Tonight, March 11, Trump gave a TV address to the Nation that was to be his program for mobilizing the country to address the growing spread of the Covid-19 virus and its increasing negative impact on the US economy. The proposals landed with a thud. Even the financial markets gasped and went into a tailspin. The Dow Jones stock futures market immediately went into a tailspin, falling 1250 points again even before the markets reopen tomorrow morning, Thursday March 12.

Not only the financial markets, but the rest of the real economy is declining rapidly. The US stock markets now have officially entered ‘bear’ territory, having lost more than 20% in value. That has nearly wiped out all of Trump’s much vaunted stock market gains since he came into office.

Subsidizing Stock Markets with Tax Cuts & Interest Rates

The markets under Trump have been artificially boosted since he assumed office. First by expectations of his 2016 campaign promise he would deliver a $5 trillion business-investor tax cuts immediately once elected. Secondly, his delivering on that promise in January 2018 with his $4.5 trillion tax cut for multinational corporations, businesses, and investors. (To this was added a further $427 billion in business-investor tax loopholes in 2019). And third, as a result of Trump forcing the Fed to reverse course and lower interest rates in 2019 as well.

Working and middle class households end up paying $1.5T in more taxes under as a consequence of Trump’s 2018 tax cuts. That boosted already record profits to still higher profits. For example, 23% of the 27% rise in the Fortune 500 companies’ profits in 2018 were attributed to the Trump windfall tax cuts alone. Flush with record profits, the same Fortune 500 redistributed their profits bonanza to their shareholders. They gave back to shareholders $1.2T in stock buybacks and dividend payouts in 2018, plus another $1.2T in 2019. Most of the $2.4T went right back into the stock markets, driving their price levels still higher.

But that wasn’t all. Added to Trump’s subsidization of Corporate America by means of tax cuts was the subsidization of Banking America. Trump browbeat, threatened and successfully forced the US central bank, the Federal Reserve, to provide cheaper money once again to America’s bankers by lowering interest rates three times in 2019. The cheaper money led to loaning out more to investors, more cheap money to speculate in stock and other financial markets. Cheap money also served to drive up stock prices even more in 2019.

In other words, under Trump tax policy and Trump monetary policy have been in the service of the stock markets ever since he came into office. The tax and interest rate policies artificially pumped up corporate profits, that in turn boosted corporate stock buybacks and dividend payouts to record levels that then enabled the diverting of much of those buybacks-dividends cash into the stock markets. In the end it created an artificial stock market boom.

But it all came crashing down in 2020. After risen for three years, the markets crashed 20% in just three weeks. And another 20% is likely yet to come.

Accompanying the stock market crash has been the collapse of other financial asset prices in the US and worldwide. Stock markets globally have followed the US down. Oil and commodity futures prices have tanked. Oil has fallen into the low $30s per barrel, flirting with the $20s. Ditto other commodity prices. So have foreign currencies. Ditto the US Muni bond market. And corporate junk bonds in the energy sector are well on their way to mass defaults, followed by retail and other high yield bonds.

Meanwhile, the real non-financial economy in the US and globally fare no better. Already slowing before the virus’s impact on global supply chains and domestic demand, only the US household consumer was holding up the US economy at year end 2019. That has now changed dramatically in 2020, however. All the indicators of the real economy are now in freefall too—not just the financial markets.
The US recession, in other words, has arrived as of March 2020. The same recession is spreading now globally: in Europe, So. Korea, Japan, Latin America, Australia, and by many independent forecasts, China perhaps soon as well. Goldman Sachs research is projecting a second quarter 2020 US growth rate of zero. Others are forecasting a China growth between 2% and -2%, depending on the source. In other words, half of the global economy—the US and China—are about to stagnate at best and more likely contract now—as the rest, even weaker, economies in Europe, Japan, Latin America and elsewhere slide even deeper into recession.

So there’s a globally synchronized real economic contraction underway (aka recession), as well as a spreading global contagion of deflating financial asset markets. The last time financial markets and the real economy were similarly synchronized was 2008. But this time the financial price collapse is the fastest on record.

Trump’s DOA TV Address to the Nation

It was in this economic context that Trump came before the cameras tonight, March 11, to tell the nation what he was going to do. But his answers were not well received—by business, the media, and I’m sure the vast majority of Americans looking for leadership and a convincing program. Nor was his delivery convincing. He appeared wooden, subdued, unconvinced of his own words, and, of course, he contradicted himself repeatedly in typical Trump fashion.

Just one week ago he declared publicly that the virus was not a problem in the US. He said only 15 cases had been recorded and that number was going to zero soon. It would all disappear by April when warmer weather returned. Last week he said 43 million test kits for the virus were being distributed. And that everyone should make sure they go to work and carry on life as normal.
But tonight he did not challenge the fact of more than 1200 cases in just one week, and 38 deaths, with both numbers rising rapidly. Instead of ‘going to work’, he reversed himself and said “if sick, stay home”. And normal life, he said, now means not traveling, no mass events or gatherings, closing schools.

Nor did he mention why California governor, Gavin Newsom, complained today that many of the test kits sent to California have been defective and that the most recent kits received by California were sent without the biological ‘reagents’ necessary to make the kits work. As a result, 2500 travelers disembarking today from the Grand Princess cruise ship now docked in Oakland, California were not tested as they left the ship unless they showed direct symptoms of the virus. In other words, thousands were being sent on their way even if they were asymptomatic carriers of the virus because there just wasn’t enough working test kits. Nor did Trump mention New York governor, Cuomo, who has had to shut down entire communities in New York because of insufficient test kits. Following Trump’s speech, Cuomo today on CNN TV added “we don’t have testing capacity…We are way behind on testing”.

And of course Trump would never say that in four weeks the US has tested fewer than 10,000 nationwide, in contrast to China’s testing 200,000 in a single day or South Korea 15,000 in a day. Nonetheless, according to Trump, the US had carried out an “unprecedented response”, and was “responding with great speed”. Trump’s speech was typical ‘reverse hyperbole’. To refute the facts and critics, just say the opposite and exaggerate to the max. It used to be called the ‘big lie’ when Nazi ideologue, Joseph Goebbels, used to employ it.

In the days immediately preceding his speech, Trump and administration officials began calling the coronavirus the ‘China virus’ or the ‘Wuhan virus’, in a clear Xenophobic attempt to divert blame. But even that was contradicted in his speech tonight. Now it was Europe that was the cause of the spread of contagion in the US. As he put it directly, it was Europe that had “seeded the virus” to the US as its citizens traveled from Europe to the US. So the Europeans were now to blame as well as the Chinese.

In the same breath identifying Europe as the cause, Trump announced he was “suspending all Europe travel to the US for 30 days”. However, he failed to clarify if that included cargo and freight from Europe to the US as well as passengers. If cargo were included, that of course would accelerate recession in the real economy, for Europe as well as the US as global trade between the two came to a halt. In an even more astounding clarification to all that, however, he added that the UK would be exempt from the freeze on all Europe to US travel.

That remark was almost comical. What then would stop European passengers from taking the ‘Chunnel’ (the train tunnel under the English channel) from France to London and then flying to the US after a London connection? Was he trying to help his buddy, Boris Johnson, and his fast weakening UK economy by diverting all Europe travel to the US through London? Was he making a concession to Boris on upcoming US-UK trade negotiations? To point was as silly as it was transparent.

After meeting with US bankers earlier in the day, Trump had made a point to mention that collapsing US stock prices was “not a financial crisis”. Oh yeah? Tell that to Fed chairman Powell who today rushed another $175 billion into the markets overnight. Or to the giant shadow banks, Blackstone and Carlyl Group, who today began telling their clients to quickly draw down their credit lines at their banks because it was likely the banks would freeze their access soon. Or tell it to the various financial analysts who are now increasingly warning of escalating defaults on the way in the junk bond market for oil-gas fracking companies. Oil at $20 a barrel. No crisis really? (Let’s not forget the oil price crash in early 2008 that preceded the collapse of Lehman Brothers and other banks in the fall of 2008).

What working class America got out of Trump’s speech was that something for them was ‘on the way’ but Trump couldn’t say what that was, except there would be “relief soon”. That’s all. A ‘maybe’. Sometime. Perhaps. We’ll see. Just wait.

But US business would not have to wait. What Trump did propose in his speech was a series of measures directed mostly at US small businesses. He said he would add $50 billion to the government’s small business loan fund to provide money capital to small businesses in need. Secondly, he promised deferring of tax payments due April 15. And there was the payroll tax cuts, where all businesses across the board would enjoy an immediate 6.2% tax cut—whether they were negatively affected by the virus or not.

The idea of suspending the payroll tax was first introduced by President Obama in the wake of the 2008-09 crisis, when his other economic stimulus programs weren’t working too well. In retrospect, today most economists agree that Obama’s payroll tax suspension had little to no effect on stimulating the real economy—and would have even less today. What a payroll tax cut did accomplish under Obama was to further undermine the finances of the social security trust fund. But that would serve to support Trump’s announced plans this past January 2020—while talking to billionaires in Davos, Switzerland, at the World Economic Forum—to cut social security and medicare after the November 2020 US elections. Create a deficit in social security in order to order cuts in its benefits.

But where was the assistance to those who needed it most? What about the millions of American workers who would now have to stay home because they were infected. Either voluntary quarantined or ordered to do so by their employers. Or the millions unable to ‘work from home’ due to their occupation. Or those too sick to go to work. What about the more than half of the 165 million US work force who, according to the Federal Reserve research, have less than $400 in emergency savings for such situations? Or the 30 million who have no health insurance whatsoever. Or the 87 million who may have some insurance but have $500, $1000 or even $2000 deductibles, plus copays? Or the millions who have no paid sick leave whatsoever, since the USA is the cheapest provider of paid sick leave among all the advanced economies. Even most union contracts provide only 6 days paid leave on average. That’s 8 less than a 14 day quarantine period. And what about the tens of millions of working class households with Kindergarten through grade 6 children who can’t afford nannys or babysitters? What if their parents have to stay home, not work and not get a paycheck because their school districts shut down? And what about the many millions who will almost certainly have to go on unemployment in the travel industry, hotel workers, restaurant workers, airline and ship workers, those who work in entertainment, sporting, and other ‘social gathering’ industries? Where were Trump’s proposals for them? Trump and his administration advisors keep referring to ‘targeted’ stimulus, but his ‘target’ is businesses whether they need it or not, while working families are not at all a ‘target’ and will have to wait to get “relief soon”.

Dr. Jack Rasmus
March 11, 2020