You have an enormously difficult task in front of you. If you do nothing but tinker, you will have a recession on your hands in the early years of your administration. Just yesterday, real interest rates went negative on the US 10-year bond for the first time. The yield curve is in serious danger of becoming inverted in real terms. Your economist advisors will confirm that the research shows the only true predictor of a US recession is a negative yield curve.
The research shows that if the yield curve stays inverted for 90 days, a recession is likely to show up in 12 to 15 months. That means you are not going to have much time after you’re inaugurated to enact a major stimulus program and restructure the incentive structure of the US economy. If you wait until we are already in recession to win cooperation from Congress and get legislation passed , the negotiations will be more difficult by an order of magnitude. You need to hit the ground running.
Therefore, in addition to campaigning after you’re nominated at the convention, you had better be planning to govern. The economy is not going to wait around for you to get adjusted to your new position. But what better way to campaign than to show the voters you are already thinking about how best to serve them?
There are scores of other major and minor economic topics we could discuss, but these won’t matter much if we fall back into recession. Unemployment will climb back to double-digit levels; incomes will suffer; tax revenues will plummet; tempers will flare and finger-pointing will increase; and you will cornered into being merely reactive instead of proactive. Foreign policy will take a backseat if we hit a recession, and your foreign policy choices will be far more constrained. The first three things you need to be thinking about when you walk into the Oval Office are the economy, the economy, and the economy. In that order. If we go into recession on your watch, nothing else you do is going to matter all that much in terms of the success of your presidency. You can solve the Middle East crisis, bring peace in our time, and curb global warming. But you will still be judged by what the economy does.
I’ve laid out a rough plan that can certainly be adapted and changed. But if you go with the gist of what I’ve suggested, here are the positives:
- You’re going to add two to three million jobs during your first term as president. Most of those jobs will be higher-paying ones, so median income is going to rise. And because the economy will be booming, employers are going to have to increase wages in order to attract new workers and keep current workers. There is nothing like fatter paychecks to improve the mood of the middle class.
- If you add jobs and get the economy growing back at 2% to 3%, the Federal Reserve can begin to normalize interest rates, and savers will stop being punished. Retirees will be able to make more on their investments and be more capable of affording a reasonable lifestyle in their retirement years. Pension plans and insurance companies will have a better chance of meeting their performance requirements and actually fulfilling their obligations. I know the issue of retirement plans is not high on your list, but there is going to be a crisis that you will have to deal with if we go into recession. So many government pensions are drastically underwater.
- You will fix healthcare and entitlement programs in a bipartisan manner that actually solves their problems rather than kicking these cans – real toe-breakers now – down the road. You will put the country on a path to a balanced budget.
- You will end your first term in office as the most influential president in terms of economic impact since Franklin Roosevelt.
- The economy will be booming, and your reelection in 2020 will see you win nearly as many votes as Ronald Reagan did in 1984.
These are pretty much your choices: Herbert Hoover or Ronald Reagan?
I wish you the best of luck, I truly do. We really are all in this together.
With warm regards,
John Mauldin
A Few Final Thoughts