Trump, Hillary and the Global Markets

The U.S. presidential election will intensely affect the whole world, and the markets are beginning to experience it. Whatever happens, economic liberalism will be buried, something only candidate Gary Johnson preaches; Johnson being a candidate who would get only 13 percent of the vote, according to The Washington Post.

Unusually, Pedro Pablo Kuczynski, president of Peru, reached a popularity rating of 62 percent in September, two points over August. It is, like of all the Americas, the leader who strongly suggests the free market who rises in popularity. Like everything that goes up must come down and vice versa, this could be the beginning of the decline of the U.S. as the primary global power and the emergence of Latin America.

Trump has said that the head of the Federal Reserve is “no Republican” and proposes a monetary policy based on a weak dollar and low interest rates which would encourage exports. And he also suggested that the United States should refinance its debts. He assured that neither pensions nor Social Security will be touched, and wants to increase pubic spending, Keynesian style, with $1 trillion for infrastructure over four years, increasing the budget to at least 6.5 percent annually, and so it would generate 13 million jobs. In any case, this would probably increase inflation.

He proposes the “trickle down” theory which holds that if the tax burden on high incomes is low, the economy will benefit. The truth is that lowering taxes – which is money wasted by politicians – is good, but it is inconsistent, and has little credibility as to an increase in spending. Among the few areas of deregulation, Trump would eliminate restrictions on fracking and gas emissions because, he says, “The concept of global warming was created by and for the Chinese in order to make U.S. manufacturing non-competitive.”

And he is against free trade. He wants to renegotiate the treaty with Canada and Mexico by threatening to remove the United States and he also declares that China is “manipulating its currency,” in response to which he would increase tariffs of up to 100 percent on imports from that country. And he suggests abandoning multilateral agreements like the Trans-Pacific Partnership with 11 countries of the Pacific and substituting it with bilateral treaties.

For her part, Clinton will perpetuate Obama’s legacy, encourage more renewable energy, expand the TPP, toughen foreign policy and increase military spending. She would impose more regulations on the big banks and provide spending on infrastructure that is a fifth of what is proposed by Trump.

Hillary will triumph, according the polls, but the probability of Trump winning spreads fear. According to Citi, the dollar is highest against the Mexican peso in that the dollar can buy more than 20 pesos for the first time in history. For Ihab Salib of Federated Investors, “Trump’s wall is having an impact on the peso.” And for Christopher Dembik, of Saxo Bank, the foreign currency of Mexico is “the most accurate barometer of investor sentiment.”

The U.S. debt has also shown fear. In July, the 10-year bond offered a lower yield of 1.4 percent, and in mid-September it depreciated and offered a yield of 1.7 percent. Citi analysts estimated that the risk of a Trump presidency is “partially discounted,” whereas Saxo Bank believes that short-term investors could handle a Republican victory but long-term it “could be a financial and economic disaster.. and could … push the world into a new recession.”