Written by:
Harsh Goela
We all know that Donald Trump has been elected as President by the people of America who were dissatisfied with the present governance and wanted a change. The last decade has seen no growth in terms of income and employment and to top it all there was terrorism and political instability like Brexit. Out of frustration, the Americans have voted him in, for his radical thoughts to change the economic situation. Donald Trump has promised during his campaigns that he would cut taxes and spend huge amounts in infrastructure. He has also committed to keep ‘Americans First’ in terms of employment and business opportunities and move towards protectionism in economy.
Similar economic and political policies were adopted by Ronald Regan , the then President of USA. ( 1981-1989). However if we compare the two periods, they look very different .
- When Ronald Regan took over as President, The USA’s Debt\GDP was 35% as against 104% now in 2016. If huge amounts have to be spent in infra structure to rev up growth and income, it would cause large Fiscal deficits. At the current level of 104% Debt\GDP, there seems no scope to go up further and if Donald Trump does it could lead to Debt/Bond bubble to burst and take the US into recession. In 1980’s Ronald Regan had a lot of scope to spend.
- Secondly, during Ronald Regan’s time, interest rates were at about 16% and he had a lot of scope to soften the monetary Policy, whereas, Donald Trump will take over with the interest rates at near zero levels since 2008. There seems certainly no scope for the interest rates to come down.
Donald Trump strategy to spur growth in investment & consumption & income seems difficult, given the current macroeconomic parameters.
Therefore, we advice that one should be in no hurry to buy equities as it seems likely that we will get a chance to enter equities at lower levels.
