by John Rubino, Dollar Collapse:
The political and financial worlds were baffled by President Trump’s decision, just hours after being released from the hospital, to suspend coronavirus stimulus bill negotiations “until after the election.”
Leaving aside the stupidity of massive new borrowing and spending on top of the past year’s multi-trillions, walking away from those talks seemed like a really bad political move.
But then, in almost the same breath, Trump turns around and demands a huge bailout for the airlines and a new round of $1,200 stimulus checks for individuals. Had he joined Biden in the drift toward senility? Or was there some method to the apparent madness?
With a little hindsight, it’s clear that this was one of his “Art of the Deal” tactics, albeit in compressed form. You walk away from stalled talks, get in your car and drive off, leaving the other side stunned and, hopefully, softened up for compromise. Then you restart negotiations with each side a little more flexible, and — in this case the crucial second part of the strategy — the deal broken up into bite-sized, and thus more easily doable, parts.
Huh. It appears to be working. Mnuchin and Pelosi are making hopeful sounds and the stock market – addicted as it is to ever-easier money – is now happily anticipating an extended high.
Gold, meanwhile, has concluded that the now-imminent debt binge will indeed crush the dollar, sending capital pouring into safe havens.
But the politics of this strategy are even more interesting than the finance. The big conflict here is the Democrats’ burning desire to bail out their party’s governors and mayors colliding with Trump’s aversion to rewarding those officials’ horrendous mismanagement (and refusal to vote Republican). Remember, California, Illinois, New Jersey, and their peers were looking at pension crises (i.e., functional bankruptcy) before the pandemic hit.
The strategy of breaking the stimulus bill up into pieces puts the Dems in a tough spot, having to oppose saving big, crucial industries and giving money directly to voters in order to protect bail-outs for Dem-run states. This is not a good place to be going into the election, but it’s where Trump has put them.