Will Trump take responsibility for the next recession?

I've long thought that the course of America's gigantic economy can't be blamed fully on or credited to a single person, even if he is the powerful president of the United States.

But he can do his share to boost or screw up the economy. We saw it when Donald Trump was elected and raised expectations to such a degree after Barack Obama's anti-business administration that the economy blossomed.

True, the tax cuts and the oppressive regulatory atmosphere helped. But the economy moves in one direction or another based on expectations.

And now the expectations are not so good. Trump's tariff's war already has ignited realistic fears that a recession is ahead. While Trump supporters blame Democrats for stoking those fears for political purposes, the fear is real.

Consider this, from the Wall Street Journal: "U.S. Factory Activity Shrinks for First Time in 3 Years: Sagging manufacturing in August, burdened by trade tensions, sends markets lower."

The report—coming after data pointing to contracting factory activity in the U.K., Germany, Japan and South Korea—fueled fears that a manufacturing slowdown elsewhere in the world had reached the U.S.

Trade was “the most significant issue” for the U.S. purchasing and supply executives surveyed in the monthly report, said Timothy Fiore, chairman of the ISM’s Manufacturing Business Survey Committee.

“Respondents continued to note supply chain adjustments as a result of moving manufacturing from China,” he added.

Aside from the very real damage that the tariffs have done to some economic sectors, Trump's trade war policy has created a climate of growing uncertainty and it's often said--correctly--that business does not do well in the face of uncertainty.

Add to that the growing debt. Yes, federal indebtedness still is a

The history of U.S. debt and its outlook according to the Congressional Budget Office.

The history of U.S. debt and its outlook according to the Congressional Budget Office.

problem, growing ever more worse. The disappearance of the Tea Party only resulted in the crushing debt hiding out of the spotlight.

It's not "if" a recession will arrive. It's "when," something that's self-evident. Just so with a Hill article: "With a growing debt, a fiscally responsible blueprint is needed to handle the next recession." It said:

Today the federal funds rate is only 2 percent, meaning there is little room [for the Federal Reserve] to cut and much of the onus for fighting a recession will fall on fiscal policy.

Yet fiscal space, too, is not what it used to be. Today debt is at 78 percent of GDP—already a post-war era record — and we're borrowing $1 trillion per year in good economic times. On our current path, debt is on course to eclipse the size of the economy in about a decade and reach unprecedented levels thereafter.

That doesn't mean we're out of fiscal space—the United States is still among the safest investments in the world and we should be able to borrow more for the next recession if we need to. But there is a large risk that another huge run up in the debt could leave the U.S. with untenable debt levels and all the problems that come with it—depressed economic growth, too little maneuvering room in our budget, and less room to keep fighting future recessions.

Think about it: The last time the national debt exceeded the gross domestic product was during World War II, when America and Western democracy were literally fighting for their lives. Today we face no such challenge; it is an era of prosperity.

Even though younger generations don't think they can learn anything from history, let us recall the  protectionist Smoot-Hawley Tariff Act of 1930  import duties to shield  American businesses and farmers from imports. The higher tariffs are widely acknowledged to have contributed to the Great Depression.

Today, it's a topsy-turvy political world. Republicans traditionally have supported open markets while Democrats have been the ones demanding protectionist tariffs. Today it's reversed, because Trump is imposing them.

The Great Recession was, at heart, a failure of excessive borrowing and indebtedness. Not that we're there yet, but we're heading that way.

dennis@dennisbyrne.net

www.dennisbyrne.net 

My historical novel: Madness: The War of 1812

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  • Neither Hoover or FDR accepted responsibility for the Great Depression, so I doubt that Trump will put any recession on his resume.

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