The Russians Bought Trump: Here is What it Means for the Economy in 2017

The Russians Bought Trump: Here is What it Means for the Economy in 2017

It is now patently obvious that the Russians interfered with the US electoral process. Heck, they even tried to hack this website. Now that the Russians control the US government (or at least its President and his people), here are some of the things we might have to look forward to in the US economy.

Russia is essentially a third world commodity-based country with an abundance of oil, natural gas and other precious commodities.  In 2012 when oil pricing was at its peak, the oil-and-gas sector made up 16% of Russia’s GDP, but 52% of its total budget expenditures and 70% of its total exports.  Now, that Russia and Putin own Donald Trump and the US Presidency, here are the economic developments we are likely to see over the coming year.

First, the US will immediately remove all US sanctions against Russian instituted as a result of its 2014 annexation of the Crimea and assert direct pressure on its European allies to do the same.  Concurrently, Russia will increase its influence and its territory in the Ukraine. 

Second, the US will engage in a conscious effort to drive the price of oil higher through supply repression.  At the very core of this effort, the US will attempt to remove the supply of Iranian oil from the global market through renewed sanctions against Iran and backtracking on Obama (Kerry) and European-led concessions.   Part of this effort may also involve backtracking on previous proposals to support new pipelines that bring Canadian oil to market through US refineries.

Third, the US will engage in an effort to increase the supply of other commodities, through its own infrastructure spending, but also through creating a rift between China and its Asian trading partners (hence, the opposition to the TPP).

The economic consequences of all of the above actions will directly address what Russia seeks - higher oil and gas prices and greater access to sell its other hard commodities in global markets, although not necessarily at greater prices for all of those commodities. 

Second tier economic consequences are more difficult to predict.  However, it seems likely that European markets will be dramatically impacted by higher oil and gas prices.  Their cost of production will increase and their equities will fall.  While the US market is more tied to the oil-and-gas sector, higher prices will begin to act as a drag on the economic and be inflationary.  Those oil exploration companies operating in the lowest cost of production areas (the Permian Basin and the Marcellus shale) will do well, but the others will also come under pressure and begin to roll over in concert with the stock market decline.  Interest in alternative energy will be revived, albeit without federal subsidies.  Interest rates in the US will begin to move dramatically higher as the Fed moves quickly to stay in front of inflation, leaving cash (not bonds or CDs) as the only protection from a falling stock market.  See the best cash rates here.

Image: Courtesy: Euromaiden Press

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