Do You Think Donald Trump Is Ready for a Real Financial Crisis?

By THE EDITORIAL BOARD FEB. 6, 2018 (Original date)

The global financial markets are not in crisis. Though some pundits stoked panic with their coverage of several days of market plunges before Tuesday’s leap, stock prices are still near their record highs, the economy is creating jobs and many workers are finally getting decent raises after years of stagnant wages.

Which doesn’t mean that there’s nothing to worry about. In recent months, time after time, both the current administration and its allies in Congress have called into question their credibility and competence to manage the economy or handle a financial crisis if one were to occur. President Trump has repeatedly patted himself on the back for a surging stock market, seemingly unaware that stocks can go down, not just up. His Treasury Department in December released a one-page analysis that made outlandish economic assumptions to justify giant tax cuts for corporations and wealthy families. Republican lawmakers in Congress went even further, attacking the Congressional Budget Office and Congress’s Joint Committee on Taxation, both nonpartisan, because those analysts had the temerity to warn that the tax law would add to the federal deficit.

Mr. Trump wants everyone to know that his election delivered a booster shot to the economy and stocks. “The reason our stock market is so successful is because of me,” he told reporters in November. Truth is, the president was just lucky enough to have inherited a growing economy and a rising stock market. Though his tax cuts were an expensive gift to investors, he has not been in office long enough to have fundamentally changed that trajectory. But his erratic behavior and poor policy choices are clearly worrying the majority of Americans who disapprove of the president.

One reason some investors have become nervous recently is they fear that the tax cuts, which Mr. Trump and Republican lawmakers sold as a way to stimulate the economy, could end up hurting the economy in the not so distant future. The tax law and a push by the Trump administration to increase military spending will reduce federal revenue and force the Treasury to borrow more money when the economy is close to full employment. This could stoke inflation and prompt the Federal Reserve to tighten monetary policy. That, in turn, would slow the economy.

The prospect of a recession or financial crisis on Mr. Trump’s watch is unnerving, because he is as confident in his own abilities as he is lacking in knowledge and sound judgment. When confronted with criticism, he lashes out like an intemperate child. On Monday, he said Democrats who did not applaud during his State of the Union address were un-American and treasonous. If the stock market falls further, will the president try to reassure the public, or will he launch a Twitter fusillade blaming the drop on, say, a conspiracy hatched by the Senate minority leader, Chuck Schumer, and Tom Steyer, the billionaire hedge fund manager who wants Mr. Trump impeached?

Many people would have been more sanguine about the Trump presidency had he surrounded himself with competent aides and advisers. Instead, he has stacked his administration with incompetent yes men, right-wing ideologues and Washington swamp dwellers. Consider the Treasury secretary, Steven Mnuchin, a former investment banker, who unnerved the currency market last month by suggesting that the United States was trying to weaken the dollar. His statement broke with the longstanding practice followed by Treasury secretaries from both parties to avoid making careless public pronouncements about American currency. Mr. Mnuchin and Gary Cohn, the White House’s chief economic adviser, also debased their credibility last year by arguing with no evidence whatsoever that the Republican tax cut would pay for itself. Over in Congress, the Republican House speaker, Paul Ryan, tried to pass off as good economic news that a public-school secretary would take home an extra $1.50 a week as a result of the tax law.

Then there is the harm wrought by the tax law. By greatly expanding the deficit, it will limit the federal government’s ability to stimulate the economy in the future when it actually needs a jump-start. In many ways the tax law is already having a perverse effect. Mr. Ryan, for one, is citing the deficit to make the case that the government needs to slash Medicaid, Medicare and other important government programs. Other members of his party are using the deficits to argue that the government cannot afford to repair and upgrade the country’s dilapidated infrastructure.

A big drop in stock prices focuses minds, especially when it comes after years of relatively steady gains. But the real crisis is in Washington, not on Wall Street.

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Prof. Harris

ECO 2023

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Do You Think Donald Trump Is Ready for a Real Financial Crisis?

The article, “Do You Think Donald Trump Is Ready for a Real Financial Crisis?” is referring to what many people who live in the United States think under President Donald Trump presidency. Even though the financial markets are not in any jeopardy of falling at this very moment it goes to show that they may plunge time and time again and the citizens need to know if the President is competent enough to do his job if a bad fiscal crisis develops into a worse one. Although it seems that President Donald Trump has repeatedly gives himself a pat on the back for a beneficially surging stock market, apparently unaware that it can go down from time to time just like the Dow Jones incident in which the company market plunged itself 1000 points down. The president wants everyone to know his election is what made the stock market and the economy boost up but in actuality he, as the president was lucky enough to have inherited a growing economy and stock markets. Even though his tax cuts were an expensive gift given to investors he has not been in office long enough to have drastically or added to the economy, but now his erratic behavior and poor policy choices has many Americans disapproving of President Trump and his four year stay in office. A reason some investors have been worrying more lately is because they fear that the tax cuts President Trump and the Republicans that was issued to boost the economy, could end up hurting the economy. The tax law and push from the Trump administration to put more money in the military spending will reduce the revenue and force the Treasury to borrow more money when the economy is in full employment.

Microeconomics is a key fundamental of this issue because many Americans depend on a stable economy and stock market and if we can’t trust the President to make rational decisions in a time of a crisis how will the government function and the many Americans function in their time of crisis. (How it relates to microeconomics?)