Impeach Trump and There Will Be Meltdown?

U.S. President Donald Trump warned on Thursday (August 23, 2018) that “markets would crash” and “everyone would be very poor” if he is impeached. This is against the backdrop of conviction of two of his closest former aides.  Trump warned that the current uptick in the economy leading into the “largest bull run in history” will evaporate.

One could say that Maduro in Venezuela and Trump in U.S. seem to share a similar disjoint with reality. Trump supporters are daring Democrats to initiate impeachment, confident that the narrative of economic growth and the fight against illegal immigration will spur Republicans to retain the majority in the mid-term elections. Most scholars appear to agree that the President cannot be criminally indicted in office but can be impeached.

So will a meltdown happen? A U.S. economic crisis is a severe, sudden upset in one part of its economy – it could be stock market crash (of 20% or more), a spike in inflation (which could happen with trade wars), or a series of bank failures (a’la 2008). They have lasting effects and may not always lead to a recession. And the U.S. has a crisis every ten years or so. Causes are always different. This one is probably a Trumpian initiative. But results are the same – high employment, near-bank collapse and a possible contraction.

Modern U.S. economic history predicts the next crisis will occur in 2018-2020. The first sign is usually an asset bubble. The next is the “get rich quick” ads everywhere and the third symptom is “irrational exuberance”. And every U.S. crisis has an impact on an open economy like Malaysia. So it is best for us, as a nation, to cushion the impact with solid reserves, better liability management and strengthening of domestic consumption and investment.

And how do I protect myself? These five steps could help:

(i)         Pay off all credit card and other personal debt;

(ii)        Have 6-9 months’ worth of living expenses as cash;

(iii)       Devise a financial plan for your needs;

(iv)       Rebalance all allocation twice a year to protect you when the crisis hits; and

(v)        Secure new streams of income.

References

1.  The Times of India, August 23, 2018

2. The Balance – U.S. Economic Crisis History and Warning Signs