"Your breath first kindled the dead coal of wars
And brought in matter that should feed this fire;
And now 'tis far too huge to be blown out
With that same weak wind which enkindled it."
- The Life and Death of King John
Bill Shakespeare might just as well have written this prose about Donald J. - that's President of the United States Donald J. Trump to us all.
The global economy was going swimmingly fine (even bolstered) straight after his victory and his tax cuts and increased infrastructure spending. So much so, that financial markets and central banks were counting the days when (not if) monetary policy will be returned to normal.
Then Trump had to say something stupid like "tariffs" in the name of "national security" and since March 2018, global insecurity has grown to the point that it has boomeranged to America: "And now 'tis far too huge to be blown out".
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All eyes and ears are on US Federal Reserve chair Jerome Powell's messaging at the Jackson Hole symposium on August 23. Will he? won't he? bend to Trump's recent demand to cut the fed funds rate "by at least 100 basis points, with perhaps some quantitative easing as well"?
Obeying Trump's diktat would just erode the fed's credibility and independence while at the same time, signalling a virtual admission that the US economy is, indeed, heading towards cactus avenue.
Then again, you, I and Irene don't need any more signalling from the Fed. The inverted US yield curve says so, no matter how it's justified.
The inverted yield curve was dismissed as being due to "technical factors such as a flight to quality or global economic or currency situations that trigger demand for long-term bonds", according to The Independent, before the US recession of 2001.
Before the 'Great Recession' of 2008, 'El Maestro' Fed chief Alan Greenspan testified before the US Congress in February 2005, where he effectively discounted the bond market as irrational: "Some analysts have worried that the dip in forward real interest rates since last June may indicate that market participants have marked down their view of economic growth going forward, perhaps because of the rise in oil prices."
"But this interpretation does not mesh seamlessly with the rise in stock prices and the narrowing of credit spreads observed over the same interval."
We're getting the same excuses and rationalisations on why the US economy - low unemployment rate; strong consumer optimism and spending; still expanding ISM indices, among others. They were strong too at the time of the late 1990s and mid-2000s yield curve inversions.
The good news is that Washington is not having any of these excuses. It's preparing for the worst.
According to Factset: "Press continued to focus on potential stimulus measures to counter an economic slowdown ... Much of the focus has been on a temporary payroll tax cut ... More talk about cutting capital gains taxes for investors ... Further reduction in corporate tax rate mentioned as well."
The fire of recession has been lit, "and now 'tis far too huge to be blown out with that same weak wind which enkindled it". This is stoked even more by the Trump administration's sense of panic.
The US yield curve indicates as US recession in on the cards, even if Trump rescinds all tariffs on trade and the Fed drops helicopter money today!
Past policies ensure the economic cycle will run its due course!