When the downturn?

The question isn’t whether we’re going to have an economic downturn–it’s “when.”
And predictions are all over the board.
Full employment, low inflation, and continued consumer spending make most of us feel pretty good about the economy.
Yet, economist Raul Elizalde, writing in Forbes magazine last December, predicted a 2019 recession and claimed retail sales, industrial production, and employment don’t indicate the future.
“Forecasters,” he said, “are generally blindsided by recessions, precisely because they tend to be preceded by economic strength.”
In a way, it makes sense.  A slow economy may go up or down. But an economy going full bore, will eventually slow down.
The United States is now in its 122nd consecutive month of economic expansion. The average expansion from 1945 to 2007 lasted 57 months; the longest was 120 months.
We are overdue for problems. So those people with lots of money in cash investments are nervously watching for a downturn. (Those of us whose homes are our major investment, don’t have options. It may be the best time to sell, but we have to live somewhere.)
But many of the rich–richer than ever with money from the 2017 tax cut–are watching for the time they need to switch from investments that are rising to stable ones. Bonds don’t lose value like stocks do.
So, when Germany and China announced economic downturns this month, many investors jumped from stocks to 30-year bonds that offer only a 2.5 percent gain per year.
Seeing that,other investors were spooked enough to pull money from the market. On August 14, stocks dropped 800 points in one day.
The “crash” in 2008 was 778 points.
And no one in power wants to say the sky is falling because they don’t want to generate fear among more people.
An Aug. 20 article in Moneywise looked at 12 indicators of a coming downturn and found four were good, five were about level, and three, including the surge in bond buying, were bad.
So I won’t say the Trump Administration is causing a downturn.  The tariff wars have hurt, especially in farming communities, but inflated assets and fear cause economy-wide downturns.
But the administration’s tax cuts and trade wars have left us with no weapons to battle a recession when it does happen.
Two tools the country has to battle a downturn are a) increased government spending and b) lower interest rates.
A year ago, the nation’s July deficit was $77 billion; this year, $120 billion. With two months left to go, this year’s deficit is $866.8 billion. It will top $1 trillion–and possibly double Obama’s last deficit.  .
Obama’s early deficits were large. With unemployment over five percent, tax revenues didn’t return to the 2007 amount until 2013.
Now, with low unemployment we should see shrinking deficits instead of some of the largest ever.  And we can blame the Trump tax cuts of 2017. Everybody knew it wouldn’t generate enough revenue to pay for itself–no tax cut in the last 50 years has.
So can we lower the interest rate a whole lot?
Fat chance.
When the government needs to borrow an astounding amount, it competes for investment dollars with enterprises around the world; we have to pay a competing rate.
Do you know anyone who can loan the U.S. trillions of dollars?
China was the key to covering the last recession.
That country, however, is having trouble enough dealing with an economic decline being blamed on the Trump trade wars.
I don’t know of a solution, but we need to get people in charge who understand where the country is hurting and want to fix it

Note this editorial by Judy Ferro published by Idaho Press – 2019

Economic news – good or bad?

Sure, it’s the season to be jolly and extend good will toward all, but the recent economic news isn’t making it easy.

Nearly full employment put grins on many faces last month and gave the President positive poll ratings on economic management. Now pundits explain that the federal deficit is soaring up to recession levels–$779 billion–and low unemployment means new jobs won’t be bringing it down much in the future.

Senate majority leader Mitch McConnell says we have no choice but to cut Social Security, Medicare, and Medicaid. Voters–even Republican voters–tell pollsters they’d rather send the 2017 tax law down the drain. And they have yet to see if the new withholding rates still leave them a refund. They were designed, after all, to boost the economy prior to the midterm elections.

The worst news, however, stems from increased tariffs on foreign goods and the retaliatory tariffs placed on U.S. exports.

GM says it will be closing five plants and laying off 14,000 workers because of the added expense of importing steel and aluminum plus and the added taxes on U.S. vehicles abroad. (Some hope that the announcement is meant to get concessions from workers, but wage and benefit cuts could hardly offset the tariffs.)

A 20 percent drop in the export of  frozen potatoes to Mexico was topped by a 51 percent drop in dehydrated potatoes sold to China. Word is that a poor potato harvest in Europe is helping farmers stay afloat.

Soybean farmers lost about $12 billion in sales to China, and a doubling of storage costs have forced many to plow under their crops.

Tesla, 3M and other manufacturers see tariffs adding tens of millions of dollars to their costs. A government report indicates the drop in trade cut the third quarter gross national product by 1.5 percent.

These short-term problems were anticipated.

Does the long-term look better?

President Trump has said tariffs would bring manufacturing back to the United States. Although many politicians talk about creating jobs, most focus on infrastructure and education.  Few dream that companies would give up the cheap labor costs overseas.

Some might, though, if they were assured that tariffs would stay high.

But that’s not happening.

Trump’s major reason for the tariff increases was to push for more favorable trade terms for the United States.  Some of the agreements seem lopsided enough that one might suspect negotiators wanted to see jobs grow abroad so fewer people would be dying to get to Europe or the United States.

And new treaties are in the making.

Canada, Mexico and the United States signed a treaty in Argentina Friday. Reports are that the terms aren’t much different than NAFTA’s. We will learn more when the treaty goes before Congress for approval.

And China and the United States have at least agreed to stop escalating their  conflict. The administration won’t be increasing existing tariffs on $200 billion of Chinese imports from 10 percent to 25 percent on Jan. 1 or adding tariffs to an additional $287 billion of Chinese products.

President Trump’s goal is good, but wielding tariffs like a big stick is a style America hasn’t used since becoming a superpower. It seems primitive and apt to backfire. But If China does open markets and honor our patents, however, President Trump will deserve some kudos.

Note this editorial by Judy Ferro published by Idaho Press – 2018

 

 

100000