President Joe Biden ended the Thanksgiving holiday weekend with a bang, issuing a pardon to his son, Hunter, after pledging for months that he would not. The Biden pardon could reshape the political battlefield as the nation transitions to a new administration, writes Liberty Nation News’ Mark Angelides. But could the Biden pardon also trigger a consequential and ever-lasting impact on the US economy? Surprisingly, the latest White House news could have an economic angle.
The Economics of a Biden Pardon
A key sentence in the final paragraph of the president’s Dec. 1 announcement might lead to long-term economic implications. “Here’s the truth: I believe in the justice system, but as I have wrestled with this, I also believe raw politics has infected this process and it led to a miscarriage of justice – and once I made this decision this weekend, there was no sense in delaying it further.” Put simply, according to the sitting president, the Department of Justice’s prosecutions have not been immune from political persuasion, which indicates that Lady Justice temporarily removed the blindfold because of politics.
The punditry class also suggests this decision will give President-elect Donald Trump the ammunition he needs to hand out pardons – justified or not – like candy on Halloween.
One reason the United States is the world’s largest economy and the investment capital of the planet is the government’s reputation for being the beacon for the rule of law. Treasury Secretary Janet Yellen has repeatedly stressed to the press that America’s fundamental principles and judicial process mean there is little competition for the greenback as no other major economy can emulate the Land of the Free.
“The dollar plays the role it does in the world financial system for very good reasons that no other country is able to replicate, including China,” Yellen said in a 2023 hearing in front of the House Financial Services Committee. “We have deep liquid open financial markets, strong rule of law, and an absence of capital controls that no country is able to replicate.”
While other nations, like China and Russia, attempt to dethrone the king dollar, their totalitarian tendencies have diminished their appeal to global financial markets. The irony is, however, that in recent years, confidence in Washington has weakened.
When Fitch Ratings downgraded the US government’s long-term ratings in August 2023, analysts attributed the surprise announcement to the “erosion of governance.” The report stated: “In Fitch’s view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025.” Conversely, Moody’s Ratings reaffirmed America’s AAA standing in November 2023 because of the country’s “strength of US institutions and governance provides strong support to the economy and its resilience to shocks, underpinned by independent institutions, a high regard for the rule of law, constitutional separation of powers and high levels of transparency.”
The market response differed between these organizations’ decisions. Fitch’s decision triggered a spike in US Treasury yields, while Moody’s report resulted in little action in the government bond arena. When it is time for these firms to conduct follow-up reviews, will the Biden pardon weigh on analysts’ conclusions? It might depend on what Trump says and does over the next four years.
That said, a growing number of market watchers possess similar fears. “That could certainly have long-term implications for borrowing costs, transmission of monetary policy and a host of other variables,” wrote Benjamin Picton, the senior macro strategist at Rabobank. Remember, how Treasury yields behave can elicit a response from the Federal Reserve, forcing the Eccles Building to adjust policy that can lead to various effects on the wider economy.
Indeed, the cause for concern might be justified as Uncle Sam has observed, in real-time, the consequences of thwarting the rule of law.
Biden There, Done That
It has been more than two years since the United States and its allies seized $300 billion in Russian central bank assets. As the war potentially enters its third year, US officials and their counterparts have discussed what to do with this money. They finally decided how to utilize the funds: confiscate and liquidate the Kremlin’s assets and dole out the proceeds to Ukraine. This would be the first time America confiscated the assets of a foreign country with which it was not in direct conflict.
Vice President-elect JD Vance warned his colleagues in an April memo that the initiative would be “unprecedented” and could “boomerang” on the United States. The main consequence of this policy action could involve eating away at America’s safe-haven appeal, particularly its Treasury securities, he warned.
“If a central bank’s holdings in Treasurys, or any other asset, could vanish at the snap of a finger, it is likely that there will be a decline in parties willing to both attend Treasury’s weekly auctions and purchase Treasurys through dealers,” Vance stated.
Sen. Rand Paul (R-KY) also asserted similar concerns in a Wall Street Journal op-ed opposing the Rebuilding Economic Prosperity and Opportunity (REPO) for Ukrainians Act. “This bill will hand the Russians another tool to fuel resentment against the United States. American leaders speak of a ‘rules-based international order,’ but the theory that the United States can confiscate the assets of another country we are not at war with is legally dubious.”
While foreign holdings of US debt keep hitting all-time highs, the world is watching an alternative anti-West system formulate incrementally. From the BRICS’ New Development Bank to China’s SWIFT substitute (CIPS), efforts to de-dollarize have accelerated since the US-led West sanctioned and punished Russia, effectively ousting the former Soviet Union superpower from the world order. Now that Trump has threatened to add 100% tariffs on countries engaging in the de-dollarization crusade, there might be further fuel to abandon the greenback.
Biden the Time
In the short term, will the Biden pardon result in adverse economic effects? No. In the long term, will the political fallout cause global investors to rethink the US economy? This question is one to ponder in the next couple of years.
When Trump was targeted, there was consternation that the justice system would start placing a bull’s-eye on other businesses participating in similar practices as the real estate billionaire mogul. However, in a telling commentary, New York Gov. Kathy Hochul made quite the admission in a local radio interview: “I think that this is really an extraordinary, unusual circumstance that the law-abiding and rule-following New Yorkers who are business people have nothing to worry about, because they’re very different than Donald Trump and his behavior.”
Remember, no one is above the law – except when they are.
