Mid-Term Election Results Reinstate Potential for Economic Gridlock and Recession

The Trump Administration has done everything in its power, to facilitate a reduction of business-related regulatory encumberments, in order to empower the economy to spread its wings and flourish. Democrats however, see it as a green light for business to run amuck in an open field, pointing to the fact that public companies borrowed $1.8 trillion in cheap Fed money earmarked for infrastructure, wage increases, and company expansion and instead spent $2.1 trillion on company stock buyback programs which inflate stock prices, but leave little for actual and substantial growth programs. Both sides were hoping for a clear and winning separation with mid-term elections, but the Republican loss of House control and Democrat failure to gain Senate control sets the stage for increased political stagnation, potentially resulting in less market enthusiasm, reduced dollar strength, and increased odds for recession.

Extremely low interest rates continue to fade, as the Fed continues its anti-inflation program, which will inhibit the stock market, at best, but could be the straw that breaks the back of this long-in-the-tooth bull market. Earnings are what business and the economy need, but yesterday’s political draw may simply spell a slower course to recession. A clear Democratic victory would have led to an end of tax cuts, greater regulation, and a rapid stock market selloff. A clear Republican victory would have sent the market into a euphoric, but highly unsupported, buying frenzy. The draw all but insures a far more moderate outcome than either party was hoping for.

The stock market will probably remain very volatile, particularly in light of increasing interest rates and growing trade tensions with China. Compared to practically any other global economy, the U.S. economy is booming. The fact that most other world economies are battling decelerating growth is the dollar’s greatest possible insurance policy. The big question for the U.S. economy now is, “Can we maintain the necessary level of economic activity, in order to counterbalance the lack of economic growth from the rest of the world?” The future of the dollar, as well as the U.S. economy has a lot riding on the answer to that question.

While the U.S. muddles through changes, as a result of mid-term elections, investor interest in alternative and safe haven investments has already and will continue to increase. Gold and other precious metals will quickly move to the front of the line. Andrew Hunter, U.S. Economist at Capital Economics said, “With Congress divided, Trump and Senate Republicans won’t be able to make any major legislative changes without the approval of Democrats…This means that the Republicans’ hopes for a second round of tax cuts are probably now dead in the water. That may explain the modest softening in the dollar and decline in Treasury yields this morning.” As usual, American Bullion stands ready to assist with any and all physical precious metals needs. Call (800) 653-GOLD (4653) now!

Although the information in this commentary has been obtained from sources believed to be reliable, American Bullion does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice. American Bullion will not be liable for any errors or omissions in this information nor for the availability of this information. All content provided on this blog is for informational purposes only and should not be used to make buy or sell decisions for any type of precious metals.