Republicans used to say character counts when attacking Bill Clinton, but have chosen to ignore President Trumps character flaws which include habitual dishonesty, narcissist self-absorption and immorality on a Clintonian scale. But even more worrying is Trump’s temperament. He is volatile, cocksure, combative, touchy, and liable to decide an issue on his mood or gut, not on the basis of evidence or analytical thought.
All of which makes the thought of him presiding over a crisis truly alarming. And it’s possible that a crisis is in the offing. Up to now worries have focused on a nuclear-armed man with a short fuse and a weak grasp of the consequences of his actions. But what if his looming crisis is economic?
When the international financial system began to collapse the last time, in 2008, it came as a September surprise to candidates McCain and Obama. McCain suspended his campaign to rush back to Washington, but was then unable to lead his party to act. It broke into factions over support for the Bush administration’s proposed emergency measures, sending markets down even more. By contrast to this dithering and infighting, the supposedly untested youth, Obama, seemed cool under fire, responded in a serious, measured way that won over wavering voters.
Do we find ourselves once again on the brink? When Trump visited Davos he praised himself lavishly for cutting taxes and causing the markets to rise. This proved America was open for business even if our borders were closed. He did the same a week later in his State of the Union, and has regularly taken full responsibility for a soaring stock market.
Well, now he owns it. And as if to make a mock of such hubris, nemesis arrives. Markets dropped sharply for several sessions in a row when interest rates hit their highest point in four years. It wasn’t entirely unexpected. Barron’s recently called the pace of the markets rise in January “ridiculous.” If instead of talking at Davos Trump had paused to listen to the assembled panjandrums of finance, he might have boasted less.
Heather Long in a WaPo report on the worries voiced at Davos listed several reasons attendees see an “eerie resemblance” to 2006-2008. In Asia there’s not just the risk of a conflict wth North Korea, but a China “in the early stages of a credit crisis.” Since they are our biggest trading partner and the biggest holder of Treasury debt, this is not insignificant.
And speaking of debt, so long as interest rates were low, the debt service on our gigantic government deficit was just barely endurable. In 2017, it cost taxpayers $266 billion, the fourth largest budget item after entitlements and defense. But what if interest rates should double, or triple? It could happen. Home mortgage rates have recently risen almost a third. Higher rates on government debt would require an increase in taxes, cuts in programs like Social Security, Medicare and the military, or both. Markets would freak out, as would voters.
Davos denizens also worry about a new tech bubble building with many not yet publicly traded companies valued at over $1 billion. If they were to go public and turn out to be emperors with no clothes, a painful correction could follow.
There’s also the fact that over half of all American families are spending more than they earn, and borrowing to make up the difference. This too is unsustainable, and a downturn that hurt them financially could only add fuel to the populist fire, risking more demand for class war policies, isolationist trade practices and other measures that would rattle markets and be bad for business and employment.
Finally, there has been little investment by government over the last decade despite the availability of cheap money. Yet there are crying needs for improvements that would boost our productivity and competitiveness. We need infrastructure, education and research spending badly to keep up with rivals.
Trump has called for massive road, bridge, and airport projects, but no serious proposal has yet been offered, just airy promises. And his administration has been actively hostile to the other two, cutting budget requests to the bone. Yet we are no longer a leader in an educated workforce. From first in the world, we now rank 27th. We are also no longer the best in infrastructure, but somewhere in the high teens. And we no longer lead the world in patents, a proxy for research. Last year, China filed more applications than the United States, the EU, South Korea, and Japan combined.
Rather than act to address any of these concerns, Trump has poured gasoline on the fire. Cutting dollars for education and research, paying lip service to infrastructure, trying to cut immigration rather than lure the best and the brightest to our shores, boasting of an overheated market, while passing a tax cut that adds another $1.5 trillion to our debt.
The day of reckoning may not be here yet, but alarms are sounding. Unfortunately, President Nero can’t hear them over the sound of his own voice and his incessant tweeting. He was supposed to be a high-powered businessman who would be well equipped to deal with these sorts of economic and financial challenges.
Instead, we have learned that he only played one on TV. In real life he was a real estate huckster whose only practical experience with handling financial problems was frequent visits to bankruptcy court. Look out below.