Donald Trump’s spending plans might create inflation that would drive bitcoin prices up by 165% by the end of 2017.
If true that prediction means a bitcoin would cost more than $2,000 in just a year. Bitcoins were trading at $764.23 apiece on December 7, 2016.
Trump’s spending plans would raise the US national debt to $20 trillion and the national deficit to $1.2 to $1.8 trillion which lead to higher interest rates and a super strong US dollar if implemented, Steen Jakobsen wrote in his Outrageous Predictions newsletter. Jakobsen is the Chief Investment Officer and Chief Economist at Denmark’s Saxo Bank.
If accurate this prediction will make a bad situation worse. The dollar has already risen to new highs against some currencies particularly the Chinese Yuan. America’s inflation rate is also increasing, it more than doubled in the last year from .7% in 2015 to 1.6% at the end of October 2016, the Inflation Calculator revealed.
Distrust in Central Banks will Drive Bitcoin Prices through the Roof
Jakobsen’s theory is that rising inflation will force investors particularly in developing nations like China and India to seek alternatives to currencies, CNBC reported. One of the easiest alternatives they can take advantage of is Bitcoin; which is already experiencing a surge of interest of interest in India and China.
One reason why bitcoin (and etherum) would be popular is that they are not tied to the Central Bank monetary system, Jackobsen noted. Distrust in central banks and other institutions is growing, as is distrust in traditional currencies.
A major driver of this distrust is Indian Prime Minister Narendra Modi whose decision to declare 86% of the paper currency in his nation worthless has wreaked financial havoc on the subcontinent. If other national leaders follow Modi’s lead, monetary chaos could reign throughout the world.
“This creates a domino effect in emerging markets and China in particular, leading people globally to look for alternative forms of currencies and payment systems not tied to central banks that have exhausted monetary policies or crony governments that are in full financial repression mode nor transaction systems that are long overdue for a revolution,” Jakobsen wrote of Trump’s plans.
Will Trump Trigger Inflation?
Like many such sensational predictions Jakobsen’s doom forecast depends on a perfect storm of events. If none of them occur, his vision might not pan out. These events include:
- Congress would have to approve Trump’s spending plans. In the United States, the House of Representatives not the President writes the budget. The President only proposes a budget that’s more of a wish list. Congress is not even obligated to read that proposal. There’s no guarantee that Congressional Republicans; many of whom are fiscal conservatives who oppose such spending, would go along. It is almost guaranteed that Democrats who want to make Trump look bad will not go along.
- Trump’s spending would lead to economic growth. There’s no guarantee that would happen, similar spending in Japan led to an annualized Gross Domestic Product (GDP) rate of 2.4% during third quarter 2016. That was lower than the US GDP growth rate of 3.2% for the same period.
- The value of other currencies will continue to fall, as the US dollar keeps rising.
- Outside factors such as a rise in oil prices, terrorism, war and abrupt changes in monetary policies; such as Modi’s demonetization, do not affect economic growth or currency values.
Why There Might be No Trump Inflation
There are also some events that would change situation completely by blocking economic growth and inflation they include:
- Slowing economies in other nations; particularly China, India and Europe, reduce demand for US products which slows industrial growth in the US.
- The strong dollar drives foreign investment away from the US and makes American goods harder to sell overseas because of higher prices leading to a downturn.
- The US real estate bubble bursts and send property prices tumbling.
- The US Federal Reserve takes drastic action to curb inflation which cools off the economy.
Any of these events might stop Jakobsen’s inflation prediction from coming true. Yet any of them might raise bitcoin prices because investors might see cryptocurrencies as a safe even from economic chaos.
If that occurs the real victim will be gold the value of which might collapse completely as people realize that there is a more liquid alternative available. IE you cannot take a bar of gold down to Kroger and buy groceries. You can easily exchange bitcoin (or Etherum) for regular currency online that you can buy groceries with.
It looks as if there is one more thing to worry about next year and another reason to consider investing in Bitcoin: Trump inflation. If Jakobsen is correct it might signal a paradigm economic shift that will wreak a lot of havoc and cause a lot of pain.