Friday, January 4, 2019

Roubini: Trump Flirting with Mutually Assured Economic Destruction

Nouriel Roubini
By Robert Wenzel

The Keynesian NYU economics professor Nouriel Roubini just warned about President Trump's economic policies, in an op-ed at Project Syndicate.

Some of his complaints only a Keynesian left of Paul Krugman could understand.

But he hit the ball out of the park when he wrote:

Trump’s other policies will have stagflationary effects (reduced growth alongside higher inflation). After all, Trump is planning to limit inward foreign direct investment, and has already implemented broad restrictions on immigration, which will reduce labor-supply growth at a time when workforce aging and skills mismatches are already a growing problem.
I am saying pretty much the same thing in the EPJ Daily Alert.

He also notes:
Even Trump’s oil policies have created volatility. After the resumption of U.S. sanctions against Iran pushed up oil prices the administration’s efforts to carve out exemptions and bully Saudi Arabia into increasing its own production led to a sharp price drop.
Indeed, Trump told the media on Wednesday before a cabinet meeting that he did make calls to keep the oil price down:
And it was going to $100, and some people were saying $125....I make calls. I said, "You better let that oil and that gasoline flow." And they did. And now it's down to $44. And I put out a social media statement yesterday; I said, "Do you think it's luck that that happens?" It's not luck. It's not luck."
I have it on some pretty sound background that this did occur. The deal was that Trump would put sanctions on Iran, and Saudi Arabia would open up the oil spigots to keep the price down before the election. 

But then Trump started providing all kinds of exemptions to the Iranian sanctions. In effect, and this is one for the books, backstabbing Saudi Arabian Crown Prince Mohammed bin Salaman. And so the oil price continued to drop for a while, but that game is just about over.

OPEC in December agreed to cut production starting this January 1.

The deal was for the 15-member OPEC cartel to reduce its output by 800,000 bpd, while Russia and the allied producers would contribute a 400,000 bpd reduction. But word is that OPEC alone has started cutting production by 1.2 million, mostly because of added cuts by Saudi Arabia.

So this low oil price thing is not going to last too long and the stagflation thing may be on its way in.

MBS is not going to bail out Trump the next time he calls and I would advise Trump to stay out of the Saudi embassy in Turkey.

Roubini concluded with this:
Trump is now the Dr. Strangelove of financial markets. Like the paranoid madman in Stanley Kubrick’s classic film, he is flirting with mutually assured economic destruction. Now that markets see the danger, the risk of a financial crisis and global recession has grown.
Roubini's comment here is a bit hyperbolic and he doesn't get Austrian School Business Cycle Theory, so he doesn't realize that the Federal Reserve appears to be ushering in the next down phase in the business cycle right now because of its crazed monetary policy, which is currently in a slow growth mode. But Roubini is correct that with Trump's erratic policy moves and comments are likely to make the next recession  even more unstable than most recessions generally are to begin with.

Robert Wenzel is Editor & Publisher of

No comments:

Post a Comment