Slipping Toward Banana Republic: The Economic Risks of Incarcerating Trump

As America’s macroeconomic story has slowed quite considerably over the past year, one former White House adviser warned about "the big risk" to financial stability.

"I really think if you look at the case in New York, that the judge is being so undemocratic, unconstitutional in his rulings against President Trump, it really looks like there's a conspiracy to put him in jail, to put him behind bars," former White House Council of Economic Advisers Chairman Kevin Hassett said Tuesday on "Mornings with Maria."

"And if President Trump is in chains, going to Rikers Island, then would you want to buy a U.S. Treasury the next day?" he posited.

U.S. gross domestic product (GDP), the broadest measure of goods and services produced across the economy, grew by 1.6% on an annualized basis in the three-month period from January through March, the Commerce Department reported in its first reading of the data this year.

It marked the slowest pace of growth in two years, and significantly missed the 2.4% increase forecast by LSEG economists and signaled a sharp slowdown from the 3.4% pace seen during the fourth quarter.

If former President Donald Trump has to serve jail time in New York, former Council of Economic Advisers Chairman Kevin Hassett warns markets will tank. (Getty Images | iStock/Photo illustration)

After posting the subpar growth momentum, stock investors went into selling mode as markets reacted with the Dow Jones Industrial Average falling over 375 points and the S&P 500 and tech-heavy Nasdaq Composite closing lower by 0.5% and 0.6%, respectively.

"The thing that I'm really worried about, about short-term risk for the economy, is that the Democrats are serious in this lawfare," Hassett said, "and if they actually succeed, then imagine, it's like we become a banana republic the moment they take him to Rikers. And I just can't imagine what happens to Treasury markets that day."

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As stocks tumbled two weeks ago, bonds rose with the yield on the 10-year Treasury touching 4.076%, the highest since November.

"Markets will take note," Hassett argued of potential jail time for Trump, "and it'll be one of the bigger market effects that we've ever seen."

"Yields go way, way up and equities go way, way down," he added. "If you're a Swiss investor and you're thinking, ‘should I buy a U.S. bond?’ And you see Trump going to Rikers on ridiculous charges, right? Then you're not going to want to buy the bonds."

Former President Donald Trump is back in a New York City courtroom this week to defend against charges related to alleged hush money payments. And after attempting to move for a mistrial after adult actress Stormy Daniels’ testimony on Tuesday, the judge denied the defense team’s request.

This article originally appeared on Fox Business