Saturday, August 17, 2019

Trump and the Seemingly Faltering Economy

Donald Trump likes to claim he is responsible for the United States' economy and boasts about the stock market. The truth is that he merely inherited a growing economy from the Obama administration and that to date, his regime has done little to provide a basis for claiming responsibility for the economy which has grown, yet since much of the benefit go to the top 1% percent of taxpayers (especially due to the Trump/GOP tax break give away).  Now, with signs that the economy may be on the verge of faltering, Trump economic and trade policies may be a driving force towards a slow down and recession in 2020 - a recession (f not depression) already slamming American farmers thanks to Der Trumpenführer's tariffs and trade wars.  A column in the New York Times suggests that Trump's policies are a flop and, worse yet, his regime has no plan on how to deal with an economic slow down other than to blame "fake news" and the Federal Reserve.  Here are highlights:

Last year, after an earlier stock market swoon brought on by headlines about the U.S.-China trade conflict, I laid out three rules for thinking about such events. First, the stock market is not the economy. Second, the stock market is not the economy. Third, the stock market is not the economy.
But maybe I should add a fourth rule: The bond market sorta kinda is the economy.
An old economists’ joke says that the stock market predicted nine of the last five recessions. Well, an “inverted yield curve” — when interest rates on short-term bonds are higher than on long-term bonds — predicted six of the last six recessions. And a plunge in long-term yields, which are now less than half what they were last fall, has inverted the yield curve once again, with the short-versus-long spread down to roughly where it was in early 2007, on the eve of a disastrous financial crisis and the worst recession since the 1930s.
[T]he bond market is telling us that the smart money has become very gloomy about the economy’s prospects. Why? The Federal Reserve basically controls short-term rates, but not long-term rates; low long-term yields mean that investors expect a weak economy, which will force the Fed into repeated rate cuts.
So what accounts for this wave of gloom? Much though not all of it is a vote of no confidence in Donald Trump’s economic policies.
[L]ast year, after a couple of quarters of good economic news, Trump officials were boasting that the 2017 tax cut had laid the foundation for many years of high economic growth. Since then, however, the data have pretty much confirmed what critics had been saying all along. Yes, the tax cut gave the economy a boost — a “sugar high.” Running trillion-dollar deficits will do that. But the boost was temporary. In particular, the promised boom in business investment never materialized.
At the same time, it has become increasingly clear that Trump’s belligerence about foreign trade isn’t a pose; it reflects real conviction. Protectionism seems to be up there with racism as part of the essential Trump. And the realization that he really is a Tariff Man is having a serious dampening effect on business spending, partly because nobody knows just how far he’ll go. [T]hink of the dilemma facing many U.S. manufacturers. Some of them rely heavily on imported parts; they’re not going to invest in the face of actual or threatened tariffs on those imports. Others could potentially compete with imported goods if assured that those imports would face heavy tariffs; but they don’t know whether those tariffs are actually coming, or will endure. So everyone is sitting on piles of cash, waiting to see what an erratic president will do. Of course, Trump isn’t the only problem here. Other countries have their own troubles — a European recession and a Chinese slowdown look quite likely — and some of these troubles are spilling back to the United States. But even if Trump and company aren’t the source of all of our economic difficulties, you still want some assurance that they’ll deal effectively with problems as they arise. . . . reportedly, is that there is no policy discussion at all, which isn’t surprising when you bear in mind the fact that basically everyone who knows anything about economics left the Trump administration months or years ago.
[T]the administration’s only plan if things go wrong seems to be to blame the Fed, whose chairman was selected by … Donald Trump. To be fair, it’s now clear that the Fed was wrong to raise short-term rates last year.
But it’s important to realize that the Fed’s mistake was, essentially, that it placed too much faith in Trumpist economic policies. . . . the Trump boom wasn’t supposed to be so fragile that a small rise in rates would ruin it.
I might add that blaming the Fed looks to me like a dubious political strategy. How many voters even know what the Fed is or what it does?
Investors were clearly far too optimistic last fall, but they may be too pessimistic now.  But pessimistic they are. The bond market, which is the best indicator we have, is declaring that Trumponomics was a flop.

No comments: