Chairman Powell Moves toward my Recession Prediction and Helps Trump Trade War
Chairman Powell Moves toward my Recession Prediction and Helps Trump Trade War by David Haggith for The Great Recession
The bears that are gathering will soon enough be picking flesh off the sun-bleached bones of this market. Even the Fed Chair, who usually does all he can can to avoid dismal pictures and to sound optimistic, is finally talking downcast about the US economy.
Powell helps Trump Trade War
He didn’t do much, but Powell genuflected in Trump’s direction, giving him a nudge where he needed it in trade. Powell’s congressional comments today helped Trump out a little with his trade-deficit problem by causing the dollar to plunge in value:
Since Trump has been in office, the trade deficit has widened by 25% (as has the US budget deficit). The trade deficit is widening because countries are importing fewer US goods and because they are lowering the value of their currency against the dollar, and we measure trade in dollars. As foreign currency devalues, it takes fewer of those dollars to buy the same amount of goods.
That devaluation of foreign currencies good for US consumers, but bad for US exporters because the price of their goods in foreign currencies goes up because they start out being built and priced in dollars, so they sell fewer goods abroad. It’s also bad for US trade statistics. When other nations lower their currency the lower price of goods in US dollars increases the amount of goods on the foreign side of the ledger that the US imports, widening the trade deficit.
It turns out tariff wars are trickier than Trump said they were, which is partly why Trump is constantly cudgeling Fed Chair Jerome Powell to lower interest (as that correspondingly has the effect of devaluing the dollar on foreign exchanges … as other nation’s are doing). It helps us in a trade war by getting into a currency war. The enemy fights back, as it turns out, and so far the enemy is winning in terms of the trade balance sheet.