The U.S. economy is aiming to extend a stunning record-long decade of expansion into the eleventh year. Markets see plenty of reasons to be hopeful it’s not over yet.
Unemployment remains low and GDP is still full of steam. Bright Q4 corporate earnings and trade war detente with China could push the Dow to 30,000 in a few days.
So why is the U.S. budget deficit growing at recession levels?
Peter Schiff, CEO and chief global strategist for Euro Pacific Capital, said Monday it’s proof the economy is not as strong as it seems in the Trump era.
He warned again Wednesday morning in no uncertain terms:
A sovereign debt and dollar crisis now looms larger than ever.
Here’s why markets should heed his words carefully.
Peter Schiff is notorious for never having anything nice to say about the economy. (Unless he’s talking about gold or foreign stocks and bonds.) So can we write off Schiff’s pronouncements as the doom-and-gloom shtick of a stalwart “permabear?”
From 2006 – 2007, when most economic commentators were forecasting more pie in the sky, Schiff predicted the market crash of 2007-08 that blindsided nearly everyone.
He sounded the recession alarm non-stop for two years on cable news channels. His interviews from this media tour are remarkable to watch in retrospect.
The CNBC talking heads jokingly nicknamed Peter Schiff “Dr. Doom.”
In a short feature entitled, “The Armageddon Gang,” Time Magazine called him a “hectoring presence on cable-TV business shows.” It was complete with a photo of Dr. Doom himself holding a scythe like the Grim Reaper.
On Aug 28, 2006, Schiff debated Art Laffer, a Reagan Administration economist on CNBC. Schiff said a recession was coming, would last “for years,” and the American consumer would “see his home equity evaporate.”
Now he’s predicting another recession “that’s going to be worse than ’08.” Other deficit watchers agree the ballooning deficit is bad for the economy.
The skyrocketing federal deficit under Trump is very unusual. The government typically runs large deficits during recessions because of lower tax receipts. And Washington boosts spending during economic downturns for fiscal stimulus to spur recovery.
But when the economy is growing, deficits are supposed to shrink.
The last time the national deficit grew this quickly, we were battling our way out of the Great Recession. The time before that, Washington was simultaneously dealing with the Early 2000s Recession and fighting the Global War on Terror.
The Peter G. Peterson Foundation says the Trump deficits are dangerous:
Despite the dangers of procyclical fiscal policies during an economic expansion, deficits are expected to remain large in the future, leaving us with less room to maneuver if there is an economic downturn.
Peterson was an American investment banker and Commerce Secretary under Nixon. His foundation assesses the deficit as risky in case of recession. Peter Schiff’s assessment is more bearish. He thinks the deficit is proof that a recession is already underway.
Disclaimer: The opinions in this article do not represent investment or trading advice from CCN.com.
This article was edited by Samburaj Das.
(Bloomberg) — The head of the International Monetary Fund warned the US that the global economy is closely watching interest rates and industrial policies given the potential spillovers from the world’s biggest economy and reserve currency.
“All eyes are on the US,” Kristalina Georgieva said in an interview on Bloomberg’s Surveillance on Thursday.
The two biggest issues, she said, are “what is going to happen with inflation and interest rates” and “how is the US going to navigate this world of more intrusive government policies.”
The sustained strength of the US dollar is “concerning” for other currencies, particularly the lack of clarity on how long that may last.
“That’s what I hear from countries,” said the leader of the fund, which has about 190 members. “How long will the Fed be stuck with higher interest rates?”
Georgieva was speaking on the sidelines of the IMF and World Bank’s spring meetings in Washington, where policymakers have been debating the impacts of Washington and Beijing’s policies and their geopolitical rivalry.
Read More: A Resilient Global Economy Masks Growing Debt and Inequality
Georgieva said the IMF is optimistic that the conditions will be right for the Federal Reserve to start cutting rates this year.
“The Fed is not yet prepared, and rightly so, to cut,” she said. “How fast? I don’t think we should gear up for a rapid decline in interest rates.”
The IMF chief also repeated her concerns about China devoting too much capital and labor toward export-oriented manufacturing, causing other countries, including the US, to retaliate with protectionist policies.
China Overcapacity
“If China builds overcapacity and pushes exports that create reciprocity of action, then we are in a world of more fragmentation not less, and that ultimately is not good for China,” Georgieva said.
“What I want to see China doing is get serious about reforms, get serious about demand and consumption,” she added.
A number of countries have recently criticized China for what they see as excessive state subsidies for manufacturers, particularly in clean energy sectors, that might flood global markets with cheap goods and threaten competing firms.
US Treasury Secretary Janet Yellen hammered at the theme during a recent trip to China, repeatedly calling on Beijing to shift its economic policy toward stimulating domestic demand.
Chinese officials have acknowledged the risk of overcapacity in some areas, but have largely portrayed the criticism as overblown and hypocritical, coming from countries that are also ramping up clean energy subsidies.
(Updates with additional Georgieva comments from eighth paragraph.)
©2024 Bloomberg L.P.
The head of the International Monetary Fund warned the US that the global economy is closely watching interest rates and industrial policies given the potential spillovers from the world’s biggest economy and reserve currency.
Author of the article:
Published Apr 18, 2024 • 2 minute read
(Bloomberg) — The head of the International Monetary Fund warned the US that the global economy is closely watching interest rates and industrial policies given the potential spillovers from the world’s biggest economy and reserve currency.
“All eyes are on the US,” Kristalina Georgieva said in an interview on Bloomberg’s Surveillance on Thursday.
Article content
The two biggest issues, she said, are “what is going to happen with inflation and interest rates” and “how is the US going to navigate this world of more intrusive government policies.”
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Article content
The sustained strength of the US dollar is “concerning” for other currencies, particularly the lack of clarity on how long that may last.
“That’s what I hear from countries,” said the leader of the fund, which has about 190 members. “How long will the Fed be stuck with higher interest rates?”
Georgieva was speaking on the sidelines of the IMF and World Bank’s spring meetings in Washington, where policymakers have been debating the impacts of Washington and Beijing’s policies and their geopolitical rivalry.
Read More: A Resilient Global Economy Masks Growing Debt and Inequality
Georgieva said the IMF is optimistic that the conditions will be right for the Federal Reserve to start cutting rates this year.
“The Fed is not yet prepared, and rightly so, to cut,” she said. “How fast? I don’t think we should gear up for a rapid decline in interest rates.”
The IMF chief also repeated her concerns about China devoting too much capital and labor toward export-oriented manufacturing, causing other countries, including the US, to retaliate with protectionist policies.
China Overcapacity
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Article content
“If China builds overcapacity and pushes exports that create reciprocity of action, then we are in a world of more fragmentation not less, and that ultimately is not good for China,” Georgieva said.
“What I want to see China doing is get serious about reforms, get serious about demand and consumption,” she added.
A number of countries have recently criticized China for what they see as excessive state subsidies for manufacturers, particularly in clean energy sectors, that might flood global markets with cheap goods and threaten competing firms.
US Treasury Secretary Janet Yellen hammered at the theme during a recent trip to China, repeatedly calling on Beijing to shift its economic policy toward stimulating domestic demand.
Chinese officials have acknowledged the risk of overcapacity in some areas, but have largely portrayed the criticism as overblown and hypocritical, coming from countries that are also ramping up clean energy subsidies.
(Updates with additional Georgieva comments from eighth paragraph.)
Article content
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