The UK has voted to leave the European Union and the consequences of that decision are being immediately felt on world financial markets. Prime Minister David Cameron just resigned, rather than see through a transition until the situation is stabilized. Boris Johnson, London’s former mayor, may well become the next prime minister. What are the consequences, if any, for the U.S.?
To answer that question, one must take a look at what’s been happening with the U.S. economy, particularly where jobs and the strong dollar are concerned. The dollar has been strong against other currencies for some months now and, as a result, jobs reports have been declining, resulting in a pattern over the last three months. As I reported in my piece on the jobs report for May 2016, the emerging pattern at the end of May is a worrisome one, particularly as we have a divided government, with a GOP that has been steadfast in its unwillingness to stand down from its insistence on continuing with austerity when spending and stimulating the economy are indicated in the face of a weak recovery and a persistent unwillingness on the part of banks and corporations to invest in the economy.
As soon as news that Leave won, the British Sterling began to tank against the Euro and the dollar. This means that for the foreseeable future, the dollar will remain strong, exports more expensive and, as a result, our jobs numbers will fall even more. Over the last few months, there has been talk of a possible new downturn, or even a recession down the road. While most economists didn’t predict the Brexit or any particular event as being the cause, Brexit is the kind of event that has the potential to unleash a domino effect not only on the British and European economies, but ours as well.
Under normal circumstances, with a functioning legislative branch that is willing to govern responsibly, one would expect immediate talks with the executive to pass immediate measures to avert an economic disaster. What would go without saying in recent times cannot be expected any longer and with the politics of dysfunction we are currently experiencing, it is doubtful that Speaker Paul Ryan or his counterpart in the Senate, Mich McConnell, will muster the courage and wisdom to act before disaster hits.
Compounding the seriousness of our political situation is the fact that, with a near-zero lower bound in the interest rate, the Federal Reserve doesn’t have any wiggle room when it comes to what it can do on its own. Blame for this rests squarely on Congress, which has refused to pass the kind of fiscal policy measures that would enhance the economic recovery. Interest rates have been kept low so as not to cause unemployment to rise.
We are again about to vote in a presidential election. This cycle is unlike any other in that both candidates’ negative ratings are unprecedented in recent memory. In a new Gallup poll released this week, both Hillary Clinton and Donald Trump continue to have some strong negative perceptions among the American public across all categories except experience to be president, in which Clinton dominates:
Of special note in the Gallup report, is the following passage:
“One in three Clinton supporters say Trump is a strong and decisive leader (33%), while about three in 10 say he has the ability to stand up to special interests (30%) and can get things done (28%).”
Given all of the poll results that are specific to voters’ ratings on function, this is particularly worrisome in the event of an economic downturn or an outright recession before the November election. Voters of both candidates rate Clinton and Trump nearly equally when it comes to their ability to get things done. On getting things done, Trump wins by 2 points. On standing up to special interests, Trump bests Clinton by 8 points. On strength and decisiveness, Trump edges out Clinton by 9 points. These are hardly results one attributes to a candidate who has been discredited.
At issue, at the tail end of a contested primary in which Hillary Clinton was pulled so hard to the left but whose new positions are still very much in question in the public mind, how will a new recession during the summer or fall impact her campaign from the standpoint of public confidence? The poll numbers from this recent Gallup survey are consistent with numbers we’ve been seeing over the past year.
Moreover, as of a June 6 report from Gallup, when it comes to negatives, Clinton’s negatives were 39 to Sanders’ 52. Sanders’ economic and fiscal policy prescriptions remain more popular than Clinton’s and the consensus on Clinton’s apparent win is that it is because, in the public perception, she has the better chance to win. But as we can see, other than one category, she and Trump are even when it comes to the public’s assessment of a leader’s top qualities. In a time of economic crisis, what would be the impact of the perception of Donald Trump as the more decisive of the two leaders? Would the addition of the perception of Trump as more apt to stand up to special interest solidify Trump’s standing as the more viable of the two to manage a recession? These are the numbers that the Sanders campaign highlighted during the primary when discussing his chances against Trump, versus Clinton’s.
Looking ahead, it is patently clear that Senator Sanders’ decision not to concede the primary to Secretary Clinton is absolutely the right one. Sanders’ vow to take the primary fight to the convention, at this point in time, may well save the party from a loss in November if Sanders is able to force Clinton to concede to Sanders on all the major economic and social points of his campaign. Polling throughout the past year has shown over and over again that when polled on specific issues, left-leaning voters overwhelmingly preferred Sanders’ policy approach to Clinton’s, especially on trade, jobs, banking reform, healthcare and student debt. Of those policies, Sanders and Trump’s opposition to trade, in particular, will be central to voters in a new downturn. Trade, without question, is a significant Achilles heel for Clinton, about whom it was written last week, that the Obama administration has allowed the State Department to hold her TPP emails until after the November election. This is in the context of a FOIA request by journalist David Sirota that has been dragging on for some time now and has prompted CNN’s Jake Tapper to make these comments in a recent broadcast:
“At a certain point, one begins to wonder if these weaknesses are deliberate and that these efforts to conceal information do not conceal a certain disdain for the public and your right to know,”
The TPP is perceived by the public as being a threat to jobs. Trade agreements, especially where the Clintons are concerned, are perceived to have been negotiated to the advantage of special interests and at the disadvantage of workers. That view is not only the prevailing view among Sanders and Trump voters, but the US middle and working classes in general.
Given Mrs. Clinton’s lack of success in turning public perception around, it is highly advisable that she rethink her strategy on how to deal with the progressives in her party. As it stands, more than half of Sanders voters remain steadfast in their refusal to support her. Efforts, thus far, to discredit Donald Trump have not taken root, in spite of all of the gaffes he has made. The perception, among Americans, that wealth equals competence, especially as it pertains to economic matters, is one that is persistent and prevails across parties and social classes. That view explains, at least to some degree, some of the numbers in the Gallup poll above. When added to Clinton’s negatives when it comes to trade and special interests, there is a real risk that, in a panic situation, US voters will do as British voters did and vote for the more right-wing candidate.
It would behoove the Clinton camp not to wait until the Democratic convention to strike a deal with Senator Sanders. Half of progressive voters staying home means a Trump presidency.
Message to readers:
Blog#42 is reader-supported. It is thanks to the kind support of readers like you that I am able to widen my blog’s reach. Please click here to make a one-time donation to fund Blog#42 with either a one-time contribution or a small monthly subscription. To help my family, please click here. Thanks for your support.