Macro: Sandcastle economics
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The US mid-term election brings constitutional crisis
John Hardy
Head of FX Strategy
Summary: The US mid-term election sees a stand-off over the certification of close Senate and/or House election results, leading to a scenario where the 118th Congress is unable to sit on schedule in early 2023.
The chaotic 2020 US Presidential Election was a scary moment for many US institutions. The sitting president Donald J. Trump initially refused to conceded defeat in the election and complained that the election was stolen, a claim that was never seriously challenged in a court of law but one which had widespread sympathy among the Trump base. A crowd of hard-core believers in the stolen election conspiracy was encouraged by the President’s rhetoric to a sufficient degree to storm Capitol Hill and “stop the steal”, i.e., to prevent the election result from being made official on January 6, 2021, in a scene unprecedented in US history.
Prior to this, and then again later in the hotly contested Senate run-off elections in Georgia, dedicated election officials—many of them Republican—were doing their duty to tally the real results while risking their life amidst threats—even death threats—from extremists. In 2022, the Republicans ensure that no such traditional duty-bound officials are in the “wrong” place, with all election-related positions filled by toe-the-line partisans ready to do anything to tilt the results to suppressing voter turnout. The unpopular and tone-deaf Democrats, meanwhile, wage an ineffective campaign of fearmongering that fails to gin up a popular brushback against the response as they are also not trusted due to their progressive cultural positions, a better-than-thou attitude to the masses, and incoherent support of populist causes while key Democrats are clearly in the pockets of lobbyists.
In the wake of the 2022 election, a handful of key Senate and House races come down to the wire and one or both sides move against certifying the vote, making it impossible for the new Congress to form and sit on its scheduled first day of January 3, 2023. Joe Biden rules by decree and US democracy is suspended as even Democrats also dig in against the Supreme Court that was tilted heavily by Trump. Indeed, as 2023 gets underway the stand-off sees a full-blown constitutional crisis stretching over the horizon.
Market impact: extreme volatility in US assets, as US treasury yields rise and the USD drops on hedging against the existential crisis in the world’s largest economy and issuer of the world’s reserve currency of choice.
See next 2022 prediction:
US inflation reaches above 15% on wage-price spiral
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