The stock market sell off triggered by Trump’s grotesque Liberation Day has been dramatic and has added intense urgency to the sense of polycrisis many of us have been feeling in recent months:
The Trump effect on Social Security is what worries me. Social Security puts more than $1 trillion of demand into the US economy every year, not counting the multiplier-effect. Without it, retirees (and/or their children) would have to liquidate financial assets. Eventually they would have to sell their houses. For those who think ending Social Security would be good for the equity markets, or the economy, think again. Aging is expensive, and Social Security is the most foundational way to pay for it.
What is also really interesting about this aspect is that QE injected ungodly amounts of money into American asset prices and if forced to sell there would be a flood of new "money".
In the QE era the old "inflation is always and everywhere a monetary phenomenon" mantra appeared broken but it wasn't - the monetary base was expanding and all that inflation was just going into share prices (which were at historically high overvaluations) and housing (same!).
IF people are forced to liquidate assets for cash because they are not receiving govt paycheques and because those assets are not generating cash income (Trump-cession) while prices are going up (also Trump-cession) then we are going to see all that QE money become "money-like" and start going into the prices of things that normal people actually buy.
It's like they spent a decade inflating the mother of all bubbles and they're risking deflating it by opening the inflation valve into the real economy.
Here as recent reader of WAGES OF DESTRUCTION: (1) I'm the son of WW2 RAF aircrew (Lancasters) who was so angry after the war, when he discovered what he'd done during the 'firestorm' raids over Hamburg, he spent three years in a monastery. So fascinated twice over by this post, Adam. (1) Here's the view from Canada, where our auto industry will vaporize: some 10K great jobs gone in SW Ontario alone. We Canadians are, as a country—and I know the US: I grew up an IBM brat in NY and went to Vassar—already well past 'the markets': we have factored out American exceptionalism at a speed that makes my head spin. I also have an Irish passport, so I monitor the EU (esp Denmark, where I'm headed next): same deal. The Germans have seen this shitshow before and don't want a rerun, hence gold thinking; the Ukrainians fight on—and the Poles, the Baltics and Sweden and Finland are mobilizing. (3) That noted, what 47 wants is to declare an echo of Hitler's Enabling Act, having caused the polycrisis. (4) There is, however, no revolution without a counterrevolution and CDN media (far better than yours, America) is already picking up on just how badly MAGA (and establishment Dems, too) has misread the anger in America. (5) I work in tech, after decades as CBC investigative journalist. If you follow any Reddits or Quora or blogs on American corporate life, you'll witness the sheer inequity of what the average person's financial hopes/dreams are (and the impending tsunami of pent-up anger) vs what's clearly (read PROJECT 2025: it's there in B&W) already well in place: a tech-mediated oligarchy...and a defense tech complex drooling for 'emergency spending' for a war with Iran. Here's a wager for the polymarkets: in a couple of weeks THAT's what you'll be worrying about—the buildup of US forces to attack Iran. 'A republic, if you can keep it,' indeed. Let's see if the US can wake up to the fact it's in an abusive, toxic, utterly capricious relationship with its president, his satrapy and their enablers, your neighb
ors and work colleagues. On the model of the Vietnam protests, I reckon we're spring 1965. Tet and the summer of 1968 haven't happened yet. But they will.
The US has been living above its means for decades and the markets were way overpriced. It all had to come down eventually, and this is how it did. Forget about the reindustrialisation story; that was just the sugarcoating on this hard to stomach pill. Since the bankruptcy in 1971 with the "temporary" suspension of the gold backing of the USD the reserve currency scheme kind of kept the US afloat but the downhill trajectory continued.
The middle class was reduced from 61% to 48% (if that's still all what one would like to call classic middle class life). 1960 the price of an average American home was $11,900 and the median income was $5,600, ie. the home cost 2.1 annual median incomes. 2022 it took 5,6 annual incomes. There is asset price inflation again, btw also a strong indicator of increasing inequality. Accordingly, the median age of the first home buyer in the US is now 38, in the UK 34. US historically: 2000 around 32, 1980s late 20s; in 1960 around 23. It does not get much higher than 38, as else there is not enough time to paying off left.
Now, at a guess, the reserve currency scheme became insufficient for the debt requirements of the US. The US was apparently on a trajectory to total bankruptcy and this concept with higher taxes ("tariffs") and import reduction is a way to prevent that before the total argentinisation of the country sets in. Look, I loathe Trump for his material and ideological support of the genocide, and I hope he gets both, his Nuremberg and his rope for that. I also dislike his vulgarity. This is a different topic and the merits require deeper examination, which is unlikely to happen in the short term, as people stick to the preset talking points for now.
Here is Nixon's bankruptcy speech, respectively the announcement of "a New Economic Policy: 'The Challenge of Peace'" from 1971: https://youtu.be/0BVj2gT6CgI - the important bit is kind of after 8:30,. but the tone of it all is so decent compared to the politicians of our days.
You might want to consider that "bankruptcy" scares always come from politicians who want support for a program that does NOT involve balancing the budget.
The things that would actually lead to a US debt crisis are outlined in this piece and come not from a continuation of the status quo but from a cascading crisis that includes complete financial collapse of the dollar system. US debt is safe so long as the dollar is safe. And the only thing that kills the dollar is the kind of crisis that Trump is potentially setting in motion.
Valid points. Also worth noting that the mirage of tariffs that generate enough revenue to fund the entire state is a useful justification for his desperately needed tax cuts renewal.
how does this go towards having us live within our means? Wouldn't the simple answer be increase taxes? I mean, lots of billionaires that don't need billions. I'd have been willing to pay more to avoid this disaster.
Trump actually said something like "yeah it might cause a recession but then guess what? Lower interest rates!" as if this was some genius move that past leaders hadn't perceived.
I always used to think that the worst part was that Trump doesn't even realise what he's doing. Now I fear he does.
Where do the prospects of 1) a 2026 budget standoff in Congress, 2) a debt ceiling crisis this summer and 3) passage of Trump's budget, which would add $5t to $11t to the debt over the next decade, fit into your analysis?
Adam Tooze great insights as usual. I think that if anyone is doing 5-dimensional chess it is China, and maybe Japan. Both quietly dumping US treasuries for the last 4-6 years. Also they and BRICs others doing interesting things in gold markets - quietly also. Thanks.
I’ve been in the quant investment business for over 30 years and this may be the most cogent analysis I’ve read. Well-written, succinct and data-driven.
I’ve been rereading wages of destruction (perhaps I am looking to confirm my political biases about the administration, I have good reason to investigate) But the autarchic economic “self-sufficiency” rings true, methods of starving US “foes” of liquid dollars, reshaping alliances by causing creditors to break ranks with each other. I’m curious if the writer sees any “once as tragedy second as farce” here.
So "Liberation Day(s)" are here and the whole pile of pro Trump economics, business & financial writers have disappeared as they can't defend or even model the chaos of the last 30 days..
this is GFC & Covid on crack.. its like a daily TARP vote..
We have a "Negative Gamma" sell into a declines which is blasting our global financial economics, economy, business environment. We are stuck in "Buy the truth and sell the news" is our real world facts.. stuck in recession all man made...
Everyone knows this is demolishing earnings projections for 20,000 public trading companies, top 10,000 private firms in the world. These 30,000 firms are earth..These firms are 90% of earnings, 90% corporate taxes, 85% of trade, 90% of private R&D, 90% CapX, 85% technology spending, 90% Industrial investment, 60% of employees..
As these 30,000 firms cut their earning projections, hiring, investment, trade, taxes.. this will smash $10 trillions out of the global economy.
Then the largest 1000 banks & 5000 financial firms in the world which drive $100s of trillions of financial flows across equities, credit, currency, trade, payments, swaps, financial products, pensions, funds, etc.. they are very sensitive to massive change and will reduce $10s of trillions of transactions which will blast their balance sheets
This is "man made" train wreck recession but the hard right & pro Trump wing are stuck as they have zero answers as team Trump is blowing up the global economy..
Outside of all of this everything is great.. can't wait to see the pro Trump & hard right defense of this in their economics & financial opinion pieces..
Michael Hudson recently had a good description of the implications of the world de-dollarizing and why it would be unlikely for another currency to replace it. It would be interesting to see Tooze and Hudson in conversation on this topic...
Sadly Hudson is on the outside looking in -- he's too heterodox for any corporate media to touch with a ten foot pole, and Adam is nothing if not a careful and cautious scholar (this is not a criticism -- there are landmines everywhere in academia these days).
But you are wise to keep an ear to the likes of Hudson and his sometime collaborator, Wolff -- those old Marxists are nothing if not excellent econometricians.
Other factors to keep in mind include the budget, taxes, deficit, and national debt. Does anyone want to be a long term lender to an economy run by Trump?
When you end 80 years of grifting on America, there's going to be screaming and shouting. We can't afford it anymore. Besides, we're not interested in being patsies.
I literally have an index fund so that I can do no worse than the market and never have to think about it. I was however inspired by Musa al-Gharbi to think about the Federal Reserve as a Progressive institution and how many things may be the equivalent of the Bank of the United States in Trump's imagination.
The Trump effect on Social Security is what worries me. Social Security puts more than $1 trillion of demand into the US economy every year, not counting the multiplier-effect. Without it, retirees (and/or their children) would have to liquidate financial assets. Eventually they would have to sell their houses. For those who think ending Social Security would be good for the equity markets, or the economy, think again. Aging is expensive, and Social Security is the most foundational way to pay for it.
What is also really interesting about this aspect is that QE injected ungodly amounts of money into American asset prices and if forced to sell there would be a flood of new "money".
In the QE era the old "inflation is always and everywhere a monetary phenomenon" mantra appeared broken but it wasn't - the monetary base was expanding and all that inflation was just going into share prices (which were at historically high overvaluations) and housing (same!).
IF people are forced to liquidate assets for cash because they are not receiving govt paycheques and because those assets are not generating cash income (Trump-cession) while prices are going up (also Trump-cession) then we are going to see all that QE money become "money-like" and start going into the prices of things that normal people actually buy.
It's like they spent a decade inflating the mother of all bubbles and they're risking deflating it by opening the inflation valve into the real economy.
https://fred.stlouisfed.org/series/M2SL
Here as recent reader of WAGES OF DESTRUCTION: (1) I'm the son of WW2 RAF aircrew (Lancasters) who was so angry after the war, when he discovered what he'd done during the 'firestorm' raids over Hamburg, he spent three years in a monastery. So fascinated twice over by this post, Adam. (1) Here's the view from Canada, where our auto industry will vaporize: some 10K great jobs gone in SW Ontario alone. We Canadians are, as a country—and I know the US: I grew up an IBM brat in NY and went to Vassar—already well past 'the markets': we have factored out American exceptionalism at a speed that makes my head spin. I also have an Irish passport, so I monitor the EU (esp Denmark, where I'm headed next): same deal. The Germans have seen this shitshow before and don't want a rerun, hence gold thinking; the Ukrainians fight on—and the Poles, the Baltics and Sweden and Finland are mobilizing. (3) That noted, what 47 wants is to declare an echo of Hitler's Enabling Act, having caused the polycrisis. (4) There is, however, no revolution without a counterrevolution and CDN media (far better than yours, America) is already picking up on just how badly MAGA (and establishment Dems, too) has misread the anger in America. (5) I work in tech, after decades as CBC investigative journalist. If you follow any Reddits or Quora or blogs on American corporate life, you'll witness the sheer inequity of what the average person's financial hopes/dreams are (and the impending tsunami of pent-up anger) vs what's clearly (read PROJECT 2025: it's there in B&W) already well in place: a tech-mediated oligarchy...and a defense tech complex drooling for 'emergency spending' for a war with Iran. Here's a wager for the polymarkets: in a couple of weeks THAT's what you'll be worrying about—the buildup of US forces to attack Iran. 'A republic, if you can keep it,' indeed. Let's see if the US can wake up to the fact it's in an abusive, toxic, utterly capricious relationship with its president, his satrapy and their enablers, your neighb
ors and work colleagues. On the model of the Vietnam protests, I reckon we're spring 1965. Tet and the summer of 1968 haven't happened yet. But they will.
For the first time in my life, I’m beginning- just beginning- to understand economics. Thank you.
The US has been living above its means for decades and the markets were way overpriced. It all had to come down eventually, and this is how it did. Forget about the reindustrialisation story; that was just the sugarcoating on this hard to stomach pill. Since the bankruptcy in 1971 with the "temporary" suspension of the gold backing of the USD the reserve currency scheme kind of kept the US afloat but the downhill trajectory continued.
The middle class was reduced from 61% to 48% (if that's still all what one would like to call classic middle class life). 1960 the price of an average American home was $11,900 and the median income was $5,600, ie. the home cost 2.1 annual median incomes. 2022 it took 5,6 annual incomes. There is asset price inflation again, btw also a strong indicator of increasing inequality. Accordingly, the median age of the first home buyer in the US is now 38, in the UK 34. US historically: 2000 around 32, 1980s late 20s; in 1960 around 23. It does not get much higher than 38, as else there is not enough time to paying off left.
Now, at a guess, the reserve currency scheme became insufficient for the debt requirements of the US. The US was apparently on a trajectory to total bankruptcy and this concept with higher taxes ("tariffs") and import reduction is a way to prevent that before the total argentinisation of the country sets in. Look, I loathe Trump for his material and ideological support of the genocide, and I hope he gets both, his Nuremberg and his rope for that. I also dislike his vulgarity. This is a different topic and the merits require deeper examination, which is unlikely to happen in the short term, as people stick to the preset talking points for now.
Here is Nixon's bankruptcy speech, respectively the announcement of "a New Economic Policy: 'The Challenge of Peace'" from 1971: https://youtu.be/0BVj2gT6CgI - the important bit is kind of after 8:30,. but the tone of it all is so decent compared to the politicians of our days.
You might want to consider that "bankruptcy" scares always come from politicians who want support for a program that does NOT involve balancing the budget.
The things that would actually lead to a US debt crisis are outlined in this piece and come not from a continuation of the status quo but from a cascading crisis that includes complete financial collapse of the dollar system. US debt is safe so long as the dollar is safe. And the only thing that kills the dollar is the kind of crisis that Trump is potentially setting in motion.
Valid points. Also worth noting that the mirage of tariffs that generate enough revenue to fund the entire state is a useful justification for his desperately needed tax cuts renewal.
how does this go towards having us live within our means? Wouldn't the simple answer be increase taxes? I mean, lots of billionaires that don't need billions. I'd have been willing to pay more to avoid this disaster.
Tariffs are effectively taxes. And for taxing billionaires I suppose Mr Trump is the wrong horse for the course.
Trump actually said something like "yeah it might cause a recession but then guess what? Lower interest rates!" as if this was some genius move that past leaders hadn't perceived.
I always used to think that the worst part was that Trump doesn't even realise what he's doing. Now I fear he does.
Where do the prospects of 1) a 2026 budget standoff in Congress, 2) a debt ceiling crisis this summer and 3) passage of Trump's budget, which would add $5t to $11t to the debt over the next decade, fit into your analysis?
Adam Tooze great insights as usual. I think that if anyone is doing 5-dimensional chess it is China, and maybe Japan. Both quietly dumping US treasuries for the last 4-6 years. Also they and BRICs others doing interesting things in gold markets - quietly also. Thanks.
I’ve been in the quant investment business for over 30 years and this may be the most cogent analysis I’ve read. Well-written, succinct and data-driven.
I’ve been rereading wages of destruction (perhaps I am looking to confirm my political biases about the administration, I have good reason to investigate) But the autarchic economic “self-sufficiency” rings true, methods of starving US “foes” of liquid dollars, reshaping alliances by causing creditors to break ranks with each other. I’m curious if the writer sees any “once as tragedy second as farce” here.
So "Liberation Day(s)" are here and the whole pile of pro Trump economics, business & financial writers have disappeared as they can't defend or even model the chaos of the last 30 days..
this is GFC & Covid on crack.. its like a daily TARP vote..
We have a "Negative Gamma" sell into a declines which is blasting our global financial economics, economy, business environment. We are stuck in "Buy the truth and sell the news" is our real world facts.. stuck in recession all man made...
Everyone knows this is demolishing earnings projections for 20,000 public trading companies, top 10,000 private firms in the world. These 30,000 firms are earth..These firms are 90% of earnings, 90% corporate taxes, 85% of trade, 90% of private R&D, 90% CapX, 85% technology spending, 90% Industrial investment, 60% of employees..
As these 30,000 firms cut their earning projections, hiring, investment, trade, taxes.. this will smash $10 trillions out of the global economy.
Then the largest 1000 banks & 5000 financial firms in the world which drive $100s of trillions of financial flows across equities, credit, currency, trade, payments, swaps, financial products, pensions, funds, etc.. they are very sensitive to massive change and will reduce $10s of trillions of transactions which will blast their balance sheets
This is "man made" train wreck recession but the hard right & pro Trump wing are stuck as they have zero answers as team Trump is blowing up the global economy..
Outside of all of this everything is great.. can't wait to see the pro Trump & hard right defense of this in their economics & financial opinion pieces..
Michael Hudson recently had a good description of the implications of the world de-dollarizing and why it would be unlikely for another currency to replace it. It would be interesting to see Tooze and Hudson in conversation on this topic...
Sadly Hudson is on the outside looking in -- he's too heterodox for any corporate media to touch with a ten foot pole, and Adam is nothing if not a careful and cautious scholar (this is not a criticism -- there are landmines everywhere in academia these days).
But you are wise to keep an ear to the likes of Hudson and his sometime collaborator, Wolff -- those old Marxists are nothing if not excellent econometricians.
Other factors to keep in mind include the budget, taxes, deficit, and national debt. Does anyone want to be a long term lender to an economy run by Trump?
Thanks Adam, yet again a voice of reason amidst the storm.
Tariffs are a political act. Economics are secondary. Did you forecast the drop in bond yields?
When you end 80 years of grifting on America, there's going to be screaming and shouting. We can't afford it anymore. Besides, we're not interested in being patsies.
I literally have an index fund so that I can do no worse than the market and never have to think about it. I was however inspired by Musa al-Gharbi to think about the Federal Reserve as a Progressive institution and how many things may be the equivalent of the Bank of the United States in Trump's imagination.
Andrew Jackson era Bank of the United States