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How Trump Could Cause A Recession, Even If He Loses The Election

SPDR S&P 500 ETF ETF:SPY - How Trump Could Cause A Recession, Even If He Loses The Election

Donald Trump could cause a recession irrespective of winning or losing in the U.S. elections, according to a commentary by Simon Johnson on Reuters.

Johnson, a former chief economist at the International Monetary Fund, said, "As it gets closer to November, if the probability of Trump being elected rises, expect long-term interest rates to increase, while business spending and household consumption will come under serious pressure. Because Trump could easily create a recession — even if he doesn't win the presidency."

If He Were To Win...

If Trump is elected president, it would cause “irreparable damage to our national security” and would “undermine Washington's image, resources and ability to influence others around the globe.”

Johnson also cautioned that American debt would lose the status of "risk-free debt" if Trump were to win the election.

“Trump's brand of real-estate development is about taking huge risks based on large amounts of debt, while making sure there is limited downside for himself. Bondholders get paid if things go well. If the project does not work out, however, those investors bear the brunt of the losses,” Johnson said.

Johnson recalled that four of Trump's companies have gone bankrupt and used Chapter 11 reorganizations. “Trump sees all these debt-restructuring experiences in a positive light,” Johnson commentated. “As he put it during a primary debate in September 2015, 'I used the law four times and made a tremendous thing. I'm in business. i did a very good job.'”

More recently, Trump spoke about his debt, restructuring tactics and macroeconomic strategies he sees as appropriate, “I would borrow [...] knowing that if the economy crashed, you could make a deal.”

Johnson critiqued, “This must rank as one of the most irresponsible economic policy statements ever made by a major party candidate for the presidency.”

Johnson noted that federal government paying its debts in full, and assuming the states' debts, is of "fundamental importance" and the introduction of "default risk" into it would increase interest rates for both the government and the private sector.

Related Link: Trump Reneges On His Steadfast Claim Of A Self-Financed Campaign

Johnson also highlighted that "Trump also seems very weak on inflation" as he has implied the American government "could always print enough money to pay off the debt," Johnson surmised, quoting Trump saying, "First of all, you never have to default because you print the money, I hate to tell you, OK?"

Lastly, Johnson mentioned that on the financial regulation front, Trump wants to repeal Dodd-Frank financial regulations and Johnson said it would "essentially bring the U.S. rules back to the status quo before the financial crisis of 2008."

However, while that may sound appealing to some, Johnson cautioned, “But this is a recipe for — the financial collapse of 2008. That crisis crashed the economy, threw millions of people out of work, pushed up the U.S. national debt dramatically and undermined America's national security.”

If He Loses...

If Trump were to not win the White House, Johnson still sees his recent activities as potentially spurring a recession.

“As it gets closer to November, if the probability of Trump being elected rises, expect long-term interest rates to increase, while business spending and household consumption will come under serious pressure. Because Trump could easily create a recession — even if he doesn't win the presidency,” Johnson explained.

“Electing Trump, the self-proclaimed 'king of debt,' would undermine Washington's image, resources and ability to influence others around the globe. The best way to cause irreparable damage to our national security would be to make Trump president.”

© 2016 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.


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