Froma Harrop: Trump will sink the economy, too
That was quite a show Donald Trump put on in Canada. Insulting our closest friends and trading partners while sucking up to Russian leader Vladimir Putin — well, that got people’s attention. As Guy Verhofstadt, former prime minister of Belgium, tweeted, “Just tell us what Vladimir has on you. Maybe we can help.”
On the economic front, Trump’s antics at the G-7 summit are sure to provoke a response not favorable to the United States.
There are unfair tariffs on all sides, but the public should know at least this about the president’s confusion on trade deficits: The U.S. doesn’t have one with Canada. It has a trade surplus. As for steel, Trump’s manic obsession, the U.S. sends more steel to Canada than Canada sends here.
Brewing behind this turmoil are economic policies sure to wreck the president’s pride and joy, the U.S. economy.
Torpedoing Western trade alliances will sink it alongside other economies. Stocks take a dive every time there is credible evidence of a trade war in the offing. It’s looking more and more as if one will actually happen.
Then there are Trump’s reckless tax cuts. Price tag: an astounding $1.5 trillion over 10 years. They helped deliver a druggy economic high. Deficit pushing does that — until it turns on you.
Former Federal Reserve Chairman Ben Bernanke recently put the consequences in colorful terms. “In 2020,” he said, “Wile E. Coyote is going to go off the cliff.”
The Congressional Budget Office projects that the federal deficit will pass $1 trillion in fiscal 2020 — and that’s assuming the economy grows far faster than the Fed and private economists forecast.
The deficit as a percentage of the economy was 3.5 percent in fiscal 2017. The CBO expects it to keep rising until it hits 5 percent after fiscal 2023. But that’s the optimistic view.
The CBO’s “alternative fiscal scenario” sees a deficit of over 6 percent of the gross domestic product by fiscal 2022 and debt exceeding 100 percent(!) of GDP by fiscal 2027. This assumes there is no recession. After nearly nine years of economic expansion, one will visit shortly.
As you know, government borrowing can push up interest rates, and that slows the economy. Mortgage rates are already rising faster than they have in nearly 50 years. Delinquencies on credit card payments have surged.
Family farms already struggling with low commodity prices are now getting whacked by rising interest rates. Just wait till Trump’s trade wars get to work on their foreign markets.
And where are the so-called fiscally conservative Republicans in all this? When Barack Obama was president, Republicans played deficit police, demanding austerity in the teeth of a deep recession. That was a time when deficit spending was badly needed to pump life into the economy. Now, at the height of a recovery, Republicans are passing out economic stimulants like drug cartels peddling cocaine.
“What you are getting is a stimulus at the very wrong moment,” Bernanke said. “The economy is already at full employment.” Bernanke headed the Fed under both Obama and George W. Bush.
Strange and scary things lurk ahead in the age of Trump. The ditching of all fiscal propriety, along with a collapse of the Western trading alliances, will turn good times into the other kind.
And when the anvil drops on Wile E. Coyote’s head, Trump will surely come up with some competing cartoon version of reality. He’ll denounce Ontario or Harry Truman or the prime minister of Luxembourg. He has raised the bar for absurd buck-passing so high that he can’t just blame Nancy Pelosi anymore.
Putin, anyway, will enjoy the show.
Follow Froma Harrop on Twitter @FromaHarrop.