Franklin, Andrews, Kramer & Edelstein

[scion]

US prepares to hit the wall as reckless Trump undoes years of hard work

The president’s $1tn tax cuts gamble hasn’t worked – the House of Representatives has been lost, the economy has imploded and the stock market has tanked

Sun 23 Dec 2018 03.00 EST
https://www.theguardian.com/business/2018/dec/23/us-hits-wall-trump-undoes-hard-work-economy

The accomplishments of a US president’s first year in office can be credited to his predecessor, at least where the economy is concerned. And Donald Trump was handed the best performing economy on the planet. All the tough decisions – to refinance the banks, rescue the car companies and deflate the real-estate bubble – had been made. The stock market was tearing along, setting records almost every week.

Trump gave this rising balloon extra air with $1tn of tax cuts. It was borrowed money, but no matter. The economy sailed along for another year and the stock market carried on rising. His plan was to win the midterm congressional elections and then persuade the Republican party to give him another $1tn, or as near to it as possible.

In other words, he would use another pile of borrowed cash to pump up the economy again, hoping against hope that it would not blow up before his re-election.

Without control of the House of Representatives, his plans are in ruins. And that was obvious to stock and bond traders, who followed the vote in November by putting a sell sign over their maps of America.

December has proved to be the worst month for shares in many decades. Oil prices have slumped and the market is expecting worse to come in the new year.

The reasons for pessimism are piling up. From the Atlantic to the Pacific, US home sales are struggling, with agents reporting that there are not enough buyers and asking prices are not being met.

A measure of private-sector activity showed the US economy slipped to its lowest growth rate for 18 months in December, hit by declining car sales. Meanwhile, the Federal Reserve deems the strength of the economy to be enough to withstand several more rate rises. There was one last week and at least two more are expected next year.

Analysts told investors that the impetus from Trump’s tax cuts were running out, and without anything to replace them there needed to be a lift from trade.

However, in China, Xi Jinping’s rebalancing of the economy away from highly subsidised smoke-stack industries towards greater consumer spending is not going so well. Several times he has been forced to allow higher borrowing to keep businesses and consumers from declaring themselves bankrupt.

There are plenty of analysts who believe the control accrued by the Chinese Communist party will provide the government with the levers to eventually carry through its plan.

But in the meantime, the world’s second largest economy and biggest source of imports to the US is troubled and its previously formidable manufacturing engine is spluttering.

Europe was looking like a saviour earlier this year when GDP figures showed a healthy level of growth across almost the entire continent. Yet a slowdown is already in train, partly Brexit-related and partly in response to China’s woes, which have hit German exports hard.

And in recent days Trump has given markets something else to worry about – building the wall. His threat to shut down the government if Congress refuses to provide him with the money for a pan-American border fence with Mexico has spooked traders.

This reckless threat was preceded by the surprise decision to pull US troops out of Syria. If Trump could make such a move without consulting important allies, then perhaps he was capable of the “long shutdown” he has promised in his tweets.

With ever fewer calming voices in the White House to rein in the president’s wilder excesses, it’s understandable that the finance industry is jittery about the prospects for 2019.

https://www.theguardian.com/business/2018/dec/23/us-hits-wall-trump-undoes-hard-work-economy