U.S. Economy Will Go Into a Recession if Focus on “Russiagate” Persists
The U.S. economy is heading toward a recession. A number of factors are compromising America’s economic growth prospects, and a slowdown could occur as early as the end of 2018. The indicators we might call the “usual suspects”—construction, auto sales, and overall exports—suggest that you should be less optimistic about the U.S. economy than the Dow Jones’s performance might warrant.
Moreover, few have realized that the longer and deeper the so-called Russiagate scandal persists, the higher the risk of the U.S. economy going into a recession.
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There’s no exaggerating the fact that Russiagate has plagued the Donald Trump administration since Trump won the 2016 presidential election. Special Counsel Robert Mueller continues to investigate and subpoena individuals who may or may not have evidence for the alleged Russian collusion with Trump to defeat Hillary Clinton.
The media has pushed the sky-is-falling narrative—led by the venerable The New York Times—that all 17 U.S. intelligence agencies agreed that Russia hacked, and then distributed, Democratic Party e-mails to favor Trump’s candidature. Yet, that is false. Only four agencies have given the claims enough credibility to investigate. (Source: “NYT Finally Retracts Russia-gate Canard,” Consortiumnews, June 29, 2017.)
But before exploring how Russiagate is acting as a ballast, slowing the U.S. economy (and then some), let us consider structural problems that are already pointing toward a recession. As an appetizer for this discussion, any analysis of the U.S. economy must start from a few basic, if unpleasant, facts.
Failing Infrastructure
The United States, in order to grow, must address critical infrastructure problems and costs. According to transportation experts, the U.S. needs an estimated $7.0 trillion to fix roads, airports, and bridges. It needs some $330.0 billion for water systems and a similar amount for sewage. Then there’s the $100.0+ billion to upgrade the power grid.
The next time you drive on a highway or major road, remember that one in 10 bridges in the U.S. is structurally deficient. (Source: “The 10 States With the Bulk of America’s Deteriorating Bridges,” U.S. News, January 31, 2018.)
Meanwhile, the amount of money that U.S. taxpayers spend on the military keeps increasing (but more on that later).
Having established some basics, note that there’s evidence that another real estate bubble could burst at any moment. All it takes is a strong enough stock market crash—as happened in 2007/2008—to expose economic weaknesses.
Despite all the great things that the Trump tax cuts were going to do for American job growth, both wage gains and employment growth dropped in March 2018. (Source: “U.S. job growth slows sharply; unemployment rate stays at 4.1%,” Los Angeles Times, April 6, 2018.)
There’s a decided slowdown in construction. Or better, the media has focused, disingenuously, on the fact that U.S. construction is growing. The figures have been compared to the Great Recession levels, but what is less clear is that the rate of construction growth has dropped. There has been a fall in year-over-year demand for new construction, and it has been dramatic.
Whereas Americans were spending 12.5% more on construction in 2015, just three years later, that amount has been growing by only three percent. That’s more than a 75% drop in growth. It certainly does not make for a confidence boost. (Source: “Total Construction Spending,” Federal Reserve Bank of St. Louis, last accessed April 17, 2018.)
When people stop buying houses, it’s a bad sign. The last time this happened was in 2006–2007, when sub-prime mortgages started to explode and banks repossessed houses of those who could not pay.
What Can I Do to Put You in This New Car Today?
A similar pattern has emerged for sales of new vehicles. Car sales are one of the best barometers of how confident the average American feels about the economy. Normally, those who fear job loss, wage reductions, and higher expenditures for other necessities will delay decisions to buy a new car.
It seems that’s precisely what’s happening. Car sales were increasing in 2017. Yet, surprisingly, given the tax cut hype and the record highs on Wall Street, car sales have been showing mixed results. They appear to have increased slightly in March 2018, but they fell sharply throughout 2017. (Source: “Auto sales fall for the first time in 8 years,” CNNMoney, January 3, 2018.)
One reason to fear declining sales in the mid—and especially long—term is that Trump’s tariffs could cause a sharp reduction in U.S. car sales in China. Fears of Chinese punitive tariffs no doubt accounted for Tesla Inc (NASDAQ:TSLA) stock’s decisively poor performance in March and April.
As for exports, all the gains to the gross domestic product (GDP) after years of growth could be wasted. President Trump’s threats to impose tariffs against China, the world’s fastest-growing economy, have little to offer. (Source: “Real Exports of Goods and Services,” Federal Reserve Bank of St. Louis, last accessed April 17, 2018.)
Thus, the overall economic picture, while apparently optimistic in the short term, presents real risks of recession by late 2018—and certainly by 2019. Yet, there’s a risk factor overarching the economic performance, which could cause an economic disaster: Russiagate.
Russiagate Is the Biggest Risk to the U.S. Economy
Russiagate—that is, the construct which purports that the Russian government manipulated the 2016 presidential election to favor Donald Trump—has become a major risk factor to the U.S. economy. Simply put, the issue has been dragging on too long and has compromised President Trump’s judgment.
In the absence of solid evidence—as opposed to hearsay and the unexplained mechanics of how trolls on social media may or may not have influenced 100,000 or so voters (Cambridge Analytica and Facebook Inc (NASDAQ:FB) notwithstanding)—Trump is being swayed away from his campaign promises.
America’s ability to analyze appears to have gone out the proverbial window in November 2016. That’s when, desperate to explain her unexpected electoral failure, Hillary Clinton (with the complicity of key Democratic Party leaders) sabotaged Trump’s presidency before he stepped into the Oval Office.
From November 2016, instead of focusing exclusively on his program, Trump has wasted an exorbitant amount of energy on defending himself from unproven allegations of an unclear crime.
There is yet no clear evidence that the Russians tried to hack the 2016 elections. Meanwhile, those proffering the allegations have not explained the mechanism through which the Russians reached so many American voters—let alone the electoral colleges.
The Russians were, most likely, not the ones who told Clinton not to campaign in important swing states like Wisconsin and Illinois.
The Democrats have presented the case as if the only reason Clinton lost is because of the Russians. They have avoided any much-needed analysis on the real causes of voters’ disillusion with the Democratic Party and what it has become. Trump listened to traditional Democratic voters, even incorporating many of the points raised by Clinton’s main Democratic challenger in the primaries: Bernie Sanders.
Trump Has No Time for Making America Great
Trump may not have followed up on his promises, but there’s no doubt that it helped him win a key number of votes. The key being, winning votes in areas with high unemployment like the coal-mining regions of Pennsylvania and Kentucky, for example.
Apart from Trump’s distraction from the important tasks of his office, the result of Russiagate has been a complete demonization of Russia and its president, Vladimir Putin. Or rather, Russiagate has leveraged an already existing anti-Russia hysteria (resulting from America’s role in the coup in Ukraine in 2014). (Source: “Clinton’s Hawk-in-Waiting,” The American Conservative, May 19, 2016.)
Russia, therefore, had already become synonymous with “evil” in the second Barack Obama administration. Blaming Putin for Trump’s win seemed like the most natural thing to do to discredit his presidency. It was not an original strategy. Indeed, the “Russiagaters” have become the new McCarthyists, borrowing the script from a dark period in American civil liberties.
In that sense, Trump has every reason to attack the mainstream media for constantly trying to pin Russian influence on him. It has already affected his legacy and presidency. Russiagate, rather than perhaps more salient issues, from the misguided tax cuts (whose main effect has been to push the stock market to untenable highs) to the aforementioned flirtations with trade wars, has become the focus of CNN and The Washington Post’s criticism.
Russiagate is not constructive. Yes, it has been great for lawyers, former FBI agents, and assorted bureaucrats and commissions, but it has also forced Trump to take actions that are counterproductive to real American interests.
In Syria, for example, Trump has changed his mind on a few occasions, launching attacks, which—from an overall long-term strategy—seemed more designed to prove his anti-Russian credentials than ensuring that America wastes no more efforts trying to prevent an outcome that has already been clearly decided in Russia’s favor.
Far from being friendly to Russia, Trump has embarked on a new Cold War. The president has been swayed away from addressing the very issues for which many people voted for him. He was supposed to “Make America Great Again.”
During the campaign, he suggested that, even when it came to the military, this meant investment in manpower and equipment. It did not mean investment to achieve new wars. Rather, the situation has become so grave now that the U.S. will have to devote more spending to military equipment. International tensions with Russia and China have reached levels not seen since the height of the Cold War.
Infrastructure, schools, healthcare, and other crucial services that Americans need will have to take a back seat to the absolute waste that military spending can be. Moreover, international tensions have raised the level of volatility and risk in the stock markets.
Unlike in 2017, investors have shown a proclivity to take threats of war between Russia and the United States seriously. The widely discredited “chemical weapon” attack in Syria has already dragged Washington back into a potential regime-change operation.
Trump’s April 14 attack over targets in Syria may not be the last, because the same Democrats and Republicans who pushed for it are the ones pushing for Russiagate impeachments. And they have not relented.
The point will come when Trump is forced into a mistake, which everyone will pay for dearly. If we’re lucky, we will pay only with lost stock values and our shirts.
