Could an economic “black swan” recession upend the November election?
Even before Friday’s surprisingly worrying jobs report (unemployment rose to 4.3% and the Dow Jones Industrial Average fell 610 points following the hiring slowdown), some experienced market analysts and economists had been telling me that something like this could happen.
They see an oddity in the economic data that is not priced into the recent record surges in the Dow Jones Industrial Average and the Nasdaq. Given how important the economy is to voters, the tight race between Donald Trump and Kamala Harris could swing heavily in Trump’s favor. What’s causing this confusion are the policies of Harris and her boss, Sleepy Joe Biden.
Economists and analysts consider a recession a black swan because it is not expected based on many interpretations of economic data, and because if it were to occur, it would throw an already volatile race for the White House into new levels of turmoil. With Trump losing steam, it would change the nature of the debate about who is fit to lead the country.
Getty Images
Full disclosure: I suspect we are entering an economic shock that will be a factor for voters this fall. And timing is key here. The Fed may be worried about slipping into a recession as we approach the end of the year or early next year, but after years of tight monetary policy, it is about to cut short-term interest rates to stimulate the economy, and that could happen immediately after Friday’s report. BlackRock CEO Larry Fink says the Biden administration’s fiscal spending and Fed money printing, which created inflation before Jerome Powell started raising rates, are still permeating the economy and should provide a buffer to prevent a full-blown recession anytime soon.
But the people I’ve been talking to lately are serious about the economy, so it’s worth listening to them. They see something “unnatural” in all the great economic indicators: the rising stock market, the relative calm in the bond market, and the historically low unemployment rate. They point out that the Biden-Harris administration has propped up the economy in ways that won’t last, including big spending (and vote-buying) on things like student loan forgiveness and tax credits for companies to keep their employees. They say inflation is going down, but hide the fact that prices of necessities are still higher than they were during Trump’s first term. Inflation is a tax that hits working-class people the hardest — most voters.
Moreover, they say, the Biden-Harris Administration has set the stage for some mischief with massive new regulations that stifle the private economy; a lot of unnecessary spending that fuels inflation, and cheating at it in a doubly dangerous way: Debt is dangerously high at $35 trillion and growing. Recently, the Biden Treasury has tried to hide this inconvenient truth by financing spending with short-term borrowing, bond rollovers, and short-term Treasury bills instead of issuing bonds with 10- and 30-year maturities.
To be sure, this is risky business. If they had issued debt the old-fashioned way, yields on 10- and 30-year bonds tied to mortgages and the like would have skyrocketed, crashing the economy in an election year. But there is only so long you can borrow short term to finance long-term debt; just ask the geniuses who ran New York City’s finances in the 1970s and nearly bankrupted it. Borrowers will balk at such a gambit, because it would lead to more money printing, currency devaluation, and probably defaults.
Now that Harris and the Democratic elites have ousted Biden, they are hoping that fluidity in the system will continue through the election before something goes wrong.
There are signs that this may not be the case: Jason Decena Trennert, an economist, market strategist and founder of the consulting firm Strategas, told me that “cracks were appearing” in the Biden-Harris economy even before last week’s data was released.
We are starting to see signs of a slowdown in consumer spending. We are also seeing what’s known as an “inverted yield curve,” where longer-term Treasury yields are lower than the short-term federal funds rate. This is usually a sign of a recession, as it’s a bet that economic growth will slow.
Harris, the recent Democratic nominee, has been doing a lot of scripted stuff with rallies and speeches and eschewing actual interviews. So far, it’s worked, and she’s catching up with Trump in the polls. But if the economy starts to head toward a recession, that will be an inevitable black swan. Because, as a wise person once said, “You idiot, the economy is the problem.”
Solving the Deck
We all remember the strange year that was 2020: COVID-19 caused lockdowns, social justice riots burned cities, and a nail-biting election battle between Donald Trump and Joe Biden.
The odds were stacked against Trump for many reasons, including the powerful social media platforms that completely favored The Donald, a scene I document in my upcoming book, Go Woke Go Broke, which silenced pro-Trump voices and stories like The Washington Post’s Hunter Biden laptop exposé.
For the Democratic Party, Joe Biden is no longer a leading candidate. There is a vice-presidential candidate, Kamala Harris, but she will not be able to fully utilize the power of social media. In 2022, Elon Musk, CEO of Tesla and the richest man in the world, who absolutely values freedom of speech, bought Twitter for $44 billion, changed the name of Twitter to X, and fired the old left-wing staff to level the playing field, giving Trump and his supporters a fighting chance to sway public opinion.
It’s unclear how much, if any, Elon might donate to the Trump campaign given his recent endorsement of Trump. In some ways, it doesn’t matter, since he’s already donated $44 billion in in-kind donations.
