Month: November 2024

By Michael Every of Rabobank

Houthi, what, when, where, why, how?

If there has been one key message in the Global Daily in the past few years it has been that major shifts in politics and geopolitics, especially ones people don’t like, are going to matter to markets. Yesterday made that point even if Trump’s re-election was not a grey rhino, let alone a black swan, if you had done real digging, rather than digging in, in advance. Yet the major market moves we saw yesterday are likely just the start, not the end of this process.

It now seems the Republicans may take narrow control of the House of Representatives as well as the Senate and presidency, giving them the trifecta. While that was also true in 2016, the first Trump administration was a chaotic affair initially aware of what it could do, with the Republicans deeply divided over ‘Trumpism’. By contrast, the second Trump administration is staffed with a motivated MAGA talent pool which knows how the levers of power work domestically and internationally. Many things could change very significantly, very quickly.   

As a case in point, yesterday saw fake news reports the Houthis had declared an end to their blockade of the Suez Canal, with enormous implications for maritime global trade. I’ll confess that I briefly fell for it, as did a slew of geopolitical commentators. We all assumed a Houthi retreat was a logical response to a US soon not afraid to show what ‘deterrence’ means: as opposed to removing the Houthis from the global terror watchlist; ineffective bombing; an ineffective naval taskforce; asking Iran for help (as it attacks Israel); asking China for help (as it tells the Houthis which are its ships, and to leave them alone); and ocean carriers pay $2bn protection money to the Houthis to incentivize them. In short, while the US will now need to escalate to deescalate to deal with the Houthis, and others, moving parts will move.

People are already talking about a surge in freight rates if Chinese/global exporters try to flood the US with goods now to front-run any 60%(+?) US tariffs. As has been pointed out here repeatedly, there’s been no underlying improvement in US logistics since the Covid supply-chain crisis, and under a sudden surge of demand strains will be seen and freight rates will rise, with global ripple effects: and the ILA east coast US port strike still looms from 15 January.

However, also note Trump economic advisor Bessent is being considered for Treasury Secretary: I again underline he favors a ‘T+X’ tariff plan that gives global firms, say, two years to build factories in the US to avoid sanctions, reducing most of their direct inflation impact, but getting all the capex, supply-side, and trade-deficit narrowing gains – Samsung yesterday said this is what they plan to do. That might mean new economic models are needed for US tariffs – if economists want to model the world as it is rather than as they (or their models) want it to be.

Meanwhile, no sooner had Trump won than Germany’s government collapsed. Chancellor Scholz fired Finance Minister Lindner, whose FDP has left the coalition. A confidence vote now looms, which is likely to fail, at which point Germany has elections around March, in which the far right AfD and far left BSW are both expected to do well enough that perhaps no centrist coalition can be formed. Notably, Scholz wanted to bridge a €9bn fiscal hole with borrowing and offer subsidies to firms leaving the country due to its high costs. Lindner wanted to cut taxes, and spending by more, and de-regulate to stick to the holy-of-holies, a German balanced budget – as Germany becomes ever more unbalanced. Parts of both plans are arguably needed (and such thinking may well emerge in the US), but Germany will get neither now, and maybe not later.

The focus now shifts to what China’s policy response to a Trump win will be. We have heard repeated chatter of a large fiscal package of some form, even if little of this so far represents a real economy game-changer: but let’s wait and see what might appear if we were to get US tariffs. Imagine a go-go US pre-tariff boom and a go-go real China stimulus.

Similarly, we have heard market whispers that tariffs = a large CNY depreciation, and yesterday saw CNY weaken the most in one session for almost two years. However, if that happens, Trump will logically shout for even higher tariffs, and a downwards spiral begins that drags in the entire global economy. Can you see how this dynamic geopolitical and geoeconomic process is not your traditional macro or FX model? Or that the answer to most of the potential questions posed above is *NOT* “rate cuts”?

On which note, today is a Fed meeting decision day. The consensus is still another 25bp cut to take Fed Funds to 4.75%, despite the surge in long bond yields, stocks at a record high, Bitcoin at a record high, and gold close to one; and the strong Q3 GDP print, low initial jobless claims, and the good ISM services (and employment sub-index) reading. Presumably, the last hurricane-impacted 12K payrolls print will be the “stag” the Fed looks to, not the persistent “flation” from services to assets. That is notable given the impact of inflation is being seen in many quarters as a large part of the explanation for the Democrat’s stinging election defeat.

Moreover, as the Fed meets today, rumor swirls of Trump still wanting an ex-officio rate-setting advisory role, that Powell won’t be reappointed, and that Trump might even name his successor in advance, muddying the monetary waters. Assuming this is all true, one is going to have to start factoring politics (and potentially even geopolitics) into central banking (“You want a swap line? We have a quid pro quo for you.”), as our Fed Watcher Philip Marey has already alluded to recently. Again, that calls for new models to capture the world as it is, not as we would like it to be.

That process starts by looking around you and asking questions: Houthi, what, when, where, why, how?

As one starts thinking along those lines, note Brazil raised rates by 50bps, not 25bps, to 11.25% as expected, with pressure on the government to cut spending as the currency continues to weaken. Brazil, as a BRICS member and agri rival to key US sectors, especially in sales to China, could feature heavily in US geopolitical discussions going forwards.

In Australia, RBA Governor Bullock testified to parliament and argued a potential 10% Trump tariff on Australia would have little impact on it, but a 60% one on China may have an adverse effect – but they don’t know if it means significantly higher or lower inflation. Bullock also admitted the RBA had not done any scenario analysis on what a Trump presidency could mean for Australia. After all, it was only the most well-flagged election in the world, with equally well-flagged policies, with a well-flagged “50-50” potential outcome: why bother doing any work on that in advance?

Do you see what I mean about the need to ask better questions and to think about new economic models?

This should be good…

A week after President Biden called President-elect Trump “the kind of guy you’d like to smack in the ass” and labeled any Trump supporter as “garbage”, he will address the nation for the first time this morning.

We are sure there will be plenty of calls for “unity” blah blah blah…

…Or will Biden turn on his handlers as his lame duck-ness becomes more evident?

Watch Biden read live…

Former senior Obama advisor-turned-senior Kamala Harris advisor David Plouffe has deleted his X account after suggesting on Wednesday that Harris’ landslide defeat was Joe Biden’s fault for not dropping out soon enough, and right as a massive campaign debt scandal erupts.

“We dug out of a deep hole but not enough. A devastating loss,” Plouffe posted to X – in what many interpreted as a dig at Biden.

And now, Plouffe and X are no more.

David Plouffe has been unburdened from posts that have been. https://t.co/8YqM0VPGDH pic.twitter.com/K0AolWvWq3

— Stephen L. Miller (@redsteeze) November 7, 2024

That said, was this about more than salty tears?

20 Million In Debt

After raising over $1 billion and left with $118 million in the bank as of October 16, the Harris campaign ended the 2024 election season with “at least $20 million in debt,” according to Politico‘s Christopher Cadelago.

Kamala Harris’s campaign ended with at least $20 million in debt, per two sources familiar. Harris raised over $1 billion and had $118 million in the bank as of Oct. 16.

— Christopher Cadelago (@ccadelago) November 7, 2024

Breitbart CEO Matt Boyle says a Kamala campaign staffer “said there is a massive scandal here worthy of an audit.“

Ok so this just got very explosive. A Kamala campaign staffer who saw these posts called me just now and said there is a massive scandal here worthy of an audit.

The $20 million debt thing is real. Rob Flaherty, this staffer said, is currently shopping around the Kamala… https://t.co/7EJ9ruKQzs

— Matthew Boyle (@mboyle1) November 7, 2024

Boyle’s post in its entirety:

Ok so this just got very explosive. A Kamala campaign staffer who saw these posts called me just now and said there is a massive scandal here worthy of an audit.

The $20 million debt thing is real. Rob Flaherty, this staffer said, is currently shopping around the Kamala fundraising email list to anyone who wants it to try to raise the money back. This includes other campaigns and outside groups.

Flaherty is the deputy campaign manager and reports to Jen O’Malley Dillon.

“Jen blew through a billion dollars in a few months and it was all Jen’s idea to do all the concerts.” — Kamala campaign adviser told me

This source added that O’Malley Dillon did these “concerts,” like Katy Perry, Lizzo, Eminem, Bruce Springsteen et cetera at the expense of “prioritizing and spending money on social media and other campaign priorities.”

Apparently a group in Georgia had to lay off 100 people because they couldn’t pay them.

It’s unclear at this time if the campaign PAID the talent to perform but the cost of production for the events was “immense.”

What’s more, this Kamala campaign staffer said several people who were working for the Kamala Harris for President campaign are still awaiting several overdue payments they were promised for their work. IE, they didn’t pay the staff.

This Kamala campaign staffer said to me of @jomalleydillon

“People didn’t like working with her. Many people on the campaign felt like we lost because Kamala wasn’t allowed to run her campaign. They were running Joe Biden’s campaign instead of a Kamala campaign. Obnoxious and very much a gate keeper and interfering with the vice president’s people who were trying to do their job.”

According to data from the Federal Election Commission (FEC), the Harris campaign had received over $1 billion up until October 16 – including when it was the Joe Biden campaign. 

Over the same period, the Trump campaign took in $392 million and spent $345 million.

Democrats spent $1.1 billion on aired advertising and associated reservations, according to AdImpact – a site which monitors the cost and content of ads, Newsweek reports.

According to The New York Times, the Harris campaign spent “six figures” to fly banners over four NFL games in October in an attempt to reach male voters in swing states. The Guardian reported in November that it also spent “a reported $450,000 a day” to have ads displayed on the Las Vegas Sphere in the swing state of Nevada.

Ultimately, the messaging did not appear to hit its mark(s). Speaking to Newsweek, Mark Shanahan, an American politics expert who teaches at the University of Surrey in the U.K., said Harris “never really landed” her economic message during the presidential election campaign.

“Once again, the Democrats underestimated the appeal of Trump. He turns politics into a soap opera and it keeps many more than his MAGA loyalists tuned in. Allied to that, he offered simple messages: the economy is poor and he can fix it; and America’s troubles start at its borders, and he can fix that too,” said Shanahan. “Harris had too little time to introduce herself to America. She never really landed her messages on the economy with great clarity, and the one area we really thought would boost her, around reproductive rights, really didn’t get the expected cut-through with voters.”

Authored by Dmytro “Henry” Aleksandrov via Headline USA,

George Soros’s puppet Los Angeles County Dist. Atty. George Gascón failed his reelection on Tuesday when city residents decided to choose someone who would make their town safe again, Nathan Hochman.

Los Angeles Times reported that Hochman defeated Gascón by a wide margin (23-point lead based on early returns).

“The rightward shift across America last night is heartbreaking. Democrats have a long road ahead, but the work is more vital than ever, and our commitment will not waver,” Gascón said, according to the news source.

“I’m deeply proud of what we’ve accomplished over the past four years and grateful to the communities who have been and will always be the heart of criminal justice reform,” he added.

Hochman released a statement on Twitter on Wednesday after winning the election.

“The voters of Los Angeles County have spoken and have said enough is enough of D.A. Gascon’s pro-criminal extreme policies; they look forward to a safer future. As D.A., I look forward to representing all of the people, whether they voted for me or not, since their safety will be my responsibility,” he wrote.

The voters of Los Angeles County have spoken and have said enough is enough of D.A. Gascon’s pro-criminal extreme policies; they look forward to a safer future. As D.A., I look forward to representing all of the people, whether they voted for me or not, since their safety will be…

— Nathan Hochman (@NathanHochmanDA) November 6, 2024

Later, on the same day, Hochman published another social media post, stating he would spend the entire Wednesday being interviewed by journalists.

“I was happy to speak with Phillip Palmer this morning on ABC7 about our historic win in last night’s DA election. I have a full day of media interviews lined up and look forward to sharing my plans for the office with the residents of L.A. County,” he wrote.

I was happy to speak with Phillip Palmer this morning on ABC7 about our historic win in last night’s DA election. I have a full day of media interviews lined up and look forward to sharing my plans for the office with the residents of L.A. County. pic.twitter.com/TgBYX29Iql

— Nathan Hochman (@NathanHochmanDA) November 6, 2024

Child abuse prosecutor Jonathan Hatami also congratulated Hochman, adding that now people who live in Los Angeles would be able to live in a safe city again.

“There are still votes to be counted but I believe the 4-year reign of George Gascón is finally over. Gascón will go down as the worst DA in LA history,” he wrote.

“I want to congratulate @NathanHochmanDA on becoming the District Attorney of Los Angeles County.”

Hatami also noted that he is “ready to work” with Hochman and “continue [his] service & leadership to our great LA community by making sure all of us, especially our children, families and vulnerable members, are safe.”

There are still votes to be counted but I believe the 4-year reign of George Gascón is finally over. Gascón will go down as the worst DA in LA history.

Even though it has been one of the most difficult 4 years of my professional life where I continue to go to work every single…

— jonathanhatami (@jonathanhatami) November 6, 2024

Molson Coors Beverage Co., the company behind Miller Lite, Molson Canadian, and Blue Moon, reported third-quarter sales that missed Wall Street expectations and forecasted a decline for the year. The brewer cited a challenging macroeconomic environment in the US that pressured consumers, reducing beer demand for the quarter. 

For the quarter ending Sept. 30, net sales declined 7.8% to $3.04 billion, below the Bloomberg consensus of $3.13 billion. The brewer noted that its European and Asian business units performed strongly, as did Canada within its Americas business unit, but it pointed to an extraordinarily weak environment in the US.

“However, the US was challenged with the macroeconomic environment along with anticipated unfavorable shipment timing and the wind-down of a contract brewing agreement contributing to a US financial volume decline of 17.9%,” Molson wrote in a press release under the CEO AND CFO perspectives. 

Here’s a snapshot of third-quarter earnings that painted a rather dismal situation for the brewer’s US beer unit (Bloomberg):

Underlying EPS $1.80 vs. $1.92 y/y, estimate $1.67 (Bloomberg Consensus)

Underlying Ebitda $692.3 million, -6.8% y/y, estimate $679.9 million

Net sales $3.04 billion, -7.8% y/y, estimate $3.13 billion

• Americas net sales $2.35 billion, -11% y/y, estimate $2.4 billion
• EMEA & APAC net sales $704.4 million, +5.1% y/y, estimate $714.7 million

Foreign Currency Impact in sales -7.4%, estimate 0.05%

Financial volume 20.63 million hectoliters, -12% y/y, estimate 21.56 million

• Americas volume 14.70 million hectoliters, -16% y/y, estimate 15.22 million
• EMEA & APAC volume 5.94 million hectoliters, -3% y/y, estimate 6.21 million

Worldwide brand volume 21.33 million hectoliters, -9.3% y/y, estimate 20.77 million

Underlying effective tax rate 24% vs. 20% y/y, estimate 24.5%

Due to sliding beer demand in the US unit, Molson guided 2024 top-line guidance down… 

Given the impacts the macroeconomic environment has had on the US beer industry and our US financial volumes during this year’s peak selling season, we are adjusting our 2024 top-line guidance to down approximately 1% from previous guidance of up low single-digits, both on a constant currency basis. However, we are reaffirming our underlying income (loss) before income taxes on a constant currency basis for the year because of an improved cost outlook related to packaging materials, transportation and general and administrative expenses. And we are reaffirming our underlying diluted earnings per share guidance of mid single-digit growth, but narrowing to the higher end of the range, driven by the accelerated pace of our share repurchase program.

Meanwhile, the inflation-driven misery storm unleashed by the Biden-Harris regime has sent US per capita alcohol consumption to the highest levels since the inflation storm in the 1970s. 

If alcohol consumption rises and beer demand slides, this only means spirits and wine are in demand. Goldman’s Olivier Nicolaï told clients last month that tequila is in hot demand. 

Hours after the German government collapsed, forcing Chancellor Olaf Scholz to call for a confidence vote that he said would take place on January 15 (which if he were to lose, which is virtually certain, will force a snap election by March), Reuters reports that Germany’s cabinet on Wednesday approved a draft law that would allow the army to gauge the readiness of the country’s 18-year-olds to serve in the Bundeswehr as it looks to boost troop numbers for NATO obligations without resorting to conscription.

Reuters reports that the war in Ukraine prompted a debate in Germany over whether to reintroduce conscription, which was ended in 2011, to boost shrinking troop numbers in response to a more aggressive Russia

It currently has 180,000 soldiers, which it wants to increase to 203,000 by 2031, as well as 60,000 reservists.

The aim is to eventually reach 200,000 more reservists, which would enable Germany to swiftly expand its troops to around 460,000 in the event of war.

With the end of conscription, Germany stopped the registration of 18-year-olds for military service, leaving the country without a reliable data base on whom it could call up.

The aim of the new law is to once again have an overview of those figures:

Under the model proposed, all men turning 18 – about roughly 300,000 next year – will have to fill out a digital survey on their interest in joining the army.

Young women will also be sent the survey but are not obliged to respond.

Rather strangely, this decision echoes that of the incumbent UK PM just weeks before their own election that resulted in a landslide victory for the opposition.

As a reminder, UK Prime Minister Rishi Sunak pledged to bring back mandatory national service if the governing Conservative Party won the July 4 national election, prompting a nationwide debate on a policy Britain abandoned more than 60 years ago.

Not exactly a winning strategy to gain votes from the ‘draftable’-age cohort?

And now zee Germans are doing the same?

Just hours before the Fed’s second rate cut this cycle, the Bank of England cut interest rates to 4.75% – as all economists expected – its second rate hike this cycle (it kept rates on hold at its previous meeting in September, following a reduction in August)…

…. after inflation fell to a three-year low in September; however the cut was seen as hawkish by the market, sending the pound up 0.7% to session highs after Governor Andrew Bailey signaled that a further move is unlikely before early 2025 as rates are likely to fall only “gradually from here” and that last week’s UK budget will lift inflation by just under half a percentage point at its peak.

The Monetary Policy Committee voted by a majority of 8-1 to reduce #BankRate to 4.75%. Find out more in our #MonetaryPolicyReport: https://t.co/lEYCgPolsz pic.twitter.com/bX4TpXQqB6

— Bank of England (@bankofengland) November 7, 2024

“We need to make sure inflation stays close to target, so we can’t cut interest rates too quickly or by too much,” said BoE governor Andrew Bailey on Thursday. “But if the economy evolves as we expect, it’s likely that interest rates will continue to fall gradually from here,” he added.

As the FT notes, this week’s decision suggests the BoE is taking a cautious approach to lowering rates as it weighs the impact of chancellor Reeves’ inflationary Budget last week, which aggressively loosened fiscal policy. The outlook has also been affected by Donald Trump’s victory in this week’s US election, particularly because of his support for higher tariffs, which many economists argue could stoke inflation.

The BoE said the Budget would increase consumer price inflation by just under 0.5 percentage points at its peak compared with previous projections, as well as boosting GDP by 0.75 per cent in a year’s time.

Inflation hit 1.7% in September, the first time it has dipped below the BoE’s 2% target since 2021, but the central bank expects it to increase in coming quarters. Partly as a result of the Budget, the BoE considers that inflation will now take longer than previously expected to return to target, reaching 2.2% in two years’ time before falling to 1.8% by the end of the following year. At the same time, growth will pick up from 1% this year to 1.5% in 2025 the BOE predicted, before easing back to 1.25 per cent in 2026.

In an indication of the Budget’s impact on UK businesses, J Sainsbury warned on Thursday that Reeves’ changes would be “inflationary”, as it complained that they would subject it to an “unexpected” and “significant” £140mn “barrage of costs.” BT also described the Budget as a “new inflationary pressure”, as it said it would now be hit by a £100mn increase in costs.

As we discussed previously, the Budget unveiled a £40bn increase in taxes, most of which will come from national insurance paid by employers. It also boosted government borrowing by an average of £28bn a year over the course of the parliament as Reeves increases.

The BOE’s inflation outlook prompted traders to trim their expectations of a further quarter-point cut at the BoE’s next meeting in December from about 30% to about 20%, which in turn led to tightening in financial conditions and sent the pound to session highs, up 0.7% on the day against the dollar at $1.297. The 10-year gilt yield was steady at 4.54 per cent.

Hussain Mehdi, a strategist at HSBC Asset Management, said he now expected a “fairly shallow easing cycle” that would put upward pressure on bond yields, in part due to the Budget’s impact on inflation.

Authored by Jack Phillips via The Epoch Times (emphasis ours),

Former presidential candidate Robert F. Kennedy Jr., who backed President-elect Donald Trump, said Wednesday that the Food and Drug Administration (FDA) bureaucracy should be winnowed down.

Before the election, Trump had floated Kennedy as having a role in his administration, namely targeting federal agencies that oversee health care, food, and drugs.

“There are entire departments, like the nutrition department at the FDA … that have to go—that are not doing their job. They’re not protecting our kids,” Kennedy told MSNBC on Wednesday.

When he was asked if he would remove any health agencies, Kennedy said, “to eliminate the agencies, as long as it requires congressional approval, I wouldn’t be doing that.”

“I can get the corruption out of the agencies,” he added.

Kennedy added in a separate interview with Fox News earlier this week that “we don’t know what I’m going to do. I talked to the president about it yesterday, and he asked me what I wanted, and I said, we’re developing a proposal now.”

He was asked whether he would be appointed as Health and Human Services (HHS) secretary, a position that requires Senate confirmation.

At a Madison Square Garden rally last month, Trump reiterated that he would have Kennedy join his administration and “let him go wild on health.”

“I’m going to let him go wild on the food. I’m going to let him go wild on the medicines,” Trump said.

During the Al Smith dinner that Trump attended last month, he again floated Kennedy as leading his administration’s efforts around food and health.

“We’re going to let him go wild for a little while, then I’m going to have to maybe reign him back, because he’s got some pretty wild ideas, but most of them are really good,” Trump said during the New York City dinner.

“I think he’s a he’s a good man, and he believes, he believes the environment, the healthy people. He wants healthy people, he wants healthy food. And he’s going to do it. He’s going to have a big chance to do it, because we do need that.”

Kennedy and former Rep. Tulsi Gabbard (D-Hawaii) are also part of the president-elect’s transition team, along with Trump’s two sons Eric and Donald Jr., businessman Howard Lutnick, and former World Wrestling Entertainment (WWE) executive Linda McMahon.

Speaking to CNN last week, Lutnick was asked about Kennedy and whether he would be appointed as HHS secretary.

Lutnick, however, said that Kennedy would not be “getting a job” at HHS and instead would be seeking federal health data on vaccines.

“He says, ‘If you give me the data, all I want is the data, and I’ll take on the data and show that it’s not safe.’ And then if you pull the product liability [protections], the companies will yank these vaccines right off, off of the market,” Lutnick told the outlet.

Over the past weekend, Kennedy drew headlines when he floated the idea that Trump may seek to ban the addition of fluoride to drinking water, coming after a federal judge ruled that the U.S. Environmental Protection Agency should look at recent data and studies showing that fluoridation may lower children’s IQ.

“On January 20, the Trump White House will advise all U.S. water systems to remove fluoride from public water,” Kennedy wrote on X.

Trump and his wife Melania Trump “want to Make America Healthy Again,” he added, repeating a phrase Trump often uses and links to Kennedy.

Trump told NBC News on Sunday that he had not spoken to Kennedy about fluoride yet, “but it sounds okay to me. You know it’s possible.”

Kennedy was running as an independent presidential candidate before he suspended his bid over the summer and endorsing Trump.

He appeared at multiple Trump rallies, including the recent Madison Square Garden event.

The Associated Press contributed to this report.

U.S. voters in 10 states headed to the polls on Tuesday to decide on a number of constitutional amendments to protect or expand abortion rights.

Statista’s Anna Fleck reports that according to projections by NBC News, a majority of these voted in favor of strengthening abortion rights within their states.

You will find more infographics at Statista

Voters in Arizona and Missouri backed measures to protect abortion rights until fetal viability.

At the same time, voters in Colorado, Maryland, Montana and New York supported measures to formally enshrine existing rights related to abortion into the constitution, making them more steadfast as they are harder to change by lawmakers in the future.

In New York, voters supported an amendment which will ban discrimination over pregnancy or reproductive health.

Florida fell short, however, of the 60 percent of support needed to overturn an abortion ban for women more than six weeks pregnant or to allow for abortions when necessary to protect the patient’s health “as determined by the patient’s healthcare provider”.

In South Dakota too, a proposal to protect the right to abortion in the first trimester was also rejected.

If it had been passed, the measure would have also allowed for the state to permit abortion in the second or third trimester if a physician determined the care would be necessary to preserve life or health.

Voters in Nebraska approved measures banning abortions after the first trimester, with exceptions for rape, incest or health emergencies.

The results are not yet in on whether voters will approve a second, competing amendment granting the right to abortion before fetal viability (first and second trimester), which would then protect abortions in the first trimester only.

This would be an improvement over the current, non-protected 12-week ban in the state.

Authored by Jeffrey Tucker via The Epoch Times,

It’s a reasonable supposition that a recession will become obvious to all by next summer. It will then be declared by year’s end. The following year it could become backdated with data revisions that take us to 2022. At that point, it will become obvious to people that we have a major problem. Money velocity will freeze up and banks will start failing.

That’s a lot to consider so let’s unpack this a bit.

Consider history. In October 1929, the stock market crashed. Many people on Wall Street suffered but Main Street was largely unaffected. The Hoover Administration got busy with some efforts to loosen credit but without success as credit markets slowly dried up. Throughout 1931, public sentiment toggled between pessimism and denial. Many people thought it was a temporary blip that would go away.

No one called it the Great Depression. That came much later.

By the election of 1932, enough people were concerned about the economic situation but the campaigns did not really focus entirely on that. The big issue was Prohibition. Hoover did not have a strong opinion but Franklin Delano Roosevelt spoke out loudly for repeal. His fiscal policy pushed frugality and balanced budgets, and he decried Hoover as a big spender.

FDR won of course. But before the inauguration, the economic environment became dramatically worse. A banking crisis developed, and FDR used emergency powers to impose a bank holiday and repeal the gold standard. As part of this, he imposed a ban on private gold ownership. It was enforced with fines and jail terms.

Central planning then ensued with massive fiscal stimulus, crazed agricultural policies that required digging up crops to create artificial shortages, and price and wage controls.

All of this unfolded over the course of four years, the first three of which were not at the time thought to be much of a crisis generally speaking. Today it is obvious that 1929 marked the beginning but that was not apparent at the time.

It is not discernible in our time that we are already in recession but that is due to some brittle statistical measures. If you extend the inflation numbers to include housing and interest, plus extra fees and shrinkflation, minus hedonic adjustments, and then adjust the output numbers by the result, you end up in a recession now.

Do you remember the two successive quarters of declining GDP in 2022? At the time, it was said that this was not a recession, even though every definition of recession was two declining quarters of GDP. It was said at the time that the data was not enough to declare it because labor markets were strong.

Trouble was that this too was an illusion. Most of the job gains were in fact in part-time jobs and multiple job holders, and those gains went to foreign-born workers and not natives. Overall, jobs held by native-born workers that are full-time are down relative to four years ago. No one in the mainstream press admitted this.

The jobs report that came out last week was the first glimpse of truth because it was brazenly awful, underperforming every prediction. It also chronicled major job losses in manufacturing and professional services. Those are hard-core recession signs that are likely going to worsen.

All this data will start to be revised next year as the conventional wisdom will change. It will be widely admitted that the economy is weaker than we previously supposed. This will happen regardless of who wins. For one winner, it will serve as an attack and for another winner, it will serve as pretext for extreme intervention like the promised price controls on rents and groceries.

Meanwhile, we will be revisiting the inflation problem. The Fed has already added $1.1 trillion to the money stock over the last 12 months plus lowered interest rates. The effect of this easing has not affected mortgage rates because investors are expecting higher rates in the future. The Fed can control overnight lending but the shape of the yield curve is determined on the bond market.

If major changes are proposed in terms of spending cuts, the bond market will freak out and the United States could repeat the experience of the UK just a few years ago. New prime minister Liz Truss was quickly hounded out of office on grounds that her spending cuts had spooked the bond markets.

U.S. creditworthiness is already on a hair trigger as the debt pileup has reached astronomical levels. The entire purpose of this wild spending has been to balloon the GDP as much as possible to prevent a recession from being declared already. The debt-to-GDP level is now higher than it was in the Second World War, and getting worse by the day.

(Data: Federal Reserve Economic Data (FRED), St. Louis Fed; Chart: Jeffrey A. Tucker)

The easy solution is dramatic spending cuts but that won’t happen if the bond market starts panicking with quality downgrades. There are only two private institutions that grade U.S. bonds and both are subject to being muscled by political concerns. Such an event could easily overwhelm a new administration. The political people will go into overdrive and demand that the Fed accommodate the bond market, fueling more inflation.

I truly wish that none of this would happen but the truth is that economic forces are always and everywhere more powerful than political ones. There are structural problems alive in U.S. economic life today that are not easily solved by policies of any sort.

But in U.S. political culture, whatever takes place under one president’s watch is blamed on the officeholder regardless. That the circumstances have been created by the previous administration or have nothing to do with existing policy has no relevance in the political culture. That alone makes it nearly impossible for a sitting president to plead with the public for patience.

In 1981, Reagan did make a plea for patience, and lost a great deal of Congressional support in the midterm elections of 1982. He was fortunate that the economic recovery came in time for the 1984 election that granted him a second term. But that was a very close call, and that was also under conditions that were not as structurally dire as conditions today.

As a result, the new administration will encounter pressure to achieve the impossible: immediately improve American living standards without imposing any pain at all. Such a demand is impossible to grant. As a result, whatever happens in this election will likely be reversed in the midterms of 2026, meaning that we cannot count on any kind of policy consistency for many years to come.

Maybe I’m wrong. I hope so. But from what I’m looking at, I don’t see how a frank acknowledgement of current conditions can be put off for another year.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times or ZeroHedge.