Welcome to the Chart of the Week.
Question Time: should we be concerned about US debt?
The Chart of the Week highlights who would win the US election if it was held today. The US election is bigger than just the US, as it has the potential to shape the relationship between many countries across the globe for the next few years. For example, what will a Trump win mean for the relationship between the US and China?
If elected, Trump is looking to impose tariffs on some Chinese goods as high as 60%
Here are ten points on the US election:
- It is important to state that there is a long time between now and the election, so the outcome is still highly uncertain.
- You can see that the leaderboard does change over time, but we also know that the polls can be wrong from time to time.
- Both candidates will make a lot of election campaign promises which will gather media attention, many of which will never happen.
- Over the last three elections we saw over 700 campaign promises, only a handful of these turned into actual government initiatives or policy.
- There will likely be a lot of political pressure to reduce interest rates; interest rates tend to fall in election years.
- Government spending tends to increase in elections years in a bid to secure votes.
- Companies tend to hold back on investing in election years due to the uncertainty that the election outcome might bring.
- There will be uncertainty about trade policy between countries leading up to the election, especially in China, as well as other countries.
- If elected, Trump is looking to cut taxes, which will be good for consumers and equity markets.
- Trump will also look to increase government spending, which raises the question of government debt and the impact on bond markets.
To summarise, this election will gather plenty of media attention across the globe and will raise lots of questions for many, increasing the feelings of uncertainty. However, despite all of this, tax cuts are good for consumers and companies, which will boost growth and markets, should Trump get elected.
But if we get all this spending, what that will that mean for US government debt? Is the US printing too much money? When you buy a government bond, the biggest risk is that they default, or can’t pay you back. One way of assessing this is by looking at their vulnerability score. Look at the below chart! You have probably noticed that the US is not on there, I scanned it twice just to make sure!
In short, the US does have a high level of debt, however, they are not Ukraine, Egypt, Pakistan, or Argentina. The US is home to companies with groundbreaking technology and a growing economy, which means they can service the cost of their debt, unlike many other vulnerable countries on the list below.
Central banks are expected to begin cutting interest rates this year, lowering the interest on offer from cash accounts. If improving your finances is one of your goals, you must invest and, more importantly, remember that persistence pays off.
Markets are unemotional and tend not to react to the things that we worry about most in the way that we think they will.
Takeaway: Markets often do the opposite of what you might expect.
Author: Nathan Sweeney, CIO Multi-Asset, Marlborough Group
Source: Marlborough Multi-Asset Investment Team, Real Clear Politics, Bloomberg, Neuralink
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