Higher Tariffs = Stagflation

Posted on April 22, 2025 by Popular Economics Weekly

Financial FAQs

“Any tariff causes consumers to shift from imported goods to domestically produced alternatives that are more expensive, inferior in quality, or just not quite what they want. But with a low tariff domestic alternatives will be only a little bit worse than the imports they replace; with a high tariff many of the domestic goods consumers buy will be a lot worse than the imports they replace. Nobel Laureate Paul Krugman

Federal Reserve Chairman Jerome Powell said in his latest remarks that the Trump tariffs were much higher than the Fed had expected. It has unsettled the financial markets so much that Fed officials don’t know whether it’s smarter to lower or raise interest rates.

Conference Board

The Conference Board’s Index of Leading Economic Indicators (LEI) gives one read of our economic future for the rest of the year. And it’s pointing to stagflation rather than recession.

“The US LEI for March pointed to slowing economic activity ahead,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board. “March’s decline was concentrated among three components that weakened amid soaring economic uncertainty ahead of pending tariff announcements: 1) consumer expectations dropped further, 2) stock prices recorded their largest monthly decline since September 2022, and 3) new orders in manufacturing softened.

The stock and bond markets continued to decline on the Monday after Easter—the DOW down -972 points. So, no sign of an economic resurrection there. The stagnation component is because Trump is fighting an imagined immigration war that is reducing our workforce, which is causing a labor shortage during a time of full employment. The two to three million surge in new immigrants during Biden’s term made US the fastest growing economy in the world.

And the tariff war will cause supply bottlenecks once again as it did during the COVID-19 pandemic, which is when it caused the inflation component of stagflation to skyrocket and the Fed to raise interest rates to combat it.

It’s becoming more obvious what Trump means by using his “gut’ to make decisions. It’s why his “batshitcrazy” tariff decisions, in the words of Paul Krugman, are causing such chaos. Foreign governments can’t make decisions on gut instincts and so are pulling their U.S. investments, causing the stock and bond selloffs. Gold is the current flight to quality shelter in lieu of the traditional bond play.

That means he lives by his own Laws of the Jungle, where might Trumps right, and he only knows how to bully rather than reason. So it’s no surprise that Trump lurches from one tariff proposal to another without researching any of its effects, causing world markets to lose faith in the full faith and credit of the U.S. Dollar and Treasury bonds.

Adam Posen, a former official at both the Federal Reserve and the Bank of England, said in a speech this week that the U.S. could suffer the biggest “stagflationary” shock in decades. And that is scary. We mustn’t forget what the 1970s were like; skyhigh inflation and double-digit interest rates to tame it, or even the post-pandemic era.

“We may get recession, we may not, but we are going to get inflation either way,” he said, as cited by MarketWatch. Even if Trump strikes deals with various countries, tariffs are likely to remain in place (at least 10 percent). These measures would raise prices, increase inflation and slow the economy — the recipe for a period of stagflation.

Harlan Green © 2025

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How Much LONGER Do We Wait?

Posted on April 17, 2025 by Popular Economics Weekly

The Mortgage Corner

“The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.1 percent on a seasonally adjusted basis in March, after rising 0.2 percent in February, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.4 percent before seasonal adjustment.”

FREDcpi

Will home sales pick up at all this year? It could happen. Because inflation is declining at the moment, thanks to the tariff chaos. That’s because economic growth is slowing as the supply bottlenecks increase for autos, auto parts, construction materials and just about everything else that is imported.

This will ultimately drive-up prices, unless ultimately resolved, or we have a recession.

Fed Chair Powell said recently that the tariffs are causing too much uncertainty for the Fed to act one way or the other now, which is reflected in the sudden drop in the Consumer Price Index inflation in the above graph. There is the fear of recession in the air, which is discouraging home buyers as well.

It’s also keeping much needed new home construction on the sidelines. “Policy uncertainty is having a negative impact on home builders, making it difficult for them to accurately price homes and make critical business decisions,” said NAHB Chief Economist Robert Dietz. “The April HMI data indicates that the tariff cost effect is already taking hold, with the majority of builders reporting cost increases on building materials due to tariff

Privately-owned housing starts in March were at a seasonally adjusted annual rate of 1,324,000. This is 11.4 percent below the revised February estimate of 1,494,000 but is 1.9 percent above the March 2024 rate of 1,299,000.

Housing should be aided by moderating consumer inflation but fixed mortgage rates are still hovering close to 7 percent. Housing construction is attempting to fill the supply void. But prices won’t improve because of the tariffs on Canadian lumber and metals such as aluminum, for starters.

Meanwhile housing costs continue to go up. Newsweek reports that between March 2024 and March 2025, the biggest year-over-year price jumps were reported in the cost of natural gas (up 147.6 percent), copper wire and cable (up 13.4 percent), softwood lumber (up 12.6 percent) and construction sand, gravel and crushed stone (up 8.3 percent).

Who can still afford to buy a home? The NAR’s 2025 Home Buyers and Sellers Generational Trends report found that the combined share of younger boomers (ages 60–69) and older boomers (ages 70–78) rose to 42% of all home buyers in the past year. Millennials dropped to 29% of all buyers – down notably from 38% a year ago. Generation X buyers (ages 45–59) held steady at 24%.

So first-time, entry-level homebuyers are being left out of the market at present. Home sales would pick up if the Fed Governors would realize how lower rates would energize buyers. I believe the Fed could lower rates in June, just in case the supply bottlenecks really begin to grind activity to a halt. Everyone seems to be waiting to see what President Trump’s grand plan may be, other than to intimidate every other country on the planet (which won’t work).

So, the tariffs are making home buying even less affordable. It looks like we will have to wait until the Fed begins to cut interest rates again and we see lower mortgage rates.

With the crazies in charge, who knows when?

Harlan Green © 2025

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Republicans’ Unchecked Greed

Posted on April 16, 2025 by Popular Economics Weekly

Popular Economics Weekly

“George Will, the conservative pundit, gave the best description of Trump’s incompetence in a Washington Post Op-Ed: “It is urgent for Americans to think and speak clearly about President Trump’s inability to do either. This seems to be not a mere disinclination but a disability. It is not merely the result of intellectual sloth but of an untrained mind bereft of information and married to stratospheric self-confidence.”

George Will was only partially right in 2017, when he reacted to Trump’s flailing first term attempts to run our government. His administration’s seeming incompetence is motivated by unchecked greed. And it is wrecking the fastest growing economy in the developed world that was inherited from the Biden administration.

They are choosing to remain ignorant of the most basic economic facts in their attempt to extend Trump’s 2018 Tax Cut and Jobs Act during the current debate on passing the budget for the fiscal year. The financial markets are making them pay for their ignorance, which will hurt his red state supporters most.

“The budget plan that House Republicans passed today paves the way to take Medicaid health coverage and food assistance through SNAP away from millions of people, to partially pay for huge tax giveaways for wealthy households and businesses that will drive up deficits and fiscal risk,” said Sharon Parrott, President of the Center for Budget and Policy Priorities, a non-partisan economic think tank,

What are the markets saying? It’s the wrong time to have a budget debate, “when the President’s tariffs, chaotically crafted and applied, have caused business uncertainty to soar and raised the risk of a recession, higher unemployment, and surging prices,” said CBPP’s Parrott.

CBPP.org

This is also at a time of record income inequality when the income gains of the top one percent dwarf that of the bottom 20 percent per the above graph.

Professors Thomas Piketty and Emmanuel Saez were the first to examine 100 years of income tax returns that highlighted the wide swings in income equality. They found that the periods of greatest inequality were just before a major recession, such as the Great Recession and the Great Depression itself, I said in an earlier blog post.

What does that tell US when we are at another period of greatest equality? More than just red staters will be harmed, as the full faith and credit of the U.S. of A is endangered with the record national debt of $36 trillion and growing.

This happened during the Great Recession as well, triggered by GW Bush’s tax cuts at a time when the Clinton Administration had just created four years of budget surpluses that were frittered away with GW’s tax cuts and the wars on terror.

“Add to the budget plan and constantly shifting tariff policy the Administration’s chaotic and deeply harmful executive action agenda — which is wrecking Social Security and other core government functions, unlawfully stopping funding for public services and investments, hollowing out and politicizing the civil service, and undermining basic governance — and you have a triple threat agenda that will make millions of families far worse off,” continued Parrott.

Can it get even worse? Our national debt is not sustainable. Yahoo Finance just reported in an April 14 report, that S&P Global Ratings hinted that it could lower the US credit rating, currently at AA+, by another notch if any of a number of things happen to make the US’s fiscal situation worse.

“The outcome of the US government’s budget process and policy negotiations over the coming months will help determine policies that inform our view of US sovereign creditworthiness,” S&P said. “These discussions could affect our view of the US’s fiscal profile.”

So, there’s a good reason Greed is one of the seven deadly sins, maybe the deadliest if its Republican practitioners cause another Great Recession or Depression.

Harlan Green © 2025

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Why a Recession?

Posted on April 15, 2025 by Popular Economics Weekly

Financial FAQs

“The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2025 is -2.4 percent on April 9, up from -2.8 percent on April 3.

AtlantaFed

The Atlanta Federal Reserve’s GDPNow graph of estimated first quarter economic growth is still the best representation of where US economic growth is headed, I said last week. It has plunged from +3 percent where it was during the Biden administration, to a range from -2 to -3 percent of GDP contraction since March 4, 2025.

Why? Trump’s tariff wars. Here’s the latest headline from MarketWatch on the automobile tariffs, for instance. GM, Ford and Stellantis face extra $5,000 cost for each car made in America, thanks to Trump’s tariff on parts

The Big Three automakers also are dealing with an average tariff cost of nearly $9,000 for each finished vehicle that’s imported, according to a new study by the Center for Automotive Research.

Its key findings were:

  • · Increased cost of $107.7 billion to all U.S. Automakers.
  • · Increased cost of $41.9 billion to the D3 Automakers.
  • · Impact to D3 production volume of 6.8 million vehicles.

Trump has delegated himself emergency powers that really belong to congress to enact his tariffs, when there is no emergency. President Biden’s tariffs were already doing the job of protecting American workers and industries. The manufacturing sector had added 700,000 jobs and were building new factories because of the bipartisan CHIPs, Infrastructure, and Inflation Reduction Acts enacted during Biden’s administration.

This President is really driving economic growth off a cliff not because of a huge persecution complex (it’s an act), but to enrich himself and his Oligarchs. He maintains the taxes collected from the tariffs will offset more tax cuts, when he has done no research (or chosen to ignore what is available) on the effects of a worldwide tariff war.

Trump’s wrecking ball mentality is even alarming the Oligarchs. Ray Dalio, Founder and Chief Investment Officer of Bridgewater Associates, the world’s largest hedge fund, said recently on CNBC, “We have a breakdown of the monetary order. Such times are very much like the 1930s…I’ve studied history, and this repeats over and over again.”

What did he mean? The US bond and currency markets were collapsing. US Treasury Bond yields soared 0.5 percent in a week, and the US Dollar’s value in relation to other currencies plunged. Foreign investors were losing faith in our economy at a time when Republicans want to add approximately $5.8 trillion to our national debt with their tax cuts, and record debt holdings by foreign investors.

Those foreign investors determine how much that additional debt will cost, or they may not want to buy some of that debt in the form of more US Treasuries or Mortgage-backed securities. Former Treasury Secretary Lawrence Summers has said it’s making US look like a third world country.

That’s enough bad news to scare anybody, as even small businesses are now worried. “The implementation of new policy priorities has heightened the level of uncertainty among small business owners over the past few months.” said NFIB Chief Economist Bill Dunkelberg.  “Small business owners have scaled back expectations on sales growth as they better understand how these rearrangements might impact them.”

Surveys show consumers are now beginning to save rather than spend, also a sign of a possible recession. Their spending behavior has reversed from the past four years under President Biden when we were the world’s fastest growing economy.

MarketWatch cites Primerica, for instance, a firm specializing in life insurance and securities, who conducted a survey in late December of people with household incomes ranging from $30,000 to $130,000, or roughly the middle 60% of Americans.

“Despite increases in income, about 73% of middle-income Americans said they are cutting back on nonessential purchases due to the high cost of living, and 84% are eating at home more frequently.”

That is why Republicans and DOGE are on a cost-cutting spree. But Elon Musk appeared to dramatically lower DOGE’s savings goal, projecting $150 billion for the year—far short of his earlier trillion-dollar figure at a recent cabinet meeting, said Fortune Magazine. However, questions remain about the savings claimed by the team, with critics pointing to inflated numbers, retracted claims, and a growing list of controversial cuts.

This is why we are hearing horror stories about the cutbacks from social security and Medicaid services, with maybe more to come. We are no longer the economy to be envied, if Republicans in their greed destroy the faith and credit of the U.S. government.

Harlan Green © 2025

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Republicans’ Dystopian Dream

Posted on April 13, 2025 by Popular Economics Weekly

Popular Economics Weekly

“I don’t want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.” Grover Norquist, Republican.

Grover Norquist, founder and president of Americans for Tax Reform in a 2001 NPR interview intoned above what has been the current Republican Party’s dream—a federal government so small that it might one day disappear, except for a strong military, with no public services that protect all Americans and bind us together as a nation, regardless of creed or color.

It has been the Republicans’ wish since at least Ronald Reagan’s “government is the problem” declaration as he attempted to downsize government by cutting taxes and ignoring laws (Irancontra) when he could get away with it.

Donald Trump has now been chosen to fulfill their dream. He is effectively destroying many of those institutions through a very calculated mismanagement by choosing incompetence over competence, domination over cooperation. The problem is the US economy can’t function at all without a well-functioning central government since at least Roosevelt’s New Deal.

It takes healthy people and businesses protected from the ravages of a catastrophic climate to be productive. Yet Republicans via Trump are eliminating the institutions that protect our environment, healthcare and social services. They even attempted to abolish Obamacare more than 30 times, the only private al health service that insures 30 million Americans even with existing medical conditions.

And now Republicans want to add more tax cuts to our $36 trillion national debt that is 121 percent of our GDP, as portrayed below. Economists are predicting the tax cuts will add an additional $5.8 trillion to the national debt. But they can’t bring their budget hawks who oppose such debt to agree without cutting more social services, such as to social security and Medicaid.

GDP%federaldebt

The legacy of the Republicans’ dystopian dream by Trump would return America to a past century of horrific wars and pestilences, and not only be the destruction of our Democracy and freedoms we take for granted but raises the possibility of another worldwide recession or depression.

The price paid to date has been $Trillions in stock and bond market losses in just the five days as President Trump attempts to bend the rest of the world to his will with a tariff war, which is another, maybe disastrous demonstration of his incompetence and maybe worse, his mental deterioration as he writes countless executive orders that have little validity as laws.

Consumers are now beginning to realize the damage Trump is causing. In further bad news, the University of Michigan’s gauge of consumer sentiment fell to 50.8 in a preliminary April reading from 57.0 in the prior month.

And inflation expectations of those surveyed rose to the highest level since 1981, which was the stagflation era that caused the Federal Reserve to raise its Fed Funds rate to 20 percent.

“Consumers report multiple warning signs that raise the risk of recession: expectations for business conditions, personal finances, incomes, inflation, and labor markets all continued to deteriorate this month,” said Survey Director Joanne Hsu.

 When will Republicans wake up enough to realize their dystopian dream is becoming the nightmare of Donald Trump’s dog-eat-dog primal world in which ultimately no one can survive?

Harlan Green © 2025

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Why the Shock and Awe?

Posted on April 8, 2025 by Popular Economics Weekly

Financial FAQs

“White House aide Peter Navarro said Sunday that he expects President Donald Trump’s tariffs to bring in $6 trillion in revenue in the next decade, which could amount to the largest tax hike in US history. CNN

The financial markets are close to panic selling as Donald Trump’s tariff announcements were far more draconian than expected. The Washington Post described Trump’s tariff policies as ‘shock and awe’ tactics to inflict as much pain as possible on the countries Trump and MAGA Republicans consider to be taking economic advantage of the U.S.

But history has shown that such strong-arm tactics don’t work. They create more enemies than friends and more wars.

The most recent example is GW Bush’s ‘shock and awe’ invasion of Iraq on false pretenses (Saddam Hussain had weapons of mass destruction) that brought Iraq closer to Iran, created ISIS, the Sunni rebellion, and ate up the prior Clinton administration’s four years of budget surpluses, costing more than $1 trillion.

Trump maintains his decision to do battle with the whole world will make Americans more prosperous on the presumption that it will reduce our budget deficit and lower taxes. Instead, the tariffs will amount to the largest tax increase in history.

Why? “That is a tax,” said Sen. Mark Warner in an interview on Fox immediately after Navarro’s appearance. “That money doesn’t come falling out of the sky. That money comes because (the price of) these products will go up, Americans will pay more. We’re talking a $700 billion tax.”

And small businesses, who thought Trump would bring some relief from regulations as well as lower prices, do not like what they are seeing. The National Federation of Independent Business on Tuesday said its Small Business Optimism Index dropped 3.3 points in March to 97.4, falling just below its 51-year average of 98.

Economist David Rosenberg of Rosenberg Research, cited by MarketWatch’s William Watts, said the three-month drop of 7.7 points in the index is the steepest in more than four years, with drops of that magnitude having occurred only in April 1980, December 2008, April 2020, May 2020, December 2020 and January 2021 in the 50-year history of the series.

NFIB

The NIFB graph illustrates that the biggest dip in optimism occurred during the 2008 Great Recession (gray bar in graph), the worst worldwide recession since the Great Depression.

“The implementation of new policy priorities has heightened the level of uncertainty among small business owners over the past few months.” said NFIB Chief Economist Bill Dunkelberg.  “Small business owners have scaled back expectations on sales growth as they better understand how these rearrangements might impact them.”

Why has Trump chosen to punish so many countries, many with no trade deficit at all, as well as islands with no people, just penguins?

David Brooks in Atlantic Magazine has quoted George Orwell’s 1984 novel as an example of what a future government dominated by an autocrat and political party interesting in holding on to power at any cost would look like. It rules by inflicting pain and suffering.

“Obedience is not enough. Unless he is suffering, how can you be sure that he is obeying your will and not his own. Power is in inflicting paid and humiliations.”

Trump acts like a thug who only knows how to inflict pain to get what he wants, which is more power. He extorts rather than negotiates when he believes he has the upper hand. It is becoming obvious he believes that by inflicting maximum economic pain on ally and enemy alike, countries will submit rather than retaliate out of fear that it will sink their own economies.

But why would they when they can negotiate with each other rather than Trump?

Trump’s problem is that he is already breaking his “Day One” promise to lower prices and taxes. It will take years to repatriate manufacturing jobs and domestic businesses to find alternate supply chains to avoid the tariffs.

We will soon see the reactions of most of the 180 countries he has targeted as they retaliate with their own tariffs on American exports. Shock and awe tactics have created enemies rather than allies, poverty instead of prosperity, war instead of peace.

Most of all, it doesn’t work economically. President McKinley’s Gilded Age that Trump cites as his model economy was golden for the Robber Barons and wholesale corruption, not ordinary Americans.

President Bush created the first $Trillion-dollar federal debt on the lie that cutting taxes while fighting wars created jobs and greater prosperity, when it instead created the Great Recession.

By promising what he cannot possibly deliver: “Starting on day one, we will end inflation and make America affordable again, to bring down the prices of all goods,” Trump risks even more, a greater recession, and another war.

Harlan Green © 2025

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Stagflation vs. Recession?

Posted on April 5, 2025 by Popular Economics Weekly

Popular Economics Weekly

Total nonfarm payroll employment rose by 228,000 in March, and the unemployment rate changed little at 4.2 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, in social assistance, and in transportation and warehousing. BLS.gov

FREDunemployment

Is the strong March unemployment report a sign of stagflation or recession? The 228,000 jobs created and unemployment rate just up to 4.2 percent may not mean much with Trump’s declared trade war on the rest of the world. It could be the calm before the storm.

President Trump’s completely insane “Liberation Day” announcement of tariffs on 180 countries including uninhabited islands could be creating a worldwide depression as countries decide whether to do business with US or go elsewhere. It could slow down foreign trade to a trickle with the product shortages that will ensue, as happened with the COVID-19 induced supply shortages.

Looking at past history in the FRED graph of the unemployment rate to predict what will happen next, with the six gray bars indicating recessions since 1980, won’t help much. The unemployment rate rose sharply after the last recessions began.

Only someone as crazy as Trump believes he can take on the whole world and they won’t retaliate. It also makes no economic sense to base the tariffs on the budget imbalances of goods but not services. We export more services, such as software, than we receive from the EU, for instance, says Nobel laureate Paul Krugman, which brings the actual trade deficit with the EU close to zero. Was this dreamt up by Musk’s DOGE teenagers, I wonder?

There are many other factors that determine the start of a recession, such as economic growth. We already have predictions that Q1 GDP could shrink for the first time since the COVID-19 recession.

Chief economist Torsten Slok of Apollo Global says a recession can happen if the tariff hikes are not negotiated down in the next couple of months.

Fed Chair Powell believes a stagflationary period is more likely in his latest remarks. “While uncertainty remains elevated, it is now becoming clear that the tariff increases will be significantly larger than expected,” he said at a business journalism conference in Virginia. “The same is likely to be true of the economic effects which will include higher inflation and slower growth (which is the definition of stagflation).”

The 228,000 new jobs created in March didn’t prevent the continuing financial market meltdown, as investors are waiting to see who will retaliate against Trump’s “Liberation Day” tariff hikes. The DOW Jones lost more than -$2200 points on Friday.

China was the first to respond with retaliatory tariffs, announcing that a 34 percent tariff hike on US imports in retaliation for Trump’s 34 percent levy on China. It means the total of all tariffs on Chinese imports is now 54 percent.

“China urges the United States to immediately cancel its unilateral tariff measures and resolve trade differences through consultation in an equal, respectful and mutually beneficial manner,” the ministry said, according to a Google translation.

Vietnam is also offering to negotiate, but it wants zero reciprocal tariffs, whereas Trump is saying that a bottom-line 10 percent tariff rate will remain on all imports.

I also see a period of stagflation with the strong employment data. The 228,000 nonfarm payroll increase was slightly higher than the average monthly gain of 158,000 over the prior 12 months, which is why I see slower growth rather than a recession this year. But all bets are off if the tariffs aren’t negotiated down.

Interest rates are plunging as fears of a recession mount and Realtors are already reacting. Lawrence Yun, the NAR’s chief economist says, “The future direction of the economy remains uncertain due to tariff wars and potential negotiations. In the meantime, interest rates on FHA and VA loans could soon drop below 6% in a matter of days. Rates on conventional and jumbo loans are also declining as money shifts from stocks to bonds. The current job additions and decreasing rates are likely to lead to more home sales…Be prepared.

$Trillions have already been lost because of Trump choosing to be the bully and fight with congress and the courts rather than negotiate the tariff hikes and DOGE job cuts up front. And Americans, as well as much of the world, will be paying for it.

Harlan Green © 2025

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“Liberty Day” Has Come!

Posted on April 3, 2025 by Popular Economics Weekly

Financial FAQs

Dow opens 1,200 points lower, S&P 500 and Nasdaq plunge as Trump tariffs roil markets; Apple, Nvidia and Nike slump; dollar and gold dive. U.S. stocks are plunging a day after U.S. President Trump outlined new tariffs aimed at reordering global trade. MarketWatch

AtlantaFedGDPNow

This above graph best portrays what is both sad and terrifying about the result of President Trump’s “liberation day” tariff announcements. The Atlanta Federal Reserve’s GDPNow estimate of first quarter economic growth shows our economy being driven over the cliff.

The MarketWatch headline of the DOW’s 1200 point drop announcing the reaction of US financial markets the next day was just as terrifying.

Trump is so steeped in his delusions of grandeur that he believes bringing back President William McKinley’s tariff policies that were instituted just before the turn of the last century (1890) will make America great again.

But in fact, McKinley’s policies created the Robber Barons and monopolies that led to so much corruption and concentration of power that it ultimately caused the Great Depression and ultimately World War II.

It is a sad time because it confirms one political party is ignorant of not just economic facts but is willfully ignorant of the damage higher tariffs will do to other economies, not just ours.

The US economy was the “envy of the world”, said The Economist when President Biden handed off of the fastest growing economy in the developed world to the Trump administration that had brought the US out of the COVID-19 pandemic.

McKinley era economists were largely ignorant of the economic knowledge learned since then. But Trump and his Republicans’ ignorance of basic economic facts today isn’t excusable. Tariffs are a tax levied on imports, which raises the price of those imports.

There is another effect of increased tariffs that will add to the pain. The trade barriers it sets up will reduce the flow of foreign trade that will create supply shortages as happened during the COVID-19 pandemic. This was the root cause of the inflation surge in 2021 that induced the Federal Reserve to raise interest rates and borrowing costs for consumers, hurting lower-income folks the most.

Last Wednesday President Trump had already announced 10% universal tariffs on all imports to the U.S., which totaled more than $4 trillion last year, according to the Bureau of Economic Analysis, or almost 14% of total economic output.

“He announced more on Chinese goods, adding to the double-digit levies already in affect, plus additional ones for countries that he deems to have excessive barriers to imports from the U.S.,” said MarketWatch.

We will soon have concrete evidence of the inevitable result—actual stagflation. It will firstly appear in higher prices, the (-flation) result that will cause consumers to buy less. This in turn will begin to slow economic growth, the (stag-) component of stagflation.

We shouldn’t forget what happened during William McKinley’s era. It was the first Gilded Age that created the Robber Barons of that day, just as the Oligarchs seated in rows behind Trump during his inauguration, will benefit the most from Trump’s ‘liberation day”.

Harlan Green © 2025

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Republicans Don’t Pay Their Bills

Posted on April 1, 2025 by Popular Economics Weekly

Financial FAQs

“The new law will reduce federal revenues by significant amounts, even after allowing for the impact on economic growth. It will make the distribution of after-tax income more unequal. If it is not financed with concurrent spending cuts or other tax increases, TCJA (Tax Cuts and Jobs Act) will raise federal debt and impose burdens on future generations. If it is financed with spending cuts or other tax increases, TCJA will, under the most plausible scenarios, end up making most households worse off than if it had not been enacted.” Brookings

How times have changed! Republicans during the Eisenhower era paid for the deficits their tax cuts caused. The Brookings Institution analysis of Donald Trump’s 2018 Tax Cut and Jobs Act hasUS households paying for it because it added some $4 trillion to our federal debt even “if it is financed with spending cuts or other tax increases.”

The 90 percent corporate tax rate and 92 percent maximum personal tax rate of the Eisenhower era paid for the “new hires, new equipment, and product research which are deductible from taxable earnings.”

In other words, the higher tax rates made corporations use their profits to finance their own growth, rather than pay Uncle Sam. Whereas today the TCJA tax cuts will mostly finance corporate stock buybacks.

And Trump wants to renew the TCJA when it expires this year, which the Congressional Budget Office says will add at least another $4 trillion to our national debt.

It doesn’t have to be this way. The Clinton/Gore government downsizing of the 1990s created four years of budget surpluses, because they negotiated with congress to make the cuts that were in congressionally mandated programs.

“Unlike the current effort, the cutting didn’t start until they had gone through a six-month study process and developed a blueprint of how to best reinvent the federal government,” said a recent Newsweek article on the subject. “Government agencies were brought into the process to determine the best ways that efficiencies could be realized. In fact, the effort was led by some 250 federal employees that remained on their agency payrolls.”

The federal workforce was reduced by close to 400,000 employees between 1993 and 2000, or about 17 percent of the total. The cuts made the government the smallest it had been since the Eisenhower administration, according to the Newsweek report. 

Who do the Trump tax cuts benefit? Corporations and households in the top 5% — who earn more than $450,000 a year, roughly — are the “biggest winners.” They’d get over 45% of the benefits of extending the Tax Cuts and Jobs Act, according to a July 2024 analysis by the Urban-Brookings Tax Policy Center and would reduce federal tax revenues by $4.4 trillion by 2035.

So why would Republicans want to reduce federal revenues when we have a $36 trillion national budget deficit that is 120 percent of GDP?

It’s because Republicans don’t want to pay their bills rather than provide social services and environmental protection that would benefit all Americans. That’s their history from at least 1980 when President Reagan declared that “government was the problem” and immediately fired the federal air traffic controllers who were striking for higher pay and better working conditions.

We know how that turned out with the latest brouhaha over Musk’s slashing of the already understaffed FAA workforce that regulates airline travel.

President Eisenhower would have turned over in his grave, if he knew this would happen to the Republican Party.

Harlan Green © 2025

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Posted in Consumers, COVID-19, Economy, Macro Economics, Politics, Weekly Financial News | Tagged , , , , , , , , , | Leave a comment

Can We Prevent Stagflation?

Posted on March 31, 2025 by Popular Economics Weekly

Popular Economics Weekly

During the 1973 Arab-Israeli War, Arab members of the Organization of Petroleum Exporting Countries (OPEC) imposed an embargo against the United States in retaliation for the U.S. decision to re-supply the Israeli military and to gain leverage in the post-war peace negotiations…The onset of the embargo contributed to an upward spiral in oil prices with global implications. The price of oil per barrel first doubled, then quadrupled, imposing skyrocketing costs on consumers and structural challenges to the stability of whole national economies. history,state.gov

BEA.gov

The 1970s stagflation, a combination of stagnant growth and high inflation, was not a happy time. It caused then Federal Reserve Chair Paul Volcker to raise the Fed Funds rate to as high as 20 percent to tame the inflation tiger in the 1980s and many bank failures.

It might happen again, but not because of an energy shortage. Friday’s report on the Commerce Department’s Personal Consumption Expenditure Index (PCE) raised alarms that inflation was on the rise, which is one of the two main components of stagflation. Inflation hasn’t been tamed, as it rose 2.5 percent, 2.8 percent without food and energy prices, per the BEA graph.

Stagflation last happened in the 1970s because of the 1973-74 Arab oil embargo that caused gas stations to run out of gas and consumer prices to soar. It ultimately resulted in a 14.8 percent CPI inflation rate in 1980. It was more than a decade before inflation and interest rates dropped back to single digits, and we lived through three recessions in that decade.

This was also the beginning of the Second Gilded Age so well documented by political scientists Jacob Hacker and Paul Pierson in Winner-Take-All Politics: How Washington Made the Rich Richer—and Turned Its Back on the Middle Class that was initiated by President Reagan and supported by the Business Roundtable of corporate CEOs.

It began the huge transfer of wealth from wage earning Americans to the owners of capital with successive tax cuts and restrictions on labor organizing, as well as the massive deregulation of industries such as the airlines and telecommunications.

US Corporations took advantage of the globalization of technologies and began the massive move of factories overseas, along with the blue-collar jobs that had built middle America, to countries with cheaper wages and fewer environmental regulations.

The gutting of rust belt jobs in the Midwest resulted in the red state-blue state split we have today, with right to work laws in those states that restrict the right of unions to collect dues from their members, many with wages still stuck at the national $7.25 per hour minimum wage.

This is while economic growth, the other main element of stagflation, is slowing. Why? Consumers are not happy with the high prices and economic uncertainty caused by Trump’s tariffs and Elon Musk’s DOGE massive job cuts, so they aren’t spending as they did in the past, and consumers are the main driver of economic growth.

The loss of tens of thousands of federal jobs and depopulating the service sector industry, the fastest growing economic sector that depends on undocumented workers, will do the same.

This is reflected in falling consumer confidence. The University of Michigan’s final February survey said: “Consumer sentiment extended its early month decline, sliding nearly 10% from January. The decrease was unanimous across groups by age, income, and wealth. All five index components deteriorated this month, led by a 19% plunge in buying conditions for durables, in large part due to fears that tariff induced price increases are imminent.

All of these factors make a reduction in first quarter economic growth more likely. In fact, the Atlanta Fed’s estimate of first quarter growth declined further into negative territory.

The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2025 is -2.8 percent on March 28, down from -1.8 percent on March 26. The alternative model forecast, which adjusts for imports and exports of gold as described here, is -0.5 percent.

Can we prevent a recurrence, in which we again have double digit inflation and slow to no economic growth? Trump would have to learn how to negotiate with Congress rather than issue unlawful executive orders and take away Elon Musk’s chainsaw for that to happen.

Harlan Green © 2025

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

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