The euphoria which has prevailed on financial markets for a month, following Donald Trump election seems unfailing. Monetary policy becoming more restrictive and the dollar rise which resulted from it, did not undermine commentator optimism and investor appetite. After a gloomy start this year, American growth rebounded during the third quarter to reach, on an annual basis, a rhythm close to 3%. In November, unemployment rate staid at 4.6%. In this economic environment, Janet Yellen, who chairs the American central bank, announced last week, an increase of its key interest rate, which was expected. But, and that was much less expected, she suggested that there will be next year three more increase. It is that point which has provoked a strong rise of the dollar against all other currencies, including the euro, the Yuan and the emerging countries ones.

These decisions, which can be qualified as a tightening compared with the policy followed for almost ten years, happen when, on the contrary, the economic policy which will be adopted by the next administration, is supposed to be very expansionist. It is not rare that, once elected, a candidate for a presidential election doesn’t fulfill all his promises. But, in Donald Trump case, the choice of a recovery plan based on tax cuts both in favor of households and enterprises has so much impress people minds that it will be difficult to renounce to it. His convictions are strong and the possible advices in favor of a moderate policy will be without any doubts ineffective. The revival policy which will follow will generate an increase of the budget deficit and of the American public debt. The rate rise, as a consequence of the tightening by the Fed will create another cause of the augmentation of public expenses, on the opposite of what is happening in the eurozone. The spread between the two economic areas will strengthen the rising trend in favor of the dollar, as financial markets have anticipated.

On the opposite, the inflationist risk would be very limited. Tensions on wages generated by the economic rebound are unlikely because the U.S. is far for being on a full employment situation. If unemployment rate is low, it is also for two bad reasons. The first, it is that many American have been discouraged to look for a job. The activity rate which measures the ratio between employed population and the number of persons at working age, is, by far, under its long term trend. The second reason is the big increase of the number of part-time workers who cannot find a full-time job. Anglo-Saxon countries, and in France we should take notice of that, are masters in the practice consisting in presenting embellished statistics. In England, a lot of measures, and not only the zero-hour job contracts, afford to underestimate unemployment rate. In France, we do exactly the opposite to emphasize the weakness of our results. Regarding promotion, it is not very efficient since we give an image of our country excessively negative, which is in contradiction with the objective to attract foreign investments or just to sale our products and to encourage tourists to come. Countries in bad health don’t cause desire.

The consequence of this gap in the U.S. between monetary and budget policies will be to increase the twin deficits, public finances and foreign trade. Tax cuts and the launch, which will take some time, of the infrastructures programs will have a negative impact on fiscal receipts and will generate new expenditures in a context of an increase of the debt burden.   When consumption is stimulated and before reindustrialization promises have produced their effects, it produces an increase of the foreign deficit. Its financing will become, in the near future a tough issue. American households saving rate is very low. Unlike Europeans, they carry a heavy debt, sometimes with variable rates, which is not the case in France, for instance. To have an idea of the magnitude of the problem, we just have to notice that the debt contracted by young people to pay for their studies is superior to 1300 million dollars, more than half the total French public debt.

Due to the current choices, in monetary and economic policy and to the passed indebtedness of American households, the U.S., in the coming years, will need, more and more, to use foreign capital. This situation has some similitude with the situation which prevailed just before the 2007-2008 Crisis. The balance sheet of the American economy will deteriorate. But this is not going to afraid the president-elect, who, in the past, after several defaults, has always been able to rebound. In this case we are not talking about real estate but about the first economy in the world. Financial regulations and prudential rules adopted after the crisis are able to reduce the risk of a reproduction of the catastrophic turmoil provoked by the securitization of doubtful debts or by any excess from an American financial institution which would put in danger the whole system. Nothing, in Donald trump program allows us to think that these protective regulations will be abolished.

The risk is elsewhere. Foreign deficit will increase again. The issue is to know who will finance it. The repatriation of the money that American companies have kept outside of the country for fiscal reasons will not be sufficient. And the two most important creditors of the U.S. are Japan and China. The rise of international tensions due to the diplomatic improvisations of the next president will not encourage citizens or central banks of targeted countries to subscribe or even to keep Treasury bonds. You cannot send the message that there is only one priority, America first, and rely, for your financial situation, on others. The protectionist temptation, which cannot be limited to China or to Mexico, is incompatible with a growing dependence from foreign countries. Isolationism is conceivable, even if it can be criticized, when you have the resources needed by this policy. A crisis with China, about Taiwan or following a brutal increase of taxes on imported products, will definitely not incite banks, which are dependant from Beijing to continue to finance a country which is now considered as hostile.

The only answer, to convince other investors, is to increase interest rates. But in that case, it is a completely new paradigm. Monetary policy is not anymore a tool used to restore economic equilibriums but is dedicated to protect the country against a drying up of its financial resources. We come into an unknown territory since nobody can predict what could be its consequences for the world economy. Donald Trump election is worrying because it is perceived as a source of international political crisis. It is necessary not to underestimate the point that it can also lead to a financial crisis.