Thread: Trump advisers fear 2020 nightmare: A recession

Trump advisers fear 2020 nightmare: A recession

Recent market volatility is one of several signs that an economic boom may be petering out, potentially dealing a severe blow to the president's reelection chances.

By NANCY COOK
12/07/2018 05:05 AM EST

President Donald Trump’s economic officials are reassuring investors about recent white-knuckle stock market volatility, while Trump’s political advisers are increasingly alarmed that the economy could present a stiff 2020 campaign headwind.

Many of Trump’s political allies acknowledge that his reelection prospects hinge in large part on how Americans judge their economic prospects at the time of the next election. But many independent analysts say that recent market turbulence is a warning sign that the U.S. economy will likely slow and maybe even tip into recession by 2020.

At the moment, that scenario could be the biggest threat to Trump’s chances at winning a second term, according to interviews with eight current and former senior administration officials and close White House advisers.

The president knows this better than anyone, since he is highly attuned to fluctuations in the stock market and views it as a form of polling. At times, Trump has bragged about the market’s performance on a near daily basis. A real estate mogul who has borrowed heavily, Trump is equally obsessed with interest rates, and has closely monitored the runup to a mid-December Federal Reserve meeting in which central bankers are expected to raise rates. Political advisers have urged Trump to build his economic message around more stable data points than the daily volatility of the stock market, such as the low unemployment rate.

Speaking publicly, Trump allies dismiss the worries of economic forecasters who call events like Tuesday’s 700-point drop in the Dow Jones average — followed by another temporary dive on Thursday after markets were closed Wednesday —a sign of things to come.

“Any time you see the stock market fall by 1,400 points in two days, there is lots of nervousness,” said Stephen Moore, a distinguished visiting fellow at the Heritage Foundation and informal economic adviser to the 2016 Trump campaign. “But the economy is fundamentally strong in terms of construction, manufacturing, and corporate earnings. I don’t think they are worried about a recession.”

“I am amazed at this mini-wave of recessionary pessimism that has swept the media,” National Economic Council Director Larry Kudlow said at a recent Wall Street Journal event. “The evidence is quite different than these speculations. We are humming.”

But many economic analysts also predict the recent economic boom will soon fizzle, with growth plunging below two percent by 2020, according to an analysis by S & P chief U.S. economist Beth Ann Bovino. Currently, the economy is growing at a rate of 3.5 percent. That squares with cyclical trends suggesting the U.S. is due for an economic downturn soon.

Compounding the worry is Trump’s trade showdown with China, which poses a risk to the global economy. Over dinner at last weekend’s G-20 summit, Trump and Chinese President Xi Jinping agreed to pause their escalating trade fight for 90 days as they search for a long-term agreement. But since then, Trump has shaken markets with bellicose trade talk.

That means stress for Trump aides and allies planning a 2020 message they hope to build, in part, around economic growth and greater prosperity for Americans. Former presidents Ronald Reagan, Bill Clinton and, to a lesser degree, Barack Obama all vaulted to reelection with the help of an growing economy. The last one-term president, the late George H.W. Bush, is widely considered to have been doomed by a recession which struck midway through his tenure.

While top officials like Treasury Secretary Steven Mnuchin argue that gross domestic product and inflation are the most important metrics to track, and that those figures remain healthy, other advisers say voters are focused on more tangible indicators, including wages, unemployment, and the housing and stock markets.

"They know it could be a very dangerous situation if the market volatility is hurting workers in key battleground states through their pensions, investments, you name it,” said one Republican close to the White House. “The concern is probably at a DEFCON 3 at this point, but it will definitely spike in 2019 if there's no real solution [to the trade dispute with China] during this 90-day period.”

Part of the problem for a president obsessed with the stock market is that no one can pinpoint what exactly is causing the drops – uncertainty about trade deals, fear about rising debt, or slowing economic growth.

President Trump himself appears to be prepping for a slowdown by identifying scapegoats. Chief among them, for the moment, is Federal Reserve Chairman Jay Powell. Just last week, Trump blamed the independent Fed for the drop in the stock market as well as a recent plant-closing announcement by General Motors. Speaking to the Washington Post, Trump said he was “not even a little bit happy” with Powell, whom he nominated to run the Fed.

Trump “is more strategic about setting up the assignment of blame than people give him credit for,” said a second Republican close to the White House when asked about the attacks on Powell.

Other advisers expect Trump to continue blaming Democrats for recent market weakness, as he and his aides did in the runup to last month’s midterm elections. One likely target is the presumed incoming House speaker, Nancy Pelosi, who is far better known than Powell to Americans beyond Washington.

Added to the scapegoat list will be any departing Cabinet or top White House officials, said a Republican close to the White House.

"He's going to blame Wilbur Ross for some of these problems once Ross leaves,” said the Republican. “And if any of his advisers walk, he'll blame them too."

Some officials are desperately hoping for a trade deal with China so that tariffs do not loom over consumers and companies just as the Fed begins raises rates, as expected, and as economic growth begins to slow. But there are no guarantees that China hawks within the administration — who scoff at Wall Street’s market-driven concerns about a trade fight — won’t carry the day.

Officials are heartened, however, by the thought that a real estate developer-turned-politician like Trump takes the state of the economy personally.

“It’s not just a talking point for reelection but one about his legacy,” said one former senior administration official. “The president wants to be able to say, “I handled the economy better than Obama.”

https://www.politico.com/story/2018/...de-war-1048197

“It’s not just a talking point for reelection but one about his legacy,” said one former senior administration official. “The president wants to be able to say, “I handled the economy better than Obama.”

No, Trump wants to say he fixed the US economy. The primary problems of the US economy are with the fundamentals of the economy that need fixing such as the trade issues, the energy issues, the coal issues, the steel issues, the aluminum issues, the manufacturing issues, the tax issues, the worker training issues, and the regulatory issues that were all caused by many Presidents, Congresses and Bureaucracies with foul and destructive policies, laws and regulations. And that's what he's doing, making lots of progress on all levels in all areas.

The US economy will always have recessions, some short and brief, which is the normal economic recession, but from time to time, longer-term ones. Most recessions are just natural corrections. These longer term recessions are usually caused by one or two aspects of the economy, interest rates and oil prices. That's why Trump rants at the Federal Reserve and howls at OPEC.

But at this time with manufacturing coming home, new major plants to come on line next year and in 2020, the new pending trade deal with China, along with all the others, the increased domestic production aspect alone will keep our economy roaring for a long time.

The "volatility" of the stock market is reaction to news that has nothing to do with the fundamentals of the US economy. We just have a stock market community that can't remember or perhaps never knew how the US economy was supposed to operate so they don't know how or when to react because everything is different now than what they're used to.