How Trump Could Cause A Recession Even If He Lose Elections

Donald Trump, the GOP front-runner for American President, will cause a recession irrespective of winning or losing in the US elections, according to a commentary by Simon Johnson on Reuters. http://www.reuters.com/article/us-usa-election-economy-commentary-idUSKCN0Y7051 Johnson, a former chief economist at the International Monetary Fund, said: "As it gets closer to November, if the probability of Trump being elected rises, expect long-term interest rates to increase, while business spending and household consumption will come under serious pressure. Because Trump could easily create a recession -- even if he doesn't win the presidency." He warned that if Trump elected president, it would cause "irreparable damage to our national security" and would undermine Washington's image, resources and ability to influence others around the globe. Johnson, a professor at Massachusetts Institute of Technology Sloan School of Management, also cautioned that American debt would lose the status of "risk-free debt" when Trump wins the elections. "Trump's brand of real-estate development is about taking huge risks based on large amounts of debt, while making sure there is limited downside for himself. Bondholders get paid if things go well. If the project does not work out, however, those investors bear the brunt of the losses," Johnson said. The professor recalled that four companies of Trump have gone bankrupt and used Chapter 11 reorganizations to their advantage as they can find ways to pay less than the face value of the debt. Interestingly, he said "this approach is an opportunity the U.S. Treasury is losing out on." Johnson noted that federal government paying its debts in full, and assuming the states' debts, is of "fundamental importance" and the introduction of "default risk" into it would increase interest rates for both the government and the private sector. Johnson also highlighted that "Trump also seems very weak on inflation" as he said "we could always print enough money to pay off the debt." On the financial regulation front, Trump wants to repeal Dodd-Frank financial regulations and Johnson said it would "essentially bring the U.S. rules back to the status quo before the financial crisis of 2008."