According to Nobel Prize-winning economist Paul Krugman, the reeling bond and stock market are the report card by which Donald Trump’s stewardship of the economy is faring and all indications are that his so-called “Trumpanomics” is a giant failure.
In his column for the New York Times, Krugman began, “Last year, after an earlier stock market swoon brought on by headlines about the U.S.-China trade conflict, I laid out three rules for thinking about such events. First, the stock market is not the economy. Second, the stock market is not the economy. Third, the stock market is not the economy.
But maybe I should add a fourth rule: The bond market sorta kinda is the economy.”
“An old economists’ joke says that the stock market predicted nine of the last five recessions. Well, an inverted yield curve’ — when interest rates on short-term bonds are higher than on long-term bonds — predicted six of the last six recessions,” he added b before noting the market has moved into that territory now.
Pointing out the “wave of gloom” that is now hovering over the world’s markets, Krugman pointed the finger directly at the president when it comes to who is primarily to blame.
“Yes, [Trump’s] tax cut gave the economy a boost — a ‘sugar high,'” he explained. “Running trillion-dollar deficits will do that. But the boost was temporary. In particular, the promised boom in business investment never materialized. And now the economy has reverted, at best, to its pre-stimulus growth rate.”
Conceding that “Trump isn’t the only problem here,” Krugman said the president’s previous policies — including ruinous tariffs that are crippling farmers and manufacturers alike — are now water under the bridge and the greater worry is that he and advisors have no idea how to put out the economic fire they set.
Even if Trump and company aren’t the source of all of our economic difficulties, you still want some assurance that they’ll deal effectively with problems as they arise. So what kind of contingency planning is the administration engaged in? What are officials considering doing if the economy does weaken substantially?” he asked before answering his own question.
“The answer, reportedly, is that there is no policy discussion at all, which isn’t surprising when you bear in mind the fact that basically everyone who knows anything about economics left the Trump administration months or years ago. The advisers who remain are busy with high-priority tasks like accusing The Wall Street Journal editorial page of being pro-Chinese,” he quipped.
“Now, a word of caution: Bond markets are telling us that the smart money is gloomy about economic prospects, but the smart money can be wrong. In fact, it has been wrong in the recent past. Investors were clearly far too optimistic last fall, but they may be too pessimistic now.
But pessimistic they are” he added as a caveat before warning, “The bond market, which is the best indicator we have, is declaring that Trumponomics was a flop.”
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