Nel's New Day

August 6, 2019

Indicators Show Slowing Economy

Stock markets finished yesterday with the worst drop this year as Asian markets also badly slipped. As investors look for places to hide, gold prices jumped, and Japanese yen and Swiss franc advanced. They retreated to the 10-year U.S. Treasury bond with a 1.725 percent return while the volatility index temporarily leaped to 30 percent. During the last two weeks, the Dow Jones, down for five consecutive points, fell over six percent since its high on July 15. All 30 Dow stocks and all 11 market sectors went down yesterday, and tech-heavy Nasdaq plummeted 3.47 percent for the fifth worst session ever.

“The losers are anybody with big exposure to China,” said Ivan Feinseth, chief investment officer at Tigress Financial Partners. After Dictator Donald Trump (DDT) said he would levy more tariffs on almost all Chinese goods, China responded by allowing the yuan to slump below to its lowest exchange rate in 11 years on Monday to level the playfield. Chinese rationale is that a weakened currency will offset DDT’s new ten-percent tariffs on all the other Chinese goods already at 25 percent by making the goods more affordable to the world and U.S. exports more expensive for the Chinese. DDT is blaming China and the Federal Reserve for what he calls “currency manipulation.” Last month, DDT tried to manipulate the currency: he asked his aides to find a way to weaken the U.S. dollar to boost the economy ahead of the 2020 election. He also asked about this issue when interviewing Judy Shelton and Christopher Waller for the Federal Reserve Board in another attempt to control the supposedly independent agency.

DDT blames economic problems on the Feds’ not cutting the interest rate, but the Dow Jones dropped almost 300 points after he announced new tariffs on $300 billion worth of Chinese imports—taxing everything that people in the U.S. buy from China. New tariffs bring additional annual purchasing costs for the average U.S. family to about $1,000. His tariff announcement polished off two days of trade talks between the two countries. https://time.com/5642373/china-countermeasures-trump-tariffs/  China promised “countermeasures” because DDT violated the agreement with President Xi Jinping, and the global stock markets turned red. DDT’s trade adviser Peter Navarro, who Jared Kushner found on Amazon.com, said, “We love tariffs. Tariffs are a wonderful thing.”

Farmers, frustrated by their severe losses after DDT’s trade war are turning against him. They’ve already received $16 billion, but DDT is promising them more welfare. His growing unpopularity, however, may come from the fact that over half of DDT’s welfare to farmers after the tariff debacle went to ten percent of recipients: 82 farming operations each received over $500,000 through last April from the $8.5 billion in payments. DeLine Farm Partnership of Charleston (MO) already got $2.8 million. The top one percent of farmers received an average of $188,000 compared to the average of under $5,000 for the bottom 80 percent. Anyone can receive payments if they make “management decisions” even if they don’t live or work on a farm, and thousands of them live in the nation’s biggest cities. A searchable database covered only direct payments to farmers and not other programs, including commodity purchases and export promotion assistance, that was part of the $12 billion payoff after DDT’s tariff program.

DDT had promised farmers that China would buy more U.S. farm products, but he has now admits that agreement never existed. There never was a record of Chinese purchases of U.S. soybeans, meaning far more losses on this year’s crop as well as the ones in reserve that survived last spring’s flood. Farmers face record foreclosures, and former DDT economic adviser said that DDT’s tariffs do more harm to the U.S. than China, who now buys its soybeans from Russia.

Following DDT’s 25 percent tariff on metal imports last year, US Steel idled two furnaces and lost $5.5—70 percent—of its market value. Last March, GM closed its Lordstown (OH) car plant after union workers gave up an annual $118 million to save the plant 18 months earlier. Negative ripples through Ohio’s economy included the closure of Falcon Transport.

Today, the Dow gained back about 20 percent of the 1,500 points it lost since last Tuesday, but it’s still lower than DDT’s initiation of his trade war in early 2018. Economic problems disprove DDT’s arrogant and ignorant claim 17 months ago that “trade wars are good, and easy to win.” All DDT’s advisers except China-hating Peter Navarro opposed the tariffs, and China is determined to project strength by not backing down. Late last week, DDT the bully said “it would be fine with me … and save a lot of money” if China doesn’t trade with the U.S., but he’s failing.

DDT’s goal to postpone a possible recession until after the 2020 election may not succeed. As the Treasury notes dropped to 1.7 percent, Bloomberg published its concern under the headline, “Yield Curve Blares Loudest U.S. Recession Warning Since 2007.” The temporary drop of 32 basis points less than three-month bills led to the biggest yield-curve inversion since the introduction to the 2008 crisis. In good times, the bond’s yield of interest after full term is bigger in longer terms. An inversion means that a three-month yield can be higher than a ten-year yield. This situation is not a cause of a recession; it can be a predictor of nervous investors and devastation of the economy.

The Republicans constantly tout current economy as the best it’s ever been, but DDT insists on interest rate cuts, a practice reserved for economic emergencies, and got a .25 percent reduction in the interest rate—the first one in the real 2008 emergency. Near-zero interest rates are an emergency measure, but the Federal Reserve may cut rates because they’re afraid that they’ll be a target during the 2020 campaign if the economy starts to suffer—as many economists predict. Anti-Fed sentiment could then cause its elimination. Cutting rates is a safe position for the Feds. Even so, DDT sulked about how small the cut was last Wednesday, and the Dow Jones market dropped by 333 points on the same day. Fed Chair Jerome Powell did not promise “a long series of rate cuts, and DDT blames him for not stimulating the economy after DDT caused problems with his trade war. DDT wants an artificial boost in the economy for his campaign next year. After that he doesn’t care.

Last week, DDT said he was waiting for a trade deal until after the 2020 election, but a few days later he tweeted he would be tougher with China if they waited and that he might never agree to any deal. Economists agree that DDT’s trade war is dragging down growth; it stops business investing and drives up costs, removing any advantage from tax cuts.

DDT will keep getting his prime interest cuts to benefit his personal loans. Trade wars weaken the economy, the Feds will cut the interest to help the economy, DDT will step up the trade war, and it all goes in a circle. The steep and steady decline in U.S. share of international travel from the trade war is expected to last until at least 2022.

Congress has passed a two-year budget bill that raises the debt ceiling for at least two years, which DDT claims “gets us past the Election. Go for it Republicans, there is always plenty of time to CUT.” That comes from the man who has increased the national debt by $2 trillion—20 percent—in his first two years. During President Obama’s two terms, Republicans constantly complained about expenditures, but they returned to former VP Dick Cheney’s position during GOP control that “deficits don’t matter.” In the Senate vote of 67-28 for the bill, 23 Republicans and five Democrats voted “no.” The House vote for the DDT-supported bill was 284-149 with one independent, 16 Democrats, and 132 Republicans voting against it. Now members of Congress can leave town for several weeks, knowing that they are saddling their children and grandchildren with more debt. In the new law, the gap between revenue and expenditures remains about $1 trillion a year.

People shouldn’t give a sigh of relief that a shutdown isn’t eminent. Because Congress is gone until September, it will have only two weeks to pass 12 government funding bills or a continuing resolution (CR) to extend the time limit. The House has passed 10 of these bills, but GOP senators may oppose them. The first markup is due on September 12 for the Senate Appropriations Committee, and the12 bills may have thousands of pages for argument. And DDT’s wall may come back into play.

The 164,000 extra jobs in July looked good, but revised figures for May and June came out with 41,000 fewer jobs, lowering the total number of the year. Plus industries dropped the workweek from 34.4 to 34.3, back to September 2017 which made the number of new jobs almost zero. GDP also fell to 2.1 percent in the second 2019 quarter from 3.1 percent in the first. The prediction for the third quarter is 1.9 percent annualized rate–far below DDT’s rediction of 3 percent to four percent. 

Far-right Steve Bannon falsely claimed that the large number of people to be killed in the El Paso Walmart proved how great DDT’s economy is. Connecting a mass shooting to the economy is evil, and Bannon is wrong. People were shopping back-to-school items. After this, the threat of mass shootings may move them online for purchases.

 

 

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