The third Republican presidential debate showed no candidate addressing growing financial market concerns

By Terry Haines

Rising debt is a crushing burden on U.S. political goals and economic dynamism

Two months before the Iowa caucuses and three months before the New Hampshire caucuses, there is now a real race for the Republican presidential nomination. The field is looking for two alternatives to former US President Donald Trump: former UN ambassador Nikki Haley and Florida Governor Ron DeSantis.

The bad news: So far, no candidate has felt compelled to respond convincingly and specifically to the financial markets’ growing concerns about rising and unsustainable US debt, deficits and government spending. To be fair, this is due to the biggest geopolitical risk in 50 years: it turned the debate into a de facto foreign policy and defense debate.

The rapidly shrinking Republican presidential field is positive for markets for many seeking a non-Trump alternative to U.S. President Joe Biden as the Republican candidate.

With Haley and DeSantis, there are now two front-runners who continue to stand out from the rest of the field, thanks to another strong debate performance on Wednesday from Haley and a competent performance from DeSantis in which he made no mistakes but didn’t excel, either not. This happened quickly: two months ago the field was seven or more in size and had not cleared.

The Republican nomination race for POTUS is not contentious and is not over yet. Here’s why:

If Trump underperforms in Iowa and/or New Hampshire, it would have almost the same negative impact on Trump as a loss because it would destroy his “invincible” narrative. Today things are starting to move in that direction, and we are still months away from voters’ decisions. Forget Trump’s lead in meaningless national beauty pageant polls: A presidential candidate is never nominated or elected based on simple national popularity. In the early primary states, Trump’s lead is 10 to 12 points below the national lead. That means 50% to 60% of early Republican primary voters already don’t want Trump. Additionally, more than a third (37%) of Trump support in Iowa is weak, with voters saying they “could still be persuaded to vote for another candidate” (Des Moines Register, 10/30/23). DeSantis and Haley have a combined one-third of voter support in the same poll, and their support has been increasing. If Trump leaves Iowa in mid-January with a support percentage in the 30s, and there are two other candidates who individually or collectively have equal or greater support, the 2024 race begins to be rewritten with a positive market surprise: Trump loses. His unpredictability alone would be a market plus.

As Trump’s legal troubles continue, voter interest in alternatives that can win the November 2024 general election is also increasing.

Also forget the recent analysis of the “Republican election losing streak” by people whose political fieldwork involves little more than crossing the river from Washington, DC to Virginia for dinner.

Tuesday’s few single-issue elections reflected where the country as a whole stands on abortion access and are therefore no surprise, even if they are hyped as a whole. And that’s not a legislative game changer. Virginia’s much-hyped general election is revealing. The legislature was already sharply divided. Democrats lost one seat in the Senate but gained a few in the House, a slim majority of one in each house based on a few thousand votes out of nearly two million cast.

Access to abortion is fought for, just as voters want it. But now Democrats will be pressured by restrictions that the public also wants and that Democrats can no longer escape. Therefore, abortion can still hurt Democrats if they don’t take the restrictions seriously and flesh them out.

In national elections, what matters most to voters right now is the economy and security, from the U.S. border to foreign policy. These and other important issues concern voters and make Biden unpopular.

Republicans can miss the opportunity to topple Biden. But right now, the presidential race and the issues on which it is fought are markedly different from 2016: As Trump’s legal troubles continue, voter interest in alternatives that can win the November 2024 general election is also increasing.

The primary domestic focus of markets today is whether any US politician has the focus or desire to control and tame rising US debt, deficits and government spending. The most important thing markets learned from Wednesday’s debate is that no Republican wants to take on this task as a priority today – understandable in a difficult primary season when the average voter doesn’t already understand the issue, but it’s still not happening.

Citadel’s Ken Griffin said Wednesday that the U.S. government is spending “like a drunken sailor.” There was no candidate response that convincingly addressed concerns about increasingly embedded markets, nor even an acknowledgment that the borrowing costs of servicing debt alone were placing an increasingly crushing burden on U.S. policy goals and economic dynamism.

It has been 40 years since politicians in Washington had to deal with budget spending, debt and deficits in any way that took markets into account. The only politician who was there when it mattered last time was Biden, and he is in no position to take it even if he cared because he is politically caught in a bind by his big-spending progressive wing. Washington’s idea of ​​unattainable discipline is to cut existing spending by 1% to fiscal 2022 levels. This is at most a drop in the ocean compared to the scale of the problem, and only a few politicians take this view, while the rest are happy to continue spending as usual.

A few signs that Republicans realize the budget problem is becoming more urgent.

There were some signs that Republicans recognized that the budget issue was becoming an urgent issue that cannot be ignored. Haley spoke about the need to rein in soaring debt, noting that the rise in debt and deficit is the fault of both political parties.

Another took place in a debate on Social Security, where all the candidates discussed the need for change, from raising the retirement age to restricting eligibility to expanding Medicare Advantage, although they gave no specific details, saying that these are a matter for negotiations with Congress.

But in this debate, coming at a time of greatest geopolitical risk to markets in 50 years, spending issues would take a back seat, no matter how important they are to markets now.

Those candidates — or most of them, as the field continues to shrink — will take the debate stage again on Dec. 6. Markets will then likely get a clearer view of the Republican candidates’ fiscal policy views, preferences and priorities as geopolitical risk subsides little and becomes less volatile.

Terry Haines is the founder of Pangea Policy, an independent political forecasting and financial markets analysis firm.

More: Biden, Trump and the rest of the 2024 presidential candidates are sniffing the economy

Plus: Haley and Christie are open to raising the Social Security retirement age

-Terry Haines

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11/23/1000ET

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