My first words out of the gate this year at Credit Writedowns were that “given the economic data, I am starting 2018 in a surprisingly downbeat mood.” And I went on to say that I don’t know why I’m downbeat, but that I would tell you why — when I figured it out!!
I don’t know if I will ever be ale to give a full reckoning on my foreboding, so let me just publish a few thoughts piecemeal here. This is the first post of that ilk. And that’s because of the last post declaring “The eurozone is fully recovered from the sovereign debt crisis”.
Here’s the problem: literally several months ago we were explaining Donald Trump’s victory as a sign of inequality and a sinking American working class. And we were talking about Greece as just getting out of a Great Depression-sized hole. Even today, I retweeted Matina Stevis-Gridneff on how many Greeks are depending on grandparents’ pensions to make ends meet, so bad is the economy. That doesn’t sound like a boom, now does it?
So my problem is that, despite the veneer of good times, I am fully cognizant that there are deep, deep fissures in the foundations of this upswing, even in the United States where we have been in an expansion for nearly a decade.
Moreover, I don’t believe for one second that populism has been defeated. Remember when Le Pen lost in France after Wilders underperformed in the Netherlands? Back then, everyone was talking about ‘Peak Populism’ – and the return to the bad old days. But when I look at what’s happening in 2018, that’s not the picture I see at all.
For example, just the morning, I was astonished to see the President of the United States publicly attack his own Justice Department and call for the jailing of a former opponent’s aid and the man he fired that was investigating him.
Crooked Hillary Clinton’s top aid, Huma Abedin, has been accused of disregarding basic security protocols. She put Classified Passwords into the hands of foreign agents. Remember sailors pictures on submarine? Jail! Deep State Justice Dept must finally act? Also on Comey & others
— Donald J. Trump (@realDonaldTrump)
People act like this is business as usual. But it’s not. Could you imagine any other modern-day US President doing this over the past 70, 80, 90 years? Would you even want them to do it? There was a barrage of tweets from Trump today and yesterday talking about “the failing New York Times”, calling a geopolitical adversary “rocket man”, beating up on Pakistan and threatening to pull aid for “lies & deceit”, talking about building a wall to keep people out and so on. If that’s not populism, I don’t know what is. It’s definitely not statesman-like. But I also think this kind of thing is toxic. It lowers the base for everyone and invites a new rougher, zero sum game mentality into the geopolitical arena.
And of course, Trump is not alone. You’ve got Brexit, Poland’s clash with the EU’s definition of freedom and democracy, and Viktor Orban’s authoritarian tendencies too. Same thing in Serbia too
So, in my mind, there are a lot of geopolitical fault lines right now. North Korea is the biggest risk — and not just because my daughter will be teaching English in South Korea this winter. For the first time since the end of the Cold War, we are faced with the real threat of a nuclear conflict. And that would have a huge impact on the economy and everything else. You have a potential uprising in Iran, happening right now too.
It’s hard not to worry about these things – especially since President Trump is so erratic and so unpredictable. I know that if you look back at history, there are actually very few times in the post-World War II era when geopolitics was the driving force of a business cycle. I think you could make the case for the oil embargoes of the 1970s being tipping points for recession. But otherwise, you would be hard-pressed to pinpoint a direct connection between an economic upturn or downturn and the political climate of the day.
Still, I start 2018 worried. Some of my worry is about potential conflicts in places like Iran or North Korea. But a lot of my worry is that – despite the booming state of the global economy, there really still is a fragile base for it all. And the still potent populism on display is testament to that fact.
That’s all I have for now. Thanks for reading!