This dictum has led many observers to surmise that the currently strong U.S. economy makes President Trump a shoo-in for re-election in 2020. But what these observers overlook is that between now and November 2020 there can be many an economic slip between cup and lip. This would seem to be especially the case at a time when the IMF estimates that 90 percent of the world’s economies are now already experiencing slowdowns.
To be sure, if the election were held today, the strong U.S. economy would make Trump a formidable candidate for reelection.
U.S. unemployment is now at a fifty-year low, the economy is growing at a satisfactory rate, wages are rising, and the U.S. stock market is beating record levels on an almost daily basis. While these achievements might have been made at the cost of incurring a large budget deficit and a ballooning public debt that might have mortgaged our economic future, such matters all too likely will be of little concern to the electorate.
Unfortunately for Trump, it is not today’s U.S. economy that is going to be the determining factor in the 2020 election. Rather, it is how the U.S. economy and financial markets perform in the months immediately running up to November 2020. In this context, it would seem that there are all too many reasons to think that in six months’ time the U.S. economy could be looking decidedly less rosy than it does today.
Today, all too reminiscent of the start of 2008, a dark cloud hangs over the U.S. and global economies. That cloud is a global credit and asset price bubble of epic proportions that has been spawned by a decade of ultra-easy money by the world’s main central banks.
One indication of this bubble is the fact that global debt to GDP levels today are significantly higher than they were at the start of 2008. Other indications are that U.S. and global equity valuations appear to be stretched, housing bubbles have re-appeared in a number of important economies and an alarming amount of credit has been extended to non-creditworthy borrowers around the globe at historically low interest rates.
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Nobody can know when the global credit and asset market bubble will burst or what event will cause it to burst. But with the abrupt change in the global economy over the past year, it would be rash to dismiss totally out of hand the possibility that the global credit bubble could burst well before the November election.
This especially seems to be the case at a time when the Chinese economy shows clear signs of losing momentum, the German, Italian, and U.K. economies all appear to be on the cusp of recessions and the Indian economic growth rate has halved in the context of increased domestic political strife. It also seems to be the case at a time when President Trump has a fragile truce in his trade war with China and at a time when he is threatening to impose additional import tariffs on an already weak European economy.
Further heightening the risk that the global credit bubble might burst before November 2020 is a deteriorating global political landscape. It is not only the fact that geopolitical risks in North Korea and Iran have increased or that the Middle East is once again in turmoil. It is rather that social protests seem to be gaining momentum in countries as disparate as Chile, Colombia, France, Hong Kong, India, Iran and Venezuela. Worse yet, there is every indication that this social unrest is spreading from one country to another.
Past experience, including that in 2008, should inform us that when credit and asset price bubbles burst, the economic and financial market fallout could be disruptively large. The 2008 experience should also remind us as to how interconnected the world’s economic and financial system has become. This has to raise the possibility that much in the same way as in 2008 the Lehman bankruptcy spilled over from the United States to the rest of the global economy, a systemic crisis abroad in 2020 could very well spill back to our shores.
Trump could very well be lucky in 2020 and have the global credit bubble burst after his reelection. But this is far from a certainty. It would seem to be equally possible that this time next year we will look back and ask ourselves how we could have missed so many early economic warning signs about real trouble ahead in the global economy. These signs might include the recent sovereign debt default in Argentina, the rising private credit defaults in China and Turkey, the We Work financial fiasco and the abrupt economic slowdown in China and Germany, the world’s second and third largest economies, respectively.
Desmond Lachman is a resident fellow at the American Enterprise Institute. He was formerly a deputy director in the International Monetary Fund’s Policy Development and Review Department and the chief emerging market economic strategist at Salomon Smith Barney.
OTTAWA – The parliamentary budget officer says the federal government likely failed to keep its deficit below its promised $40 billion cap in the last fiscal year.
However the PBO also projects in its latest economic and fiscal outlook today that weak economic growth this year will begin to rebound in 2025.
The budget watchdog estimates in its report that the federal government posted a $46.8 billion deficit for the 2023-24 fiscal year.
Finance Minister Chrystia Freeland pledged a year ago to keep the deficit capped at $40 billion and in her spring budget said the deficit for 2023-24 stayed in line with that promise.
The final tally of the last year’s deficit will be confirmed when the government publishes its annual public accounts report this fall.
The PBO says economic growth will remain tepid this year but will rebound in 2025 as the Bank of Canada’s interest rate cuts stimulate spending and business investment.
This report by The Canadian Press was first published Oct. 17, 2024.
OTTAWA – Statistics Canada says the level of food insecurity increased in 2022 as inflation hit peak levels.
In a report using data from the Canadian community health survey, the agency says 15.6 per cent of households experienced some level of food insecurity in 2022 after being relatively stable from 2017 to 2021.
The reading was up from 9.6 per cent in 2017 and 11.6 per cent in 2018.
Statistics Canada says the prevalence of household food insecurity was slightly lower and stable during the pandemic years as it fell to 8.5 per cent in the fall of 2020 and 9.1 per cent in 2021.
In addition to an increase in the prevalence of food insecurity in 2022, the agency says there was an increase in the severity as more households reported moderate or severe food insecurity.
It also noted an increase in the number of Canadians living in moderately or severely food insecure households was also seen in the Canadian income survey data collected in the first half of 2023.
This report by The Canadian Press was first published Oct 16, 2024.
OTTAWA – Statistics Canada says manufacturing sales in August fell to their lowest level since January 2022 as sales in the primary metal and petroleum and coal product subsectors fell.
The agency says manufacturing sales fell 1.3 per cent to $69.4 billion in August, after rising 1.1 per cent in July.
The drop came as sales in the primary metal subsector dropped 6.4 per cent to $5.3 billion in August, on lower prices and lower volumes.
Sales in the petroleum and coal product subsector fell 3.7 per cent to $7.8 billion in August on lower prices.
Meanwhile, sales of aerospace products and parts rose 7.3 per cent to $2.7 billion in August and wood product sales increased 3.8 per cent to $3.1 billion.
Overall manufacturing sales in constant dollars fell 0.8 per cent in August.
This report by The Canadian Press was first published Oct. 16, 2024.
