Capitol Hill was abuzz with activity on Friday following the inauguration of Donald J. Trump as the newly elected President of the United States of America.
However his ascendency to the ranks of leader of the
Free World wasn't without contention as many anti-Trump supporters took to the streets of Washington DC in a mark of indignation over a number of remarks made during his campaign.
Controversial as he may be, it is yet to be seen what progressive(or
regressive) impact his policies will have on the American economy as well as the rest of the world.
If the lead up to his inaugural term is any indication to go by, President Trump is in for a baptism of fire in the coming months ahead.
Historical market performance
With change brings market uncertainty, a factor that sends analysts, researchers and commentators alike on a speculative search for clues on a possible direction the newly incumbent will use as a platform to push his policy agenda over the next four years.
Often the data with the most meaningful interpretation originates from financial markets where the sentiment of traders are captured in the daily ebbs and flows passing through the weeks and months that eventually turn into a year.
These historical performances allow us to gauge the
expectancy or reactionary shifts in dynamics undertaken during a selected period with the focus being on the years and terms each president served his country.
The measure used below is the one year performance of
Gold after the president has begun his term.
Out of the 8 presidents to be sworn in since 1974 six occasions registered a positive return for Gold with the exceptions being the Reagan and Bush administrations.
Coincidentally both formed a twelve year domination of Republican held Presidency during the 80's but it was the first tenure of the former that produced the greatest divergence from the set of data displayed.
Possible explanations as to why such occurrence may have taken place could be due to an openness towards a particular policy agenda promoted during President Reagan's inaugural years, an aspect which will be highlighted further on.
Given the degree of parallelity between Trump's campaign ambitions and that of Ronald Reagan, the similarities are enough to build a scenario comparable to what was experienced under the Reagan administration.
Trump's duplication of Reagan's 1980's campaign slogan
"Make America Great Again" further points to matching economic policy when the United States was battling overextending inflationary conditions.
However a closer inspection of the economic climate on the 20th January 1981 and the same reflection some 36 years later does highlight some sharp contrasts to one another.
One of the most noticeable differences is the level of the interest rates when it cost Americans over 10% to borrow money as a result of a contagion of higher inflation setting in.
If compared to the situation that's before us today, there can be no larger variance as the years of persistently lower growth rates mixed up with a lack of vibrancy in inflation have conjured up a economic cocktail of stagnancy that's beginning to make academics question the validity of an extended use of expansionary monetary policy.
The reason behind the Gold slump of 1981
With rampant inflation hot on the heels of the American consumers, the Reagan administration decided to implement the
Economic Recovery Tax Act of 1981 that saw a lowering of tax rates in a bid to spur on confidence.
Although the move provided a short term relief to an economy under pressure, its effect didn't last long as the fiscal deficit widened dramatically causing the interest rate to almost double to 20%.
It was this movement in the interest rate that allowed the US Federal Reserve to arrest the development of rampant inflation and eventually led to the slump in Gold prices as certainty was brought back into the fray.
And while it should be noted that the US economy reverted back into a recession after these events, the necessity of these actions in assisting the government becomes evident when observing the subsequent economic boom that was undertaken once the corrective phase had faded.
Does Trump's policy look likely to resemble that of his predecessor?
This is dependable on the level of certainty Trump is able to bring to the forefront, specifically how willing he is to institute tax cuts as well as infrastructure renewal programs that'll ultimately drive government spending.
We've seen a spirited effort to get the ball rolling in terms of executive orders being signed off by Trump but the true judge of their success will only be determined if his able to muster up enough support to have them passed in Senate and Congress, a reality the president is fast learning to navigate.
The biggest threat that overhangs Trumps eager plans is the tragic state of US National Debt which is recorded at over 104% to GDP.
In order to see these numbers drop drastically, there needs to be a concerted performance in US economic indicators that draw a clearer picture, but not without the risk of imploding.
The disunity and disdain from segments of society in the US and throughout the world makes it particularly difficult for Trump to convince many of his critics of the strengths of his leadership.
Perhaps we'll only see the full impact of uncertainty if it ever descends onto markets worldwide but for now Trump enjoys favourable support from Wall Street and the likes.
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To be continued ...
