, GOLD SILVER LIBERTY: The Uncivil Civil War: Economic And Market Implications Of Political Transformation

Tuesday, July 10, 2018

The Uncivil Civil War: Economic And Market Implications Of Political Transformation

America’s populace is politically divided in a way that has not been seen in decades. The growing rift is rapidly changing the landscape in Washington D.C. and has major implications for the nation. Amazingly, as voters from different parties espouse views that are worlds apart, they share a strikingly similar message.


This article considers the juxtaposition of colliding worldviews and the unified message that voters across the political spectrum are sending. While many investors are aware of the political change afoot, it seems that very few have considered how said changes might affect the economy and financial markets. In this article, we share some of our thoughts and encourage you to give the topic more consideration going forward.

Given the importance of the subject, this article will likely be the first of several discussing the intersection of politics and markets.
The Changing Faces in Congress

Speaker of the House Paul Ryan and Congressmen Bob Corker and Jeff Flake are a few of the well-established Republicans not seeking reelection. While each has their reasons, it appears the prospect of losing re-election played a significant role in their decision making. Is this a case of “playing not to lose” as opposed to “playing to win”? Political capital can be delicately converted to monetary capital only if a politician, in or out of office, plays his or her cards wisely.

This is not just a story about Republican discontent. In New York’s Democratic 14th Congressional District primary, Alexandria Ocasio-Cortez, a totally unknown candidate months ago, recently upset incumbent Joseph Crowley, the fourth-ranking Democrat in Congress and possible successor to Nancy Pelosi as the Democratic House leader. Crowley has represented New York since 1999, most recently as a representative of the Bronx and Queens.

Ocasio-Cortez is a 28-year old Latino woman who was tending bar only a year ago. She ran on campaign promises that were decidedly left of the mainstream Democratic agenda represented by Crowley. Her political stance was not surprising given her support for Bernie Sanders during the last Presidential primary and her membership in the Democratic Socialists of America.

While there are many messages 14th District voters are sending us; we believe there are two that are representative of voters of both parties throughout the country.

Voters appear to prefer political views that are less centrist and offer a change from the status quo of the existing parties.

Voters are looking to buck established party leaders in favor of someone different.

The Washington Post, in an article about Ocasio-Cortez’s victory, summed up these messages well – “Many of the key Democratic House primaries this year have been competitions over biography, with a premium given to those who break new ground or remove old barriers.”
Economic and Market Implications

Assuming this trend continues, the implications for the economy and the financial markets will become increasingly important to follow. While the topic for another article, simply consider the massive social changes that occurred in the late 1960’s and early 1970’s. Those changes had profound and lasting effects on culture and society as well as the economy, monetary policy, fiscal policy and the financial markets.

The following provides a summary of factors worth considering as this new era of politics takes hold:

Deficit – Despite a Republican-controlled Congress and President, the size of the fiscal deficit is surging. Current forecasts by the Congressional Budget Office (CBO) estimate that Treasury debt will increase by over $1 trillion a year for the next four years. While it seems that the Democrats and Republicans cannot agree on much, they currently seem to agree on increased government spending. Given a President that is not averse to debt financing and deficit spending and a slew of politicians concerned about future elections, collectively they may opt for more spending to please their constituents. Given the importance of retaining (or not losing) power, the tendency towards higher fiscal deficits will continue regardless of which party controls the House and Senate. Discipline of any form appears outdated in the halls of Congress and certainly not a popular political platform.

- Source, Zero Hedge