February 27, 2019 Patrick Oliver-Kelley

There is a high likelihood for economic trouble in 2019. Borrowing costs are rising and debt is soaring. The underlying weakness, as ever, is debt and avoiding harm is tricky. American economic policy is not helping. Our country’s budget deficit will approach 6% of GDP, the highest the country has seen, not fighting our way out of a war or a recession.

America’s expansion could shortly reach 121 months, the longest ever. (Trump has been president for 25 of those months, so his bragging rights are for staying out of the way!). The yield on ten-year governments has been climbing. Higher yields are often bad news for stock markets. With unemployment rate around 4%, the country was in a recession in less than a year later.

Trump’s trade war with China has high stakes. His tariff hikes alone could shave several tenths of a percentage point from our GDP growth, delaying them, only delays the pain. The greater effect will be on business confidence, business does not like uncertainty. A global downturn is not inevitable, pent-up demand may extend the business cycle a bit longer. An American recession, in any case, won’t begin until the back of 2019. But signs of stress are evident and the world has never escaped the reckoning that comes from rising interest rates, excessive borrowing and risky policies. It will not this time either.

Trump has divided America and dominated world affairs to a degree that has no modern precedent. His style – diplomacy via tweet shows his contempt for conventional norms. His world-view – a zero sum, grievance laden, mercantilism – racially tinged nationalism – marks a wrenching change from our country’s post WWII role.

His critics think he’s been a catastrophe, threatening the fabric of American democracy. He is economically illiterate, morally bankrupt and geo-strategically short-sighted.

His supporters think he is Tough Trump, boorish and embarrassing but “our Boor”. He is someone who brought a roaring economy and called time out on an outdated global order.

At best Trump can be credited with modest tweaks that to the narrow mercantilist American self-interest, amount to modest negotiating successes. Trumpism seems more of a strategy of simply smashing the international order, making mini-deals to tilt its terms, declaring victory and moving on.

In 2019, the other shoe will drop.

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