TRADE WAR! A DEEPER TRADE WAR!

May 13, 2019 (Washington) So we all woke up with the markets taking a deep dive. Why? We are in the midst of a deepening trade war with China. While presidents usually have very little effect on the economy, this little fact may very well send the country into a deep recession.

There are a few reasons for that. The first is that this expansion is quite long in the tooth. That is making a lot of economists nervous. At least the ones who have a clue and understand that business cycles are just that, cycles. This one is very long and that alone means that a recession is just a matter of time.

Let me say something that for most Americans is counter-intuitive. Presidents rarely have much of an effect on the macro-economics of the nation. Whether we go into recession, or we have an economic boom depends on the actions of the Federal Reserve. Central bankers are the ones with the keys to the palace, who through the use of monetary policy control the fate of the economy.

Presidents can have an effect, and usually, it is a short term calming effect when markets seem jittery. Or on the other side, they could help trigger a recession with an ill-advised economic policy that they think is good politically. This is precisely what a trade war with China does. It is making everybody nervous because it is an extremely wrongheaded policy in a globalized…