The potential return of Donald Trump to the presidency raises questions about the future of the economy.

Trump's Policies and the Economy

Trump's policies may be tempered by the realities of governance and the reactions of financial markets. Increased tariffs under a Trump administration could threaten free trade and globalization, leading to inflationary pressures. The president's authority is often limited by the realities of implementation.

US Debt and Fiscal Imbalance

Both major political parties exhibit "highly irresponsible" behavior regarding US debt. The issue of US debt is critical, with both political parties contributing to a growing fiscal imbalance. The Social Security Trust Fund is projected to be depleted by 2032, which could necessitate drastic cuts to social benefits.

Impact on Treasury Holdings and Reserve Currency

The demand for US government securities is strong but not infinite, and continued reductions in Treasury holdings by the Federal Reserve could lead to higher yields and increased debt servicing costs. The increasing use of the dollar as a tool for sanctions could undermine its status as the world's primary reserve currency, reducing demand for Treasuries.

Foreign Relations and Uncertainty

Trump's approach to foreign relations, including skepticism towards NATO, could create uncertainty. Kamala Harris is expected to adopt a more alliance-focused approach. Foreign policy typically ranks low on the list of priorities for American voters.

Presidency and the Federal Reserve

The relationship between the presidency and the Federal Reserve is critical, but the institutional rules governing the central bank limit presidential overreach. The health of the US stock market is a priority for Trump. In the event of a Republican sweep in the elections, the Federal Reserve might adopt a more cautious approach to interest rate adjustments.

Economic Landscape and Challenges

The economic implications of a Trump presidency remain uncertain. The interplay between fiscal responsibility, foreign policy, and monetary policy will be critical. The potential for significant economic challenges looms large as the nation approaches critical fiscal deadlines. The decisions made in the coming months will shape the economic landscape for years to come.