Politics trump leads the U.S. economy to the crisis

Yet the high efficiency of the American economy is essentially linked to large-scale impact of the tax reform trump that provides support to small and medium-sized businesses, as well as the increase in imports in anticipation of the introduction of protective duties in January of the following year.

How strong is the American economy

Strong support of the Republican party mainly due to the fact that the voters are confident in the growth of the economy and consider it an achievement of the administration trump. The consumer confidence index close to a record high, wages rising again pre-crisis rates, and unemployment lower than in 2007.

Even the traditional measure of unemployment, U6, covering the share of unemployed persons, and persons, arranged on a part-time or temporary, as well as people who have stopped looking for work after unsuccessful attempts, slightly below pre-crisis levels: in September 2018, it was 7.5% compared with 8% before the financial crisis.

However, this positive picture does not mean the absence of the high risk of recession in the next two years. Since the beginning of 1950-x years seven of the last ten business cycles in the United States resulted in a sharp slowdown for a few quarters. “Soft landing” that facilitates the prediction of the risk of recession is very rare in the us economy. We know that the recession is coming, but don’t know when exactly it will come. And when we have, it will be too late.

Not counting the situation with housing and cars, I believe that the President trump is absolutely right: the US economy is in great shape. The problem is that these two sectors of the economy, crucial for growth, showing clear signs of weakening. Car sales tend to be lower compared to the same period last year, and it will seriously affect the prospects of moving car owners on the model 2019.

But the most alarming concern is the slowdown in the property market. Housing sales fell for the sixth month in a row. Over the last 20 years this has happened only three times: in 1999, before the bursting of the dot-com bubble; and in 2007 during the subprime mortgage crisis in 2013. So the steady decline is quite amazing, considering that it occurs on the background of the maximum level of consumer confidence. In addition, investments in housing construction decreased by 4%, marking the third quarterly decline in a row since the end of 2008 – beginning of 2009.

Until now, the market paid very little attention to the accelerating slowdown in the segments of housing and cars, because investors were too busy studying the recent geopolitical events on both sides of the Atlantic. However, it is an important and big change, signaling that the US is coming to the end of the business cycle and that we should expect lower growth of the us economy by 2019.

A dangerous shortage

In the short term, the influence of the President trump will be enough to extend the cycle for one or two quarters, especially by reducing taxes for the middle class. This measure can be declared a few days before the election. This could support consumption and growth as well as tax breaks Bush and Obama (with the difference that they were introduced in the period of sharp slowdown of growth), and stimulate supporters trump, so they voted for Republicans.

Donald trump, being the savvy businessman knows that in business strategy, as in politics, the short-term success often leads to long-term problems.
Rapidly rising when you tramp the budget deficit in the period of economic growth limits the possibility for government intervention when there’s another crisis – and this is a question a maximum of several years.

The deficit in the United States, which grows throughout the 12 months is approaching a trillion dollars, that is, the level of which has never been observed in a period of strong economic growth. Control of the U.S. Congress on the budget predicts that the Federal budget deficit, the US can return to the peak value of the financial crisis in 10 years, if the recession did not happen before.

Key, and increasingly obvious risk is that the US will fail to implement fiscal policy that compensates these cyclical trends that this step will be most needed. The US ability to recover quickly from the crisis associated with monetary and fiscal stimulus. The adaptation of the monetary policy of the fed has been quite strong since the beginning of economic recovery in 2010, but it is the combination of policy measures has led to increased optimism of households, and they again began to spend money.

Americans are mistaken if they believe that foreigners are always to Fund their costly lifestyle. Although it will take decades and there will be many difficulties, but the process of de-dollarization cannot be stopped. The amount of Treasury securities acquired by foreigners, this year has been halved, and the share of the dollar in world foreign exchange reserves fell to a five-year low of 62.5%. In the long term the US dollar will retain its reserve currency status, but he will have to compete with the Chinese Renminbi, and foreign investors will naturally be much more attentive before to Fund “bottomless barrel,” the U.S. budget deficit.

Leave a Reply

Your email address will not be published. Required fields are marked *