Are we headed for a recession?

Are we headed for a recession?


Yes, we are headed for a recession, it’s a natural part of the business cycle, and we’ve been growing our way out of the Great Recession for the past 10 years. When will it hit us? No one really knows, the best guesses are some time in the next two years, more likely towards the end of next year although some commentators think we may already be there. The economic indicators suggest that the manufacturing sector is already in a mild recession. The winner of the 2020 Presidential election could have combating a recession as the top national priority, and we have no way of knowing whether it’s mild or severe, short or longer lasting.


Did Trump cause it? Yes, in part through his trade wars with China, with Europe and with many of our trading partners, but it was bound to happen as part of the business cycle. He has disrupted global trade supply chains, disrupted business confidence and a sense of a stable known market in which to make business investments. This is counteracting his tax cuts, which stimulated the economy and were supposed to lead to remarkable growth in business investments. This didn't happen, and instead businesses engaged in stock buybacks because of the global trading uncertainty as to what do with their cash. At this point he seems just congenitally unable to make a deal with China, possibly because his re-election campaign could take a hit with blue-collar manufacturing workers, or due to his own inner gut feelings. Whatever the cause, he already produced a huge market sell-off last week with his proposed tariffs, just as he was touting his economic acumen. If his friend Boris Johnson does a hard Brexit, this will roil global trade and could trigger a severe recession in England that may have ripple effects in Europe where growth has already slowed and the US.


Trump is aware of the economic indicators and is searching around for whom to blame --  Jerome Powell, China, Democrats, the Squad. He is also looking for approaches that can assure his re-election next November – Federal Reserve rate cuts, further tax cuts, cutting trade deals while he still has some leverage left. He has already ballooned the deficit with his tax cuts and the recent budget deals, so there is not a lot of wiggle room left in spending stimulus. And China holds a lot of our IOUs; in other words they have leverage depending on how they want to use it. Consumer spending is holding up the economy and job markets are steady for now, but if Trump’s tariffs on consumer items kick in, consumer spending is going south.


American farmers have lost markets and are being bailed out by Trump’s farm subsidies; it is unclear how much longer family farms can tolerate this loss of markets and the uncertainty that if they grow it, someone will buy it. That’s why John Deere equipment sales and stock prices took such a tumble this past spring. If American farmers lose confidence in Trump (they have not yet), his re-election prospects take a steep decline. China’s latest round of tariffs are clearly designed to heighten Trump’s exposure on the Midwest’s farming and automotive sectors.


The economic indicators do not yet warrant a Fed rate cut despite Trump’s bullying. The tax cuts would have a tough time in Congress when our budget deficits have grown so substantially under Trump after steadily receding under Obama. His path of least resistance is to make the trade deals that he so abhors while he still can make a difference in the prospects of the American economy. However his track record of making sound business and economic decisions is very poor. This is not a Warren Buffet or a Steve Jobs who have created great value in the American economy, but rather a developer of luxury golf courses and gilded hotels, a reality TV personality who ran many of his businesses into the ground and into bankruptcy and stiffed his creditors and suppliers. He has shown to date a poor track record of retaining top talent in his Cabinet and staffing appointments and is surrounding himself with “acting” top officials more likely to do his bidding; he is not well-situated to get sound economic advice that contradicts his gut.


Prepared by: Lucien Wulsin

Dated: 8/22/19

PS: Now we are getting into the beyond crazy category with the President ordering American businesses to get out of China. He is not an Emperor or King and hopefully not a President for too much longer.

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