The Trump Presidency May Have Just Entered Its ‘Endgame’

My Comments: I’ve practiced as a financial planner and investment advisor for over 43 years. During those years I’ve held myself to what is known in law, medicine, accounting, and other professions as a fiduciary standard. Simply stated, our actions and behavior must be legally, morally, and perhaps ethically, in our client/patients best interest. Period.

This president, and by extension his administration, is so far removed from a fiduciary standard that it’s hard to understand how it continues. Had I behaved toward my clients as he’s behaved on behalf of you and I here in the United States, I would have long since been deprived of my licenses to practice.

For anyone with a basic understanding of economics, the seemingly mindless behavior coming from Trump and his minions is more than alarming. What’s in our best interest as a nation has long since left the building.

8/23/19 by Mark Zandi for the Philadelphia Inquirer

Capping off a week of truly shocking incoherence and lunacy, the Trump administration Friday provided us all with a telling glimpse of how this fetid presidency will finally, in all likelihood, meet its end. It won’t be through impeachment or some chimeric application of the obscure and, practically speaking, useless 25th Amendment, but through the simple and relentless onslaught of economic cause and effect.

In a brutally straightforward article for the Philadelphia Inquirer, economist Mark Zandi explains where we are now, and why.

The risk of recession is uncomfortably high and rising. President Donald Trump’s trade war is the proximate cause of what ails the economy. Indeed, if the president follows through on his most recent threat to raise tariffs on Chinese imports, the odds of a downturn between now and this time next year are better than even.

The economy’s growth has already slowed sharply. Real GDP and job growth have throttled way back from this time last year, and unemployment is no longer declining.

The slowdown is due, in part, to the winding down of the deficit-financed tax cuts. The president had argued that the tax cuts, which went mostly to corporations and wealthy households, would significantly lift long-term growth. Not so. The stimulus from the tax cuts has already faded.

Had Trump been intelligent enough to leave well enough alone, he just might have eked out re-election solely by running on the resilient economy he inherited from President Obama. The tax cuts he passed for the nation’s wealthiest also provided a temporary shot of adrenaline that might just have lasted long enough to avoid the cyclical (and historically normal) downturn that always loomed on the horizon.

But because he couldn’t contain his own mental instability, an instability that this week’s atrocious behavior all but confirmed, he couldn’t leave well enough alone. Instead, he started a pointless trade war with China, and the economic condition of the U.S. suddenly became a hostage to an irrational policy in the hands of a single unstable, autocratic, and above all incompetent person.

We’re long past the point where the trade imbalance between the U.S. and China provides any real pretext to Trump’s actions, and the media has conveniently dropped the pretense that there was any critical economic necessity for them; the only focus now is on their likely outcome. As Zandi points out, having an inherently unstable person at the helm of the economy has a chilling effect on the willingness of businesses to invest. Two-thirds of CFOs of U.S. companies (according to this Duke University survey) now believe that the country will enter a recession before the end of Trump’s term. Trump’s trade war, his personal volatility, and his unpredictability have resulted in corporations all over the world putting their plans to expand and innovate on hold.

They won’t make big investments. And manufacturers, ag-related industries, and transportation and distribution companies that depend on global trade have pulled back on hiring.

Back over at the Philadelphia Inquirer, Zandi notes that global investor confidence has also plummeted, even as interest rates have dropped, with short-term interest rates now exceeding long-term rates. This is a classic indicator of impending economic recession. If the trade war escalates, consumer confidence also drops: Consumers spend less, creating a downward spiral of decreasing investment, the previously-mentioned increasing nervousness of companies to invest, and an increase in unemployment. As Zandi states, that is the “vicious cycle” of all recessions.

And the Fed can’t ride to the rescue because Trump’s unpredictable behavior makes that impossible. How can the Fed safely predict whether a rate cut will be beneficial in a volatile trade war whose parameters change on a daily basis? It can’t, which is why you see them exercising such caution now, a caution that, as seen Friday, only adds to Trump’s wild irrationality.

Josh Barro, writing for New York Magazine, sees Friday’s events, between Trump’s attacking Fed Chair Jerome Powell as an “enemy” and his declaration that he will escalate even further his tariffs against China, as a watershed moment.

Today feels different. For the last couple of years, there had been a pattern: The president escalates, the markets hate it, then the president finds a way to back off, and stocks go back up. For a long time it looked like the president’s China policy was a negative factor for economy, but its effects were manageable, in significant part because Trump faced political incentives to limit the damage.

Now, as the economy shows signs of weakening (in part for reasons unrelated to the president’s actions) he seems panicked. He wants the Fed to clean up his mess but — despite public perception — his public jawboning of the Fed appears to be having little effect on monetary policy. The main way the president has been affecting monetary policy has been by taking concrete policy actions that hurt the economic outlook, which changes the parameters the Fed considers as it decides how to set interest rates. The bigger a mess Trump makes, the more rate cuts he can get, but not enough rate cuts to actually offset the mess. And this is making him angry.

The last time things appeared to be spinning out of control, Trump announced a delay in his proposed tariffs, postponing them until December (and presumably consigning them to be forever forgotten). But, as Barro points out, the Chinese (who are infinitely more patient, as well as infinitely more intelligent than Donald Trump) took that as a sign of weakness, and announced new tariffs of their own.

As Trump’s “strategy” of taking this country to the brink, then backing off, didn’t work. Instead he decided, on Friday, to escalate. The Dow Jones promptly dropped nearly 700 points. After the market had closed, Trump threatened further increases in tariffs, increasing the likelihood of a sustained stock market collapse next week.

And this is exactly how Barro sees this all playing out, with Trump’s tariffs becoming an unavoidable, self-reinforcing wrecking ball to the U.S. (and global economy), tanking Trump’s presidency—while taking all of us down with it. Barro echoes several of the same points made by Zandi.

[Trump’s] trade policy no longer appears to be self-limiting. In fact, it could be self-reinforcing, where tariffs cause damage and the president tries to “fix” the damage with more tariffs.

It’s also worth considering the possibility that we have gotten too far down the trade-war road for the president to unwind the problems he’s caused. To the extent there are signs of weakness in the domestic economy, they are largely on the producer side. The consumer sector still looks decent. But tariffs and uncertainty over future tariffs have already discouraged businesses from producing and investing. And China has less reason to participate in a de-escalation than they did a year ago, since they can just ride out the next year and hope to be facing a new, less-hostile president. As Jonathan Chait notes, Xi Jinping doesn’t have to worry about reelection like Trump does.

As China has clearly showed the U.S. that it has no intention of “backing down,” what does our experience with Trump thus far tell us about how he will react? Has he ever, ever, acknowledged his policies for the grotesque mistakes they are? No. He habitually, reflexively doubles down on them. Because, just like any sociopathic personality, Barro notes that he is utterly incapable of admitting that he is wrong.

What the president showed us today is he’s prepared to hit the gas as he approaches the cliff. That should make us all worried about the economic outlook — and it should make Republicans very worried about the political outlook.

It’s arguable whether the human and social costs of a severe, global recession are worth getting rid of a cancer like Donald Trump.  But events are occurring now at a pace that that may render that argument purely academic.