The US presidential election between Donald Trump and Kamala Harris is around the corner and out of all the promises being made during the heated campaign, there is one aspect that worries Ruchir Sharma the most.
"Loads are said in the campaign, but the bigger red flag is the promises made while they are unaware of their deficit and debt," said Ruchir Sharma, chairman of Rockefeller Capital Management International.
In conversation with market veteran Ramesh Damani, Sharma talked about the 6% deficit that the US economy is facing during the economic recovery. This degree of deficit is only justified in situations of sharp depression or war, according to the author.
An economic downturn could potentially bring it up to 10% debt on this path, he said.
What’s Wrong With Modern Capitalism? — Rockefeller’s Ruchir Sharma Explains
Trump and Harris have taken populist stands with recent pledges like no tax on tips. The fact that they are unaware that their policies will further tighten the Fed's space to improve the deficit situation is worrying.
"Arrogance in America is that they can run the deficit they want because everyone will always buy dollars," said Sharma.
The demand for the dollar is taken for granted, and this attitude is further aided by contenders like China’s inability to grow rapidly.
“What concerns (me) about America in the next few years is that they are tempting fate,” said Sharma. Deficits hovered around 3% before the pandemic and increased to nearly 6% of the GDP by June 2024.
Money Managing Strategies
The Democrat as well as the Republican candidate call for more government intervention. Sharma says that the issue with government intervention is that it is inherently an anti-market solution.
Chairs of the Federal Reserve like Paul A. Volcker and Alan Greenspanhave worked with and fought greater economic battles, such as inflation and the 1987 market crash. Different strategies had been adopted by these chairs to tackle the challenges.
Volcker fought inflation by having tighter money, and he cut interest rates when he needed to, but only after inflation was vanquished, according to Sharma.
Greenspan was chairperson during one of the major turning points for capitalism, possibly for the worse.
"The Federal Reserve functions like the world's central bank. When the stock market crashed, Greenspan explicitly propped up the market by cutting interest rates and pumping more liquidity into the system," he said.
This broadly changed the investor’s view of risk and impacted behaviour. Investors now believe that any downside is now protected by the Fed. At that point, investors set out to fearlessly capture the upside, with little focus on protection. The notion that "the Fed is there" to protect them was strong among investors, according to Sharma.
Ruchir Sharma And Ramesh Damani Chart Out How India Can Grow Faster | NDTV Profit Exclusive. Read more on World by NDTV Profit.