Trump and his cult of followers are fond of bragging about the economy. Trump often calls it the best economy maybe ever! Forget the fact that Obama brought us out of an economic depression and set us on a steady economic trajectory that we have barely deviated from under Trump. Remember instead this old presidential saw: “The economy at the beginning of the term is not as important as the economy at the end of the term.”
Trump inherited a great economy but it may not stay great much longer. As this blog detailed recently, the tariffs and the end of the ACA mandate have both taken their toll on our GDP, which is expected to decline this year. But another huge drag on the economy has been the massive debt Trump and the GOP have run up in the wake of their disastrous tax scam. Last week it was announced that the United States posted its biggest monthly budget deficit on record, adding to a deficit for the first five months of the fiscal year 40 percent higher than the same period last year, much of it due to lower tax revenue and increased spending. The treasury will have to pay more to service the growing debt–money that would otherwise be available for social programs or infrastructure.
And the bond market did something last week that has consistently signaled the start of a recession in previous cycles–the treasury yield curve inverted. This means that short-term interest rates went higher than long term rates. The 3-month treasury was paying 2.459% while the 10-year treasury was paying 2.437, meaning that investors expect the economy will be weaker in the future than it is now. No wonder the stock market dropped on Friday, the Dow losing 450+ points. Some of the stock market weakness is tied to lower profits overseas, but much of it is tied to lower expectations for the coming year in the United States.
It’s getting easier to imagine the economy losing steam and harder to see the economy heating up, and this bodes poorly for the Trump train. Today’s economy would be a positive talking point for the Trump campaign, but if tomorrow’s economy is significantly slower it will suck a lot of the air out of the Trump balloon, especially if we lapse into a recession between now and the 2020 election. The Trump cult will have fewer and fewer successes to point to, and while this won’t deter his core of support, it will sour a lot of swing voters and independents. I certainly don’t wish for a recession, but business cycles are inevitable, and they can be shortened or prolonged by the policies of the executive branch. In the case of Trump and his clown posse of economic advisers, everything he has done in office encourages a slowdown. If that happens, activists can’t let Trump and the corrupt GOP avoid responsibility.