The market is the best line of defense against Trump
Some of you may not like this, but Wall Street and financial markets as a whole are the best line of defense against a complete takeover by Trump.
The U.S. financial system is very complex, built on stacks of debt and derivatives, and the envy of the world, which enables the U.S. financial system to keep working the way it does. The rest of the world sends us about $1 trillion every year, although this number will likely be quite a bit less this year. All of this buying of dollars drives up the value of the dollar, and gives those of us paid in dollars more purchasing power than another person in an OECD country of comparable socio-economic status. That is why we have so much stuff relative to those in Europe and Asia. This money coming into the American economy also gives us strong banks and insurance companies, and raises the returns of our retirement and stock portfolios,
This money also is kind of sticky, making investment capital easier for U.S. based businesses, governments and individuals to procure, which drives employment, wages and future innovation in our country. For example, the U.S. receives about half of all venture investment, which is a big reason for the innovation which drives our high standard of living.
This money comes here because until January 20, 2025, the U.S. had the best financial regulatory environment in the world and we are a big market. I also think inertia is a factor. I don't want to burst anyone's bubble, but we are not smarter or more "entrepreneurial", whatever that means, than other developed countries. On some level, the money came to us because it had come to us for as long as anyone could remember. Capital providers, and the environment they create, just need a place that has property rights and liquidity. For property rights to exist, and jurisdiction needs Rule of Law and democracy.
In any event, all this investment capital does not need to come here. It can go anywhere, to another OECD country, to China, to India, maybe to all of them, wherever. The U.S. may or may not have democracy, and the Rule of Law is getting shaky. Our President is shaking down major corporations, most recently a major media company, so property rights are not what they once were. We are already witnessing capital flows to other countries, and that can accelerate.
If Trump continues to mess with democracy and the Rule of Law, more investors will get concerned about their property rights, which will cause them to move some of their capital, most likely through selling dollar assets and buying assets in another currency. Trump can't stop this unless they take extreme steps like locking up capital from moving overseas, which would cut off the spigot of new investment dollars (the $1 trillion I mentioned above) and crash the treasury, forcing the U.S. to balance its budget overnight, which would almost certainly cause an economic depression.
Trump and MAGA can do a lot of bad stuff, but the market is a guardrail to his behavior because I don't see a way for Trump or his economic team to get around it or control markets. Investors don't need to send, or keep, their money here, and if Trump spooks them enough, they won't. And if that happens on any scale at all, it won't just be some money being lost. It will ripple through every part of our society. This is a big deal.
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