It's Not A Real Financial Crisis Until Credit Cracks

I was hoping to relax after my visit to Rome, but the equity markets are currently in free during the Sunday night futures sessions. At the time of writing, the main U.S. equity markets are down 15% or so over three trading days (including Sunday). Although this is certainly an eye-opener, this is not yet a financial crisis. (We are in an economic crisis thanks the White House brain trust, of course.) 

Sigh, Chaos Continues (10)

The latest salvo in Trump’s tariff policy hit yesterday, apparently leaving only the reciprocal tariffs for the big April 2nd “Liberation Day” announcement. (I will remind readers that I will be away next week, and so I will probably miss writing about “Liberation Day” in a timely fashion. We will probably be on the following wave of retaliatory tariffs by the time I get back.)

Sigh, Chaos Continues (9)

Trump is hyping up April 2nd as “(Tariff) Liberation Day,” and it seems foolish to discuss the state of economy until we find out how extensive those tariffs are. I will be travelling for the week around “Liberation Day” so I will not be able to pipe in with my predictions of doom until quite late.

The only interesting new angle is that the Prime Minister United Kingdom looks to be angling to align himself with Trump. Although that is certainly quite the choice for a centre-left politician, it is not clear how viable that is with the unravelling of NATO and a more assertive EU.

Comments On "The Mar-A-Lago Accord"

In an attempt to find an explanation for the erratic policy of the Trump administration, people are pointing to the so-called “Mar-a-Lago Accord.” (This short explainer by Torsten Sløk offers one summary.) Although one could imagine that this policy mix is what some members of the White House want, we run into the classic “you can’t get there from here” problem. To the extent the plan would work, it relies upon the world being one of simplified economic models, and the goodwill of other countries.

Sigh, Chaos Continues (8)

Meme "recycled" from Reddit

As I expected, Trump has turned his gaze towards the European Union, and a cycle of tariff/counter-tariff/counter-counter-tariff appears to be starting. (At the time of writing, Trump threatened to put a massive tariffs on booze from the EU in response to EU counter-tariffs.)

Revenge Of The Expectations Fairies

I used to mock the idea of the “expectations fairies” — at least in the context of neoclassical theory. However, Keynes’ “animal spirits” is back, we are running into a situation that does not have a lot of precedents in the post-World War II era. The brain trust in the White House has done a lot of things, but very few of them so far would have macroeconomic impact (outside of countries where US aid was significant). Instead, the issue is the effect of future actions.

Sigh, Chaos Continues (7)

Since my last article, President Deals partially caved in Canadian/Mexican tariffs, but has just announced new tariffs on Canadian products (dairy and lumber, from what I could tell). We also have had reports that Trump had earlier threatened to revise the Canada/U.S. border (i.e., annexation of Canada).

This constant chaos (and existential threats) means that the required re-negotiation of the Canada/U.S. free trade treaty is a non-starter, and the best that can be hoped for are some kinds of “trade cease fire” while Canada desperately re-orients its economy away from North-South trade. At the same time, Europe is dealing with the effective demise of NATO, and the call for nuclear weaponry is growing. Trump also appears increasingly frustrated that nobody cares about his Ukraine “peacemaking” efforts (since he gave the Russians everything he could give, he is no longer of use to them).