If you take Donald Trump’s tweets at face value, then all is well with the U.S. economy -- or it would be if it weren’t for his “clueless” Federal Reserve boss, Jay Powell.
“We should easily be reaping big Rewards & Gains, but the Fed is holding us back. We will Win!” and “We are winning, big time, against China. Companies & jobs are fleeing. Prices to us have not gone up, and in some cases, have come down,” he informed the gullible, or at least the true believers, on Wednesday as the stock market was tanking in a recession panic.
It’s hard to know whether Trump really believes any of this. Filled with exclamation points, all-caps words and idiosyncratic punctuation, they seem to come from the heart. But do they reflect his true feelings? Who knows. A week earlier, the president posed with a baby who was orphaned in the El Paso mass murder with a grin and a thumbs-up. Did Trump think there was some victory to celebrate?
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In any case, it’s hard to imagine that, unless Trump is living in a fantasy land where he never does wrong, he must be growing anxious about where the economy is heading and his role in pushing it there. Recession worries have erupted again. The metrics on the U.S. economy are still looking good, but the financial markets are getting nervous as evidenced by the infamous inverted yield curve turning negative again on Wednesday and stock markets plunging in response.
The inverted yield curve has had a good record of signaling recessions, although in today’s topsy-turvy interest environment it may not have quite the prophetic powers it had in the past. No matter, there are concrete signs that the global economy is heading into rough waters: On Wednesday, it was reported that the German economy shrank in the second quarter and Chinese industrial output grew at its slowest pace in 17 years.
These aren’t the world’s only economic trouble spots, but Germany and China are two of the world’s biggest economies, and their problems can’t be cordoned off from the rest of the planet. That includes Planet Trump and Planet Election Day November 2020. It could be that the great majority of the Trump faithful will decide that building the wall and playing tough with China are more important than having a job and keeping their home from being repossessed. But an economic downturn should sway enough votes to put a second Trump term in jeopardy.
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You have to feel some pity for Jay Powell. If he were a holdover from the Obama administration, he could reasonably expect the blame and abuse the president has heaped upon him and dismiss it all as partisan politics. But he’s a Trump appointee who was praised by the president as “strong,” “committed” and “smart” when he was tapped for the job less than two years ago.
But the real blame for the recession that seems to be on the way rests entirely on Trump himself. Worse still, Trump is the one who has left the government without the main tool it would normally employ to counteract it.
No one outside of the Oval Office believes that the Fed’s rate hikes are what is weighing down on the economy and sentiment; it’s about the trade war that Trump chose to start entirely of his own accord. The evidence is that when Trump on Tuesday made some small concessions on the next round of tariff hikes on Chinese goods, the market rallied. Investors would like the trade war to go away and grasp at the smallest sign that either side in backing down.
So, let’s say a recession is rolling in. What next? There, Trump can thank his whipping boy at the Fed that at least the U.S. (in contrast to Europe) has room to cut interest rates to help spur borrowing and economic growth. But the other traditional method of lifting economies out of recession by increasing government spending and the deficit isn’t a realistic option. And for that we can blame Trump.
It’s not just that the Trump tax cut didn’t bring the promised surge of business investment and economic growth. It’s also saddled the U.S. with massive budget deficits that are being needlessly generated as the economy continues to grow and is enjoying full employment. They should have been saved for when the economy is in a downturn and needs a dose of government spending to give it a lift.
There’s no need yet to buy a survival condo or put all your savings into bitcoin for the coming economic apocalypse. Shared panic may cause Trump and Chinese President Xi Jinping to bring a quick end to the trade war, for instance. Alternatively, China and/or Germany may launch stimulus programs to ward off domestic downturns.
In any case, if the recession does come, at least it will be with the silver lining of a one-term Trump presidency.