Op-Ed: I'm not worried about a US recession, I'm worried about another Great Depression

Unemployed man stands against a vacant store on "Skid Row,"  Howard Street, San Francisco, February 1937, in this photograph by Dorothea Lange.
Dorothea Lange | Fotosearch | Getty Images
Unemployed man stands against a vacant store on "Skid Row," Howard Street, San Francisco, February 1937, in this photograph by Dorothea Lange.

Donald Trump's victory in the U.S. presidential elections may appear seismic. But what of the aftershocks over the next few years?

The victory certainly comes as a surprise; particularly because of his vagueness on policy. However, there's no reason to panic just yet. Here are some of our initial thoughts.


One of the main aftershocks could well be trade. The U.S. president does have a relatively large amount of discretion in trade. New agreements, such as the Trans-Pacific Partnership (TPP) and The Transatlantic Trade and Investment Partnership (TTIP), are likely to be halted.

However, these agreements were essentially political constructs that were primarily designed to benefit the U.S. and those nations that allied themselves to the U.S. at the expense of others. The TPP has already started to divide Asia into those who benefit most from TPP (e.g. Vietnam) and those who don't (e.g. China and Thailand). Trump is basically moving those battle lines but I don't see these fractures as being worse. In fact, a better outcome for China may even delay global and regional instability. Similarly, Trump will no doubt cut the TTIP.

A Trump trade war with China is likely to be no more damaging and arguably less damaging and less effective (but much clumsier, more visible and playing to the gallery) than the TPP would have been for China. Ultimately this may be a zero-sum game but a zero-sum game where China can't afford to lose without there being potentially serious consequences for the Chinese and global economy. For this reason, Trump barging noisily through the front door may prove less of an immediate trigger to a Chinese depression than TPP more subtly attacking China via the backdoor, like a stealthy cat burglar.

Trump has stated that he would renegotiate NAFTA (North American Free Trade Agreement) and potentially withdraw the U.S. from the agreement if consensus with other members could not been found. He would not need congressional approval to do this; although this is not saying he would. Trump will likely come under pressure to give details of his plans, particularly as the Mexican peso drops significantly in value.


Trump has given some, although little, detail to date. His plans for individuals may send tremors, as they look like House Speaker Paul Ryan's 33 percent tax cut, simplifying the filing process and restructuring the international tax code. Again, the specifics, and what it means for FATCA (Foreign Account Tax Compliance Act), are unclear. Trump's corporate tax plan is very much like that of the Congressional Republicans' 20 percent rate. Reform of both individual and corporate taxation is a priority of Congressional Republicans. However, even with control of the House, it will likely face several obstacles, especially without a supermajority.

Financial regulation

Trump's victory may mean large parts of the post-financial crisis Dodd-Frank financial reform act being retracted. It could also mean the end of the Department of Labor's fiduciary rule, requiring higher standards of all financial professionals working in retirement planning. This will depend on who Trump brings in as advisers.


In his campaign, Trump alluded to a $1 trillion spending package. Some of this may get past Congress, but it's unlikely the whole lot would. Just a few ripples here, but the obvious opportunity may be in U.S. Treasurys that appear to have reacted badly to the result.


Not only has Trump spoken of repealing the Affordable Care Act (ACA) and replacing "Obamacare" (within 100 days) but it is also a priority of Republican Congress members in 2017. However, the details of how this will be done are, as yet, unknown. Health care could be volatile as a Trump administration may be perceived to be more amenable to Big Pharma but medical services providers could suffer in the ACA rollback.


This is an unexpected result and the markets clearly didn't like the initial surprise. But no incoming president wants to be responsible for a stock or property market crash as he takes office. So, it's likely that Trump will announce some Wall Street-friendly advisers/nominees to appease the markets.

Unintended consequences

Earlier this year Carmignac's Didier St Georges spoke of investing in the volatile global economy as "dancing on a volcano". We're now dancing on a volcano that's shaking from the aftershock of the "Trumpquake".

The biggest immediate risk of a Trump presidency may be that it sets off a populist reaction in Europe. The Italian referendum remains a potential flashpoint and consequently the single currency has now moved from "under threat" to "almost certainly terminal and probably within the next 12 months"

The volcanic lava has been bubbling for some time but the pyroclastic flows are getting harder to dodge because of the sheer scale of issues also piling up in Europe and China.

There's been a lot of use of the "r" word but I'm not worried about an American recession – we're beyond that. I'm worried that a recession with this level of private debt will be a depression. I think the jury is out as to whether Trump will bring forward America's next great depression or not – I guess we'll never know the counterfactual but we were getting closer to being trapped between rocks and hard places anyway with nowhere to hide from the inevitable volcanic eruption, especially in China and in Europe whose depressions may well precede and be the catalysts for America's next Great Depression.

—Paul Gambles is a managing partner at MBMG Group.

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