December 29, 2018

"IF ONLY I DO ENOUGH DAMAGE NO FOREIGNERS WILL WANT TO COME HERE!"

President Trump is flirting with mutually assured economic destruction (Nouriel Roubini,  Dec 28, 2018, Project Syndicate)

Despite corporate earnings growing by over 20% (thanks to the tax cuts), U.S. equity markets moved sideways for most of the year, and have now taken a sharp turn south. At this point, broad indexes  are in correction territory (meaning a 10% drop from the recent peak), and indexes of tech stocks, such as the Nasdaq, are in bear-market territory (a drop of 20% or more).

Though financial markets' higher volatility reflects concerns about China, Italy and other eurozone economies, and key emerging economies, most of the recent turmoil is due to Trump. The year started with the enactment of a reckless tax cut that pushed up long-term interest rates and created a sugar high in an economy already close to full employment. As early as February, growing concerns about inflation rising above the Federal Reserve's 2% target led to the year's first risk-off.

Then came Trump's trade wars with China and other key U.S. trade partners. Market worries about the administration's protectionist policies have waxed and waned throughout the year, but they are now reaching a new peak. The latest U.S. actions against China seem to auger a broader trade, economic and geopolitical cold war.

An additional worry is that Trump's other policies will have stagflationary effects (reduced growth alongside higher inflation). After all, Trump is planning to limit inward foreign direct investment, and has already implemented broad restrictions on immigration, which will reduce labor-supply growth at a time when workforce aging and skills mismatches are already a growing problem.

Moreover, the administration has yet to propose an infrastructure plan to spur private-sector productivity or hasten the transition to a green economy. And on Twitter and elsewhere, Trump has continued to bash corporations for their hiring, production, investment and pricing practices, singling out tech firms just when they are already facing a wider backlash and increased competition from their Chinese counterparts.

Posted by at December 29, 2018 6:22 PM

  

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