carnage in Syria and the consequent uncon
-
trolled migration of people from this conflict
zone. Trump's campaign statements about Euro-
pean countries footing the bill for NATO is a
timely reminder that Europeans cannot, fool
-
ishly, continue to think that their defence and
All trumped now
They’ll fall in line, and he’ll do deals - to
repair the US economy for the constituency
who have been left behind by technology
advances and the great recession
by Conor Lenihan
Hopefully Ireland will still be
able to orchestrate itself a
place in Trump's affections
when it comes to the St
Patrick's Day celebrations.
US ELECTION
Nov/Dec 2016 7 3
security needs can be perpetually catered for by
the US.
As to Ireland, the Trump promise of lower cor
-
porate taxes in the US and a push to force US
corporations to bring back their overseas manu-
facturing and other services represents a
significant challenge. Trump has a particular dis-
dain for the technology sector which is
predominantly liberal and supportive, including
financially, of Hilary Clinton. However, promises
to reshore US multinationals date back as far as
Bill Clinton, and no American President has
actually tried it. The more likely result is that
Trump will try to tax them more so that he can
spend more on his plans to improve American
infrastructure.
Trump has an investment in Ireland at the
Doonbeg golf resort and this should make him
somewhat amenable to Irish interests. He does
not appear to hold grudges and appears already
to have forgiven Enda Kenny his accusation that
he was being racist about Mexicans. In any event
the welcome event staged at Shannon airport
complete with Harpists and attended by Michael
Noonan now looks fortuitous rather than the
gauche gesture it appeared ahead of the general
election. Hopefully Ireland will still be able to
orchestrate itself a place in Trump's affections
when it comes to the St Patrick's Day
celebrations.
Mainstream media, the bleeding-heart liber-
als and the Hollywood set are deeply out of sorts
because of Trump's victory. Gradually these tend
to quietly make their peace with a new regime.
Trump has his own supporters in the info/enter
-
tainment industry and he represents a significant
boon for this sector given the manner that he will
continue to boost the ratings for political cover-
age. In fact much of Trump's success can be
attributed to the collusion of the big networks
who might not have liked his politics but could
not ignore the commercial gain that he was cre
-
ating for them through viewership figures. As the
old cliché goes - there is no business like show
business. Trump is the ultimate showbiz
President and can probably be relied upon to
deliver further and more entertainment in the
years ahead.
Trump will continue to be an anti-establish-
ment figure, even when in office. In effect his
mandate is to repair the US economy for the con-
stituency who have been left behind by
technology advances and the great recession.
This is no easy task as Teresa May will find in
relation to those who voted against the EU. Put-
ting the low-skilled and poorly-educated back
into employment requires big government inter-
ventions and significant economic growth.
Whether it is pursuing Muslim terrorist
groups, intervening in the Middle East and pro-
viding security in Europe (via NATO) Trump will
tilt towards getting allies, partners and friends
to deliver the results he seeks. This will require
significant persuasive skills and charm. Given
his resurrection from many business bankrupt-
cies and his longstanding worldwide celebrity
status Trump appears to have plenty of these
skills. His early visit to Mexico to meet the Presi-
dent there shows he has no qualms about
embracing people who have little if anything in
common with him. Already, according to my
friends in Washington, the Republican party is
closing ranks around him. Despite his dreadful
statements about minorities it has now suddenly
dawned on them that it is Trump that has given
them their majority in both houses. In politics,
as in life, nothing quite succeeds like success
itself.
There is no business
like show business.
Trump is the ultimate
showbiz President.
And a success.

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