As I write this, there are still no results for the Iowa caucuses.  It is becoming a mainstream joke about just how bad this one was fumbled.

It may turn out to be something like the Republican Iowa caucuses of 2012.  This is when Romney supposedly won, but then it was declared later that Rick Santorum actually won.  Yet, Ron Paul actually carried most of the delegates.

If there are significant shenanigans taking place, you can expect Tulsi Gabbard or Bernie Sanders to fill the role of Ron Paul in terms of media coverage.

The media can likely safely ignore Tulsi at this point, but Bernie is too big to ignore.  He is at or near the top in national polling now for the Democratic nomination.

I am cheering for Bernie right now, given the alternatives.  The establishment hates him.  They may come to hate him more than Trump.  I will have more to say on this in the coming days.

For today, I just want to look at the implications of a rising Bernie on the economy. Let’s say that Bernie does well in the early caucuses and primaries.  Let’s say he is becoming the likely nominee of the Democratic Party.

Bernie has been open about his socialist tendencies.  He has called himself a democratic socialist.  The term “democratic” in front of “socialist” doesn’t mean much.  Some of the most tyrannical socialist dictators came to power through voting, at least initially. Either way, they obviously had some consent in order to be able to gain power.

Bernie’s brand of socialism doesn’t scare me that much.  It’s not that his policies wouldn’t be horrible.  It’s that I don’t think he has much of a chance to enact them. The Republicans in Congress would all of a sudden be concerned about government spending again if Bernie is president.  They would lie about how much they care about deficits, but at least we would be hearing the rhetoric.  We hear almost no concern about spending with Trump as president.

If Bernie gets the nomination, he would moderate his views on domestic policies. Unfortunately, he would probably also moderate his views on foreign policy.

Still, there is some fear that a Bernie presidency would bring major economic consequences. I’m not sure how much worse they could be than what is already baked in the cake, but I understand the concerns of many.

Even if Bernie isn’t actually a socialist, he wants an increase in government power.  What politician doesn’t?  But Bernie would have something of a mandate for bigger government.  He might turn the rest of the United States into California.  He might enact universal (i.e., government) healthcare.  Therefore, some people worry about the economic future of the U.S.  They should be worried now anyway, regardless of a Bernie presidency, but the current situation doesn’t get much attention.

Blame Bernie

Despite Trump’s unpopularity, he still has a decent chance of being reelected.  I have been wondering for a while now on whether the economy would hold up long enough for the November 2020 election.

We are only about 9 months away, so it doesn’t have to hold up much longer.  Still, we know how fast things can change.  Just look at 2008, which also happened right before a presidential election.

Let’s say that it is becoming apparent that Bernie will get the nomination.  A Sanders presidency is becoming more and more likely.  Then, what happens if stocks start falling?

The Trump campaign is obviously going to blame the prospect of a Bernie presidency.  They will say that the market is anticipating a Bernie presidency, and that is why stocks are falling.  Investors are scared of what he will do if he is elected.

Personally, I don’t think stocks are going to crash just because of the prospect of a Bernie presidency.  Stocks fell dramatically the day after the election in 2016.  It was unexpected, so investors weren’t sure how to react. The market has continued to go up and up since that event over 3 years ago.

I think there is a real threat of a major downturn.  The rise in stocks has been almost parabolic.  Meanwhile, long-term yields are going down, and the yield curve has partially inverted again.

Trump will keep campaigning on how great the economy is, even though I don’t think it is. He is mostly basing this on the stock market, which isn’t all that relevant to most people’s financial condition.  He will call it the Trump economy.  He will take credit for what is a bubble economy, even though he called it a bubble economy 4 years ago.  It is just a bigger bubble now.

But if Bernie keeps gaining momentum, Trump will blame Bernie for any fall in stocks. Many people will buy into this.

It is true that stocks move in anticipation of events.  They don’t always go up and down on the day that earnings are reported. They often go up or down before that, in anticipation of what earnings are projected to be.  There is a saying that you should buy the rumor and sell the news.  This is reality in stock investing, or really any investing.

If you live in a house in the middle of nowhere and then there are rumors that a luxury shopping mall will be built a mile down the road, then the value of your house may start going up right away.  The price of your house isn’t going to all of a sudden jump higher on the day that the new shopping mall opens its doors.

So, if and when Trump makes this argument, there will be something to it.  Some voters will understand that he may have a point. They may think that they are better off with Trump in there for the sake of their 401k balance.

This could have more traction for Trump than just blaming Jerome Powell at the Fed.  People can more easily understand the argument that stocks are going down because investors are preparing for a Bernie presidency.

I think stocks will go down either way, but it is a good political argument for Trump.

At least if Bernie gets elected and stocks go down (even if they were already going down), I think the prospect of his policies will take some of the blame.  It is better that socialism take the blame than capitalism.

Of course, capitalism isn’t what has caused the mess we are in now.  It is due to central bank inflation and massive government spending, which is more socialism than capitalism.  Unfortunately, not a lot of voters know that the Fed and the government are largely to blame for our financial struggles today.  Our living standards would be far higher if the size of government were much smaller.