The Coming Economic Meltdown

Here’s a headline from the New York Times that ought to give us pause:

Frankly, this one scares me even more, from the Washington Post:

Trump is increasingly relying on himself — not his aides — in trade war with China

If it appears the Trump Administration is veering even more out of control, that’s probably because it is. Anyone in the administration with half a brain has been fired or forced to resign. We’re now down to the hard-core morons and the Moron in Chief, Trump himself.

This is from the Ready to Rumble article:

The swings in financial markets Monday are hard to justify in narrow terms. A slightly cheaper Chinese currency shouldn’t have huge consequences for the global economy. Rather, investors are coming to grips with the reality that the trade war is escalating and spreading into the global currency market.

While the drop in the stock market gets the attention — the S&P is down 5.8 percent in the last week — it is global bond markets that are flashing the most worrying signs about the outlook for growth in the United States and much of the world. Ten-year Treasury bonds yielded 1.72 percent at Monday’s close, down from 2.06 percent a week earlier — a sign that investors now believe that weaker growth and additional interest rate cuts by the Federal Reserve are on the way.

The “relying on himself” article basically says Trump is not listening to anybody any more. He decided he wanted to label China a “currency manipulator,” so that’s what he tweeted. Then his aides and Steve Mnuchin scrambled to make that official policy. Trump is convinced that China will be hurt much more than the U.S. in this game. I think he underestimates the degree to which China’s leaders, who aren’t worried about being voted out of office, are willing to inflict pain on their own people.

“We’re learning that maybe China has a higher pain threshold than we thought here,” said Stephen Moore, who was an economic adviser to Trump during the 2016 election and remains close to the White House. “They don’t seem to care that this is having extreme negative effects on their economy. It’s kind of a mutually assured destruction game right now.”

Do tell. Here’s another headline, from yesterday:

U.S. farmers suffer ‘body blow’ as China slams door on farm purchases

Chinese companies have stopped buying all U.S. agricultural products, China’s Commerce Ministry said yesterday. All of them. And we might remember that last year Vladimir Putin said Russia was ready to provide China with all the agricultural products it wanted. One wonders if it was Putin who put the trade war idea in Trump’s empty head.

Here’s another headline, from Steve Benen at MSNBC:

‘A body blow’: farmers grow frustrated with Trump’s trade failures

The president occasionally singles out parts of the country he doesn’t like, but he clearly sees farmers as being on Team Trump. In January 2018, he spoke at the American Farm Bureau’s annual convention, where the Republican strutted like a man who assumed he was among adoring fans.

“Oh, are you happy you voted for me,” Trump said, straying from the prepared text. “You are so lucky that I gave you that privilege.”

A year and a half later, many farmers are increasingly desperate – and openly skeptical that their president knows what he’s doing.

For his part, Trump has already approved a couple of bailouts for the industry – some of the money ended up going to foreign companies – and the Republican suggested this morning that he’s prepared to do a third.

The president added in his tweet that American farmers “know that China will not be able to hurt them,” which is plainly wrong, since Trump’s trade war has already hurt them.

Trump often praises farmers for being “patriotic,” which in his mind seems to mean they will stand by him no matter what. Farmers have stuck with him a lot longer than I thought they would, but there’s always a breaking point, and we might have reached it. From Yahoo Finance:

U.S. farmers are exasperated by latest trade war moves: ‘Another nail in the coffin’

“This is just another nail in the coffin,” Tyler Stafslien, a North Dakota-based soybean farmer, told Yahoo Finance. “To see this thing only seems to be getting worse rather than better is very concerning, and the American taxpayers may have to foot another round of funding if this keeps up — or we could see a ton of farmers’ loss throughout this nation.”

American Farm Bureau Federation President Zippy Duvall said that the pain extended across the country.

“China’s announcement that it will not buy any agricultural products from the United States is a body blow to thousands of farmers and ranchers who are already struggling to get by,” Duvall stated.

So, Trump’s trade war is causing extreme pain in large parts of the U.S., and Trump doesn’t understand this or doesn’t care. Chinese leaders probably do realize the pain they are causing but are sticking to their long game.

The stock market is up a bit today, and the financial press is bubbling with all kinds of feel-good stories about “corrections” and August often is a bad month for stocks anyway, etc. But they were bubbly and optimistic until the day Lehman Brothers failed, too. See also:

Economy may be weaker than generally recognized

Keep some money in a safe place, folks. Like maybe your sock drawer.

11 thoughts on “The Coming Economic Meltdown

  1. Farmers can go screw themselves with a rusty chainsaw after their gullibility and hate inflicted Trump on all of us. We can look forward to them hoovering up boosted farm subsidies while carping about welfare and socialism.

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  2. Well, given Trump's history and his I'm going to beat you into submission attitude I don't expect his trade war to be a big success.

     Come, let us reason together?

    Trump is a classless bag of shit who has always had someone to pick up the pieces for him.

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  3. Trump has no idea how this works. Here is what China did, from The Week:

    "When China's central bank engineers a drop in its currency, what it's doing in concrete terms is buying up financial assets denominated in U.S. dollars. That increases demand for the dollar, hiking its value relative to the renminbi."

    What that means is that China strengthened the dollar relative to the renminbi (aka yuan). That tends to cancel out the effect of the tariffs, so the many companies who import stuff from China are better off now with the stronger dollar.

    If the USA wanted to, they could do the same to China, strengthening their currency relative to ours. That wouldn't sit well with Trump, though, who no doubt thinks having our currency stronger is better for us, because stronger is better. He will never get that to help farmers sell stuff to China, the dollar needs to be weaker. That is also how you move toward balanced trade.

    Trump will probably just do more tariffs, because he thinks that is the way to balance trade, even though it is all about currency exchange on the global market, and tariffs just mangle things up for a while until all the readjustments are made to work around them.

    As for calling China a manipulator, I doubt they will get very far with that, as the USA imposed tariffs. China is justified in revaluing their currency to reflect that market development, which is not supposed to happen between trading partners in the first place.

     

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  4. The Trade War kerfuffle is just the spark to blow up the bubble(s) created by the Tax Cuts for the Rich a couple years ago.  That created a Keynesian bubble, particularly at the high end of the economy.  The 1% already had plenty of money, so the new $ from the Tax Cut all got plowed into high-end assets (Art, NYC Real Estate, private jets & islands, etc), inflating prices for those kinds of things. 

    That works fine for a while (GDP up! NYSE up!), but the FIRE sector (Finance, Insurance, & Real Estate) has sucked up so much capital that the real economy (farmers, factories, etc) has stagnated for lack of investment.  After a few years (like now…), some Wall Street lemmings notice that there is a cliff up ahead, and they start moving (big) money from Equities (stocks) to Bonds. 

    When the Lemmings run away from Stocks, they drive up the price of Bonds, which lowers the effective yield (net interest earned once the Bond pays off).  It's gotten so bad that Government Bonds for a dozen (mostly European) countries currently have NEGATIVE yield – which means that a bunch of people with lotsa money are so desperate that they are willing to pay $101 today for a bond which will pay $100 ten years from now:

    https://wolfstreet.com/2019/08/06/financial-world-gone-nuts-15-trillion-negative-yielding-debt/

    …which is just plain crazy.  Why would anyone buy into a deal like that?  Only because it's relatively safe, compared to stocks. 

    Bottom line: stock market bubble is about to pop.  Trump's Trade War bluster just hastens it a bit. 

    We're screwed.  But the sooner it pops, the better: (1) the bigger the bubble, the worse the crash, and (2), a crash now will (almost) guarantee Democratic wins in 2020. 

    And again: Trump is just a symptom (albeit, an icky one, a true festering sore); but the disease is the GOP.

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  5. In the 30s and 40s, reform included assistance to the needy and limits on what banks, corporations, and individuals could do. Particularly post-WWII, tax rates on the rich were WAY higher than any Democrat has proposed. (There were also like 20 tax brackets.) The problem with moderate Democrats is that their philosophy includes assistance for the needy but won't incorporate serious reforms.

    Up until the Great Depression, Republicans ruled and the average middle-class person believed it was great. The bubble burst and the public (not the fat cats) bore the brunt of the poverty. When the you-know-what hits the fan, expect a huge corporate shift to support Democrats but watch which ones they endorse.

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  6. Trump is really trying to run the government like his business. So who needs scientists data collectors regulations bureaucracy that is really necessary. Mulvaney is glad to help him. So trump really believes tariffs will make money for instance. He owes the city of el Paso 569,000. True to trump.org he stiffs everyone everything he uses. I truly expect an economic down turn. 

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  7. At this point, ? I'm pretty much… ?

    Speechless. ?

    And you all know how rare it is for me to be speechless. ?

    The horror… ?

    The horror… ?

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  8. “We’re learning that maybe China has a higher pain threshold than we thought here,” said Stephen Moore, who was an economic adviser to Trump during the 2016 election and remains close to the White House.

    This sounds like the same people who thought it would be a good idea to drop a "small" nuke on North Korea's missile test grounds. Give him a bloody nose and let the bully know he can't intimidate you. How in the hell do these people manage to get their shoe laces tied in the morning? They have servants to do it for them?

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    • Translation: "We thought the Chinese would be smart enough to give us everything we want and get nothing in return, but they just don't get it."

       

      It's the flip side of the GOP standard "If black people weren't so stupid and lazy they'd realize Democrats are the real racists."

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  9. All those farmers who called Obama a socialist tyrant for bailing out the Auto industry, now cash their pitiful welfare checks instead of selling soy.

    I wish them nothing but ill.

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