I think the current stock market crash is the result of a lot of things coming to a head at the same time:
1. Instability in our government as Trump, with the aid of fellow Republicans and FOX news, goes about attacking and trying to destroy our institutions of government like the FBI, Justice Department and next in line according to Nunes, the State Department.
2. Trump is being urged by his lawyers to refuse to appear before Mueller to testify setting up a likely grand jury appearance that he couldn't by law evade without a constitutional crisis.
3. The disastrous tax cuts for the rich are setting in. The government suddenly finds it doesn't have enough money already in just February and must barrow another trillion dollars quickly to keep the lights on.
4. Trumps's saber rattling against Iran and North Korea are looking like an effort to distract from the Russia investigation.
5. Trump's abrogating trade deals and leveling tarifs are likely to set off trade wars. The rest of the world is already moving on without the US.
6. Blocking immigration and vilifying immigrants. The world now sees the US as an unfriendly and even dangerous place. Tourism is down and international students applying to our universities is way down.
7. Trump fired Janet Yellen and her replacement took over on Friday. Yellen did a great job and it's uncertain how her replacement will manage. Markets don't like uncertainty.
27
As usual the prognosticators, who would rather see the country go down the toilet rather than admit they know nothing about anything, have to eat their words.
7
That Reverse Barometer, former Enron advisor and NYT Op-Ed Sooth is at it again. Dow up 567 points. Your the man Dr. K....
6
Trying to increase productivity over the next 25 yrs., at least, will require young immigrants to take the place of baby boomers leaving the work place. There simply are not enough young (white) people to keep up with, say, India. Of course all those old white guys in suits who are in Congress don’t have a clue in their bigoted heads.
21
Sorry Mr. Krugmam but you column has a few inaccuracies, one of which is the 1987 stock market crash being followed by an economic boom. It actually took its toll in late '89 and from 1990 the recession, globally, lasted through 1993.
2
Mnuchin less distinguished, less distinguished than Tim Geithner? Geithner was a deer in the headlights. But for Paulson and Bernanke, I shudder to imagine the possible hisstory under Geithner's unsteady hand.
I could go on. Check out some of the real losers on this list, many of whom really screwed things up. https://en.wikipedia.org/wiki/United_States_Secretary_of_the_Treasury
Mnuchin has the typical cred, a Yale grad who worked 17 years at Goldman, then made bundles in hedge funds. I'm not a fan of that sort of profile, but that is another matter entirely. He fits the bill.
2
Wait, wasn't the market/Dow up 567 today Mr. Krugman?? Pardon my take, but the only thing hitting the wall will be illegal aliens.
3
Let me guess.
Somewhere in these 871 comments as I write, is one from Richard Luettgen in New Jersey explaining why Paul hasn't got it quite as right as Richard.
Will wonders never cease?
7
It is obviously a conspiracy involving Mueller and the Russian election tampering investigators. They are selling off their stocks to make Trump look bad.
2
No. Obviously not. To the chagrin of Democrats...
2
Paul Krugman, so you say gdp can’t grow past 1.5%. What happens when you are proven wrong at end of 2018!
Can you please stop writing.
And I’m sure you are not happy the Dow is bouncing back.
3
Unfortunately no one who is competent, honest and wants to work for the best interest of the country wants to work for trump.
9
Interesting that Krugman, CNN & MSNBC are thrilled that the market tanked for a couple of days. Can't handle that things are going well with high employment, companies making money and the economy growing. Just because Trump takes credit for everything is no reason for the media to continually be so blatantly biased.
2
I hope this double bubble bursts right before the 2018 midterm elections. Maybe then all the people who did not bother to vote in the last election will show up to give our current Republican Congress members their walking papers. Some people are only motivated if it hits them in the pocketbook.
4
Good morning from Australia, Paul. Thanks for your wisdom.
It's your last sentence that sends a shiver down my spine, not the Big Correction.
We are not in good hands, But there is a mid-term election coming up folks. We have work to do. We can sit back and do nothing. Or, we can do everything in our power to ensure that Congress changes hands. It's up to us.
7
Why even use his name, however ironically, regarding any events? Is it not obvious by now that this is his primary aspiration, far above all else, for everything that happens in the world? He wants his name and fingerprints on everything, good and bad. Nothing more. How do people not see this?
3
"we’ll have the worst possible people on the case." That sums it up! True not only for the economy but throughout the government, from Agriculture to Zoos with possible exception of DOD!
6
I believe that stock market boom had nothing to do with Trump, nor its fall. Since he took credit for the rise, he must now take the blame for the fall.
5
Why do the Trump haters, who refused to give him credit for the rise in the market, expect that he should take the blame if it falls?
1
What the republicans are doing is what you typically do when you need to stimulate your way out of a recession. That is why it is overheating a little. What will we do when the next overdue recession comes?
1
It's hard to see the Munchkin dealing with anything more serious than his semi-trophy wife's fashion whims. I was never a fan of either Summers or Tiny Tim, but they were both smart enough to at least understand the parameters of the relevant financial policy options.
6
Wonder if Krugman has any further opinions on anti competitive nature of our economy and the effects which are mentioned in this insightful piece in upshot today in NYT
https://www.nytimes.com/2018/02/06/business/economy/start-ups-growth.html
My own perceived reason for this latest market volatility is the psychological burden with the Fed's schedule for it's balance sheet draw down. It had been described initially as "watching paint dry" in it's inexorable decline and that's true but not so true when coupled with projected rate increases, historic low unemployment and a synchronized global growth story as a back drop. It's pushing rates up faster than anyone expected. Just saying...there's no getting around the pain that's inevitably going to occur and with no place to hide. Hopefully the Fed will NOT do what it is ignominiously known for..raising rates too fast and choking the world into a recession.
1
Dr. K, couldn't increases wages spur broad economic growth by making more spending money available to people whose spending increases with availability? That's the argument for tax breaks to be focused on those whose spending will change as a result of added cash in pocket. That's an argument for stimulus spending on infrastructure: it creates jobs and wages, which has a downstream impact on the broader economy.
Doesn't that mean that future US growth doesn't have "to come either from growth in the pool of potential workers or from rising productivity, that is, more output per worker."? Couldn't it also come from a transfer of income from the owners of capital to the owners of labor?
2
When the stock market kept going up, the NYTImes and readers had many reasons not tied to Trump, and rightfully so. Now it is correcting (or being drive by the .0001% who control the market, especially after hours) and it's Trump's fault. Is there any logical thinking among readers or do we just push when Trump pulls and pull when he pushes?
8
Krugman, loads of NY Times readers, and numerous other Democrats/left-wingers said ad nauseam that if Trump won the market would crash, a recession would start, etc. Besides that Krugman said it NEVER would be that high again on 11/9/2016 as they panicked en masse and drove the Dow futures to MINUS 900 a little after midnight!
Sane market investors, traders, etc. then drove it up 1150 points to a NEW ALL-TIME HIGH THAT DAY! (I wish The Times had bigger caps.) AND it kept shooting skyward, setting record after record after record.
Even that changed none of the NY Times readers’ dogma. They still credit Obama for the massive advance!
Tragically, their lunacies also have very negatively affected hundreds of millions of Americans’ lives over the years. They just don’t care.
3
The market may also be twitchy about Trump's protectionist rhetoric. With stifled global trade, its hard to make money. And Trump is leaving a perfect opening for China to make new friends and leave the U.S. behind. Soon Beijing will be the market to watch.
6
The stock market after a recession acts like a crowded freeway as it opens up after being gridlocked. for a while it seems clear and everyone goes faster and faster until some spontaneous event causes everyone to hit the brakes again. On the average it follows the improving economy but every individual car experiences seemingly random speed changes induced by human greed-fear behavior. Then another crash happens.
1
The labor participation rate suggests that there are a lot more people who would like to work.
3
Fed started to shrink it's balance sheet stating Oct 2017 after unprecedented amount of Quantitative Easing. Many had predicted that the first effects will be felt after Jan 31, 2018, when Fed's bloated balance sheet will fall below 4.2 trillion for the first time since 2014 high. Since QE goosed the markets, QT spooks it.
You wrote, "And if asset prices take a hit, we might expect consumers — who have been spending heavily and saving very little — to pull back."
Isn't it the definition of a consumer that it's a person who's not saving? I mean, you have to be either a consumer or an investor. You can't be both at once. And if investors are pulling back, well, hey, maybe their plan is to consume instead.
I'm not nit-picking -- I'm asking. Investment and consumption have to balance somehow or the pig doesn't fly, right? So ... so ... so what? Sew buttons on your underwear, I guess.
"What this country needs is a good recession." (Several anon) Well folks, we're on our way.
Wanna bet?
Put simply, the nation was driving at high speed and Republicans decided to put the pedal to the floor. The nation will overheat and spin out of control. And when we crash, we will crash hard. At a time when we need more skilled workers, Republicans are trying to shove many immigrant workers out of the country while patting uneducated, unmotivated people on the back for being ignorant and useless to a new, technology-driven economy. All of this demonstrates that Republicans are great at feeding nonsense to the masses but know nothing about economics.
Once the "tax" (theft of the masses to fill the wealthy's pockets) bill was signed, I moved most of my retirement funds into safer vehicles and even cash. The reckless approach to economic policy by Republicans ensures that more pain will come. This market crash was not difficult to see for anyone paying attention. Paying attention means watching the numbers, actions, policies and level of truth being shared. For those who did not vote for Trump and Republicans, keep paying attention. For those who still do not get it, you likely never will.
11
There is great unease—even world unease—with the entity known as Trump (and his enablers).
6
Your paper's own headline says it all.
"Ignore the Markets, the Economy Is Just Fine …"
So no, it hasn't hit a wall. There's more to come..
1
Historically, when something significant happens (like the bottom droppig out of the Dow, the President lights the fireplace, puts on a sports coat, and does a chummy not-to-worry chat with the American people. Even if you don't quite believe it, it's comforting. And what do we have now? Tweets about "treason." For some reason, I just don't feel reassured, and if there's one thing the market depends on, it's the public feeling assured and confident. Call me a reactionary idiot, but I just rebalanced our retirment with a whole lot smaller stock position.
5
Panicked investors cause the 2008 crash? I thought it was the lying, thieving Bankers who got so crooked they couldn't trust each other and their ponzi scheme collapsed.
5
I thought it was the lying, cheating, greedy, home buyers taking out their government mandated a home in every pot loans?
Not to mention the staggering humongous debt made much worse by this administration.
With interest rates increase debt will hamper future government plans such as infrastructures. education , healthcare and military spending .
This is not a reassuring picture for our state of the economy.
7
I am not an economist so maybe the author can shed light on the percentage change during the last year of leverage investment in the last year which can explain the sudden latest bubble burst. Maybe deregulation of the the financial sector is not such a good idea after all.
1
Am I off base, or is a possible contributor to these huge drops computerized trading? In 2016, we saw how computerized election models can sometimes yield predictions that have little to do with results. I'm sure the funds that rely on their computers to use trends on key stocks to guide their trades have an impressive success story. However, when we have huge drops like on Friday and Monday, I'm guessing that these loses can be perpetuated and amplified by an aggressive but possibly flawed computer program.
3
I’ve read that the average period of economic expansion between recessions has been about 53 months. This expansion, which began with the Obama presidency, and which Trump has taken credit for, has lasted 105 months.
So it now appears that the economy is running out of steam. Normally, governments begin economic stimulus at this point, but this government could not wait to stimulate the economy with an unnecessary and possibly damaging tax cut. Now as the economy begins to falter, what do you do now?
3
So, where do the Koch Brothers go when the US economy hits the skids? Certainly they know that recessions almost always follow on the heels of tax cuts, right?
3
Whatever is going on, you can bet that Donald Trump will find a way to weasel money out of it.
Our money.
13
The perpetual growth we seek is collective neurosis. We should evolve from trying to outspend the people in our neighborhood to a savers stance and thereby be able to fend off acute emergencies instead of running out and impaling our peace of mind with indebtedness. To hell with meeting numbers and stats that only sate the elites. Or, we can once again be led to believe that we are on the precipice once again because the system at the top can't justify its economic model because the percentages aren't delivering.
The stock market and the economy are coupled like chicken and egg. You can't have a healthy economy in a market crash, and you can't have a bull market when people are out of work. They are not completely independent.
As with the famous "Greenspan put", the Fed can now choose to ignore the signs of a bubble until the market crashes big time, and pick up the pieces afterwards. At this point, there is nothing to stop Powell from ignoring the danger signs of a 10 year bull market. He can either tghten and slow down the economy, or he can slow down the unwinding of QE and pray for a meager 3% growth.
My bet is he will slow down the unwinding, and long bonds will recover a little from the rout - not stocks!
1
I asked my students the following question. Assume that you are in a ship that has hit an iceberg and you have two choices. "we have two lifeboats one has one empty seat and the other an elephant and no people." Does the behavior of the stock market compare to lifeboats with elephants?
1
Stocks are bouncing balls. They’ve always been since the first pre-historic trade with the cave dwellers. Remember the song “What goes up, must come down”? As Paul mentioned, that’s not the problem. The problem is the so-called “Captain” of the ship. Anyone can seem professional when you’re sailing on a calm lake. What happens when a severe storm arises? We’re about to find out!
6
I will defer predictions to our economists like Mr. Krugman. And my expertise is hardly in the world of high finance and Wall Street investments. But from my knowledge of history, I become very uneasy when the stock market soars so rapidly as it has just done recently. Perhaps, it is a necessary correction. That is for us to soon discover. But Wall Street speculation coupled with a president and Republican Congress who are hell-bent on deregulation signals problems, not too unlike our 2007 Great Recession. This is yet another source of angst added to all the others triggered by Mr. Trump and a Republican Congress gone astray.
8
The stock market is not the economy? True.
But then, neither are your blood pressure or your cholesterol level your health.
They are signs, and when they start to look bad, you can expect your health to follow.
The simple fact is, Trump inherited an economy that had little room to go up but lots of room to go down. He and Repubs could have shored it up by maintaining/increasing demand through middle and lower-class tax cuts (if any were need at all), but we all know that's not what they care about.
But on the bright side, I see that Hannity actually found a way to blame the downturn on Obama. Proving once again that there are absolutely no limits to Republicans' hypocrisy and intellectual dishonesty.
13
Much discussed circa the 2000 boom was the "wealth effect" and then the "reverse wealth effect". People with paper profits in the market will spend more in the current time frame because of the assumption of future wealth, the reverse when markets go down. If this was the top as many are predicting and it slides from here spending in the economy will drop.
1
This is ALL Clintons Fault. Believe me. I'm telling you. Lock her UP !!!
8
What the market is saying is Trump is dumb.
8
Reasonably reassuring but well reasoned, and as always, fun to read.
I wonder what Krugman thinks of programmed trading - which seems to me the epitome of "somebody is selling, so I will) thinking, done at electronic speed, and which may have contributed to this dip?
1
It is all Obama Hillary's fault with this Fake News Russia persecution. Their puppet Mueller must be stopped so we can move on with our Big Win.
4
If you are not involved with the trading of stocks, don’t concern yourself with the stock markets. These markets are never predictable over the short run. Statistical studies have proven this over and over, again. When anyone tells you that the markets rose or fell for this or that reason, know that it’s their imagination at work.
1
While President Trump has been quick to conflate the rising stock market with his first year in office will he will claim impact on a shaky market should this bull market slow.
I would give an eternity of money— if I had it it, just to see Trump and his fascist party politic gone and gone forever. Oh please Take him away! How did he happen to America, this ignorant devil?
8
There are a ton of issues all knotted together here that, given the . . . knottiness of the problem, Dr. Krugman's article ultimately elides. Among them are the nature of "growth" in the global economy, the stability of the World's two biggest economies, the US and China, perhaps particularly the latter, the size of the non working work force, both old and young, and yes, then there is the stock market.
Suffice it to say for the present that the downturn is the probably the precursor of another run-up in the market fueled by the Trump tax cuts. All these oligarchs, corporate muck a mucks and rentiers are going to be sitting on tons of extra cash this year without a productive place to put it. So what are they going to do, they're going to put it in the stock market which will . . likely begin another inexorable rise completely out of kilter with corporate profits or anything else in the real economy until a big crash that will be far more damaging that anything currently imagined by economists of any political stripe.
And then there's the politics of austerity that the Trumpites are building in . . this year will be the run-up, next year will be in many ways, worse than we, or certainly I, can imagine.
3
"Yet with baby boomers retiring, growth in the U.S. working-age population, especially in prime working years, has slowed to a crawl, while productivity growth has been disappointing. Together, these factors suggest an economy likely to grow only half as fast as Trump promises."
One way to increase the working age population would be to admit more immigrants into the country. As wage earners, they will also spur demand for products and services which, in turn, increases growth.
Why don't we do this? Oh, yeah, the current administration has restricted the number of immigrants who can legally enter the country.
9
Yes, it's the economy, stupid. It's a reality check.
=====================================
I hope and pray that the American people will start to wake up.
Trump is like a quack doctor, who offers miracle cures. But in time, his patients start to get sicker and sicker. Yes, Trump promised us miracle cures, but we may be getting sicker and sicker with his miracle cures and his endless lying...
We are not the United States of Trump. This is not a monarchy. The game is up?
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6
Thank you, as always, for an interesting and informative column (and with some diabolical numerology thrown in for free - what a delight!).
Trump's promise of 3% growth is as trustworthy as his promise “absolutely” to release his tax returns.
The basis of his growth promise? In his own words:
“The final key to the way I promote is bravado. I play to people’s fantasies.”
“People will just believe you. You just tell them and they believe you.”
5
People are really filled with delusions that the powerful must feed them and the media help.
One is that one should be optimistic because society and governments will do the right thing and everything will be growth, prosperity and forward movement. Human Progress will always occur.
Several minutes of thought will show this to be false. There is only so much space, commodities, water, fossil fuel, education possibilities, work possibilities, etc. on the planet and as the limits of those are reached and the constant physics of pollution and restrictions and limits occurs, things fall apart. Nation states fight for the just noted resources, built weapons of mass destruction and there is never any hope for continued optimism. Entropy occurs and things fall apart and human progress is a myth. Except perhaps in science but even there we will have limits. Our minds have limits and AI is a joke and will never have much impact. Imagine thinking a machine can make complex, rational decisions. Remember our brains evolved to survive, make it through the day and have as many babies as possible. Remember the cerebral cortex, the apparent location of our consciousness and higher thinking capacities is only about 2.5 mm in thickness. That's 2.5 millimeters or 9/100s of an inch. Can't do too much with that.
"The market will fluctuate" ~J.P. Morgan
2
LOL! I can see that Mr Krugman has tempered his comments after he predicted confidently that electing Trump President would cause an immediate market and economic crash. Confidence and the market have shot up like a rocket after Trump was elected as it became clear that the nightmare and misery of the job and economic growth killing Obama regime were coming to an end. Rockets go straight up until they hit orbit but at some point they have to level out and that's what we are seeing in the stock market. The market is making an adjustment to the horrible Obama economy kept out of Depression by over $6 Trillion in Fed funny money and endless ZERO interest rates. Those policies are like heroine to the market but they didn't do much for jobs and wage growth as Obama strangled real wages and economic growth with Regulation and incompetence. Now the market has to transition to the reality of a normal and strong Trump economy. One where the Fed doesn't pump funny money into the economy and keep interest rates at ZERO. Without FREE money with nowhere to go the market has to transition to relying on real, growth, and real corporate profits. It also has to worry about normal interest rates and possible future inflation. Those folks are good things. Restoring strong economic growth, normal interest rates, higher wages, and a strong jobs market are wonderful for Middle Class America that was nearly destroyed by Obama. Its also wonderful for African Americans and Latinos.
Things were definitely difficult in Obama years, he inherited a disaster. Bush's devastating and unwarranted wars, unprecedented national debt, and unregulated parasitic home loans helped to nearly destroy the middle class.
But we were very lucky! Obama's policies, steady hand, and actual 'real smart people' in his administration saved us from plunging into an all-out depression. Just saving the American auto industry from disappearing was an accomplishment (which presumably employs 1000's of working and middle class workers).
6
Well I certainly hope Trumphoria has hit a wall and him with it. Take his fascist antics, his evil crude mouth and above all his stupid lying politics with him. Take feeble Sessions, lying Nunes, inept Ryan and senile McConnell with him too and then just send them to Go Go Go to another planet and leave the rest of the earth in peace. Please! Please!
4
Will there be anything worthwhile left of this country after another 3 years? Vote in 2018 to save this country.
9
The plans for this crash were in Hillary Clinton's emails, on her private, illegal, clandestine, server. You'll be hearing about it very soon.
3
His usual business practise when it all goes pear shaped is to run away and go for Bankruptcy. I would think taking everything into account, Mueller, Syria, Stocks, Porn stars, he is nearing that mind set of 'Cut an run' watch this space.
1
Agree with you about Mnuchin. He hasn't said one smart thing as Treasury Secretary, but plenty of idiotic ones.
6
Village idiots running every branch of our Government, what could possibly go wrong if we have a major recession?
5
Hilarious.
The market in a nose dive, and this moron 'not my president' Trump rambling that whoever did not applaud his verbal garbage to the union was a traitor.
Hey dude; I did not even turn on the TV; I hate to hear babbling of idiots.
7
Trump stupidly tied himself to the stock market performance while trying to inflate his own head at the SOTU speech.
The Dow threw him an anchor.
5
Gee, where are all the Trump Troll comments now?
4
Thats what I say
1
Hey Krugman, Spare us your liberal hysteria. Huh? Is it progressive hysteria? Right.
#TrumpSlump
3
It is no coincidence that major stock price corrections occur after enough articles have been written in major publications pointing out that the stock market has gotten too frothy. (If you've been reading The Wall Street Journal and The NYT -- to name a few of the leading publications -- over the past couple of months, you know what I'm talking about.) The current roller coaster ride downward a perfect example of this.
We are now witnessing some of the baked-in thinking on Wall street and within economic analysis in general. Why does one month of wage growth mean the economy is headed toward a rocky future? 70% of the US economy is based on consumer spending. Doesn't it make sense that putting more money in the pockets of working people mean more money will be spent on goods and services that companies provide?
After 10 years of very low inflation, in fact, inflation well below the Fed's too low inflation target of 2%, it should be ok if inflation increases to 2% or even just above it, in order to support increases in workers' wages.
If raising rates in order to stave off future inflation, is the reaction to workers wages rising, even slightly, then we now are seeing the bias for wage stagnation. When stock markets go through the roof, everyone cheers but when workers wages go up, even slightly, it is time to be worried. Something is wrong with our system.
3
Are you talking about that $1.50 a week Speaker Ryan was recently touting? Yes, I’m sure that will do wonders for the economy.
1
What happens when one adds massive juice to an economy that has already gained a lot of steam? Keynes tells us not to do it, but clearly we (the GOP) have done it. The classic response (I was taught) would be inflation, but I wonder if that will happen when other factors favor slow growth. I guess we'll find out.
1
Brag about the "good things" that happen while you are president and pin all the "bad things" on your enemies. Only the stupid and the dull witted are suckered by this tactic.
So, today an elephant did not sit on planet earth. Is that because Trump is in charge?
As patriots we should not clap for an autocrat.
9
“What’s the Matter with Economics?”
That was the title of a Paul Krugman lecture at UMass on 10/26/2017. Well, the answer is PAUL KRUGMAN & loads of similar economists who are interested in dogma, not reality! E.g. , shortly after midnight on 11/9/2016, Krugman made yet another “spectacular” prediction on The NY Times website:
“It really does now look like President Donald J. Trump, and markets are plunging. When might we expect them to recover?”
blah, blah, blah …
“If the question is when markets will recover, a first-pass answer is never.”
Numerous Dems, lefties, etc. said that electing Trump would cause a stock market crash, recession, etc. As those types panicked, the Dow futures crashed & hit bottom at about -900, minutes before he put that on the website. Lots of “foolish” Republicans, right-wingers, etc. bought. By the regular opening at 9:30 AM, a lot of the drop already had been recovered. Naturally, much of the same type of buying & selling continued, and LATER THAT SAME DAY, the Dow rocketed to an ALL-TIME high!!
The 11/9 total number of pre- & regular Dow points was almost the same as the number in the 2/5 “crash”, but since it was at a much lower level, the %age increase was much more.
Since Krugman’s fantastic call and even after the moderate %age selloff, the Dow is UP about 6900 POINTS! Of course, that is due to Obama & Democrats.
And loads more points in dividends too.
Anyway, just keep listening to Krugman, and do the opposite!
2
Perhaps too many people have been reading "Fire and Fury" discovering that the Emperor not only has no clothes, but also is the Global Village idiot or as Tillerson says a "moron").
Be afraid and vote in 2018 to neuter this Administration and the Republican Congress that enabled Trump.
5
Steve Mnuchin woke up alone.
1
We should not take his bait.
Tomorrow all the news shows should be talking about the largest drop in market history...not about his "treason" lure.
1
Krugman, hoping to be correct once in awhile. Yawn..
2
Trumphoria hit a wall? I hope so because my disgust sure has!
2
I used to be an optimist. I predicted that when the current occupant of the White House got too crazy and too erratic, the top tenth of a percent of the US (read GOP 'donors') would fear for their portfolios, and would bring about regime change.
But I question whether there actually is anything so crazy, erratic, and destructive to our country as to make the GOP and its moneybags desert the Bully-in-Chief.
If unleashing the neo-nazis, the fossil fuel caucus, Putin's expansionists, and China's world domination haven't pulled apart these unspeakable conjoint triplets of ignorance, greed, and narcissism, perhaps nothing will.
6
Eek a mouse!
Should it be called the lemming effect, herd mentality, or self fulfilling prophecy?
Definitely irrational exuberance prefaced this stupidity.
"US stocks surged to record highs Monday morning — the first day of trading after the Senate in the wee hours of Saturday morning passed its tax overhaul... ... Meanwhile, the dollar jumped against the currencies of most other developed and emerging nations while Treasury yields rose."
Are these events not good argument for tighter controls? Are the Republican policy makers idiots? Is the market controlled by idiots?
And sadly while some make money up or down the naifs who sank their retirement into the bull run not understanding that older people with limited nest eggs should not, are now ruined, nice system huh?
A friend of mine and her mother did just that. Encouraged by a banker who should be in prison. They invested $200K JUST A COUPLE OF MONTHS AGO!
Trading should be halted until next week, this is flat out stupid. A night mare for the little guy. Guess who pays for that first trillion in wealth gone up in smoke?
And what about Paul Krugman's inflation bomb?
"What is a cynic?
A man who knows the price of everything, and the value of nothing." (Wilde)
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It's the economy, stupid! It just may be that the only way to get rid of Trump and company is with a falling economy. As long as there is confidence in the economy, Trump can do what he wants.
In wars, we had to sacrifice lives. Now, we may have to sacrifice some of our money, to get ride of the Trump mania...
2
Just waiting for the trump tweet blaming Obama.
2
Krugman, write a legitimate article about the economy. Why can't you do that without slinging mud at the Trumps?
1
The trumpeteers won't care. It'll be blamed on Obama, or " fake news" or anything but their new " Lord". Seriously, if you ever look at Twitter or FB, they really think he's sent by God, so nothing is his fault. Disturbing at so many levels.
6
I just can't wait to see how Mr. Tornado Head spins this one.
1
As Paul correctly notes at the outset, "And what the data say, I’d argue, is that at the very least America is heading for a downshift in its growth rate; the available evidence suggests that growth over the next decade will be something like 1.5 percent a year, not the 3 percent Donald Trump and his minions keep promising."
However, the real undiagnosed and potentially existential damage is what the talking-head promoters of CNBC et al. don't have any appreciation of comes from the fact that none of these phonies have any understanding of what happens to the financial sector of an Empire when that Empire starts to collapse --- which is exactly what is happening now.
Of course, Paul is also entirely correct that the brain-power is measured in fractional horsepower when dealing with arrogant idiots like Mnuchin and Powell.
As Mae West famously said, "Keep your boots on cowboy, this is going to be a rough ride".
2
Fasten seat-belt light, please buckle up!...15 minutes to landing in Kansas.
1
For once it’s not Obama’s fault. This plunge belongs to...... that guy who is from Queens.
Somehow, Trump will hang this on Hillary, Comey, Obama, Mueller, emails and/or Benghazi and Nunez will start an investigation.
2
Unless and until Vladimir Vladimirovich Putin releases Donald John Trump's personal and family income tax returns and business records to the American people then we will not know what drives "Trumphoria".
Instead of the Dow Jones Industrial Average or the Standard and Poor 500 Index or the NASDAQ as measures of American economic stock market strength we should look to the House of Trump Barbarian Organized Crime Family Bookings.
2
Here we go again, again.
Homo sapiens?
Really?
1
Wow, so everybody getting all worked up because the stock market is doing what everyone knows it does every year or two, and most investors think is a healthy thing - have a small correction in its relentless ascent.
Lets see how many fools the NYT headlines can scare away from the market. My bet is it will scare away only the folks who just now jumped in, after reading the "market is booming" headlines from late Jan.
Typical.
For the rest of us - keep on methodically investing. Put the same $ amount in your 401K next week that you put last week. The only thing that changed is that this same $ amounts will buy a lot more shares next week, than it did last week. That is awesome.
1
This is not one of Paul's scoops.
How much longer will it take for the Republican establishment to ditch this loser?
1
Aging workers and a smaller qualified workforce throw up a ceiling that has been visible for awhile. Hungry people want to immigrate. We should let them. They work. They buy soap and pay rents. They will work in slaughter houses in Kansas and open hot dog stands in Wyoming. They will not sit and wait for jobs to come to them.
At this stage of the business cycle, there should naturally be some wealth transfer going on. This is an opposition government. Resistance in dealing with poverty is at the root of the partisan bickering and identity politics. Contiguity in government policy is hard to achieve. The next big dog wants to smell his own pee on the tree. Nevertheless, as much as I hated the paperwork, overreach and micromanagement of one-handed government, there should be an acknowledgement that the broadly mainstream policy framework and respect for law that was followed by the Obama administration is the direction the society must, and will, go. A responsible opposition would be able to add substance, not chaos. Lack of a responsible opposition is making the inevitable much more difficult and piling up tragedies like cordwood.
The market kerfuffle is piffle though.
1
You lib'rals and your reality hangup. Many in the Heartland are beyond all that. Reality is fake news. Rationalism is a satanic plot.
Many Heartlanders are cult groupies. They listen only to their high priests who have their own mystic ways of knowing. Feels good to be among the chosen and great again.
Reminds me also of the Aztecs and Incas who were totally befuddled when strange invaders arrived, and strange ailments came in tandem. The Aztec and Inca belief systems were not conducive to a clear realistic view of the situation, only added to the befuddlement, until it was too late.
But many Heartlanders cannot abandon the old magical rites, like bull riding and football and wearing strange hats and cumbersome boots because they believe that's what their ancestors wore. Maybe these fetishes offer emotional consolation. But will not stop their steady downturn.
1
The 1987 crash certainly impacted New York. Wall Street shed jobs and real estate tanked for several years, with sellers holding onto unrealistic ask prices as inventory piled up. The buyers' market of 1992-93 seems like a dream every time I pass a real estate office window.
Dont be in such a hurry. It's going to hurt. But it won't hurt as much as not putting an end to the farce that is substituting for a president and a ruling party that is selfish, mean-spirited and incapable of thoughtful discussion.
I was thinking about returning my tax cut. About 200 per pay check.
1
Why is it that when Trump tells about 3 million people getting bonuses, no pundits point out that that is only 1% of the population?
It's all hot air.
2
Bad news for the Democrats. For the moment, at least, the market is up from yesterday
The "Market" isn't a thing. That said, Wall Streeters clearly do believe in Trump for tax cuts and regulation cuts. Wall Streeters job is to sell gullible customers on things they have to move. At some point the computers that do most of the trading reject the Wall Streeters mythological stories.
1
The most worrisome part of the tax cut is that if it doesn't bring the 3% plus growth annually, there is no chance it will ever pay for itself, thereby causing the government to make significant cuts to Medicare, Medicaid, and Social Security. The Republicans know not to attempt to reform these programs in 2018; however, if somehow the Republicans retain control of the House and Senate bunking the historical norms of midterm elections for unpopular presidents, 2019 is going to be an extremely painful year for the elderly and the poor.
The Democrats need to refine / retool their message a great deal before the upcoming November elections in order to prevent this from happening.
5
On 6 December 2017, Trump told reporters that the combination of high consumer confidence, job creation, and tax cuts would create considerable growth, and that he saw “no reason why we don’t go to 4, 5, even 6%” growth.
Of course, Trump also claimed that Obama's birth certificate was fake and that Obama wire-tapped him.
As interest rates rise, bonds become an attractive investment alternative. Money will move from stocks to bonds. Stock prices will cease climbing at recent rates, because demand will be down. Diverted to bonds.
Oh, yeah, PK, how brilliant you are!? You always believe that a debt-driven government spending plan is so much better than simply putting the money back in the hands of the people (who actually earned the money in the first place) to spend. For all of the self-proclaimed brilliance, your myopia is incredible.
I think you’d find more people agreeing with you if you weren’t infected with the same myopia you decry. Do you seriously believe trump’s tax cut is putting any meaningful ( not talking about Speaker Ryan’s $1.50 a week...) money in the pockets of middle American?
One factor constantly ignored in our bubble and pop "investment" markets over the last twenty years is the effect that wealth distribution, wealth concentration has on the cycles. The vast bulk of wealth is held by a small percentage of the people, a large quantity of that wealth is "entrusted" to wealth managers. These guys (they're mostly guys) have to show sexy short term returns to get paid, and they chase each other from hot tip to hot tip, inflating dot com bubble after mortgage backed securities bubble after oil futures bubble after equities market bubble, then bailing as the bubbles appear ready to pop. In most cases these are non-productive, shadow economy "investments", sucking capital out of Main St. and leaving the economy on which most of us rely malnourished, hence the stagnation of so many recent years.
2
One responder noted Greenspan's prescience about the stock market. Problem is that comments are frequently in the position of a broken watch. Even a broken watch has the right time twice a day. Yes, overvalued, but not like Tulip mania.
1
Trump is easy to understand. When things go well, it's thanks to him. When they go badly, it's Obama's fault. So many people had drunk the fascist kool aid in 2016 and are now experiencing the fatal throes of its toxins, that include the realization that Trump has the mental acuity and stability of a fruit fly in a lab experiment. His reign so far has been a very sinister joke and the laugh is on the American bourgeoisie.
11
It seems to me that economics, like a lot of things, do not do well when strained through an ideological filter. That more than likely caused the depression of 1893 (caused by deregulation), the Crash in 1929 after the Roaring 20's (of deregulation), and after the George Bush and Enron years (of deregulation).
Now we have the master snake oil salesman hawking 'Yuge' tax cuts with massive debt increases, restrictive tariffs, removal of the social safety net under the guise of 'Trust Me', and on and on. At some point businesses and consumers alike realize that the bubble must burst -despite the GOP assurances of Trump's golden hand.
I know that Jim Cramer is confident that this is a buying opportunity, and many others whistle again that good times are just around the corner. Personally, I'm going to wait a while just in case we're a long ways from the bottom = which I suspect we are! Seems to me that the Pump n' Dumpers are quite related to the folks who brought you Trump University.
Common sense would suggest that the economy does the best when all sides buy into the promise, and share both the risks and the rewards. President Obama understood this well, and the results are there for all to see. Confidence in our Moron-in-Chief to learn from Mr. Obama - not so much!
4
All I know Dow dropped yesterday 4.6 % more than 1.300 points, If I say it is because of greed of Trump the accidental President is that going to be so wrong ?
trump takes credit of after effect of Obama Presidency so this is on him now.
Best to understand trump I suggest read Dowd`s essay on Tim Robins couple of days ago.
It is trump before and after and be worried.
Hope for the sake of the World and Nation it is a one time until Bobby Mueller gets done with the liar of a President !
1
Sorry to disagree Mr Krugman but "competition" has reduced the benefits of "production" even in the stock market "paper trade".
In the debt-capitalist stock market business......we operate ,not so much,on the desire for a new or better "product" but on the PIVOTAL desire of ACCUMULATIVE results through the mechanism "love of money" ,whose only objective measurement standard is "always more".......The other standards for economic measurements,as you said ,are self fulfilling fears and grandiose as motivations to buy and sell........However,as you also know,.....Maynard Keynes said that THROUGH this UNANALYZABLE ( "love of money")but easily proven motivation, ........IS how capitalism works !
C'mon Paul, don't hate on Mnuchin. What he lacks in experience, expertise, or even basic intelligence is more than made up for by his greedy wife, no? If there's economic turmoil, I'm sure she'll just go on Fox News and tell all their viewers that to make more money, the women should start instagramming their designer clothes and bags for extra income.
2
My wife doesn't believe me.
Look at the physics closely.
The aliens are here and we can't get the point across. They're trying to help us in our time of need.
They're here.
Listen, please.
1
So, you put a lot of ignorant, unqualified people in charge of the country and something good will happen? Investors must not be part of Trump's awful base.
Maybe they're just "treasonous" for not applauding properly the Trumpalone economy.
2
Comrade Trump merely fed too much candy to investors. The massive correction is just a metaphor for kids being sick the morning after Halloween. It will be interesting how the Liar in Chief spins it today.
2
The trend is your friend.
Clearly, our mad tyrant-king is the sole cause of the stock market's rise since November 2016. And just as clearly, the treasonous Democrats in Congress are responsible for the 4% drop today, because they did not give the king a standing ovation during his laughable State of the Union address. We must apply blame exactly where it belongs. Never, never, never on the President. Analogies to medieval England or Rome become ever more apt.
2
Here's the deal.
They're here. They think we're still kind of stupid, we look promising as a species.
Bue they're here. When the small one shook me away to receive the message, it was scary. But the message was reassuring. if they prevented nuclear stuff from escaping our atmosphere, it was intentional.
"...the fact that the Dow fell 666 points on Friday hints either at satanic forces or at some mystical link with the Kushner family’s bum investment at 666 Fifth Avenue..."
But aren't those really the same thing?
2
Excuse me for getting "Deep State" on you but is there any chance that the CEO's of the stock market companies were in collusion not to give raises so the populace would blame the black guy? I know this is lunacy but ,even, during the economic collapse the car companies, the financial companies and the rest of Corporate America were swimming in profits, I know because the money was part of the bailout, yet none trickled down. I'm sure that's absurd but the only other reason would be if the working class think they only deserve to be trickled on. And that would be embarrassing.
1
You'd know better than I whether the fact Mnuchin and the mass of Godman Sacks players in and out of the White House are finding the climate in the Oval Office so unstable it has some bearing here.
4
Have no fear: Trump will NOT connect himself to the big fall in the stock market. The fun will be seeing how the weasel slithers out of the connection, after relentlessly bragging about the rise.
The CEO liar/denier does this well.
We can expect something childish and idiotic. Or he will hide!
Whose fault will it be?
Selfish traders?
Faulty computers?
Secret Democrat messages to investors?
Trump's musical abacus?
Melania's White State at the Union suit?
The Moon and Tides?
Heavy Superbowl Betting?
We will see. Most likely, Trump will say nothing. At this point, it is possible that the more says, the deeper the crash..
2
The silence from Trump is deafening. Quick to take the credit for a rising market, we see no sign of him as it falls.
This is the kind of thing that makes me wonder about his supporters. Do they not see this or just don't care? Can the man be more of a coward and hypocrite and still get unswerving loyalty?
I believe he really could shoot someone to death on 5th Avenue without losing a single vote. That's the level of insanity of his intentionally blind and deaf followers.
4
Note to our leader: You claimed all the credit for the surge in your big, brilliant, beautiful, historic Trump stock market, so man up for once and take a bit of blame now. If the downturn reflects fears of rising inflation because people are earning more, that's nothing to be automatically ashamed of. It was you who boasted Monday to factory workers, "Your paychecks are going way up" and "your taxes are going way down." Alas, Dear Prez, you disdain the little guy and love funneling money to your rich pals, so I bet you're gonna wish you'd made even greater tax cuts at the top and even skimpier ones at the unwashed bottom. Just think, Obama buttressed the upward trend for most of his presidency. Your despised predecessor, who handed you a hummer. Better think next time before taking credit, before opening your big, brilliant, beautiful, historic Trump mouth.
2
Explanation is obvious: Market is finally realizing that the ship of state is being run into the ground by an unthinking ignoramus.
3
Guess Paul didn't see yesterday
What I want to know is how the GOP is going to blame this market crash on Obama and Hillary!
3
Haven't built the wall yet!
No, that sound wasn't Trumphoria hitting a wall. That was some robber baron getting insider information on specifically what dirt Muller has. (Liquidated his positions) And the looming constitutional crisis.
3
Double bubble, boil and trouble.
"Has Trumphoria Finally Hit a Wall?" Maybe. Maybe now. Maybe not. What we know is that there's a wall out there and that we'll hit it, crash test dummies whise role we are prone to playing.
Getting tired of you and your paper cheering for Trump to fail...
First, for most of us - Trump is our president...
Do we think he does and says stupid things...
Put it this way - stopped counting, a while back...
Second, when presidents fail - they can take a good deal of the country with them, for a time...
Third, when Obama was president - you showed a total and fawning suspension of understanding of even gathering-pond-water economics, with things like your trillion dollar coin...
...
If biochemists' models and insight were as dull and un-insightful as are economists', we'd still be bloodletting with leeches to cure any number of maladies...
PS...
A Chinese colleague once told me that China sees itself as a country run by engineers - but that China sees the US as a country run by corrupt lawyers...
PPS
China's GDP growth has exceeded 6%, every year for the past ten years...
And for anyone who wants to talk about our economy "really being bigger" - just go check production of anything from elemental commodities to cars to smartphones, or foreign investment and trade with just about any region on earth...
And for anyone who wants to talk about how Obama inherited a mess from Dubya - no one's come close to running this country as well as did Bill Clinton...
His reward...
> Conservatives targeted him for being a Democrat
> Progressives targeted him for being a Centrist Democrat
Well. you all missed your targets - and hit the country instead...
2
Pining Paul Krugman: count on him to formulate negativity in the face of positivity; to pine or whine when he should cheer; to look for a problem instead of a solution...
1
It's the anti-Trump Deep Market
Based on his spectacularly wrong prediction on election night 2016, Mr. Krugman may want to stay away from predicting the Dow Jones. ("...the stock market is not the economy.")
That being said, I can't help but think he and probably others at the NYT secretly hope the DJIA and the economy do fail. Based on the comments so far, so do many of his readers. Their bias against this president appears to make them hope for a downturn in the economy, regardless of how many people are hurt. All so they can celebrate the "failure of this president" and high-five each other in the hallway.
Fortunately there are other places where one can get economic viewpoints without having to dig through the "trash Trump" comments.
All the hot air in windbag trump's gasbag machine couldn't keep the market afloat. Trump's hot air, lies, disinformation, smears, nastiness, foul mouth, will not be good for business in the long run. I am sure he will blame Obama for the market down turn.
1
Where is my LOL emoji when I need it. After a historically bad call on the market over a year ago, Krugman is out crowing at the first market correction. Typical nonsense from someone who would never make it in a real job on Wall Street.
1
Donald Trump now bores me almost as much as his daily delusions and treason anger me. Maybe his fruit fly attention span and lying buffoonery will get old - even to his cult.
1
“Meanwhile, the current secretary of the Treasury —“
Paul, very kind of you not to mention Steve Mnuchin by name. We get that.
Is the sound generated by the last two trading sessions that of something bursting? Whereas the President took credit for pumping up the market, will he accept responsibility for the sudden decline? Was it a bubble? Trump's bubble? When will it be OK to begin saying we're in "Trubble"? (Someone must have thought of this by now...)
Paul you hit the nail on the head. The engine is running near peak efficiency, but the fear is the people who will have to adjust the engine over the next four years are in over their head. The craziness of giving away $150 billion a year, mostly to non performers, and thinking that this wouldn't cause inflation fears at the least, is just stupid. One percent increase in borrowing cost could cost $200 billion more a year. Welcome to the new stupid....
2
Ah. listen.
We're controlled.
When I think of Trump, only one word comes to mind.
Charlatan
“Little” Donald Trump will tweet his way out of this one too.
The Secretary is correct. Davis is not a "hangout for globalsits". It's a hangout for selfish Billionares.
1
If this were a movie, The President would have Janet Yellen in front of his desk while tairing up her resignation. That's why we love the movies.
Trump, who has gleefully taken credit for a healthy economy that is in actuality the continuation of an 8-year trend under Obama, will just as gleefully blame Obama when the economy starts to tank.
And THAT is the biggest reason for a slumping stock market. With a year to assess Trump, they realize that he really is a nut case, that he really is in deep doo-doo with Mueller, and that his historic unpopularity will likely flip Congress in November. Democrats riding herd on the most business-friendly administration ever seen, and the political instability of a scandal-ridden administration, are sure signs to investors that the window on free-for-all corporate profits is rapidly closing.
It's a kakistocracy.
My employer, a midsize casualty insurer, commenced an ill-timed initiative a couple years ago to push out staff deemed mediocre only to find it very difficult to replace them. The replacements have been short-lived. The company replaced long-time stable and loyal employees who did their jobs, even if not exceptionally, with a revolving door of other companies' rejects. There is now a chronic shortage of staff. Judging from upper management announcements they still do not realize that they are not in an employer's market for labor.
At the same time the company has overweighted its HR department who have introduced complex and time-consuming requirements for middle management to "journal" their activities, create "goals" and slogans and critique their staff. This has bred frustration and cynicism. My impression is that this phenomenon is taking place across corporate America. Companies doing this are positioned exactly opposite to where they need to be for this part of the economic cycle.
2
The difference for housing this time is that it's localized.
"... housing prices have retraced a bit less than half the rise that culminated in the great housing bust."
That is an average. There are spots that are at 2006 highs, and there's most of the country which is still at 1995 prices.
The Trump base is neither heavily in stocks nor heavily in million dollar condos, so they're probably not all that worried. In fact, if it brings up interest rates on their savings, that's all that matters for them. As you said at the beginning, the stock market is not the economy.
1
If I were a big, important newspaper, I'd do a story every day on exactly how the massive tax cuts to already-profitable companies is going to benefit America and it's citizens. Is Pfizer, for instance, going to take its $5billion tax break and build new labs to sell more Viagra? (Latest: Pfizer is shutting down its research efforts on treatments for Alzheimer's and Parkinsonism.) Will Halliburton move to renewable energy? Will hedge fund managers move money into better nutrition in "food deserts"? Will all of them give real, lasting raises to their employees? Somehow, I think these important stories will be - shall we say - undercovered.
2
Robots and AI are fascinating, terrifying, and viable solutions to these problems.
1
Yes, inflation. But, looking beyond the goggles, I believe stocks need to be re-priced for the coming Feminist-Democrapocalyse in November, after which lower military spending, appropriate attention to the environment, long-term fixes to health care, liberal immigration reform, long-term tax reform and a massive correction to campaign finance reform will de-fang the last 50-odd years of corporate favoritism.
3
We can only hope . . .
Paul, your theory is totally biased. Was it not the Democratic party that was complaining about the low minimum wage? Was it not the Democratic part complaining that the unemployment was too high? Was it not the Democratic party that was saying the middle-lower class workers don't have enough job freedom? Now that wages are increasing, unemployment has drastically gone down, and most workers (of all classes) have the trust that they can quit a job and find a better one, we complain? Total hypocrites
1
Well when you cut taxes with the economy at full employment, you are going to generate inflation, We have not had to deal with inflation for 30 years, The Fed will raise interest rates and the economy will slow down, and contract. So passing the tax cuts was counterproductive which makes me think no one in the Trump administration knows anything about economics. The only good thing is that it does not appear to be the near collapse of our financial sector in 2007. We came within a whisker of going back to trading wampum. At this point it looks like we will be in a recession soon.
2
Trump has been basking in the glory of the Obama economy and we are finally transitioning to the Trump economy, it will still be a little while before The Obama economy fully fades, so enjoy it while it lasts. The exploding deficit created by the tax cut law combined with exploding healthcare cost created by Republican sabotage, will starve any economic growth. By this time next year we will see the beginnings of a major recession and the Republicans will save us? I don't think so, all they know how to do is cut taxes and assign blame neither of which are helpful in an economic crisis.
2
Already short staffed, the IRS lost 6,000 employees last year. Mnuchin behaves as if ogling the gold in Ft Knox, taking photo ops while fondling money, and writing policy on napkins over cocktails are his only responsibilities. I predict his Waterloo will result from his failure to wrangle the bureaucracy to implement his party’s “crowning” aclevement—the tax scam.
The entire band of misfits Trump surrounds himself with are finding public service far less sexy than they thought it would be.
2
Paul you couldn't have been more wrong with your Market predictions if a Trump victory were to occur. I guess I'm having trouble taking anything you say seriously. You exposed yourself as more highly partisan than an economist.
Didn't big reports come out Friday about how much the debt has already increased under Trump? Could this not have something to do with the stock market's tumble? These "fiscal conservatives" like deregulation and tax cuts to corporations, but they're not big on the deficit or the debt. I'm kind of surprised no one's talking about that.
1
One of the Krug's greatest assets is his witty summation at the end of his article. He always hits the nail on the head. Conservatives who eschew his very Keynesian leanings too often overlook that he studied with Paul Samuelson, the same great economist he quotes herein. Too, his comments on the stock markets ring true for anybody with even a modicum of understanding of macroeconomics-- which evidently our current POTUS and his motley crew do not-- realize that an economy is a city wherein the total of all the trading is abstracted to reflect the value of its worth and therein, the stock market is just one neighborhood.
2
We've been coasting on what Obama built, with help from the Democrats. Now we are getting into what 45 is doing, along with help from the Republicans. From what I've seen, that is not going to be good.
1
I am still having trouble with the assertion that productivity is not improving. I am doing the jobs of three people now and so are many of my friends and colleagues. When employees have left, they have not been replaced: their work has just be reassigned to other still on the payroll. Why do productively statistics miss this?
Also there is no adequate measurement of how many workers are holding two or more jobs to make ends meet, that full time jobs have been cut to part time to avoid paying benefits, and that growing numbers of Americans have no stable source of employment in our celebrated "gig economy."
I think it is rich that the rich show concern about the decline in the savings rate when, through lack of wage increases and pathetically low interest rates, there is lack of money to save and no incentive to do so.
We are tracking an economy that has lost its bearings using measurement tools created in the 1930s. If they appear misleading it is because they are obsolete.
3
Since Trump's inauguration, the US dollar has lost 25% of its value against the euro. That means that compared to the European stock markets, the US markets were already down by 25%. Funny how Trump conveniently forgets to mention that fact, when he boasts "how well he all have been doing" under his reign. Maybe it is better I do not remind him of this fact - because he will undoubtedly blame Obama for that Trump screwup. Or Hillary of course.
3
"the available evidence suggests that growth over the next decade will be something like 1.5 percent a year"
This is an outlandish statement. No credible economist attempts to make such predictions over such a long time horizon. Private economists don't do it, the economists at the Federal Reserve don't, nobody does because they know it's impossible. Maybe Krugman thinks he can just throw that out there in a matter of fact way and the average NYT reader is going to believe it but it's grossly irresponsible and, to make it worse, he cites none of the so called "available evidence". This column has become impossible to take seriously.
Dr. Krugman reminds us of the old Street saying:
“Those who know don’t say, those who say don’t know”.
There’s a good reason investment firms don’t hire economists.
Even economists agree forecasting the economy is hard especially for economists.
Imagine if a well known investor wrote a column for the NYT. Who would listen.
We have the least qualified and just plain worst people running this country in history. Corporate leaders are little better. We are in trouble.
2
Krugman says If our economy is headed for trouble, "rest assured that we have the worst possible people on the case." I sincerely hope Democrats get some good candidates and a message that resonates with Independent voters.
That message could be "Get big Money out of Politics" or "Overturn Citizen's United," then explain why. Why? They will not be able to enact any of their agenda with big money calling the shots.
1
This whole discussion is an excellent presentation of the weaknesses of capitalism. In America, we are supposed to consider capitalism a god-like entity but it is a piece of junk. In America, we must not even speak of its horrors and weaknesses, affecting the mass of people with pain and suffering through much of their lives. The main stream media can never speak of it and they are part of the problem.
Just look at the sentences here that pit the "owners" against the "workers." Such as "more output per worker;" "workers are gaining bargaining power;" and "the failure of wages to rise much until now has been a deeply frustrating deficiency."
If you want to get a good look at reality, just go onto YouTube and type in the search box "Chomsky on Capitalism" and watch a few of those. You will come to understand the pain and suffering of capitalism (if you don't already know it as a worker). This article shows you one-half of the pain and suffering of capitalism. There is much more.
Minimally we need inclusive capitalism, where unions and bargaining come alive again. Better yet, we need to replace capitalism with co-op businesses, where corporations are run by the workers, who can vote on the managers and directors. You might check that out on YouTube also.
In Capitalism, most men lead lives of quiet desperation.
2
Great column, thank you Paul Krugman. I learned from a hyperlink in this extraodinary op ed the following. Shiller's adjusted pe is 33.6. I found that the regular pe is 24.7. Can anyone explain how Shiller adjusts the pe so that it is so different than the unadjusted pe?
Last week, Professor, I thought you made a rare mistake, when you suggested the Democrats should continue to continue to shut down the government over relief for the DACA dreamers. I agreee with Brett Stevens on that one, it would have reduced the chances that sane people take over the congress in the next election, by playing into the GOP's most popular issue. As David Leonhardt wrote, we always lose when we play the identity politics game, or remind unhappy white voters that they are becoming the minority.
x
David Lindsay Jr. is the author of "The Tay Son Rebellion, Historical Fiction of Eighteenth-century Vietnam," and blogs at The TaySonRebellion.com and InconvenientNews.wordpress.com
Don't worry, they won't really pop the stock market until Democrats take Congress so they can blame them for the crash. The blog players will pop the bubble, take their profit, and wait for the panicked small investors to sell so they can buy everything back at a discount.
The key thing to remember is don't sell out at the bottom. Unless the economy comes to a screeching halt and money becomes worthless, the market will come back. Individual companies may go under, but a well balanced portfolio will be fine. If the entire economy does crash and money does become worthless, it won't matter if you have your cash in stocks or under your mattress.
Excellent column from NYT's award-winning economist, Paul Krugman. His assessment of the world economy is of enormous value as he explains the economy in a language even laymen can understand.
Too bad our bumbler-in-chief president doesn't read his column. The millionaire cabinet he has assembled will neither feel the affect of nor feel the need for action to stabilize the economy and calm the country. One point should be made that the frenetic rise and then sudden drop in the markets may be directly laid in the Republican congress's lap. With Trump's rise to power in the White House and the Rep. majority in both houses they passed a tax bill insuring that big business would reap a huge tax advantage, thereby forcing stocks to climb to an unsustainable level. Wall street reacted with instant euphoria beginning this rapid rush to the stratosphere which even I, a lay person invested in the market, could predict.
So we are burdened with a know-nothing president and a know-nothing congress to govern our nation. The crazy climb of the markets to unsustainable heights required a correction to match. To a large part this is Trump's fault and he should take the consequences.
1
The president would have been great in those old wild west cowboy movies of the past that relied on the "gunslinger" having an "itchy trigger" finger. How do I know this? Because he prepped for the parts with his "itchy twitter" finger.
Talk about "preaching to the choir!" He was here in Ohio yesterday, in fact in Cincinnati, calling the democrats un-american and treasonous for not hailing him at the State of the Union address, when every body including third graders knows that the party in power, in this case Republicans, react like children at recess jumping up and down and giving standing O's for everything that even in a remote sense, in the way of policy and pompousness, is said and the "out" party sits on their hands during the SOTU address. We've been doing that since 1790. It is as traditional almost as "apple pie." Until the president stops all his twitter nonsense and garners a smidgen of humility we'll continue our divided ways.
Barring that some casting individual could get him a part in one of those "gunslinger" westerns.
At the base of valuations in the stock market are earnings. And, in Sunday's NY Times, Economics Professor Robert Shiller, regarding earnings states: "Real (inflation-corrected) corporate earnings per share for the Standard & Poor's 500-stock index were for the third quarter of 2017, only 6 percent higher than they were in the second quarter of 2007; just before the financial crisis. In contrast, real stock market prices were 39 percent higher." Dr. Shiller reasons that: for the stock market, "prices have outstripped fundamental valuations."
As for the housing market, there is a 15/1 ratio, or "rule of thumb," which relates the ratio of average housing prices to annual rental payments. (The specific numerator can vary.) If the ratio exceeds 15/1; it is time to rent. If the ratio is less than 15/1, it is time to buy. For the denominator, average annual income or annual wages can easily be substituted for annual rent. But, in many regions with stagnant real wages and housing price inflation, there is a limit to this multiple's growth, as we learned the hard way in the recent Great Recession. And, with the recent lengthy period of relatively stagnant real wages, that housing prices are outpacing their base of annual income or annual wages, is unsurprising.
[JJL 02/06/2018 Tu 11:37am Greenville NC]
The failure to do anything at all about the most stupid presidential election in US history leaves no doubt that the US is already gutted and intellectually bankrupt.
3
The Republicans have only one core value, tax cuts for the rich, so as soon as it was possible they have the rich the biggest tax cut they could get away with. (Workers got a bait and switch. The change in the way inflation is calculated will push workers into higher brackets causing permanent exponentially growing tax increases, as soon as the temporary cuts expire.
And if you live in a high tax state like NY, you may not even have a temporary tax cut.)
Anyway, Trump's big plan for massive growth funded by tax cuts has since built in problems.
First, tax cut for the rich don't usually get invested in U.S. jobs, so demand will stay weak.
Second to the extent that tax cuts actually do accelerate growth, it will also stimulate inflation, since we are already at full employment, so the FED will end up raising interest rates and reigning in the economy again. Under current FED policy, Trump's promises of average 4% growth are basically impossible.
It is also important that we remember the Fight for Fifteen, raising the minimum wage around the country, when we see wages going up.
2
I don't necessarily agree with the professor's work force and productivity assumptions. Over the past 20 years, millions of workers were "wage displaced", that is they lost their relatively high paying jobs to low wage workers in other states of countries or to technological change. Many of these workers withdrew from the labor market rather than taking low wage work.
If wages rise, workforce participation could well increase, as many of these workers reenter the work force. An increasing workforce, especially if the newly re-activated workers are highly educated or possess needed skills, could stimulate productivity and economic growth.
1
We would do well to remember Steven Pearlstein's view that 'The Market' is not a living, breathing thing that reacts with logic and purpose. Rather, it is a collection of human TRADERS who are looking at any way to make a buck. Yes, they can make money on the way up. There are also ways for them to make money on the way down. They, along with their computer algorithms, drive 'The Market.' Us mortals can only exhibit patience to see what the end result is. Oh, that's right, there is NO actual end, only this moment in time. And, time moves on to the next moment.
3
You can't run the largest economy in history with a bunch of incompetent Trump University graduates using smokes § mirrors until going bankrupt like a Trump casino. It took 8 years for the incompetence of George W to take the economy to the ground into the worst recession ever. I bet this "like, really smart" fake president will beat that record with a bigly depression. This is just an alarm bell. The smart money post-Davos is right now taking their assets out of the stock market telling the hoi polloi that the underlying economy is strong, just like in 2007. Once the disenfranchised Trump voters see their 401K are way down and that they start losing their jobs again, they'll realize they've been duped once again but this time by "one of their own", the hatred Trump has unleashed in the downtrodden masses will cause them to reach for their guns and outbursts of social unrest.
18
...well "shotguns over Washington" may bring some change...
I hate to tell you, many people are saying the plunging stock market is best described as "AMERICAN CARNAGE" Sad!
7
???? A 4.5% sell-off is "carnage"? The 1987 crash was a 22% sell-off. That's carnage. Until we see something similar, I suggest you take a deep breath, relax in an easy chair with perhaps a nice hot toddy or chicken soup, put on some soothing ambient music and try for a state of Zen non-attachment to your Trump derangement.
1
Just like a sinking ship, there aren't enough life boats, but hark, the Captain is already in one of the life boats.
14
Glad to read this. When I read this type of "we're doomed" from the public, I can now be confident looking to buy calls and going long.
1
And the president who complained about Barack Obama spending part of his summer vacation golfing at Martha's Vineyard now spends almost every weekend flying down to Mar-A-Lago (on the public's dime) and doesn't even blink.
I'm guessing that the apocryphal Jobs and Tax Cuts Act of 2017 is now turning over in its womb and is ready to give birth to a malformed, malignant spawn that was hatched in dark places, away from Democrats and the public, so that the one percent and the corporations could get any clean. Now, with stocks tumbling, where are the tweets?
I'm wondering how they're feeling up and down the Appalachian spine where Coal is King? How are they doing in Pennsylvania and Michigan and Wisconsin and Ohio, the four northern-tier blue-collar bastions that broke ranks and threw in with the real estate agent?
Paul Ryan the House Speaker, has deleted his $1.50 windfall for secretaries, which is about as high as the breath-taking lottery is going to get. The next tweet that we get from Donald Trump will be a mis-spelled, grammatically incorrect sniper fire at Barack Obama. After all, when Republicans run the government and something goes kablooey with the economy, isn't it always the fault of a Democrat?
Remember this figure: $16,000 per hour on Air Force One is the cost to the taxpayers so No. 45 can play golf. Remember that when 1929 redux comes to call.
33
Over and over again I have heard the adage that markets do not like chaos. This is why Trump's tax cuts and governmental regulation cuts not withstanding the amazing rise of the stock market at it's core seemed implausible and unsustainable. Who as a leader is more irrational and chaotic in his decision making then Trump? Trump inevitably will do to our economy what he did to his various businesses. The bull has finally entered the china shop.
25
Bulls in the china shop -- the complicit, beholding-to-donors GOP is ultimately responsible.
1
I'm curious as to what crises occurred on Yellen's watch?
3
None, and that's because of her steadiness and the new financial regulations enacted under Obama.
With grifting Trump and his entourage of greedy grifting twits, it's hard to say what happens next.
2
His voters will never abandon Donald Trump. They might have to explain why racism, sexism, attacking the FBI and the media weren’t enough - all those questionable actions with Russia wasn’t enough to leave. They only left the Trump Base when they lost money in the stock market.
7
Alas, the majority of Trump's voting base isn't part of the 20% invested in 90% of the stock market.
To paraphrase Burce Bartlett, Reagan economic advisor, the market finally realize that there is an unstable incompetent in the Oval Office.
12
What a fraud! Krugman is the same guy who has been calling for wage expansion, greater quantitative easement then the Obama Admin was willing to do (though Krugman cleverly never pins himself to an actual number that can be tested as enough or too much), would explain over and over that budget deficits and borrowing during a very low rate period is no problem since we're borrowing from ourselves (just as the great debts to pay WWII never were really ever paid off) and throughout the anemic economic years during the Obama years he called for the inflation rate to be raised to 4%
Now that the market is selling off with the fear that is pretty much everything Krugman advocated is going to happen, Krugman of course immediately finds yet another reason to froth at the mouth and rage against Trump. What a fraud!
2
Wow, it's clear that you haven't read Krugman during the past decade.
If you did then you didn't understand a word of it.
I regret reading your comment since it was total waste of time.
2
Are we heading for trouble, you ask? We are seeing deep trouble as we speak, and the name is T-R-U-M-P, the vulgar bully in the Oval Office, liar in chief, exaggerator per excellence, and ongoing demagogue promising 'heaven and earth' when he has no clue how to achieve it. If we think that the tax relief for corporations is the panacea he claims it is, just wait when foreign investors/lenders start collecting interests on the debt, payable by future generations...for our irresponsible profligacy. The economy may not have a direct relationship with the stock market but unscrupulous Trump sure is trying to give that impression by bragging about it. We have a certified 'superbly stable genius' commanding a complicit republican party in staying above the law. This won't change anytime soon unless his klepto-plutocracy bites the dust. Hope springs eternal. And if hope comes up wanting, there is always Mueller.
13
The Trump con GOP tax bill will result in Deficits of $1T a year forever. Heck of a trade for an average tax cut of $18 every two weeks for the average wage earner.
Eventually we need to understand the party of business is awful for America.
19
Janet Yellins departure and Steve Mnuchin being at Treasury is a recipe for bad run of economic fortunes.
16
Trump is always exclaiming about how he has generated the biggest crowds ever in history, the "biggest tax cut ever", etc. Why is he not exclaiming about the biggest market drop ever! Hm-m-m-
15
I covered this - see my post under
"Readers' Picks", around 250 down the list.
Thanks.
It's like we're headed for a storm and Commander Bone Spurs and his hapless band are at the helm. We're doomed.
12
Bad news for me,a boomer that has recently retired.But honestly the stock market news pales in comparison, to the daily news about this lout that is our president.I have to stop reading news,and only read recipes,mysteries and poetry.
228
Same here. But my husband insists on reading the news to me.
1
Poetry? You got to be kidding, he would not know the difference between a rhyme and a riddle...
1
If you recently retired, then you should have already adjusted your portfolio before the downturn---shifted some stocks to bonds. If you left too much in stocks and counted on those for your retirement, then, as the financial advisors say, "You have a high tolerance for risk."
1
If we are headed for economic trouble, then Trump will simply start a pointless war to deflect. Bet the rent!
18
Krugman notwithstanding, as long as Donald Trump inhabits the White House, no one's money is safe.
11
As they might say in a TRUMP GATE MOVIE- HBO 8 months from now. "It was memo stupid" As DT fires Asst. AG, Rosenstein, re[;laces with one of the party faithful, who has a degree from Trump University, and fires Mueller. So the three thousand points we have seen will feel like a bath in the sauna, and the rival buckets of ice eel like spikes of ice, thrown from a the Trump Tower, when the market falls another 5000 Dow points. It is not economics, or earnings that driving the markets fall(briefly down another 800 points, (FEB 6) but the realization as we may no longer have a Republic as DT creates in personal ,and private FBI
7
You can most certainly blame Trump and his so called "Incredible Business People". Initiating a large corporate tax cut when you have full unemployment was unecessary, inflation inducing and just plain wrong. Fear of inflation and more deficits most certainly rattle the markets. Trump loves to crow that he is responsible for Making America Great again and know he can brag that he is Making America Broke Again!
13
One of my favorite quotes "Every once in a while, the market does something so stupid it takes your breath away." - Jim Cramer.
I beg to differ from professor Krugman. This drop in stock prices is a (much needed) market correction.
Economic fundamentals --domestically and internationally -- are aligned to sustain a robust global growth cycle, led by China/US/EU.
The death of the American economy is premature.Uncle Sam's economy is ready to rock and roll.
1
Was the drop of 666 points last Friday 'The Omen'? Economic reality says probably not but for Trump personally maybe.
The Trumpian fantasy of I am the Greatest = The American economy/stock market reflects my Glory has come crashing down. Starting the 3rd day of the downward trend, Trump is lying in his bed wondering how his Greatness is not being validated.
Combined with the Nunes nothing burger memo and the lack of gratitude he experienced at his SOTU address, even Trump can not maintain his fantasy.
The down market especially hits him hard. His house of fake reality built upon lies and ginned up emotional angst might just be starting to crumble. Even the Patriots lost on Sunday, the football team that reflected Trump's 'winning' in his narcissistic mind.
For Trump the reality of his ignorance and laziness and disdain for the government he leads is starting to show and his ego can't absorb such disconnect. Thus Democrats, especially African Americans, are treasonous and Nunes is the greatest American. Lashing out to obscure and blunt the truth of his situation.
Mueller isn't going away and his administration may have played the economic situation of America into troubled waters. The Debt King may not pull this one off.
Trumphoria may have hit a wall but Trump will not acknowledge this. He will continue his unhinged fantasy quest to assert his ego upon us all with vicious and damaging consequences.
7
Thanks for the heads up, Paul.
You really brightened my day!!!
Superb satirical article with an edge!
3
I just chased my wife around the house talking about aliens. They're real. They only contacted some off us for a reason we don't know.
It is real, it is happening, and it it going to be hard to accept.
1
"So are we heading for trouble?"
Well, yeah. If all our trickle down evaporates up into the ether.
1
From your keypad to God's ears. And another wish - dig out Harry Truman's plaque and place it where the buck stops.
2
Readers, as you admire this glittering gem of Krugman wisdom, remember this is the same guy who predicted the stock market would never recover from Trump's election. Unfortunately, he is a case study in how Trump Derangement Syndrome can mess up even the smart guys ...
1
Well how far do you think the market will drop?
1
Professor Krugman admits his mistakes. I have yet to see a Trumpster do that.
2
let's see how far that $1.50 goes now (smirk).
5
Krugman is consistent on every utterance about the Trump economy. He is always wrong.
1
It's unlikely Trump's base follows the stock market and won't leave the fold but it does kind of point out that a massive tax cut to corporations, which should enhance their bottom line has instead made investors jittery. This drop is very likely post-euphoria following a way too rapid rise on hope smashing into the reality of total incompetence in Congress - such as not selling the tax cut as a benefit but instead extolling a ridiculous memo by a mediocre player is proof to be careful what you wish for.
As their head winds strengthen every Republican seat will soon be up for grabs. Who knew Trump draining the swamp meant them?
2
Hey Paul here's your big chance to reprise your famous Election Night prediction -- you remember, when futures tanked for a minute or two and you boldly stated that the markets would "NEVER" recover.
C'mon, that was a big moment. It was when I knew for sure just how seriously to take your commentary. Well, here's another chance. Don't stick with your pallid, grudging acknowledgement in this column that wages and employment and, yes, personal financial growth has all been remarkable under President Trump. Tell us how economic Armaggedon looms. If you can't be right - obviously - be entertaining.
1
We are all going to find out how stable our economy is.
The ups and downs of the market do not bother me, I expect them. What scares the pants off of me is the fact we have a totally dysfunctional government stocked full of unqualified people starting at the very top and I do mean trump. I keep thinking about the look of total scared, total disbelief, what do I do on Bushes face as he did a live question and answer in the Rose garden as the fiscal crises unfolded in 2008. The really scary part is he is much smarter and a better leader than trump and we will not have President Obama to come to the rescue.
7
When you put working class anti-intellectuals and non intellectuals in power the only thing they can celebrate are: military, policing and fire fighters. These people are important...but only within a limit and within the right context. Military spending is not going to spur growth except in war related products...which requires, tragically and traumatically, more wars. Policing leads to restrictive societies where mobility, spontaneity and many things that are important part of creativity and productivity get severely compromised.
One bright woman said she used to go for long walks at night to clear her head, enjoy the privacy and help her with some engineering questions. Now she is terrified to go for walks, due to power intoxicated police, drunks, drug addicts and criminals taking over the streets, even in cities like Dallas, after 7 pm. Think of that! This horribly over policed and over militarized society is killing creativity and productivity in subtle and direct ways.
But stupid men all over the country, petty incompetent and/or self serving men with no vision in DC, and greedy men in NYC (and this goes beyond the Donald) are all responsible for this.
America let in the Pariahs long ago...some White, from Europe or even as refugees...whose only goal was to make money, money and money. Donald is just the symptom. I appreciate the fact that he is showing the world the true face of America.
The world needs to get its act together, and start decolonizing itself.
4
It's called a correction.
It's happened before.
It a normal, healthy part of the cycle.
The global economy is on solid footing.
Stop trying to scare the herds into selling everything they own just so they can feel terrible (and broke) when it reverses on Friday....
Shameful.
Aren't you an economist ?
1
“When it reverses on Friday”. I’m going to remember that.
No, a befuddled prisoner of partisan ideology and political correctness, unable to tell the truth because they might see.
I should be fine but only because I got in the market when it was only about 1100, less than yesterday’s loss.
All the signs of past drops are present, walk when others run, and run when others walk. North Korea rhetoric scared me out of the market.
To quote Donald Rumsfeld there are “too many unknown unknowns” along with “irrational exuberance”
The little guy is loosing, soon he will realize it, AGAIN!
3
I'm glad you made light of the "666" - I had the giggles imagining Trump's religious right heading for the hills!
3
Does this article reflect why they call economics the "dismal science"?
We had best hope we are seeing a "correction" in the markets, rather than a canary swooning in the methane gas of the coal mine before it explodes.
The financial house of cards that collapsed 12 years ago has been stealthily rebuilt by GOP majorities in the House and Senate since 2010, aided and abetted by blind opposition and mindless obstruction of all things proposed by Obama and the Democrats after 2011. We can only dream of what might have happened if Boehner and the Tea Bag Party dim bulbs had voted for infrastructure rebuilding plans proposed in 2011 and again in 2015 at historically low interest rates.
The supply side zombies of voodoo economics were resurrected by the current GOP band of economic snake oil peddlers. The stimulus of an inflationary tax cut for those who least need it, despite steady economic expansion over the prior eight years, can only add to inflationary pressure.
Return with us now to those glorious days of yesteryear and the "stagflation" some of us may vaguely recall, characterized by rising inflation, soaring interest rates and stagnant consumer demand.
We can only hope we are not watching the creation of a "perfect storm", economically speaking, combining the worst elements of the Great Recession with rising interest rates and current inflationary practices.
To paraphrase an Obama metaphor, "You gave these guys the keys to the car and they drove it into the ditch again!"
The canary may have died and the mine is about to blow.
3
"Together, these factors suggest an economy likely to grow only half as fast as Trump promises."
Can we be honest here? Trump knows nothing. This 3% growth is Paul Ryan's and his alone. Trump signed whatever was put in front of him, fool that he is.
This is all on Ryan. This is his "dream". Tax cut for the rich will create 3% growth for the economy! We shall see, God help us.
5
Funny, Trump since in office has taken full credit for the success of the stock market did not mention it once in his "treason" speech today in Ohio.
3
Shimar wrote:
"Funny, Trump since in office has taken full credit for the success of the stock market did not mention it once in his "treason" speech today in Ohio."
--------------------------------
Funny, Obama did the same thing while he was in office. Every president does this. They magnify the good news and ignore the bad. Trump just tries to take credit more overtly.
1
Previous presidents have never bragged like this president does about any and all things. And I do not believe Herbert Hoover ever bragged about the stock market.
One little noticed statistic in the Employment Report was the increase in black unemployment. If black workers are the last hired and first fired, the increase in black unemployment may indicate that total employment is approaching a peak. That would not be good news.
1
Everyone ignored my letter in your bit coin bubble column. I said the market was going to fall and i wanted some info from Paul. Years ago it was possible to communicate with Krugman, now it's just comments.
His cabinet members are readying yachts, private jets and foreign villas for a quick getaway once Mueller's report is presented to Congress.
4
Krugman is wrong. Trump did not predict GDP Growth of 3%; he predicted 4-6%. In a year or two, if it's far less, that's solid evidence Trump was wrong in predicting the impact of the tax cut. But unltimately, as long as the economy is healthy, Trump's supporters will stand by him regardless of his obvious lies, hyperbole and incompetence
1
Heading for trouble? No – we're in the midst of trouble.
4
Goodbye, Janet Yellen. So sorry to see you departing.
7
Seems like a lot of analysis going to a normal correction. Remember - Bears make money. Bulls make money. Pigs, not so much.
No mystery here at all. Flashing at the heart of all the talk about wages, prices, taxes, and markets is the fact that Janet Yellen, the original one-trick pony, performed the classic political favor and kept the economy running on empty for eight years of the Obama recovery by essentially dolling out free money from the Fed. Without her stoogey hand on the throttle, there is now the danger that the new guy might actually do something insanely apolitical like keep tightening rates through the Yellen-born storm. So of course, the rodents are heading for the hawsers. No mystery at all.
Trump supporters seem to believe Trump's utter nonsensical claim that he is personally responsible for the rise of the stock market. How many Trumpists have we heard who say: "I like Trump because my 401k is up!" I hardly know what to say about this utterly ignorant attitude. But that is how Trump's base rolls. He says something idiotic and misleading, and the base just nods like so many bobble-heads. I don't expect them to come their senses, but surely the fact that the financial markets have little or nothing to do with the President and his actions might be appreciated by at least a few of them.
It is sad that the Trump "base" will have lost more from their investment accounts than they will gain short-term by any bonuses or tiny increases in their withholding.
8
Unfortunately I think Trumps decision on the head of the FED was based more on gender than capability
3
As far as Jerome Powell is concerned, Andrew Mellow is going to be hard to beat. Good ole "get the rot out" Andy helped, by employing a beautiful combination of stupidity and cruelty, make the great depression great. I am not questioning Trump's "fantastic" ability to fill his cabinet with buffoons, but I would hate for the history of Mr. Mellon to fade.
3
Well, I believe I can assign a cause. Trump, that magnificent politician, businessman and con artist without peer, called the Democrats treasonous today. So, because the Democrats failed to hail Trump and give him the accolades he feels he is due, the market lost value, therefore, it is the Democrats fault.
2
Predictably, Hannity just blamed the stock market slide on Obama.
You just can't make this stuff up. It's Bizarro-World.
3
I've invested in stocks and bonds for over 50 years. If there is one thing I learned about the market during those years, it is that the market responds to world events in some small or large way but generally just does its own thing. It is very difficult to predict the next market move. I noticed this morning that Sean Hannity blames the market fall the past couple of days on Obama (surprise!!) because of his "poor" economy. Either Hannity is playing politics or he's very stupid. I report, you decide!
171
Not mutually exclusive.
I'm surprised he didn't include Hillary in the blame game!
I think and vote that he is not very smart.
1
In any business, long-term survival requires quality control of your product. If you are serving up lousy food, your restaurant will soon close its doors because people will dine elsewhere. And how do you get good quality control? A big part of that is having a reliable workforce. For all the hype about our fake president's business acumen there's little evidence he has delivered. Experienced government workers are being forced out in droves and agencies are being run by inexperienced, incompetent and corrupt tRump sycophants. Making America Great? Not a chance. It's all sliding downhill into a bigger more viper-infested swamp.
4
I can only imagine who Trump blames for this dip....Obama, Hillary, maybe even the FBI? Hoisted by his own petard comes to mind...he who takes credit lots when markets rise must surely own the drop, too?
As Stephen Moore recently wrote, it's Trump's economy. God help us if there is a real crash with this crew in charge.
5
Yes, it is finally happening - the Trump Slump. A US president can not behave like an ignorant clown forever; there comes a moment where the ship that forgot to untie its moorings runs out of chain. Stock market plunges are not good - they impact everyone's 401k including me. But if it means this reckless clown (and the GOP thugs who enable him) will finally lose the support of his ignorant base, it is a price I am willing to pay. Because; God forbid the GOP manages to hold on to the House later this year - so stock market plunge, bring it on!
4
After hearing all the Trump supporters list the booming stock market as one of Trump’s accomplishments how long will it take for them to go back to what anyone with half a brain has always said, that the president rarely controls how the stock market performs?
5
Maybe it's just this simple: Now that the yield on the 10-year is nearing 3%, stocks have real competition for the first time in, what, 10 years?
I wonder if there's a way to measure how much money was diverted to equities when the yields on CD cratered. And how big the homecoming parade will be.
2
Although I'm in overall agreement with Dr. Krugman's outlook on future growth rates, I would add declining Personal Savings Rates to his list of factors. It has recently been reported that US Personal Savings Rates are now at 2.4%, which is a 10 year low. This spells trouble for future consumption and economic growth. Because we are a consumption based economy, consumer spending represents 2/3 of US economic activity. The kicker is that although Trump's tax cut may mitigate personal savings and consumption problems for the markets, the tax cut may also fuel inflation, which has been a conservative bogey man for the past 9 years.
5
Interestingly, The morning New York Post cover reads "As market takes nosedive, hypocritical Trump says democrats not clapping for him is treason."
Hmmm.....stoking the fires of resentment, this president goes too far.
And the Republican Party? So fractured and strident, truth has become irrelevant. Their huge tax cut-induces a bubble that strongly suggests economic risk.
The House Speaker "brags" that a public school secretary had an increase of $1.50 a week in her pay check.
An overheated market, high stock valuations due to stock buybacks courtesy of the tax bill.
On the heels of dollar tumbling after Trump's US Treasury Chief welcomed its weaker value in Davos--- he might have set the stage for a huge crash.
He literally said "Obviously a weaker dollar is good for us as it relates to trade and opportunities."
6
Every day the US just looks more incompetent at basic governance.
5
I believe your prior predictions have pretty much disqualified you as a reliable, or even sensible, source, Mr Krugman.
1
Trumphoria does indeed correlate - spuriously or not - with DJIA shooting up after Trump's victory.
I don't see Turmphoria ending. Not even after everything we take for granted in America is replaced by a Russian style oligarchy coupled with strong shades of a banana republic. Trump will serve out two glorious terms, only to have Trumphoria revived by republicans with an even more clownish candidate who boasts of his "know-nothingness" and has strong "white supremacist" leanings. Know nothing white supremacists are not a fringe group in America, they are mainstream now.
There is zero evidence from my own narrow, anecdote-rich, non-generalizable research (based on striking up conversations with people in Walmart) that there is any awareness of the long term impact of Trump - outside of very liberal salons. The Trumphoria is here to stay. Fox and Limbaugh adherents will always have debt, meth, the holy book, and lots and lots of guns.
Kalidan
8
Restricting immigration will restrict the growth of the economy.
And while the economy is good, should we not invest in infrastructures?
And who knows what hardship may be just around the corner (San Francisco earthquake, Cascadia megaquake and tsunami, ...)?
5
Clearly, Paul Ryan’s celebration of the $1.50 per week tax break for hard working Americans, sent a message around the world: America is the land of inequality! The rest of the world shuddered. Davos ignored Piketty and so does America. Here we go for the Trump recession ride. A real possibility for Democrats if they can leave their Wall St friends. The only concern is the attraction of big money to all opportunists.
4
There once was a financial writer for the Dallas Morning News who put great faith in sloth. He developed portfolios that encouraged same, recommending no-load, indexed stock and indexed medium-term bond funds from large, established mutual fund families.
His first was the Couch Potato Portfolio, which required the ability to fog a mirror held beneath your nose and to divide by 2 (calculators were allowed). Put half your retirement funds in one, half in the other. On January 1, every year, add the value of the two together, divide by two and make the trades necessary to make the two equal in value again. Then lay back, close your eyes and ears and take a 365-day financial nap. Repeat.
His second portfolio he named the Margaritaville Fund, for his favorite beverage and singer. This required splitting your nest egg three ways between the aforementioned funds and an inflation-protected US bond fund. Calculators were encouraged. Annually, repeat the process described in the preceding paragraph.
I opted for the Margarita version, adding one layer of sloth, I never re-balanced. Not once. Until a year or two ago when, at age 69 or 70, I robbed from the indexed stock fund and transferred to the bond and inflation-protected securities funds to make a roughly 40/40/20 split.
Heeding at least a part of Mr. Burns's advice, I can report that my IRA, which had a value of between $200K and $400K as of market close on Friday, fell just over $600 today.
Y-a-a-w-n.
Zzzzzzzz...
1
Wall Street has had a long party and a lot of fat cats drank too much. When they realized they shouldn't drive home they all called an Uber at the same time and surge pricing kicked in. So, like the guy in Darien they got belligerent, threw up in the back of the car and will refuse to pay the higher fare.
5
This is the beginning of "the Trump Slump." Hopefully, it won't be too bad.
1
Ah yes, termites who revel in down markets blame Trump and dine well. When the market is up and the economy doing good, they still find something else to scold. Have fun, Paul. You said Trump's policies would result in a recession when exactly the opposite happened.
Just wait a while longer - the whole point of this column is that the Trump tax cut euphoria will wear off. The uber wealthy will decide the tax windfall was not enough, and they need more. More of our money to gamble with. More financial shenanigans to control more wealth - just like 2008. Krugman is warning you not to fall for this bubble too soon, because you will fall with the bubble later.
Exactly the opposite of recession happened? According to whom? I didn't see a jobs boom or pay increases for the middle American worker. Oh, yeah, there was that $1.50 the Republicans are so happy about.
2
Some of us believe a recession is around the corner. We’ll see.
1
"Worst possible people on the case" is exactly correct. What we have is a self serving Administration working with a GOP to make sure corporations and GOP contributors get more than their share. Personally, I don't trust Trump, the GOP, and why was Janet Yellen replaced? She had a steady hand.
184
"She had a steady hand." Ergo, she was replaced.
1
She did, but that steady hand was chosen by Obama (gasp!!) so of course
our Very Stable Genius had to change it. Who knows whether, quite by accident, the VSG picked a not-too-bad replacement. Looks like we'll find out. Mnuchin, of course, we already know about. Oy.
I'm confused now, Paul. For months now you've told us that the surging stock market was actually to the wise policies of the Obama Admin, and that Trump's claim he's the catalyst for it was nonsense. But now that it's gone down -- most likely a healthy correction -- now suddenly you're saying Trump was the catalyst after all in the form of "Trumphoria"? Please explain.
I'm hoping it is just an overdue healthy correction: 1) to help everyone's 401(k)s including my own; 2) the fun watching you have to immediately reverse course and claim the continued economic growth with a more gradually less volatile market is suddenly once again Obama's doing and not Trump's. It'll be fun to watch.
1
The school secretary who got that $1.50 pay raise Paul Ryan was so proud of is probably glad she couldn't afford a stock portfolio. As for Trump, having taken credit for every rise in the stock market, he will never, of course, take the blame for the Trump Crash. It was Obama's fault, or Hillary's, or the Wall Street Deep State conspiring against him. If those treasonous Dems had clapped harder at his State of the Union address this wouldn't have happened.
5
The reasons" It's absolutely certain the matter is doubtful
but for Trump live by the Dow die by it. he will find someone else
to blame and pretend he never said what he said.
we've seen this movie before
1
Am I the only one who sees a mystical connection between the slump and Yellen's departure?
98
It's probably vivid coincidence. Yellen's unfortunate departure has been known all along, and it should have been priced in.
Even if you are, that's good; this is the beauty of democracy - no 2 opinions are same!
Trump's naked particanship has consequences.
Tom McMahon
Hedge funds are getting scared. Cheap borrowing is ending and their options are getting called.
1
...does this (market drop) not have the appearance of a market "tantrum" to keep interest rates low?
Besides the temporarily, fortunate few that got gratuitous bonuses , the truth is that we did not need a deficit / debt busting tax cut, at least of the kind and magnitude that was passed.
Paul Ryan , the GOP and glory seeking His Majesty Trump put ALL their eggs in the tax bill, but reality is still that the bulk of the cuts go to big business and the wealthiest of Americans.
Cuts that helped small to medium businesses be more competitive and the middle class earn and keep more should have been enough.
Our economy is consumer and housing market driven. Consumer debt is at an all time high and the 10k SALT Cap along with the potential for near term mortgage rate hkes do not bode well for either sectors.
The truth is that in the large scheme of this tax bill, many americans will see a tax increase, and those that do get a small tax break will quickly see that evaporate with higher medical costs, of which nothing has been done and inflation.
At that point we're back to where we started except that now we will have borrowed 1.5T to pay for another large transfer of wealth to the top percenters.
The market's heart knows this and that His Majesty Trump is toxic.
3
I love the last sentence. But, I wish Paul Krugman had paraphrased the following line from 'Indiana Jones and the Raiders of the Lost ArK" -- "We have top people working on it. Top people."
1
Demographics have a huge impact on economic growth. Trump's racist immigration policy is causing a labor shortage. Just ask Japan how it worked for them. Add to that the number of working age people killed by guns and opiod overdoses.
There is a slow drip drip drip of economic harm being inflicted by the Trump presidency. Case in point- since his election tourism to the US has fallen 4.1%. That is 4.6 billion in lost spending in the tourism industries.
2
Then there is the giant elephant in the room - the declining environment. For 10,000 years Homo sapiens has been enjoying a very rare climate worldwide, that is now about to be eliminated. The new climate with extreme droughts, major weather catastrophes, mass die offs of H. sapiens and most living things, will make this all moot. Perhaps if a Democrat is the next President we can join the rest of the world in trying to mitigate this coming climate debacle, but that's seems a big if since Democrats don't vote and elections are rigged by the very rich class that is exacerbating climate change by their actions from the Executive branch and Congress.
1
Mr Krugman, I’m surprised you didn’t mention the federal debt outlook as part of the reality butting into Trumpistan. Isn’t the much ballyhooed tax cut forecast to add a trillion dollars of debt to the federal balance over the next ten years? With that, there’ll be increased government borrowing to cover the debt, pressure on interest rates, and increased cost to borrow across all sectors of the economy. With increased cost for mortgages, just when this shiny new tax reform has restricted the interest deduction and property tax deductions (take that, you liberal coastal elites!), we can expect real estate to take a hit as well. All this when this growth cycle is old by historical standards.
The party has to end sometime, and the resultant economic hangover could be an especially nasty one...
3
There are a couple of things that seem to get overlooked that our fundamental. First, productivity can be linked to the efficiency of government institutions from police work, to trash collection, reliable FAA, efficient customs procedures and the like. Productivity also relies on sound and solid functioning of our infrastructure. JIT manufacturing does not need traffic jams and bottlenecks. We need to move both seaborne and airborne goods smoothly through our ports. We need to clear the snow. minimize flooding and have adequate utilities available at competitive costs. We must educate our workers and keep them healthy. All indications from Washington DC are that the institutions overseeing these areas of our economy have been put in the hands of political hacks. The GOP enacted massive tax cuts which will hobble the ability to finance necessary government expenditures. There is little confidence in this country's leadership on a global basis. There is no sense of direction and all indications of turmoil and disruption to continue. We are starting to pay the price for the disastrous Trump Presidency. It will get worse.
147
Republicans have done the unthinkable, introduced political risk into the US market place, i.e. the real economy. At some juncture the reality of extreme political risk plays out in the gamblers economy (wall street). I'm not sure this is happening at the moment but for all the reasons you point out above, and more, it will as markets abhor risks that are well nigh impossible to quantify but objectively very real.
2
Crash or correction- the market is still at 24k-- over valuation is the problem, as is dumping gasoline (massive tax cuts for the investor class) & wage increases on the already warm economy- leading to inflation fears. If the Dow hangs around 20 or so for the year , not the worst thing. I am glad wages have some time to catch up to the riches garnered by the investor class.
If you have been tracking price to earnings ratios of stocks over the past couple of years, and comparing them to historical norms, this stock marked drop is not surprising.
1
So why is it Krugman has gone out of his way several times to say Trump has no positive effect on the economy but then all of the sudden when the Dow takes a dive, "Trumphoria has hit a wall". Where was your positive commentary on the markets from an economists point of view? Oh I forgot, it must be all negative about Trump because that kind of coverage really stopped him from becoming President.
2
yes, along with the refrain that the stock market growth was also attributable to Obama. But, of course, Obama gets no blame now.
There's a difference between having an actual "positive effect" on the economy and the fantasy of "Trumphoria." Down the road the crazy stuff that Trump is doing will show an actual negative effect. You will live to see it.
1
END TO TRUMPHORIA? I never knew it had begun. What's been spreading like wildfire globally is TRUMP-DYSPHORIA. Trump has achieved a destructive level with his record of insulting both friends and enemies--sometimes the former more than the latter. The jarring note at the end of Paul Krugman's well-structured analysis, is ominous. That if there is an economic downturn, the worst possible people are in place to manage it. You could say that Trump has made America "great" again, only if that means that we've sunk into a GREAT big HOLE with no end in sight.
11
Not a comment but a question: would increased immigration help the economy by providing more workers to fill the jobs left by retiring workers? Take that Mr. T.
7
Sure why not? Ponzi schemes are the underpinning of our entire lifestyle and economy.
A better question is what levels of orderly immigration would suffice once we take up the slack in true unemployment.
And to care for us geezers in our dotage.
1
You are going to have an alien encounter very soon. My advice: accept it.
The aliens are so powerful that they seem like God to most people. They're real, and they're here.
If you are contacted, please tell us about it. Don't hold it secret, and don't be worried about appearances.
2
Or just build a big, beautiful wall to keep them out.
We've hit a morality low with Trump. He was such a great businessman he went bankrupt at least four times. He's been embroiled in hundreds of court cases through the years. There are records of him not paying his workers. His minions are all self centered money first grubbers who are trying to destroy the environment, public schools, and I have no reason to think Mnuchin has any interests but his own in mind. Hit a wall(?)...I hope so!
8
Trump's incessant boasting about the performance of the stock market since his first days in office demonstrates how clueless and shortsighted he really is. Almost everything Trump does is based on immediate gratification. There is no steady hand on the rudder, just a captain swerving to avoid trouble with no clear course.
That alone should worry investors. But the concerns don't end there. Super-heating the economy with a short-term, Ponzi scheme tax cut for the middle class meant to bolster GOP in the next election cycle is not a reassuring development either.
This correction has been long-anticipated by savvy investors. Only a clueless, impulsive and short-sighted president could not have seen it coming.
6
Trump is not responsible for the rise int he market during the 1st year of his term. The rise was already well under way in the last year of Obama's 8 years, and was the result of his having carefully avoided plunging the economy into a great depression in 2009 and slowly mending the the mess created by easy credit (caused by Barney Frank and Democrats) and the fraudulent packaging of worthless loans into securities (approved by Republicans). Likewise, Trump will not be responsible for the mess to come created by years of easy money!
1
What if the market detected that Trump’s America was not about rational decision making but about everything ego? If I were the market I would feel squeamish on steroids and crash just to stop the pain. You don’t hear the Trumpsters giving a fig for increased productivity which is the only thing that leads to safe growth. As far as they’re concerned, growing inflation is just as good and a whole lot easier to arrange. There seems to be nothing in the Republican ethos, let alone Trump doctrine, that would promote technology facilitated global collaboration which has got to be the next, limitless productivity frontier.
He doesn’t understand that the economy is not just about his personals holdings.
2
For the first time in modern history a president labeled one of our major parties treasonous. Mr. Trump’s slander is shameful.
We have a constitutional democracy. We govern by negotiation and compromise. Mr. Trump may not understand any of that.
America has never had a president who complains as much as Mr. Trump.
He complained about his State of the Union Address. Through much of it, the Democrats sat quietly and did not applause. Their opposition to his policies is equal to treason against their nation? Mr. Trump seems to equate himself with the state. He thinks loyal citizenship requires support for him.
The Dems refused to applaud because Mr. Trump’s speech was full of falsehoods. His policies are based on false stories. False stories are what Mr. Trump is about.
Trump touted his tax plan, but it is more of the failed trickle down from Reagan and Bush. Following Reaganomics, most of the growth in income and assets went to the top. The middle class stagnated. That’s why the Dems did not applaud.
Regan and Bush expanded our federal debt from under $1 T to $10 T. Now Trump is adding $1.5 B to our debt, most of the cuts go to people at the top who already do well, cuts for the middle class are only temporary, and the new debt will be used to cut needed programs.
While Trump spoke Monday, the stock market had its largest one day point drop in history. He didn’t mention that.
The Dem’s refusal to applaud Trump shows their real courage and their real patriotism.
9
What destroyed prosperity in America is that our government stopped working for us. Our government came under the thumb of Wall Street, the big banks, and the multinational corporations – which have zero loyalty to the U.S.
Our government has become a corporatocracy – government by and for the large corporations.
After the Great Depression and beginning with FDR, we had government that worked for most of us. We had growing prosperity, a growing middle class, and a growing black (minority) middle class, until the 1970s. What destroyed that was Nixon and then Reaganomics. Nixon and Reagan are the ones who started trickle-down economics. Since then, most growth in incomed and assets have gone to the top. The middle class has stagnated.
Presidents Carter, Clinton, and Obama were pro-growth, pro-free market, and pro-business, They promoted moderate, responsible deregulation. But they worked for prosperity for the middle class. They didn’t hand the economy over to the multinational corporations. The Republicans, by contrast, are completely under the thumb of Wall Street.
Water is a necessity. We have a water system to meet the need. Life is brutal without health care. It’s a necessity like water. The only cost-effective health insurance is Medicare for all.
The GOP blocked that, so we pay double for health care compared to the other nations. The Dems agreed to ACA (Obamacare), the market-based plan the GOP supported since Nixon. But only Medicare will be bring costs down.
1
Reply to Trump’s slander by U.S. veteran and senator Tammy Duckworth –
http://thehill.com/homenews/senate/372452-duckworth-fires-back-at-trump-...
Unfortunately, the Republican Party does not have a very good track record of apologizing and engaging in self-correction when one of their little orthodoxies, such as supply-side economics in Kansas, is proven wrong. If growth should slide to 1.5%, which would make hash of the presumptions for the so-called tax reform bill, I don't see this Congress rushing to amend or even repeal their previous work in response to a diminished economic outlook. And the President will probably tweet that we don't cheer his every utterance enough and that's what caused the market to slide.
"Are we headed for trouble?" We're already there. Send in the clowns? Don't bother; they're here.
3
I thought one of the clear lessons from the Great Recession was the disconnect between the stock market and the economy. Before the recession, people assumed that the highly educated and very smart investment bankers were capable of being reasonable and exercise balanced judgment. It turned out that with the ARC & VRDN melt down right before the last crash that these people were every bit as irrational as anyone else.
However, giving Comrade Trump his due, the tax cut for the wealthy and eviscerating the entire US regulatory structure to the benefit of business provided the rocket fuel for the recent stock market run up. Unfortunately, just as rockets go up, they were bound to come down when not based on good fundamentals.
I assume the market will over-correct as usual. Hopefully people have learned the value of cost dollar averaging.
The most accurate description of Wall Street is offered by Bernie Sanders, when he describes the essential business model of Wall Street being fraud. A large part of the run-up in stocks was simply the exuberance of Wall Street that the robber barons would be allowed to pull off another massive bubble in stocks followed by another financial collapse, leaving the middle class holding the bag again. Why wouldn't they want that? What penance did any of them pay for the last massive fraud they perpetrated on America and the world? Stock valuations were and continue to be ridiculous, but try to find a stock broker who will tell you that!
5
The stock market is gambling. It's hysteria. It being faster than the other guy on a computer. It is not about fundamentals any more, it is a game.
Stop talking about it as if it is the same old, same old. It's not. It's a bunch of selfish people trying to get more while everybody else gets less, using insider information, after hours trading, manipulation, lying, and other deceptions.
The real estate market and other markets are more or less for real, because they can't be manipulated as easily. The stock market is a occupied by too many un-convicted criminals to be relied upon as a real demonstration of how our economy is doing.
Just watch movies like The Big Short. Look at how nobody went to jail except one underline when the market crashed. You want to rely on these people? Go ahead. Invest with Bernie Madoff. All over again.
3
Better enjoy full employment while we can. Before you know it machines will be taking over everywhere. Then what?
1
What then? According to the left we just import more people. That is the solution to every problem, according to them.
Already happening
AWS redshift
Google analytics
What is more terrifying is that the economic prediction is correct and the political prediction wrong. Trump is an autocrat and what autocrats need to justify suspension of civil liberties, due process of law, and elections is the perception of a severe emergency. If you think the Trumpistas are behaving badly now, how do you think they will behave if we have a deep recession or a depression?
5
May this be another nail in the coffin of the myth that a businessman president is good for the economy.
5
The Obama economy was on cruise control until trump tried to make it his own by signing his corrupt give away to the wealthy which is inflationary and has spooked the markets.
5
What worries me about the new Fed chairman, and all Trump appointees, is will they be loyal to Trump, or the job? Will he do what is politically correct for Trump, or what is good for the economy?
4
Exactly. It’s the Emperor Has No Clothes crash.
112
I really think the core economic problem in the U.S. is a combination of continuing redistribution enriching the rich and low level of real investment in both private business and public business. The choice to cut taxes—especially on the rich—instead of increasing public investment (i.e., infrastructure maintenance and expansion) and increasing private investment is simply hobbling the economy.
Private investment is unlikely to improve industrial and commercial employment (with better wages) until there is reason to believe there will be markets for products and sales. And I doubt that will happen as long as the U.S. balance of trade remains in deficit by a half-trillion dollars. It is possible that increasing public investment would facilitate increasing demand for domestic products and services. If that were largely paid for by increasing taxation on the top ten percent of incomes, demand would increase. I don’t know how much of that increase would be domestic.
1
Wrong. It's all Obama and Crooked Hillary's fault.
1
Krugman: "Meanwhile, the current secretary of the Treasury...may be the least distinguished, least informed individual ever to hold that position."
I find having a benighted person as secretary of the Treasury as unnerving as the recent plunge in the market.
19
A president with seven bankruptcies on his resume would be reason enough to exercise caution now. When the Speaker of the House touts $1.50 increase per paycheck as proof of the benefits of tax cuts, you have an additional reason to be cautious. Did I mention a former movie producer as Secretary of the Treasury?
While the recent drops in the market may be nothing more than hiccups, if they are signs of something more serious, this is the last team you want focused on a solution. They will offer you a lousy movie featuring a has-been Hollywood celebrity endorsed by clueless critic.
14
Prof Krugman seems to have enlisted in a growing group. The data show the deficit is a concern shared by fewer and fewer in the US. The tax cuts only made the deficit bigger. The "news" behind the downturn might be the jobs report but the facts are that we are on an unsustainable fiscal course and, almost worse, nobody seems to be concerned that we are.
6
Curiously, column totally neglects to mention the millions of "uncounted unemployed," otherwise regularly referred to in Prof. Krugman's output. If he is worried about an adequate supply of labor, he could find inducements to move these people out of the TV room and into the market. Might higher wages persuade them to enter the workforce?
2
I think those who sold brought the prices down and now they will buy again , this time more units than before.
1
I took early retirement in 2016 to work on a book, silly me. Then Trump happened. Everything that the GOP has done since then has made me fear for my future, financial and otherwise. In the past year, every time Trump and the GOP did something crazy or cruel, I would see my stock portfolio grow and feel ambivalence. In the last few days, I've lost what is a lot of money to me (even though it probably wouldn’t buy Melania a dress), but I agree with the other commenter who said it may be worth it if it puts a stick in Trump's spokes.
9
A decline (or "correction") was bound to happen in the market. It is the decline in our democracy that troubles me most. I have faith that our economy can bounce back, but not so our democracy.
Somehow, I can hear our president trying to convince us that this downturn only happened because of the Muller investigation heating up and if it would only go away we'd have record market highs as long as he's king, um, I mean president.
5
When the economy hits a hill (2008), step on the gas of government spending, tax cuts (Obama 2008) and low interest rates (Fed 2008). When it peaks (2017), cut spending and increase taxes to pay down the debt incurred during the recession. What did Trump do - he cut taxes on the rich and barely on the rest. Spending on non-infrastructure related projects continues unabated. Result - recession with exploding debt.
4
No prizes for predicting a flood. Anyone with half an eye could see the rain clouds gathering. Under Bernanke's QE programs, the FED released a veritable deluge of money - for more like 4,000 days and nights. But, just as in Southern California, the Republicans' 40-year program of tax give-aways to the rich, union busting, and health care wrecking has deflated demand from the middle and working classes and has, as it were, denuded the slopes of any vegetation capable of absorbing precipitation.
Constraints on demand meant that the QE deluge was channeled into non-productive assets like housing and financial instruments. Worse still, the regulatory levees have been systematically dismantled; the financial industry is now worrisomely exposed.
This may not turn out to be The Great Flood - no one wishes that - but inevitably it should point out for us where we need to start mending the dikes and replanting while there is still time.
The place to start is with a national infrastructure improvement program, including bridges, roads, taxes, and health care.
4
I have to wonder if there's a time bomb hidden in the nation's financial structure. Last time in 2008, it was billions of dollars in junk securities backed by subprime mortgages.
3
Here in Canada we have just become the world's exceptional nation. We are the only major stock exchange in the world that is lower than it was a year ago. We are also the nation with the best economic outlook for the next five years.
We avoided 2008's recession. I don't know what any of this means or if it means anything but I am sure happy to be here on the north side of the border.
6
Also, the tax cuts are sending us toward the debt ceiling sooner. That means that Republicans will hold the nation hostage by pushing to drastically cut Social Security and Medicare or default on our debt. Oh boy!
3
Mr. Krugman's last sentence may turn out to be a self fulfilling prophecy. Investments require confidence and that starts at the top .... need I say more.
6
The US is bursting with MBAs, financial advisors, stock analysts and economists, yet no one ever, ever, ever sees anything coming. For all the money-men and tea leaf readers, portfolio managers don't seem to be any more tuned in to the god of bear runs than anyone else. What will happen tomorrow or next month or over the long run is anyone's guess, and the worth of all those prognosticators shockingly questionable, yet our IRAs and 401-Ks depend on those tea leaf readers, confidently assuring and reassuring we investors as if they were actual experts. It is hard keep believing in the value of professional guesswork based on such rocky performance. There must be a better way.
2
I agree with your three rules, but the economy and its rate of growth depend heavily on innovation and efficiency. Investment in the deployment/implementation of innovation has been too slow. We are competing on the basis of innovation with other countries and it seems to me that the US is not performing well. The very recent NYT's Editorial, https://www.nytimes.com/2018/02/05/opinion/china-elbows-out-charges-ahea... is an example.
I know you are a trade expert so I tremble at the thought of calling your attention to our trade performance, but the increasing trade deficit is of concern to me.
Recent tragic Amtrak derailments are also I cause for concern. It is absolutely horrifying that this National Passenger Rail Service is sharing trackage with freight rail and the alignments of the rights of way are such that it is an absolute necessity that we consider a new surface transport system separate and apart from our newer Interstate Highway System for high-speed passenger and freight logistics.
The system which should have been implemented in 1990 was the 300 mph, all-weather, superconducting Maglev transport system invented by scientists, Drs. James Powell and the late Gordon Danby with the capability to levitate both passengers, freight containers, trucks, delivery vans in vehicles that can operate on elevated guideways, existing rail stations that have been adapted to Maglev. Deploying along existing rights-of-way, www.magneticglide.com makes sense.
1
I'm not economist, but just had a feeling the Republican tax cut politically motivated was not a wise economic action. Just didn't make sense, except to buy votes with a token tax cut, and sweeten the portfolios of the donor class. It seemed with the economic conditions, inequality, and our vast infrastructure needs that a tax increase in the higher brackets and only a slight decrease in corporate tax rate was a wiser move.
4
I don't think it would be too surprising if Trump policy led to another Great Recession or worse. His policy is basically the same as W's...guns and yachts. Tax cuts mainly for wealthy, bellicose foreign policy, massive deregulation, increased "defense" spending. Sound familiar?
10
I echo Dr. Krugman's concerns about policy makers. Should a large stock market correction trigger a recession whether mild or deeper, I fear the Trump administration with its overwhelming desire for self preservation may resort to publicly bullying the Fed chairman (think FBI, IRS, Justice Department etc) to provide a short-term, "sugar high" to the economy. However, in my view, the credibility of the Federal Reserve is arguably the most crucial support mechanism standing between a "Goldilocks economy" and global financial Armageddon - interfere with this support at your peril
4
Deregulation only gets you so far in an economy. After the euphoria wears off, you are stuck with hard choices. Coal, Oil, are fine for back drops for campaign rallies, however, the people who control large blocks of capital are not going to keep putting money in 18th Century technology.
We are in a correction. The Republicans better hope it does not turn into a recession.
3
Anyone who invests is well versed in the industries they choose. Being that they are so inclined shows an interest in science and technology to aid their success. Fossil fuels are the blood of the economy and those who watch know the prices of fossil fuels are creeping up significantly, once again under Republican control. Knowing the decades of Fossil fuels prices and their impact on the economy, both positive and negative, I know we are headed for an economic decline, and so do the educated investors.
2
To all the much vaunted economists - recessions are cyclic and the stock market was considered to be overvalued before the recent Trumpmania. Tax cuts for Wall Street and Trump and friends will increase the national debt. Likewise military spending, a border wall, and the mythical infrastructure plan. Trump’s weekending in FL with cheerleaders and golfing buddies is another drain on the budget. One supporter noted he is not getting paid - but failed to note that he is reaping big time from his DC hotel and golf clubs. The little man loses while the hedge fund kings profit, me - I believe history and the handwriting on the wall- and took my money out. Trump runs on bankruptcy and bullying Not genuflecting at the altar of greed and bankruptcy is not treason - just common sense.
4
"And what the data say, I’d argue, is that at the very least America is heading for a downshift in its growth rate; the available evidence suggests that growth over the next decade will be something like 1.5 percent a year, not the 3 percent Donald Trump and his minions keep promising."
This begs for a link to at least some of the evidence.
Short-term stock market fluctuations represent the group think of only the people in the casino. Investors who gamble with their own money, or more often someone else’s, are encouraged to think in the short term. Perhaps not the staccato pace of a day trader, the past few days an exception. But not thinking in three- to five-year timeframes, much less ten or fifteen. Never looking forward a generation.
What would the stock market look like if we acted in the long term? Fossil fuel stocks would be frail and heading towards worthless. Renewables would be strong and growing stronger. Companies that paid workers living wages would be trading at a premium. Those that supported working mothers and catered to infant and child health care and education would be the strongest of all.
Instead of future- and family-friendly investments, we have a dirty casino filled with tobacco smoke, riddled with drugs, and distorted by fun-house mirrors. They trick people into thinking they can make a short-term gain that will protect us in the long term.
Our aggregate thinking is not looking out a generation. We bet on short-term thinking but risk long-term losses. The casino economy limits our vision and field of action. We need to incentivize long-term investment in resources that are durable and valuable to our society.
Hoping to score on the next throw of the dice is not responsible to our grandchildren and great grandchildren. "I got mine" is not an effective policy any more.
6
Here's a prediction: the plutocrats and oligarchs and billionaires (POB) have taken so much of the world's pie, the common people have had enough. So the POBs take their winnings and sit out awhile. The recent tax cut will give them leverage to 'ride-out' however long this takes. And, unless something drastic happens, we're stuck with the billionaire, bully President for 3 more years (and he'll certainly fight, lie, cheat and steal for the POBs.
So, the common, the citizen, the been-sleeping-too-long will slowly awaken and attempt to take the reins of democracies. The elite will fight back mightily, but they're at a disadvantage, at least in democracies.
The advance of climate change ruins, and the ruins of a growing class of Americans struggling to have a good and decent life will help push us towards and more compassionate and equal society. The fight will be mean-spirited and divisive (much like today, just bigger). The ideas of honor and truth and community and respect will finally triumph. We the People will create a society that we all deserve. All.
That's my prediction.
2
We've been there before, and we seem not to learn, at least not from the media that stays up at night anxiously waiting for the bad news to report. The first shocks are warning signs, but the larger bullets will come when all that free money available from the Feds starts disappearing, or will it. And of course billions business will receive from reduced taxes will just enlarge the bubble again. There seems to be lots of financial deception out there. When will we return to the days a business has to honestly make a product and make profit from it. What will the gov't say when it can't pay its bills, and all the incremental debt that is right next door. Seems the tsunami is right around the corner. We better get ready to duck.
1
Donald...Duck!
Trump can change, he can change his staff.
Trump can learn to control himself.
I just wish I could believe that, I can not.
The national debt is increasing with another GOP experiment in tax breaks for the 1%. Without the 3% growth that the Trump administration anticipated we are going to extend the national debt by additional trillions of dollars. I am curious how they are going to keep the government open later this week as we are also approaching another debt ceiling. I always laugh when Republican friends tell me how great the GOP is for business and the economy. These are the same people that pronounce Trump is a great businessman. They just don't read!
4
In my opinion there is a growing fear that our government and its leader are causing great hate, anxiety and to much uncertainty among all of us including big money. This could be a major reason for the stock downturn. Just my humble opinion?
I have no confidence in Trump and his economic plans.
The Republican Tax Cut will harm prosperity and exacerbate income and social inequality and deprive the Federal government of needed revenue to modernize
infrastructure, further scientific and technological research, improve education, healthcare, and the safety net. The loss of state and local tax deductions will reduce prosperity in affluent states that fuel prosperity and progress for the whole country.
The corporate tax bonanza will not lead to sustained prosperity, but with inflation and with a tight labor market and restricted immigration there will be a generalized panic with the realization of the inadequacy of the economic model and the simplistic philosophy of his economic team.
I think the market correction will expose the foolishness
and folly and harm of Trump's primitive notions of
economic planning.
1
While it may be that "the stock market is not the economy," most instinctively know that they are related. For example, the stock market crash in 1929 was integrally linked to the Great Depression.
1
Paul Krugman makes an astonishing prediction; growth will be around 1.5 percent over the next decade. Time will tell.
Wouldn't it be nice if the business news pundits said something like this? Why is Krugman (or other economists) rarely on these shows? Haven't we learned from the mistakes of the past (sorry, that was a bad joke).
This is the time for a reporter to do a retrospective of explanations in the Wall Street Journal, Bloomberg, FOX, PBS Nightly Business Report, CNBC, etc. over the past year -- seeing what their explanations were for the stock growth, etc. and then seeing how they explained the recent declines. All I'm hearing is "volatility" now. Before they seemed to all be saying that companies were just doing well (as they watched Trump try to take away people's health care, abnd Ryan wants to take away their Social Security, Medicare and Medicaid).
What is the point of the press if one day's stories simply erase from memory of yesterday's. Should not reporters learn from their mistakes -- mistakes about whom to ask for advice, what explanations turned out to be meaningless or simply totally mistaken?
2
Janet Yellen, "one of the most distinguished Federal Reserve chairs in history," kept interest rates artificially low for years longer than was necessary. The benchmark rate remains at 1.5% despite low unemployment and inflation. So bonds and other fixed interest investments have been non-starters for a long time, pushing most available investment income into the market despite valuations that could not be justified. The Fed had far more to do with this bubble creation than Trump. Had the Fed raised rates and tapered its enormous balance sheet, we would not be in this mess.
1
Economies sputter and falter, grow and expand, but when there is competence surrounding the economy, we have a much better chance of riding over the bumps than driving off the road.
Trump's life has been a crusade of devaluing things, to make a profit off of others' work. Personally, I think Trump is trying to Bankrupt the economy, that way Putins with cash can buy it up.
2
I was feeling rather complacent about the last couple days on Wall Street until I read that last sentence, Paul: "...we'll have the worst possible people on the case." That has been my fear for months, but there are supposedly some intelligent people associated with the economy, aren't there....and they can have some influence on the economy & the market, can't they?
As you have indicated in prior writing, a very significant percentage of investors are wealthy. No matter how you spin this Stock market decline, it appears to be simply an act of profit skimming by investors. I discount the argument that the decline is due to the Tax Cut bill, which will mean more money for Corporations than they pay out for any increases in wages. Investors have been profiteering off Americans forever, as they move vital industries offshore indicating no concern for the future well being of the American economy. It's all simply profit skimming.
I've been expecting this column. Krugman seemed to hate the fact that the market was doing well last year...fearful that Trump might get some unwarranted credit. Given his hysterical outburst on election night predicting a worldwide recession one can understand why. Now that stocks are crashing he seems a tad too pleased for my tastes. If the market rebounds will Trump get the credit? I doubt it. Expect Krugman to twist himself into a pretzel to show why stocks are rising in spite of the way Trump is governing. I'm sure he would have been equally as harsh if HRC were President.
2
Professor Krugman, along with most rational people, merely hates the fact that incompetent people are running this administration. The economy, and the country, in good times can slide along with a few incompetents at the top, but in a time of crisis, competence is crucial to recovery.
1
You see the most volatility in markets where stability is lacking.
Trump facing removal, Iran or North Korea wars, a new war in Syria, exploding deficits about to trigger inflation.
And storms coming that erase previous 100 year marks.
A nation unwilling to help it's own in Puerto Rico.
How is Switzerland doing?
1
So reassuring to know that "the stock market is not the economy."
It might not be the economy, but it IS my money, retirement and otherwise.
I'm certainly no expert on the markets; though a large part of being successful at what I do is recognizing how people are likely to act, and why. Hatred can motivate many, but the wealthiest and most politically powerful, like the Koch's, consistently and effectively weaken democratic institutions while exploiting greed; (here, the greed of Republicans in the House and Senate, who are almost entirely dependent on the likes of the Koch's to maintain their political power). I've the greatest respect for those who can parse trends of downshifts with lower than expected growth and prospects of rising interest rates, but why isn't it possible that the market drop was caused specifically because the horrific Republican Tax Bill passed? Recall that last October Treasury Secretary Steven Mnuchin, acting as point man for Trump and the Republicans, stated that if the Republican Tax Bill didn't pass the markets would tank, because the market had "baked into it, reasonably high expectations" for a significant tax cuts for the wealthy, which helped boost stocks to the recent all-time highs. Well, the terrible Republican Tax Bill passed, but didn't that mean that all that baking was done? What was there for a billionaire investor to exploit? A "once in generation" opportunity for profit taking; the market was at a record high, the billionaires hand gotten everything they wanted, and this included ensuring that their tax exposure on those profits had fallen to the lowest levels ever.
In listening to the supposed experts' stuttering, nonsensical, contradictory, and downright comical explanations for the stock market plummet, one is reminded that William Goldman's verdict on Hollywood is equally true about Wall Street. "Nobody knows anything."
1
Fortunately for Trump, Sean Hannity has explained what's going on.
IT'S OBAMA'S FAULT.
Years of the weak Obama economy left us with artificially cheap money, so this is a sign of strength that we're now 'fixing' it. Things are going to get better than ever.
Watch - how long before Trump says "We need more tax cuts." - you know it's coming, right?
Tthe rich just need more tax cuts. I heard Irland lowered their Corporate rate so we will need to cut that also. Maybe - 20% rate will satisfy them.
At the very macro level, Obama was on the right track by investing in the most overlooked, the most repressed portion of the American society. Healthcare and social programs are just a part of that vision. That is the only investment that is guaranteed to pay off for the US and elevate it above anyone else during future global crises. The current government is all about continuing the vicious cycle of the rich slowly devouring the poor and we all know what the end result will be of that approach. I'm not a communist, I just miss the sense of macro balance that Obama had and it filtered down to every level of his administration. Now, we have chaos.
Ok, Trump owns this one. Tax "Reform" is a disaster knocking us on the debt ceiling yet again. Revenue down due to giveaways and spending up. Doesn't take a genius to figure out that the Fed has to raise rates. Now, let's aggravate the Chinese. Why is this important? They are the largest buyers of our debt. Add a new Fed Chair replacing a respected one, an unhinged president and a Congress that is incapable of governing. No one should be shocked at all this. It might pay Trump to look at John McCain's 2008 campaign and see what happens when 401k's tank along with everyone else's investment portfolio. Mr. Mueller, please hurry. We've got to get Trump out of there.
1
How long can interest rates remain close to zero? And if they rise significantly, I think lots of risk-averse savers will stampede out of stocks and into CDs. We've gotten used to zero rates, but historically speaking they're an anomaly, and people are starved for a "safe" asset that offers a decent return.
And what about the Federal deficit soaring? I know the link between deficits and rates has been broken for a while. Still, we're heading for huge deficits, financed by China, and we have a president who built his entire business career on debt and bankruptcy. I don't know where it's all heading, but with Trump at the helm, backed up by Mnuchin, I'm very uneasy.
1
Are Stock Markets volatile? I don't know the markets. But, I still have a sense that it is usual to see up and down. Is "up and down" the same as "pump and dump"? On NYT today, I encountered the latter, for the first time in my life, in an article about digital currencies.
However, the manipulation is somewhat familiar to me for empirical reasons. Digitally, players (who are called investors/judges) bet for A or B. The plausible source might be from a leak from authorities. In disguise of a (volunteer?) surveillance system by citizens, *the* subject is scrutinized at every minute, wherever she goes and whatever she does. Without legitimate order nor due process, her belongs are okay to be taken for *private* investigations.
They bet. Whether she is A (innocent) or B (guilty) can generate money from the betting. To make excitements, her new "facts" are revealed from her hidden past, immediately after she is judged as no charge. The pattern has been made over years. Yes, over years.
I am no lexical expert. But, what I described above is, to me, far beyond a game of scam. The word "bullying" does not capture its inhumanity either. Those betters live in their reign of digital money, for them in comparison to which, one human life is less than one cent value.
One can't keep blowing up a balloon without it eventually popping. I think that's the sound I'm hearing, and like Mr. Krugman, I agree that it appears that the worst possible caretakers of the economy are in place to make a bad thing truly awful. The 1960s saying, "I love my country - it's the government I fear" couldn't be more appropriate right now.
As PK suggests, the future direction of the economy will be known only after it happens. He also opines correctly that the good folks now at the helm of public economic policy are at best unknown and at worst atrocious.
Since hindsight is infinitely easier than foresight, we know that the US economy grew steadily, with modest acceleration, during the Obama administration, reversing the historic catastrophe that preceded it.
1
Aren't there positive aspects to having a bit of inflation?
Let’s just admit it, we are headed for a Depression. Consumers are acting like it anyway. Everyone I know is paying back and hunkering down. Spending on home improvements so they will have a comfortable place to lay their heads once the worst hits but not spending on much else ... new technology, education, clothes, cars.
1
Contrary to widely accepted economic theory, the economy in general and the stock market in particular do not thrive on order and predictability. What they welcome most is wild spending associated with chaos and confusion, exactly the type of government Donald Trump has been giving us for the past year
But only up to a point.
In combination with his generally wild behavior, total lack of concern with spending money the country doesn’t have, indiscriminate elimination of environmental and banking regulations and loose talk about massive increases in military expenditures, infrastructure repairs and the building of a useless wall, the markets are now beginning to wake up to the fact that the chaos it was counting on to provide it with quick and mostly unearned profits has turned into just plain chaos.
This is not over. Not by a long shot.
1
Probably not, since your every prediction about Trump and the economy has proven to be wrong.
Please we ordinary folk are so manipulated by the few who control the wealth of this nation. So they got a nice big tax cut - much cash available. So why not sell off when the stock market is drunkenly reeling towards more and more highs. So they sell off when high, make huge gains added to the windfall of tax cuts and voila. They split stock then buy again at lower prices and ......well. I dunno - I think we are just being led around by a ring in our noses by those who manipulate, manipulate, manipulate.
Mr. Krugman, yet again, demonstrates that economists are not qualified to report on the economy.
Report on the rich, yes. Report on corporations, possibly.
Report on government spending, possibly, with the caveat that partisanship plays a roll equal to or greater than "science" in that analysis.
Reporting on the broader economy, on Main Street? Not a chance.
Their vision is that of the almost 1%, by and large, and their theories are mush-headed misdirection. When imprecise, unquantifiable, concepts like the 'animal spirits', of investors can drop in at any second to play deus ex machina with our money, there is really not much of value to be found here.
GDP, that hallmark measure of well being, together with ever so sloppy attitude surveys, leave us arguing for centuries over concepts designed to do little but disadvantage the middle to poor and provide cover for avarice and an inhuman lack of care.
Despite the hoary conceit that America's is a consumer economy, even almost liberal analysts like Mr. Krugman clearly see their roll as justifying the never ending fleecing of consumers, and bolstering the blame game that allows the rich to grab the nation's wealth while refusing to spend even a sliver on care of the people.
This may or may not be a Trump correction, but it is certainly more of the same class warfare waged by the uber-rich against the rest of us.
The rich have been eating our seed corn for decades, now the rest of us get to starve. Again.
I think that Krugman is overestimating politics and underestimating the AI revolution on the stock market valuations.
Just for the record, the US economy expanded by 2.3% last year, according to preliminary data, up from 1.5% in 2016. There are plenty of economists with decent forecasting records who think it should grow by 3% this year, propelled by factors Krugman is loath to mention (tax cuts, less regulation) as well as a pickup in global growth.
As for 10-year forecasts, only fools and the CBO issue them. And the CBO only does it because Congress requires it. But even the CBO is considerably more optimistic than Krugman - it projects 1.9% annual growth through 2027. Compounded over a decade, four-tenths of a percent more GDP growth is huge.
Hmmm, I wonder if Paul's lower forecast reflects an anti-GOP political bias? Or perhaps he just doesn't want anyone to beat Obama's dismal 8-year average of 1.48% annual growth?
Naaaah (cough, cough).... Paul Krugman is way too professional for that, right?
1
The stock market isn't the economy? Really? What about 2008 and 2009? Perhaps a more accurate statement would be : the stock market doesn't always resemble the economy.
1
still wiping the egg of his prediction of total economic disaster in a trump presidency (showing no faith then in the "...impressively durable economic recovery that began early in the Obama administration" to withstand the forces of evil trump) dr k today is proceeding more cautiously perhaps in hopes of redemption.
well, he is still off the mark, still phobic of all things trump, his justifiable concern for the market is off target...which, it says here, is losing trust, not because of "key policymakers" but because, while we do indeed "have the worst possible people on the case," it is rather the congress, whose fecklessness can be measured by its antagonism, a war rather against trump than FOR anything, that is causing unease (dis-ease).
it is this lot, our elected representatives, long alienated from "the general Welfare" by their addiction to special interests, that has given all of us the jitters now emerging after months of denial...policy makers are a secondary force, if their stuff doesn't get a legislative stamp, it goes nowhere.
the market, like a child whose security has been eroded by parents gone to acrimonious bickering, is tip-toeing toward an exit just in case.
People ( corporations and the ultra wealthy ) got their tax theft (ahem ... tax cut) and now look around to see that there is nothing more to steal. ( ahem...get )
The fundamentals in the economy are fairly sound ( have been since trillions were pumped into it from 2009 ) and jobs have been created ( for the most part of the Obama administration ) ever since.
However, people are still borrowing way beyond their means and working two or three jobs to finance it. ( or just to survive or support their family ) They are living on borrowed time because if they get sick for and extended time, they cannot afford the health care. ( especially as this administration strips away the guarantees and backstops )
There is no infrastructure spending or investment to speak of, so things are still crumbling all around us and don't effect the corporations and ultra wealthy like it does us. ( We are the ones running over the pot holes to get broken cars and the bill )
So, now that the theft has occurred, all people can see is blinding whiteness and realize that there are other shades that do exist, and that we actually all do have to live together, since we are are all in it together.
That is the correction. ( and which will happen in November )
1
Let's hope no one is pulling home equity to get into the market.
So typical of Trump to take credit for the bullish stock market but to be silent as a church mouse when today it went into a free fall. Hey, who knew this economy thing was so complicated?
There are, seemingly, a lot of market smart people commenting here today so I will ask you all this: Can you please not take my hard worked for blue collar money and leave me with nothing please?
There are no longer pensions in this 1% designed financial world and if you take what little I do have, that was intended to help keep a roof over my head in my elder years, then don't ridicule me for standing at that intersection with a sign that asks for enough money for food. Just saying.
This all gets a lot realer for people like me than it might for you.
Not judging you but I for sure is blue collar.
1
Thanks for mentioning the three rules of the stock market. Ya don't have to convince me, however many others (people of Wall Street, investors of all sizes and the general population) need some talkin' to. While the stock market is not the economy, certainly the stock market effects the economy and I'll tell you when. When you believe it does.
And then, if rising wages had something to do with the market decline, it is an indication of how much the 'people of the market' care about the 'people of this country.' Oh yeah, companies have a responsibility to their stockholders (which I'm tired of hearing), and not their employees or their country.
If the economy does take a dive, I sure hope Obama or Hillary ain't behind it. (That's a joke.)
1
I think the market went up because the tax scam raised net income by almost 40%. Also, deregulation of just about everything makes it easier to run amok. For those reasons, I expect the market will quickly regain the 2,000 points and continue its climb. Then, a black swan, resulting from the lack of leadership knowledge, will make the recent tumbles look very tiny.
The income tax bill pushed by the Republicans is at fault here. They had to twist reality and use a ton of fake math to make it look reasonable. But the market knows. This tax cut has come at a time the US is trying to financially recover from the 09 recession. The Republicans just cut the legs out from under the future. The US balance sheet looks much worse going forward. The market may take a while to react to change. But the market knows a bad deal when it sees it.
1
Trump didn't mention the drop in stocks recently because he's still trying to decide who to blame. His main focus when the next recession hits will not be what he can do to lessen its impact, but rather who can he blame for "letting it happen". Obama or Hillary may not work anymore as scapegoats, so new Fed chair Powell will be his whipping boy. Only goal will be briefly satisfying Trump's need to deflect blame and maintain his delusion of being a "very stable genius".
I'm surprised you didn't note that the market fell on Friday by the devilish 666 which was, in fact, Janet Yellen's last day. It was almost as if investors, in their sleepy euphoria suddenly woke up and said, "What? Janet Yellen is leaving the Fed? Who's replacing her? Jerome Powell, a Trump appointee (and suspected political hack?). Jerome Powel doesn't even have an assistant secretary yet, and he needs help on monetary policy as that's not his specialty.
Oh, and you forgot to mention that Steve Mnuchin, the Secretary of the Treasury was actually downplaying the U.S. Dollar at Davos.
So, the market psychology was driven by people not in the know worried about people who know nothing.
Evenso, I think Jerome will be just fine at the Fed. He voted, along with Janet Yellen, to impose sanctions on Wells Fargo, also on Friday. Coincidence?
Methinks it's a good time to buy some equities later this week.
The exaggerated upsurges and down-surges in the stock market are contrived sucker bait, engineered by the professional gamblers. All that really matters, for all except the gambling-addicted, are the long-term earnings histories of the firms represented in the S&P 500 and their growth trends, as represented in the longer term moving averages. For rational investors, all that makes sense is to dollar average on the way in, and then (in retirement years) dollar average on the way out. Pay absolutely no attention to brokers' urgings to buy and sell. I say this as one who has followed that advice himself, and thereby managed to retire comfortably.
1
If anyone needed reminding, the stock market is pointing out the ignorance and superficiality of trump. It is common knowledge that in the short term the stock market often goes up or down erratically . People love to speculate as to a reason, such as fears of inflation, high interest rates, prospects for war, etc. but often there is really no good explanation of why it is at a new high one day and then has a record decline a day or two later.
But here comes trump who when the market reaches a new high naturally takes credit for it. A day or two later when it has a historic decline, does he take credit for that? When the good news comes in trump takes a bow amid wild cheers; when the bad news comes in he is no where to be seen. That is the story of trump in a nut shell. The problem is we really need a president to deal with the bad news.
What's happened is Wall Street went well while things went well for Trump, and now the powers-that-must-be have received word he's a sinking ship.
If the memo had been substantive, or conclusive, this stock sell-off would not have happened. But the fact it was NOT conclusive just scuttled Trump with the bookies.
They drain their accounts while the tax cut bill is still good. Something like rats clearing the hold.
I hate to say it, but I'm sort of, kind of, maybe, hoping that the stock market and the economy are weak for just long enough to get voters to toss the Republicans out of office. (Remember: more than anything else people vote with their wallets.) The last time people came to their senses at the polls was when we had the economic catastrophe for which the George W. Bush administration was responsible. Hopefully we don't have to go that far down the rabbit hole to get the right results at the polls this coming November.
It's very gloomy, but there are no margins left for the poor, who live on nothing already. Still, if there were twice as many homeless, things would be worse for them, as garbage and cast off rags would be spread even more thinly.
There are very few safety nets either, for the many who are just hanging on, praying that a rent increase, or some other $100 factor doesn't come along, and throw every bit of their stability off. Those people who have apartments and stoves, but rely on food banks, and there are many, would have to compete for that food with many others.
But, look on the bright side. If things tank, and with the big tax cuts, the politicians won't be able to afford to send every poor or mentally disabled person to prison. In fact, they may start thinking about why we're spending about $89 per day per head to keep 8,000,000 people there, over a n drug sentencing policy John Erlichman acknowledged was meant to cripple the political strength of the black community? People might begin to wonder why the cost of living for prisoners is so much higher than their own. Or why, we're giving profits to prison management companies, who cost more and do a worse job than public ones.
I suppose that if there is a silver lining to a financial downswing, it might be the criminal justice reform that we've needed for 40 years.
And if everyone is hungry, the next generation might resonate more to policies that would be more compassionate to the poor.
We should be expecting a new tweet. Who knew the economy was so complicated?
It's one thing to have a Secretary of Education who is the least distinguished, least informed individual ever to hold that position. That, if nothing else, proves that irony isn't dead.
But to have a secretary of the Treasury who is the same at this time isn't funny, or even ironic, it's scary. And to have a proven Fed Chair pass the baton just as the market decides to go nuts is also worrying.
Okay, Private Bone Spurs, you bragged when the market went up, you're going to own it when it goes down. And if the economy goes into a recession, you know it will be named after you.
More fake news. Remember when Krugman predicted the collapse if world markets on election night. We'll here's his latest "prediction" - "the available evidence suggests that growth over the next decade will be something like 1.5 percent a year, not the 3 percent Donald Trump and his minions keep promising."
Markets always at some point detach themselves from reality. Over the past year that is exactly what they have been doing. The Trump administration economically and geo politically has detached the American nation from reality. It is no surprise that we now see a manifestation of this in the stock markets here and abroad.
www.InquiryAbraham.com
There is nothing rational about anything connected to Trump, and if you want to understand how it all, somehow, ends, ask the investors in his six bankrupt businesses.
No one could have predicted the exact day and time of the crash in advance of its happening.
But anyone with eyes in their head and a modicum of common sense knew it was bound to happen sooner rather than later.
This was a runaway freight train hurtling down upon us with no one at the controls which was impossible to get out of the way of.
It will soon come to be known as “The Great Donald ” and will be ranked in size with The Great Depression.
Economists and historians will spend years studying what happened and reach the conclusion that the only way to avoid similar disasters in the future is not to elect them in the first place.
1
The US economy is propped up by immigrants.
Trump has attacked immigrants. Non-Americans are turning away from the USA as a destination.
All Americans will pay the price of abruptly ending a policy that buoyed the fortunes of all Americans for its entire existence: a steady & increasing stream of new arrivals providing low-cost labor & job creation.
Trump's approach to life is false on every level.
DJT has his endless litany of brag-lies that he never fails to mention trying to impress the world with his stable genius magical powers. He will keep telling us how he is the reason for all the records highs of the 2017 indexes. He will pick out someone like Adam Schiff to blame for the hiccup of the last week and bungee jump of today's sell off. It would be grand if something would shut up the hyperbolic claims and the brag-lies.
November and mid-terms seem so far away. Each day feels like a month of Groundhog days.
A long overdue correction Dr. K. Zero bound rates, and Q.E. forever can’t continually rule the day, plus there’s a new sheriff in town, welcome Mr. Powell, let’s hope he’s more Paul Volker than Alan Greenspan, those of us who have led a life of responsible investing not playing in Wall Streets Casino have suffered long enough, listening too the inflation deniers as we write increasingly large checks for that which sustains us year after year after year, this against a backdrop of “smart money” throwing enormous sums at anything they feel might offer capital retention, from mansions to Monets to FANGS and BOSA. If we were to believe your esteemed colleague Dr. Schiller in referencing his CAPE ratio the market would need to drop considerably more, perhaps by fifty percent to hit fair value, since trading was halted in some VIX products this A:M: I would assume that’s at least a possibility. I would also like to point out that in many housing markets, that is markets where there exist more than minimum wage jobs, the housing prices long ago surpassed the 2007 highs, San Francisco, Portland and even tiny Palm Beach being three good examples, although I would categorize Palm Beach as a “ flight to safety play”, as the inequality “ across the bridge” as in the rest of America, continues too soar.
1
Not at all an original thought, but since he touted the markets on the way up, he owns them on the way down. Strange that he hasn't yet commented.
"What? Low unemployment and higher wages? We better cause a recession!"
"Full employment" means over 6 million people out of work.
And we should raise interest rates why?
The media (and Trump) are obsessive about the US stock market. But stock prices are not fundamental. They reflect investor sentiment and can be both wildly overvalued or undervalued. The Shiller PE has been signaling extreme overvaluation of US stocks for years. The Shiller PE looks at the ratio of stock prices to the prior ten-year average of corporate profits. Corporate profits are the fundamental here and they peaked as a share of the economy during Obama's first term way back in 2012.
https://fred.stlouisfed.org/graph/fredgraph.png?g=eZIy
The chart above shows after-tax corporate profits reached a record high share of GDP of 10% in 2012 and while it has fallen somewhat since then the profits share remains far above historic averages. So, not only are stock prices high relative the prior ten-year average of after-tax profits but the ten-year average profits, which are more fundamental than stock prices, are also very high relative to GDP, more so than at any time since 1947.
And corporate taxes are already very low (around 20% see second chart below) meaning the corporate tax cut will have only a minor effect on after-tax profits, which have always been much more sensitive to the economic cycle than to changes in the corporate income tax.
https://fred.stlouisfed.org/graph/fredgraph.png?g=fPt8
The run up in stock prices since the financial crisis mostly reflects the unprecedented growth in after-tax corporate profits most of which has already happened.
Oh well...here we go again.
Funny money up! Funny money down!
I'm investing in vegetable seeds.
If it rains this summer I'll be rich.
If it doesn't, well...at least I don't own stocks.
2
It is natural for economy to be heading only one way, and that is up, albeit hiccups do happen. That is because the world is not sitting on its hands; it's always producing to move forward.
You see, as one commentator noted, economy does drive stocks; meaning that Trumphoria – a stocks predictor – is like a fruit hanging from economy tree. So Trumphoria got us to a plateau at this point in time. Why should Trump be saying lot of other stuff, e.g., what happened Friday, and Monday! He’s aware of these hiccups, it’s for the market to speak for itself, which it did.
Now the tree also has to also contend with other feeders it depends on…the 2-day downer is just the contribution of those other feeders that work independent of Trumphoria; so this is not any blemish on Trumphoria. It has to do with how important it’s for Fed to not fuel inflation too fast, as they have been forcing hard over the last 5 years. Inflation hasn’t even budged, yet markets folded in last 2 days just over its fear alone.
Fortunately, stock market is owned by people, and they will look after it, and drive it up, in their own interest. This, BTW, also clears up the confusion between stock markets, Futures Commodity markets (e.g., gold), casinos, and now economy. Suffice it to say a gambler knows well when to exit casino (e.g., after hitting a jack pot), but it’s not same that applies to stocks! You never leave stocks - just surf over them - regardless of which direction market is taking.
7
Yesterday, the market lost 4% of its value. On "Black Monday 1987" the market lost 22.5% of its value...a true market crash. Less than one year later the market had recovered all of its 1987 losses and was trading at new all time highs.
I remember exactly nine years ago at this time when the S&P was trading at less than 700, and "experts" were saying then to stay out of the market, because the S&P was headed to 400, or even 200. Those "experts" in my opinion cost would be investors who followed their warnings a once in a lifetime opportunity.
I agree with Dr. Krugman that U.S. economic growth over the next 10 years will be closer to 1.5% than 3%, but as an investor my only concern is the world economic growth rate, which will be much higher than 1.5%. For example, I own Coca-Cola stock, which only gets 15% of its sales in the U.S., because they are vested in the world economy, and not so dependent on the U.S. economy. This is true for most multinational companies.
3
If reality is "breaking into the stock market", it's doing a better job at that than by waking up Donald Trump, who continues to exist in a perennial state of "winning".
But just for the record, its safe to assume that the vast majority of Americans don't play the market, thereby rendering whatever happens on it rather moot.
In any case, it's not a good idea to draw any parallels too quickly -- since most people know the stock market can't be any more volatile, or unpredictable than this president already is.
4
If 10% of Americans own 84% of the stock in the market, how does a stock market downturn play out in the economy? It arguably won't have much effect on spending by people who own no stock, although it may dampen down spending out of fear that a collapse is coming. So for that 90% sector of Americans it shouldn't have much effect. Except that inflation will make all their expenses go up so they will need higher wages.
Some stockholders will sell out of fear or to transfer savings to bonds with a predictable and now more reasonable return. This could be significant as retirees look for security and predictability, and they often have fixed costs - i.e. a mortgage locked in at a good rate - so they don't need so much upside. But their spending in general is more limited, except perhaps for travel.
So it would seem that corporate America fears increasing wages with little increased demand, and increased prices undercut by inflation. They have already been sitting on piles of cash, the tax cuts should add more cash to their coffers even with rising inflation. But it will not solve the problem that demand will be stagnant. So it seems that the economy will not thrive but will stagnate and gradually decline. No wonder corporate America is worried.
5
As long as corporations across the board refuse to pay their workers decent wages, in order to maximize the dollars for the "one percent" owners, the demand for their products will not be there. Since their would-be customers are the 99%. Otherwise known as the vast difference in the "velocity of money" between the 99% ("pour up") and the 1% ("trickle down"). Money with the 99% is totally spent and grows the economy. Money with the 1% drives up the price of assets and investments, given the relative rarity of good examples of the latter, and ends up inflating the next bubble.
I’m in my late sixties so I’ve seen a lot of ups and downs in capitalism. The idea of constant growth seems untenable to the extent that our thought processes are fixated on money. Is that bad? The economy needs us to be reliable consumers and buy stuff we don’t need, our leadership in Congress are bought for special interest all competing to make more money (growth). I wonder if there is any other possibility to live in a prosperous way.....not focusing on acquisition so much (we know that doesn’t work for many of us despite our hard work), but to focus on values that add to cohesion, peace, well-being, health, interdependence, and caring. A Pollyanna scenario? Perhaps, but now that I’ve lost once again another 1/3 of my portfolio (or more?) simplicity and a vision of true prosperity sounds much better to me than raw and vicious capitalism.
41
Don't say that out loud, loving. You'll be branded a bad consumer, and therefore a bad American. Afer all, a good American is a "consumer," and never stops buying things that s/he doesn't need.
Problems of Economic Growth:
(1) A growing economy consumes natural resources and produces wastes. It results in biodiversity loss, air and water pollution, climate destabilization, and other major environmental threats.
(2) A healthy environment is the foundation of a healthy economy. We need healthy soils for agriculture, healthy forests for timber, and healthy oceans for fisheries. Along with clean air for breathing and clean water for drinking, these are the building blocks of a prosperous economy and a good life.
(3) When economic growth threatens the environment and economic sustainability, social unrest results; national security is compromised. Economic growth was once used for building military power, but in an overgrown global economy, economic sustainability is more conducive to diplomacy and stability among nations.
[From the Center for the Advancement of a Steady State Economy]
29
Economic growth doesn't only mean making more stuff. It can mean better stuff, or getting more value out of the same amount of resource inputs. It can also mean more services. Endlessly making more stuff is indeed unsustainable, but there are other forms economic growth can take that are not unsustainable at all.
6
Is there a big gain in the economy when we get 200,000 more waiters, floor attendants in WM or delivery drivers of Chinese products for AMAZON all making very little money plus a few coal mining jobs?
Is that a big productivity increase?
It would be much different if those 200,000 new jobs were industrial, technical, engineering jobs that would produce cheaper and cleaner energy, new medical devices and more intelligent appliances. If those jobs increased the GDP exponentially, not marginally.
But no, we are not doing any of that and by cutting down on education and the other social stuff we are guaranteeing that such advances will never happen here. We have traded that for the satisfaction of getting 1.50 more per week.
56
Whoa leon. The left has been telling us for decades that the one true path to economic paradise is near open borders and the importation of unskilled, uneducated, immigrants with huge families. Are you now saying that creating 3rd world conditions here in the u.s. is not the path to lasting prosperity??
Low unemployment rates do not always mean there is no room for growth from the labor side.
1.Immigration increases the labor supply, Though not likely to happen under the current administration , it could happen under the next.
2.Labor market participation rates are relatively low and can go a lot higher.As Krugman knows,unemployement rates measure only the people who are actively looking for work, as the economy improves and the wages go up, more people are encouraged to enter the labor market.
3.Shortage of workers plus rising wages encourages more automation which in turn raises productivity.
7
You're talking out of both sides of your mouth. On the one hand you say we need more immigrants do we have more workers followed immidiately by there is low participation, implying people are not working now, followed by automation which means fewer jobs meaning we have too many workers. This cannot all be true. We either have too many workers or not enough and the outlook is for more or fewer jobs. Not all at once.
Related to your point 1 is that population growth (making babies) among us white folks is nearly zero. Immigrants can mitigate that, and increase the labor supply, and despite Trumps lying ravings, immigrants tend to get educated and contribute positively to the economy. That's another reason for the disdain for them from conservative voters and the GOP nut cases in Congress.
To build on what Elrod implies, it can certainly be argued, the way we've structured things, that what is good for Main Street is not good for Wall Street, and vice versa.
Wall Street is not fond of news that unemployment is low (even if many are underemployed) or that there is upward pressure on wages. If workers start getting a little bit bigger share of the pie, that means slightly smaller shares for the investor class and the oligarchic executives, and Wall Street stops its happy dance.
If, on the other hand, companies find ways to improve their bottom lines by reducing wage and benefit costs--often by reducing the number of wage earners, or their hours--their stock prices rise. The overall economy, and the circumstance of the small fry, matter not to these big sharks, who are only concerned with how much chum they can scoop up.
It may not be that Wall Street is not the wider economy; it may actually be that Wall Street is in contradistinction to the wider economy.
16
My concern is that the tax cut will result in a major increase in the debt with an accompanying rise in interest on the debt which then feeds on itself. We then have few tools to fight the resulting slowdown in the economy which has resulted. Student loan debt will keep the most active population age from being the economic driver it normally is. The failure of Republicans to raise the minimum wage in the past reduced the payroll taxes that fund the social security and medicare budget. As boomers age there aren't enough wage earners tp adequately replace them. this problem exists because Republicans insist on a war on immigrants.
So what is the proper plan of action?
Daca immigrants can solve the problem of worker availability A raise to the minimum wage brings in more tax dollars. A government buyout of student loans and reducing interest on the same. A federal tax on fracking wells to fund new highway bill to improve roads and bridges . And most of all a 2017 election that brings normalcy to congress.
29
Agovernment buy-out of student loans would be deeply unfair to those students who worked part time jobs, weekends and summers and to the parents who spent their savings and who borrowed heavily against their homes to help fund their children’s educations.
A tuition and expense reimbursement scheme for all students would be fair. But to buy out only those with debt would be deeply unfair to others and should not happen.
Wow: "Daca immigrants can solve the problem of worker availability A raise to the minimum wage brings in more tax dollars. A government buyout of student loans and reducing interest on the same. A federal tax on fracking wells to fund new highway bill to improve roads and bridges . And most of all a 2017 election that brings normalcy to congress." Most Americans would agree, but since Democrats don't vote and the oligarchs are controlling Congress, and almost SCOTUS, I can't see that happening in my lifetime.
But rising wages creates inflation, which causes interest rates to rise, which paralyzes growth, which cause unemployment, which takes away tax revenue and increases government spending through unemployment insurance.
Not an economist, but it seems that you're doomed if you do, and doomed if you don't. The poor shall be with you always. Spinning wheel got to go round. The more things change, the more they stay the same. One step forward, two back.
There are no big, important inventions or discoveries of worldwide import to propel a large period of increased productivity. And the new incentives for renewable energy production are being actively discouraged by this backward-looking administration. In fact, the U.S. is letting other countries lead the way in developing new technologies and implementing their use.
Autonomous vehicles have a possibility to be adopted to wide use, but that seems a long way off. Faster computers, even of increased magnitudes of speed, may not benefit everyone. So, I believe Professor Krugman is correct in stating that increases in GDP will remain at 1.5 to 2 percent for quite some time.
21
I teach at a small community college. My retirement--like many if not most of my co-workers from the maintenance staff to senior administrators--is in a 403b. We hung in there when the market crashed the last time, and I knew that the returns we were getting were too good to last. But I have to say that as terrifying as it is to watch your retirement fund tumble to half its value in a matter of days, and to watch it slowly build back up again, no matter how much you remind yourself of historical highs and lows, when you know that this is the money you have set aside to live on (my husband retires at the end of this year), it feels a bit like going to Vegas.
55
Timing is everything. If you are 20 years from retiring, it is a no brainer. just keep investing. If you are 2 years from retiring you are in trouble. In either case, an honest advisor can help.
But for our country, the 401's etc. is not the ideal retirement vehicle. It has winners and losers based solely on what phase the market is in when retirement age is hit. The system can work if the insurance system of pooling to avoid risk can be used. That 's what annuities do. So pay attention to your money and with taxation likely to be the lowest of your lifetime, be sure to use a Roth for your plan. There should also be a national plan for voluntary contributions that can use the pooling affect to [protect your retirement.
2
Hooray for community college teachers! You have one of the most important jobs in the country. I hope you can hang in there and get some bargains for your 403b.
Sadly, in a few years the GOP message will return to cutting more taxes. They'll say we can't afford the social programs, we need to stimulate the economy with more trickle down, the tax payer knows how to spend his own money, and, of course, Washington (government) is the problem.
Well, they're right on one account, GOP government is the problem.
75
You're right. The stock market is not the economy. The stock market has been roaring for the past few years, while wages for workers have been flat and many new jobs are in the gig economy. In reality, after the crash of 2008 the stock market was decoupled from the health of the broader economy. Wall Street was back in business and making money hand over fist, while Main Street was grinding by, plodding along, and barely staying afloat.
So, yes, the stock market is certainly not the economy. But I have no doubt that should the stock market falter further, that the "economy" as a whole- and most of us who are working in it- will take the hit, and those who have been doing so well will shelter themselves as they always do.
30
A consideration is that a large slug of us who have attained age 70-1/2 must take an IRS Required Minimum Distribution (RMD, or MRD depending on your turn of phrase) each year from IRA’s, etc. Right about now is when the necessary year-end account values become known to many, and a certain amount of selling happens to satisfy this IRS requirement. My informal observation is that this kind of sell off occurs each year in January-February.
17
Correct! I like your informal observations.
"That 1987 crash, for example, was followed not by a recession, but by solid growth."
Maybe in the US, but here in Australia we had 'the recession we had to have'. I had no job & a mortgage at 16.8%.
9
We won't be hearing stock market braggadocio from Trump for a while. At least he can't put the blame on Democrats, or Rod Rosenstein, or Robert Mueller for the tumbling share prices.
Even Trump may never have heard of Isaac Newton - he denies science - whose law of gravity: “What goes up must come down,” is general knowledge, surely as a businessman he must be familiar with the whims of investors in stock market.
51
Good comment j. von, but you might want to reconsider "At least he can't put the blame on Democrats". After all, the Truth never entered into his considerations in the past.
Keep in mind, we're talking about Donald Trump, the compulsive liar who's never met a fact he can't bend, ignore, or deny.
He’ll blame the Democrats, Rosenstein and Mueller anyway...
This is just the first salvo, on the day of Chair Yellen's "retirement."
45
A silver lining on Yellen's retirement is that Trump won't be able to blame everything on her.
2
@Kem, in the real world, yes. In the Trump World, it is always Yellen's and Obama's fault. If things are really bad, then he will bring out HRC
1
@Bos - yeah, ain't it the truth!
1
The stock market is not a place for small investors, despite the legions of mutual funds claiming to dampen the shocks. The costs of the dampening--mutual fund fees--overtime eat away the very capital the fund supposedly protects. Precipitous drops are caused by massive movements of capital, not by micro-investors.
To the point, much of what Trump says benefits families and workers doesn't! A one time bonus is a feel good measure and signals workers are going to forego a real wage increase, added benefits (like Obamacare provided in healthcare).
I laughingly recall enslaved Africans were given a big fete after the harvest was finished. Food, often drink, were supplied, music, too. The next day off, nobody went to bed. (Barbados' Crop Over Festival is the remembered echo of those celebrations, although it has a different form: part carnival, part bacchanal, lots of "jump up"!)
Overlords have been offering workers these fleeting moments of transient release in the midst of oppression for centuries; an old tactic, all knew the moment didn't change reality.
What Trump discovered that analysts missed, and still miss, is that there is comfort in anger, that rage feels good. Trump used rage and anger to get results (an election victory) and give legitimacy to the politics of non-rational grievance, where raw emotion is more important than rationale.
So feel good, workers! (What happened to "unite"?) Take the bunce. Ignore the widening of the wage and net worth gap.
100
$1.50 is about the cost of ones slice of pizza. Isn't that great.
"The stock market is not a place for small investors..." Huh? I've been waiting like a cat in front of a mousehole for a downturn in order to buy shares in a specific large Canadian bank; one which I don't already own. I'm the prototypical small investor aiming for low-risk balanced savings, and perhaps I'm statistically irrelevant, but etc.
2
Deficit financed, tax cut fueled, highly leveraged and globally integrated financial markets, under laissez faire supervision. What could possibly go wrong?
395
The stock market isn't the economy it's a casino. We don't make anything anymore. We buy cheap trash mostly from places that make stuff with jobs that used to be here. Instead "financial services", software, fast food and landscaping have replaced productive jobs. When most of the economy is paper not things, how hard can it be to give it a good kick and watch it fall?
2
Thank God Obama balanced the budget! Oh wait...
1
OK. That made me laugh, while I know you are serious. Thanks.
1
Agree that the stock market is not "the economy" and, in fact, bears little on how the average person is doing economically.
Disagree with this day-to-day "Trump Watch", whereby Democrats assume that there is some expiration date for Trump that is rapidly approaching. His core supporters are not going to suddenly wake up, disavow him and run into the waiting arms of Chuck Schumer, Nancy Pelosi and Elizabeth Warren.
Democrats would, however, increase the odds of some of his supporters looking more seriously at the Democratic Party if they changed their leadership to people more in touch with the needs of the lower and middle classes--in other words, most of the country. Democrats need to start looking out for everybody, not just special interest groups with their own narrow agendas.
55
Jack, tell us, which party supports the following:
Protect Social Security and Medicare
Universal health care
A living minimum wage
Paid parental and family leave
Stronger unions and worker safety
Protect pensions
Tax cuts for workers not multi national corporations
Well, Jack? It most certainly isn’t the Republicans!
2
Yup. It takes special talent to ignore the effects of 3 decades of flat wages for 80% of workers, and decide to hang your hat on 800,000 immigrants.
On the evidence, the Democratic Party is as beholden to its donorship as the Republicans are.
The Democratic Party is financed, as any political party is, by people with disposable income. That's the top 20% income cohort. They've prospered under globalization, the higher the more. Is it any wonder, then, that they've proposed essentially no legislation to deal with income inequality? Taxes that would reduce income inequality would be taxes paid by Democratic donors.
Until and unless the Democratic Party puts its money where its mouth is, Republicans will continue to be a viable alternative, because their policies will continue to differ only in degree, not in kind.
As if Trump and the Republicans are looking out for everybody. Get real. This is a government by the wealthy, of the wealthy, and for the wealthy. Like Trump himself, they look out for themselves, period. At least the Democrats attempt, and occasionally succeed, in providing government that served the interests of more than the 1%. I agree that the Democrats need to return to their roots as the party of working people. I hope that they do. But they are constitutionally incapable of playing on the fears and resentments of the working people who feel left behind in the manner of Trump. He is a master of division, a hate monger of unmatched skill. Wait until they come for your Social Security and Medicare to pay for their tax cut. It’s coming. They have declared it to be so. And will Trump then protect his working-class supporters when it does come. I doubt it, but who knows?
2
..."housing not nearly as overvalued as it was in 2006." Certainly not. I also want to point out that the biggest difference of 2006 housing market with today's housing market is equity. Today's mortgages are less leveraged so there is less chance of default. In some markets where second homes are common and so international buyers, I see many nonfinanced deals and more inventory making it a buyers' market.
The stock market is not the economy. I agree. But according to the president, the hit it took was due to the Democratic party that did not clap, standing up during his State of the Union Address. Deep. Maybe he was informed by a secretary of Treasury memo.
47
Eye-rolling time. Surely Trump doesn't think his supporters believe him. Does he? If so, America is in real trouble.
The non clapping Democrats got off easy, this time. Stalin used to have politburo members who stopped clapping first hauled away to the gulag. I'm sure our Dear Leader is envious of that kind of malevolent power.
Krugman's assessment looks pretty reasonable to me. The angle that interests me in all this is not just the real economy but also the rarified world of the wealthy folks who finance the Republican Party and who have supposedly had a great pay day with the recently passed tax legislation. Are they going to be particularly hurt by a market correction in any way that might cause them to change their financial behaviour opposite politics? To me the real reason for the severity of market swings in the short term is the absurd basis on which so many people play the market for the short term only. If it became the widespread practice to heavily tax all short term capital gains (real investment is NOT short term) then all markets (including housing) would gain much needed stability: they would have to become much more directly reflective of the sensible fundamental considerations of which Krugman writes.
41
We live in an infrastructure that was built for a population of about half our size. Every day the inefficiencies generated by trying to deal with it are causing massive drains in productivity. Also, we need an infrastructure that isn’t just bigger but that deals with the coming impact of global warming. Not just sea walls but renewable electricity generation, electric roads and cars, better airports, fixing roads. The US Army Corps of Engineers rates the 90,000 or so water dams with a C- they mostly need repair and maintenance. What happens if they fail? We need more infrastructure which would help the situation and position our kids for a better future. But we have the wrong team in DC to do most of that.
161
Rather than a never ending game of catch up with our already unsustainable population, a better plan would be to work towards a population perhaps half what it is now. Not only would it be an attainable goal ( no one thinks the 1/2 billion plus Americans expected by sometime after mid century to be sustainable long term) but the infrastructure needed for this smaller population would be compatible with finally reducing our co2 footprint rather than just slowing down the rate of rise. This would require the kind of longterm planning and sober analysis that neither our economy or government is interested in doing. No one has ever been elected in this country by telling people your going to have to make sacrifices for a better future- just ask jimmy carter.
25
A well-chosen infrastructure program such you mention is a great idea and it is something that we should have started ten or twenty years ago. Over the last ten years, interest rates have been at their lowest; it would have been a good time to borrow to finance building projects.
The problem, as you touch on, is that the U. S. Congress is dysfunctional and trump is appointing incompetents to the cabinet and other offices to make all of the federal government dysfunctional. Trump's base thought that he would do things to help them get jobs, they are probably going to end up worse off economically because of trump.
What happens? Best case is slow decline in living standards and population as despair and reality show the futility of having more kids and an economy based on Finance and sprawl. Worst case is collapse into a Soylent Green future. That world had a tiny elite, too.
There has been essentially free money flooding the markets via Quantitative Easing for almost a decade and the tap has been turned off. Much of the price growth over those years has been distorted by that action of central banks.
18
And inflation was raging. Oh, that’s right, it wasn’t. Free money. Such a funny concept, and so inappropriate to the case at hand. Demonstrably, the amount of money in circulation was just about right for the steady growth that we experienced under Obama. Less money would have been deflationary, which, if anything, is worse than inflation. More money might have been inflationary, but who’s to know? During the Obama administration, the government put in what it put in, while private capital sat on its cash. Now that cash is on the loose. I am reluctant to speculate on whether that is a good thing or a bad thing at this point.
The flood of money the Fed created just stagnated. Monetary policy is not effective fiscal policy. Abrogation of fiscal policy to the Federal Reserve Bank's "dual mandate" is simply Congressional dereliction of duty.
The stock market is not the economy. But then what is the economy? 50% of American workers have retirement funds (401ks) invested somewhere. On paper (until last week) they were doing very well. But what does it represent in economic terms to do well? Many of those funds are invested in emerging economies like China or others mainly in Asia where real objects (besides services) are being made. According to Adam Smith labor is the only source of value. So the work of Asian people is supposedly enriching people who invest in the productions of their labor.
But according to Apple and others China’s wages are no longer cheap. So profitability looks more difficult to obtain. Along with cheap wages, the state of the art is applied in many of those productions, which also lowers the value of their products, which may result in overproduction of things like the famous iPhone.
So we have wages in the US and Europe which have not budged in real terms (although nominally they are increasing). Customers have little disposable income for many products out there like in the case of iPhones. I mentioned Apple because it has been the largest world corporation in the last few years and its fate may as well be a good indicator of the rest of it. Profits are beginning to decelerate and therefore investment may decelerate even further. Not a pretty picture if you look at your neighbor or the state of schools in your neighborhood. Somehow the real economy does not look that solid
37
Although consumers seem to sustain consumption via their credit cards, this situation is not “sustainable “ in the long term. The economy is not solid as parroted in the news 24/7.
35
The stock market is not a place for small investors, despite the legions of mutual funds claiming to dampen the shocks. The costs of the dampening--mutual fund fees--overtime eat away the very capital the fund supposedly protects. Precipitous drops are caused by massive movements of capital, not by micro-investors.
7
not place for small investors. but a clever idea to make money of them and their illusions. This scheme was concocted with two purposes: 1. Destroy public pensions and 2. Transfer saving from workers into the hands of big finance, which (agree) exercise hegemonic control of trading
Look harder at the tax cut. Short-term expensing can only lead to inefficient and excessive investments; a trillion-dollar deficit at a time of near-full employment can only be inflationary; consumers get little in the way of money to spend while state and local governments will be lagging; new opportunities for gaming by the rich can only misallocate lots of resources (commercial real estate, anyone?). But since the market is not the economy, could it be reacting to the loss of the inestimable Janet Yellen? Or could it be that the market understands that these policies (Yellen included), are actually bad for the economy?
37
We expect to pay lower taxes in 2018 because we have significant s-corp income.
So we decided to extend our vacation this summer with an additional 2 weeks in Positano, Italy.
6
"So we decided to extend our vacation this summer with an additional 2 weeks in Positano, Italy"
I am sure the Italians will appreciate your contribution to their economy, paid for by the Republicans putting it on what is effectively a US government credit card, running up the national debt.
10
Control your giddiness. You may want to check the value of the dollar versus the euro before making vacation plans.
2
In response to Sabah Dabby: I expect to buy myself a bottle of imported Italian ketchup this summer with the extra $1.50/week I'm getting in my paycheck! No more Walmart ketchup for me!!!
2
Stock market is a different ball game altogether - which has definitely connected to the economy to some extent - except the irrational exuberance shown 86 times during the last one year or so. If the rise in the market cap indicates the higher ability to raise capital from the market - then it shows more investment and jobs.
However, these have to be taken along with the growth of wages, consumer index, PMI and other important indicators. Otherwise, our discussion remains little bit elusive.
5
Overlooked: the bubble in the bond market, where some yields reached multi-century lows in the past two years.
2
That, by definition, is not a bubble. That's the pop from what went boom in 2008. We needed to fund infrastructure repairs and development to replace the $2 trillion that disappeared. Republicans saw it as "more debt". But money was very cheap then. We could have created the beginnings of 21st Century America, and actually taken the policy option that the Republicans used to believe strongly in when Lincoln was elected: public education, agricultural and land-grand colleges, credit for finishing the Transcontinental Railroad. That was what we should have done. Now, we can just ask the billionaires, pretty please, to fix up the infrastructure they way they want it, and letting them keep ownership.
62
The America of the 21st century is going to be a few pockets of relatively wealthy "old America" in a sea of the 21st century poor "new America" that more resembles a 3rd world country of uneducated, unskilled disparite worker bees scrambling for the dead end jobs that will make up most of the economy. The middle class is going the way of the dodo. We have opted for quantity over quality.
1
This tells a whole lotta nothing -- the only interesting tidbit was that the stock market, in Krugman's estimation, is not the economy. But of course it is the economy, a big part of it, and it isn't. It may march in lockstep with economic growth and decline, and it may not. There are irrational forces and moods to be accounted for and reckoned with in the market. The economy might seem more straightforward, more 'rational,' except more people than ever, even at near full employment, have not a penny to invest, and economic inequality is more glaring than ever. Sure wish Krugman had noted and explored how that squares with 'full employment.'
14
No, the market is not the economy, full stop. The market, by definition, reflects present estimations of future cash flows. That's all.
Sure, people's wealth is in the market. (Most of that wealth belonging to a very few, but whatever.) Their feelings about their wealth and the future may affect investment and spending decisions, and that will affect the real economy. But that connection does not make the market the same thing as the economy.
The relationship of full employment to savings ratios is tenuous at best. A better measure would by real wages, which as you may know have been flat for 80% of earners since 1979. I'd suggest that implies most people haven't felt they had "extra" money for some time. That, combined with credit that's easy to obtain and use -- not to mention historically low interest rates for the last 20 years -- might have some influence on savings rates.
what I find remarkable is that the tax cut will probably directly affect inflation which will probably directly affect economic growth negatively and will cause an increase in the interest paid on govt debt. remember that $1.5tril will cost more.
additionally if there is inflation those wage increases will be gobbled up leaving many wondering whether they are better off now.and many of those wage increases were bonuses which may be gone when inflation hits.
53
Yes, Trump and the GOP were instrumental in overheating the market into this meltdown. But let's look deeper than just proximate causes. For nearly a decade, easy money has flowed freely from the font of government. The hyper-Keynesian policies of the Obama era - policies championed by Mr. Krugman - led businesses to gorge upon a feast of debt. Interest rates stayed at or near historic lows. Markets became driven by investor sentiment that the easy ride would last forever. Investors began to panic before every Fed meeting, and stocks skyrocketed after each announcement of no new rate increases. The money was nearly free, and of course, many companies took big risks with it. No wonder a bubble in corporate bonds started to build under Obama. It's now reaching its nadir. Fortunately, the current drop we're seeing seems to only be a correction to adjust for what Mr. Krugman is right to characterize as a halt in Trumphoria. However, Democrats are overdue for some serious introspection on this issue. This is a very precarious situation to be in, and Trump did not back us into this corner alone. If there is another crash at this point, there is no leverage left. Interest rates can't go much lower. Increasing interest rates could trigger inflation, bankruptcies, and a wave of poverty. Government borrowing is already out of control, and fearful investors flocking to treasury bonds will further amplify the national debt. Let's look at the situation as neutrally as possible.
20
This is true. But what would of been the cost if the Keynesian policies were not implemented?
47
Robert, I completely agree with your analysis of the proximate and deeper causes of this "Keynesian Bubble". However, I think it slightly unfair to characterise the policy implemented over the past 10 years as wholly representing the Krugman approach. I may be misremebering this but I had thought his preferred approach was more Governement Spending on infrastructure and less Quantitiive Easing which is essentially giving a free pass to the banks and money markets without achieving any tangible real economy benefits - other than giving confidence and liquidity in the markets. Its interesting isn't it we keep getting back to the question - is the stock market (or indeed the financial system) the economy ? Hope I am not incorrectly putting words in Mr. Krugman's mouth. I'm sure he's well able to correct us both !
22
Conor: I remember Krugman's advise just as you say. Also, we were losing 800,000 jobs a month when Obama took office and a Keynsian approach turned the tide. We could have done even better if the conservatives, who had caused the economic collapse in the first place, had gotten out of the way.
7
Has any one noticed when US wage growth finally is noticed in Average Joe's wallet the market crashes?
69
No one who voted for Trump seems able to make that connection, but to many of us further down the economic ladder, the stock market has always been a measure of how optimistic the wealthy are about their ability to fleece the rest of us. Of course it represents more than than that, but that alone could account for the recent downturn. (Along with the recent trillion plus loan we just took out.)
13
That's the way it goes. And that extra cash money that Apple is bringing home? It's mostly not their money. They and other corporations in their place will send most of it right back to the stockholders. With interest. New factories? What a laugh.
Wow, that extra $1.50 per week in the school secretary's pay was more significant than I thought!
If you look at CAPE (this is something Robert Schiller, who is cited in the article, helped develop) then stocks are more overvalued than in 1929 or in any other bubble with the single exception of 2000. So the remark, repeated twice by Paul Krugman, that stocks aren't yet to 2000 levels is not comforting. They are vastly overvalued, even after this pullback, and even if they could conceivably become more so.
24
It's just a place to park money so you can cash it out. American industry has lost its way.
I agree it's not very comforting. Those who have read any financial history know that 2000 was the biggest bubble in the history of the world! I wonder if Schiller has made any adjustment to CAPE to reflect the recent 40% corporate tax cut. Stocks would still be overvalued, but less so (assuming you believe the tax cut won't be altered soon).
Unfortunately, I think the quality of Krugman's columns has declined since Trump was elected. His work during the Great Recession was excellent! I used to consider him a music read. Now, his political biases often seem to override his thorough economic knowledge.
"...the available evidence suggests that growth over the next decade will be something like 1.5 percent a year, not the 3 percent Donald Trump and his minions keep promising."
So I guess that means that the December tax cut isn't going to pay for itself, is that right?
109
That's right, not going to pay for itself. For more information, go to Peak Prosperity's Crash Course and watch Dr. Chris Martenson's series of enlightening videos, which focus on the intersections between Energy, Economy and Environment. These videos will broaden your understanding of the global situation.
1
The Tax Cut was NEVER going to pay for itself, unless you goal (Like the Reptiles in Congress and their patrons) was to force cuts to "unnecessary" government spending on Social Programs.
Our new Feudal Masters (tm) have a plan which they have been applying. Maybe the rest of the population will take not and apply appropriate remedies at the ballot box this coming November.
2
You can look at them one after another, since Reagan got here. What they were supposed to do was a lie. The deficits ALWAYS grew. Every Republican has increased the debt. Bush was the worst. 1. Undo all regulations because--- magic! 2 Give massive cuts to the. billionaires, who are their sole constituents. 3. Then start whining about privatizing Medicare and any and all of the programs that take care of you know, people. It's THEIR fault the deficit will grow, and cutthroat gambling with the economy will become widespread.
1
When Trump was elected markets dropped immediately overseas. By the next morning markets stabilized due to the realization that Trump's effect on the economy would only truly comes into effect after the first year of office as is the case with most presidencies. ( Obama's was an outlier due to the immediate need and effect of stimulus spending ) Perhaps this drop shows that the markets are not as irrational as we may think. Could it be that the reality of enormous increases in the deficit to come and a lack of rational or predictable policy is sinking in ?
43
I guess we're about to test that "tax cuts produce higher revenue" theory.
47
Once again because, you know, the disasters in Kansas and the other states who have implemented these goper policies were just flukes. So trying it out on the entire US is bound to result in soaring prosperity. NOT!
You man the "Reagan proved deficits don't matter" theory, don't you?
We've been doing that for nearly 40 years. It hasn't worked yet. Maybe we just need to give it more time.
My parents are both retired.
Everyone I most love is retired and relies on income from Social Security and their investments in their stock portfolios.
This is very bad news.
42
And for years we've had to forget getting interest from CDs.
1
I wonder, Dr. Krugman, what you think of the growing axis of oil that has slowly increased the power of the oil companies, and of the countries which have a great deal of oil? I understand that Russia and the Saudis have been restricting their supply, hoping to get to $200 a barrel...?
7
The economy runs on oil, not the Internet. Think I'm wrong? Try this thought experiment. For the rest of the week you can have either free internet (and no oil) or free oil (and no internet). Which do you take? With the Internet you can sit in the dark and cruise FB. With oil you can go somewhere, eat food and be a typical mindless American consumer. There is an endless appetite for oil and despite the ups and downs a finite supply. That in the end determines what happens to the planet (global warming) and the economy.
We are nearing the time that the government runs out of money. Combine the stock market dive with other uncertainties, and the amateurs in the Trump government may be faced with challenges they are not prepared for. The art of the deal, of course, was always the art of the steal with Trump, but his position on DACA has little to do with negotiating a deal.
The ship of state is leaking now, in all kinds of ways. Interesting times.
32
Looks to me like the tax cuts dumped about 450 billion on a full employment economy and raised the national deficit by the same. What could possibly go wrong with that?
45
Glad someone pointed that out. G.W. Bush did the same, starting with the explanation that the government was flush so people should be able to keep their money. Then things took a dip and the justification switched to stimulus. This time around they kept talking about stimulus when that seems the last thing we need. Maybe when the economy tanks the justification will be that people should keep their money because... because ... oh my goodness, did you see the latest Twitter outrage?
Last night the Eagles beat the Patriots in a great game. But the ads were so-so. Not only were many of them less expensive to produce -- no Clydesdales -- they advertised experiences such as travel, wine, movies, Olympics, World Cup or necessities such as tax-prep software or laundry detergent. We saw a Lexus, a Toyota truck, a Ram truck (to criticism), and some Jeeps, but lacking were consumer goods, frogs, and lizards. Advertisers generally have a bead on future trends, and they may have sent a message that the material goods of the past are not worth enough to spend advertising dollars on in the future. That says something.
There is also an exhaustion out there in the wider country. A correction on Wall Street is overdue. Also, President Trump has violated the unspeakable rule of sports broadcasting, where as soon as you say it's going great, the other team scores.
33
Ironically it will be the lack of immigrants that hurts the US economy the most. Like Japan the US will experience stagnation because of an aging population and a shrinking work force. In the past immigration has always been the difference that kept the US economy growing. Now we are putting a stranglehold on that lifeline of economic prosperity.
136
In addition, birth rates are in sharp decline in all developed countries, including the United States. Demographics are unfavorable to sustain Social Security and Medicare unless our gates are opened wide to immigration.
44
Workforce should not shrink just because people retire. In fact, Millennials outnumber Boomers. Pew Research. They are age 18+ legal working age. Unless they all move out of the country -- the U.S. has some people left.
"Millennials have surpassed Baby Boomers as the nation’s largest living generation, according to population estimates released this month by the U.S. Census Bureau. Millennials, whom we define as those ages 18-34 in 2015, now number 75.4 million, surpassing the 74.9 million Baby Boomers (ages 51-69)".
This issue points out the ignorance of trump. He says that he wants economic growth then pursues policies (i.e. limiting immigration) which work against growth. Trump might not understand it, but he has put himself in a box. Many of his main supporters are people who are motivated by racial/religious/cultural/economic antagonism. He has to continue to play to his base and this means he cannot, even if he wanted to, support sensible policies on immigration and other issues.
1
The bubble was bound to burst - It will continue to drop, and then flatten out and then we'll see modest growth over the long term. That is assuming trump doesn't get us into a war w/ NC, or a trade war, or some other war that makes no sense.
14
i fully expect trump with republican backing to start a war somewhere. and then they can all wrap themselves in the flag and hope for the best. but they may go one step further and try for some modern version of the old alien and sedition acts (adams and wilson) and try to shut any criticism down. look at trump referring to dems as treasonous.
37
Donald and the goper's October surprise, Dow down 30% +/- on 10/01/18. Kaboom to his hopes of keeping a congressional majority, so bye, bye Donny!
War with North Carolina? Hardly likely.
While the GDP grew at a 2.6% rate during the last quarter of 2017, the stock market grew 5.5% in January 2018, to continue the joyful celebration that started last year. This is clearly a bubble. Artificial growth generated by lack of good thinking.
Yes, the stock market is not the U.S. economy because, for example, many company results are affected by their overseas business operations, which in turn affect their market value, in a positive or negative manner.
The 666 points comment was great. Good sense of humor. Sir. :)
13
"So are we heading for trouble? Too soon to tell. But if we are, rest assured that we’ll have the worst possible people on the case."
Sounds true.
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My take-away from the late great Harvard historian Barbara W. Tuchman's treatise on the fall of empires, The March of Folly:
Empires end when you have all the wrong people, making all the wrong decisions, for all the wrong reasons (always to justify their greed for ever more money and power).
260
So well said along with Paul’s “worst possible people on the case” clan!
6
That's a pithy, memorable quotation, but no such sentence exists in my copy of The March of Folly.
1
"we’re now seeing fairly strong evidence that the U.S. economy is nearing full employment" the latest U6 reading is over 8%... don't believe the hype.
3
Which is very close the lowest it's been in the past 20 years.
The downturn reflects the markets' belief that impeachment may be imminent.
23
And may I add, will hopefully hasten said impeachment, expulsion, and subsequent criminal trial.
Oh, the one I have always liked is "The stock market has successfully predicted seven of the last two recessions."
8
mr krugman has been wrong so often under obama, and he has been so wrong ever since trump was elected, it's kinda surreal to read him try to continue to predict. for a scientist- even of the dismal science-he has become so partisan, he has lost all credibility. at this point he really ought to just opine on politics and leave economics to those economists who are non- partisan and politically unattached. when i read krugman, i could swear i am watching msnbc.
5
ari, And when I read you, I could swear I am listening to Fox. Ergo, I would prefer to listen to Mr Krugman than to you.
1
Please direct me to errors Dr Krugman wrote about AND didn’t correct.
2
The truth is that he is so crazy, that many people who hadn't bothered thinking about spending versus borrowing as it relates to the federal government now are. The fact that many entities around the world, might decide they are no longer interested in funding a lot of our debt as a nation. Those insiders, who own lots of stocks, are correcting their own positions and investments, as are many companies. I have been waiting for this to happen since 1980, as each President and Congress comes in, and either makes tax cuts, and, or increases spending, also, and here we are as a nation, almost $21 trillion in debt, spending 30% more each year than what we collect to pay for our lifesyle, and the chickens are coming home to roost.
12
Here chick chick. Here!
1
quote
That 1987 crash, for example, was followed not by a recession, but by solid growth.
unquote
Mr Krugman are you looking as a family member at a deathbed?
Yes the patient has passed the crisis.
True he moves around in a wheel chair.
Encumbered by tubes of all kinds.
But no longer a strapping young man.
By the magic of percentage growth there is recovery.
But the reality is that the man does not walk and is at the beginning of a long recovery period.
God willing
3
Perhaps Trump should take credit for things that his actions are more closely correlated to - like the weather, the Super Bowl outcome and the next great scientific discovery.
Oh wait, if he continues to gut the EPA, perhaps the weather will be able to see the fruits of his labors.
13
Well, I wasn't pleased to lose $6K in my 401K, and it was in the most conservative fund choice available. But, if it puts a stick in Trump's spokes, it may be worth it.
33
I share your sentiments, sylviag2.
Huge tax break = HUGE DEFICIT ahead.
The market does not like HUGE DEFICIT. Jot one more Trump bankruptcy. As always gambling and losing other people's money (this time everyone's money.) I hope the arm of the law catches up and Trump does time for his crimes.
35
Yes, both his personal, business and public crimes. All bases will be covered then.
2
Is the strong, steady Obama economy/market finally over and is the chaotic Trump economy/market finally begun? We need a president who can read and write something longer than a Tweet.
23
1) The stock market is one of a handful of relatively reliable leading indicators of economic growth. However, it doesn't look out 10 years, but 1 to 2 years. As this relates to Trump, there is a reasonable chance growth will give him votes in 2020.
2) The stock market is a machine that estimates future earnings. And right now it is predicting strong growth.
3) The stock market is only down 7.8% from it's all time high, which was just a few weeks ago. Considering that we have just had two years of historic low volatility and a series of record new highs, to read anything into this is pretty silly.
2
Trump isn’t going to be here in 2020. He’ll either have been ousted for his crimes or he’ll be the dictator of the nation.
idd, May I suggest that your Id is over excited and that you practice more Alter ego.
1
The stock market dropped 2.8% on the day of John F. Kennedy's assassination, but recovered two days later, largely because the country had an experienced hand like Johnson to follow him.
The Dow and the S&P dropped by more than 4% today. This time the drop will last much longer. Trump has no intention of going away and the country has no one but Pence to follow him.
14
Now you have ruined my morning.
I'm expecting things to work out just fine. At least while Trump is president.
All the levers of juicing the economy will be brought to bear now that there's a GOP president, Senate and House.
Profligate spending that explodes the deficit, reckless tax cuts, printing money like confetti, all these things are virtues when it come to "making America great Again". Just wait until medicare and social security come up for slashing.
What happens after trump has left the scene though, will likely be a democrat's problems - same as GWB dumped his calamity on Obama.
8
Go, Paul! Thank you for all your gifts. Even when it appears that no one is listening, many are.
10
So if I, an unrepentant Keynesian, hazard the guess that cutting taxes on the rich at the full-employment end of the business cycle is perhaps not a good idea, would I be too far off the mark?
14
"First, the stock market is not the economy. Second, the stock market is not the economy. Third, the stock market is not the economy."
Really? You'd never guess it from hearing the Trumpistas crowing about how the Dow's recent behavior is proof that the economy has never been better.
12
Wow, boom and bust. Sure didn't see that coming. It's always been so stable and guided by logic, common sense and scientific principles. Come on folks. Seriously, what do you expect from a "system" best described as a cesspool of greed and fear? Neither the government, the economy or even most citizens plan more than a month ahead. That kind of thinking has gotten the world and us in the mess we find ourselves in pretty much everyday. The long view is boring (and makes our heads hurt when we try to think about it) whether it's climate change or the next apple device, so we party on and the hang over always comes as a rude unexpected shock. Again and again.
13
Trumphoria, as you call it, was always just a form of "irrational exuberance." And, like the bubbles and busts before it, we're just gonna have to ride it out and do our best not to make the same mistakes again (though history says we will).
3
And just like the last one, someone will find a way as BHO did, to bail out the powerful crooks that manipulated the system to get us in the coming mess. After all, we need "good people" to start the whole cycle again. Any of this sound familiar?
The word rigged is overused, but the economy doesn’t function to serve most Americans, like myself. The stock market is manipulated to serve wealthy elites, tax policy serves wealthy elites, the political system serves wealthy elites, and our military serves wealthy elites by sending the working class to war. As someone who lives paycheck to paycheck, Krugman’s lament is a broken record and a reminder of the corruption of the American idea. Unlike him, I can’t get worried about tomorrow when today is already a hangover from the last crash.
14
Yes, I fear that American society is degenerate and decrepit, that is, its endless, obsessive pursuit of money and things.
1
I'm usually good at spotting market trends. I told m wife over the weekend that the market would be up Monday, due to bargain hunters. Wrong.
5
The elite and corporate minions were distracted by the shiny new tax cuts to see the consequences and to realize we were reaching full employment while their leader in chief is looking to deport 800,000 amazingly hard workers at the beginning of their healthiest most productive years.
As for those who are selling stock, it is a matter of time before trump calls that treasonous. A lower stock market is just so unfair to trump.
15
Stock markets correct when the perceptions of value broadly held by investors change, sometimes abruptly. In this case the concern is that the improving economy will result in rising interest rates which will not only increase the cost of borrowing but may also decrease the multiple used in the calculation to capitalize the value of a company's projected future earnings, each a negative for stock prices. On the plus side, the improving economy should result in higher revenues and increased earnings before interest and taxes, and taxes will be lower, so perhaps the net of all this will be a continuing increase in stock prices. I am not sure Donald Trump has anything to apologize for here, he should be subject to criticism for this. This should be an expected result of an improving economy. He deserves credit for the improvement in the economy. The tax cuts could well pay for themselves, or the deficit shortfall resulting from them should be small and a small price to pay for the stimulus they produce, not to mention a great environment to exit and unwind QE and mace rates to more normal levels.
1
I love reading wishful thinking. Reminds me of my childhood fascination with fairy tales, for instance, the delicate princess who felt a pea under her mattress and the princess who kissed a frog to turn it into a handsome prince. Are their corollaries in American society today? Is Trump the frog that American voters have turned into a prince of a guy,
their saviour?
1
I'm worried that Trump and his Republican shills will create a (new) crisis as a way to avoid responsibility from the coming economic turbulence. So I'd like to suggest that we start a "pick a crisis" response lottery to predict which crisis they will attempt to drum up to deflect attention. Kind of giving away the "wag the dog" plot before they have a chance to launch it. Then let's publicly shame them out of office and into jail.
17
No need Ann, they are going to start a war... Trump is such an idiot that we will lose that war. Buy gold.
“…don’t assume that the stock price decline tells us much about the economic future…”
That is correct.
But the following might tell us something:
1. The tax cut, including the provision for depreciating new assets in just one year, will cut deeply into revenues in 2018.
2. This will require additional borrowing, increasing the supply of treasuries.
3. The winding down of “quantitative easing” will reduce the demand for treasuries.
4. The 15% drop in the value of the dollar in the last twelve months should also reduce the demand for (dollar-denominated) treasuries.
An increased supply of treasuries coupled with decreased demand for them should make their price drop, which in turn would increase long term interest rates, which might in turn depress both the stock market and economic activity.
If so, both the decline in the stock market and the decline in economy have a common cause: the tax cut. However, the stock market reacts faster, whereas it takes the economy longer to react. Thus the stock market becomes a “leading indicator” for the economy.
21
Only the Prosperity Christian, Trump-True-Believers ever, ever thought that a market that has gone up steadily since Barack Obama was elected would continue to go up.
Come on people, look, by this stage in his time in office Barack saw the markets up 29.1% to Trump's 21.6% increase. By the time Barack left office the market's were up 148.3%. Only Bill Clinton's 228.9%, which is phenomenal, recorded better. The chances of Donald Trump overseeing a similar increase were always doomed by the probability of a correction and resulting, market average performance.
Consider this, from 1947 through the end of Barack Obama's time in office:
* Democrat presidents oversaw 4.35% real GDP growth to 2.54% for Republicans
* Democrat presidents oversaw better, shrinking unemployment than Republicans
* Democrat presidents oversaw better stock market performance than Republicans
* Democrats oversaw fewer quarters in recession
* Democrats oversaw greater GDP growth per person
Donald Trump is promising us that we will see deficits and debt increase over the coming years as taxes are cut and revenue to pay national expenses fall. Federal obligations will require trillions of dollars in borrowing at the same time that increasing wages threaten inflation. Both will likely result in increasing bond rates and stock sell offs as investors escape the volatility of equity markets for the relative safe harbor of bonds.
Only Trump ideologues didn't see this coming.
49
but - tax cut billionaires don't care about you or the wider society - they only care about money for themselves
not that they can count it - probably just a competitive streak at the yacht club - 'nyah nyah - my yacht is bigger than yours !'
They just wanna break it and take it. They don’t care about the future or other people.
Yeah, but....Yeah, but.... Fake numbers! Fake news! Benghazi! emails!
The seeds of this stock market decline were pretty obvious, although one can never be sure if the timing. The market was unhinged from economic and financial fundamentals all through January.
It has been no secret that the Federal Reserve was going to sell some of its debt portfolio, and it has been no secret that the tax cuts will raise Treasury financing requirements. So, why is a rise in interest rates such s surprise? It is not.
The market will now decline until the overleveraged hedge funds ar properly disciplined. That will be at around a 15-20% decline from the peak. After that, we’ll need to look at the progress of corporate profits and the economy in various sectors.
The free money that had inflated this market is effectively over. The market from now on will need economic action to sustain it.
12
"Meanwhile, the current secretary of the Treasury — who declared of Davos, “I don’t think it’s a hangout for globalists” — may be the least distinguished, least informed individual ever to hold that position."
Scratch that "may be" and make it simply "the least etc." Mnunchin must have done something to earn all those millions (billions?) at Goldman, but clearly strategic thinking and development weren't among them. His tax bill wasn't even checked with the projectionists after he had a year to work on it--I mean, hard could it have been to run some numbers, things he was surely doing when he foreclosed on so many during the toxic mortgage crisis.
Just think: the man at the epicenter of that mess returns to possibly playing a central role again--two meltdowns, two administrations.
But I digress. The market gyrations, coupled with a lower growth rate and the fact we're about to hit the deficit limit a full month earlier than normal means only one thing: that huge tax heist is going to have long-term consequences.
Even Paul Ryan may have to come gunning for Medicare and Social Security before the mid-terms just to make up for the fact their rosy projections just got a whole lot less rosy.
I love the image of Trump bragging about the economy while the TV graphic shows a sinking DOW.
Talk about being out of touch.
75
I'm not sure there was ever a time when Paul Ryan wasn't gunning for Medicare and Social Security. He's been pretty clear on that point. If we're (finally) too broke to pay for the New Deal, perhaps we'll (finally) have no choice but to roll it back - this has been their secret for decades, it's been captured in open-mic events many times. Their hatred of Obamacare is eclipsed only by their hatred for the New Deal. But their method is the same - if you can't demonstrate that it's broke, break it so there's no question that it's broke. Similarities to the infrastructure issues that so inflamed Trump? Win an election on the claim that our infrastructure is broke, but then take out a trillion-dollar loan and spend approximately zero on the infrastructure problem. Party on, Wayne.
CHRISTINEMCM
CHRISTINE:
THIS WOULD BE ABOUT SUFFERING AMERICANS. A SINKING DOW AND A POOR ECONOMY IS NOT TO ME AMUSING.
Mnuchin made most of his dough as a mortgage wizard, basically robocalling
homeowners and taking their houses away from them on lousy documentation.
The bank--One West--was married with M's company, Dune Capital. BTW, Mnuchin says the true mortgage wizard was wilbur ross [commerce], but Mnuchin doesn't deny the robocalling paid off against defenceless mortgagors.
Trump has thrived on the DOW. He has assumed that, as long as the stock market was charging, that he'd be popular. It will be fascinating (expect it in a tweet tonight...) to see what his rationale for the dive will be. Will he blame Obama? Hillary? Unions? Immigrants? Of the Democrats in general?
We're waiting, Mr. President, for an explanation about this most beautiful of Wall Street declines....
117
Trump will say absolutely nothing. If the markets recover he will blame Geotrge Soros and the Democrats for a downturn designed to cast doubt on his abilities.
1
Lower growth rates mean that the economy can not be depended upon to shrink the looming deficit explosion that will occur as the tax cuts deplete the Federal budget. Will the GOP slash the budget especially the safety net to make up the difference and who would suffer from that? Of course the least able to afford those cuts such as the elderly and disabled and forget about our infrastructure or protecting our environment. A lower stock market also pinches pension plans which have been able to stay afloat with higher stock prices. Some will always profit no matter what happens and that means the already rich, but those on the edge living on fixed incomes or pay check to pay check will be hammered. What else is new.
29
“…Lower growth rates mean that the economy can not be depended upon to shrink the looming deficit explosion that will occur as the tax cuts deplete the Federal budget. Will the GOP slash the budget especially the safety net to make up the difference…?”
This would reduce demand for goods and services and probably only make the stock market collapse worse. Also it would probably aggravate a likely recession into a depression.
Businesses have been showing good profits all during the long recovery from the 2008 crash, and it seems because the managers are keeping costs under control and maintaining good margins. That might mean that they are fitting operations to satisfy the demand and not over investing in labor or production facilities. It also means that 1.5 percent rates are normal for right now and it's unlikely that the demand needed to fuel 3.0 percent growth might just not be realistic even with the tax cuts. In any case, the stock market's rise over the last year was not in response to the real economy it was speculative and the sell offs are probably just corrections for over priced securities more than anything.
8
i would gladly give up some stock market gains in exchange for my children's opportunities for better jobs and wages. It's been a depressing time feeling comfortable while they struggle.
56
Looking for a reason why stock prices are cascading lower, other than proclaiming there are far more sellers than buyers, is fool's work. Having said that, stock prices and the ability to borrow money to invest are affected by interest paid on debt obligations. Dramatic increases in the amount of debt that comes to market usually increases rates in order to attract buyers. And, at the end of last week, just before stock and bond markets became roiled, the U.S. Treasury office that determines cash requirements to fund government announced that around $1Trillion in NEW government debt obligations, in addition to refunding maturing debt, would have to be issued.
Why? The reason given was that Treasury believed that the recent dramatic and unneeded lowering of marginal tax rates would effectively cause a loss of a Trillion dollars in tax revenues, not in 10 years, but NOW.
The markets took note and then reacted, effectively raising market interest rates, and in doing so forced selling by stock traders who feared that their own borrowing costs would rise, including the costs of borrowing money to buy and trade stocks. The real fear for the economy--not just stocks- is that attracting buyers to government debt will crowd out money that would otherwise be invested privately. I think stock markets took note, and stock prices reacted. One hopes the economy does not react as severely, but the GOP and Trump's grand design for an energized economy just met up with reality.
20
A slowdown in the economy? Double-bubble bursting? Music to my ears. Probably because my priority is different than Krugman’s and many of his devoted followers.
I actually want to see the Democrats take back the House in November. With the economy humming along as it has been, that hope had increasingly dimmed.
What’s the big deal? It’s only a big deal if you believe, as I do, that it's our last chance to prevent a slide into authoritarianism.
I realize that's considered an alarmist view by many in the Krugman wing of the Party. I get the online equivalent of a blank stare when I raise such things in this space, as if I’m the poor boy at the cocktail party.
But we shall see.
259
I find myself thinking the same way. I feel that it is imperative that Democrats take back control of the government and stop this insanity. I am 61 and really want to retire in the next 2 to 3 years. But if it means that my 401k takes a big hit to bring people back to their senses and throw these bums out of office then so be it. I’m in good health and I’ll work until I can’t anymore to see this great country of ours through. This is much bigger than me.
21
@Ron Cohen: I'm totally with you. I've been thinking and saying for months this market is built on a house of cards. When I see these weird ads touting this tax plan, in some Orwellian fashion because what they're touting ain't possible, I wonder how long it will take to pull them. The market is one of the only things Trump actually can brag about because the basis for its meteoric rise and it's stratospheric levels, were emotional, not rational. The chickens seem to be coming home to roost.
1
R.C., I guess you put your money where your mouth is, but some of us poor boys are depending upon our small 401k investments in retirement. Every little bit helps: If mine holds up, I might just squeak by -- but I doubt it.
Nonetheless, I appreciate your comments and look for them daily. Cheers.
1
A correction of the high-flying stock market was obviously coming, and it probably is a good thing. I moved into a strong cash position a month ago, so my only regret is that I did not buy some out-of-the-money puts then and sell them today.
As far as whether or not the large correction over the past few days is a harbinger of something more serious to come, no one has the answer to that question. Paul Krugman is right that the stock market and the national economy are normally not even distant cousins.
There is a strong connection between this particular market and our national politics. That is because Donald Trump chose to take credit for the rising stock prices and assign to the rise a confirmation of his wise steps to cut taxes and attract investment in America.
That, of course, was baloney, and it is amusing to see Trump already trying to blame the drop in share prices on Democrats and whomever else has criticized him in the past.
48
sdw, I also moved into a strong cash position also about a month ago. I think I now know what happened. All the smart money brought the market down.
Krugman observes: "future U.S. growth can’t come from putting the unemployed back to work. It has to come either from growth in the pool of potential workers or from rising productivity." So one way to achieve growth, not mentioned in his article or by the commenters I've read, is to increase immigration. Precisely what the present (mis)administration is intent on restricting severely.
145
Indeed. An often-tried, and seldom unsuccessful story in America.
Reed, for what little it's worth, I've mentioned Trump's wrongheaded immigration agenda numerous times on immigration articles. It is nearly the exact opposite of what we need. What's needed is a rational and compassionate program that recognizes the clearly net positive benefits from current immigrants, our dramatic need for more young workers, and the underlying xenophobia, racism, scapegoating, and political opportunism driving the right wing. These facts need to be a larger part of the immigration reform dialog.
Any bets on when Trump is going to claim responsibility for the drop in the market? After all, he was more than willing to claim all the credit for market gains, drops in unemployment, jobs added. I'm not holding my breath.
44
Interestingly enough, while there is usually little correlation between a President's policies and the short-term gyrations of the stock market, in this case the growing evidence that the TaxScam bill is going to blow a hole in the deficit may well be the reason for the selloff.
It’s the fault of the Republicans’ little blonde boogie man....her name is Hillary..ha ha ha
I've been planning for the turndown in my dotage.
I'm already well practiced in mostly buying canned food on sale but allow myself fresh veggies too; all my books are taken and ordered from my local library and local university library; I endure more heat in hot weather and more cold in the winter by wearing little and wearing much; I switched from a PPO to an HMO.
This is an incomplete list. I'm much happier than Humpty Trumpty.
34
An excellent investment in this time of uncertainty would be to pay off your credit cards. Some charge 30 percent, making people into slaves. I thought that was illegal since the North won the Civil War. Anyway, that's a no-risk investment with a great advantage: I'd much rather have interest working for me day and night than vice-versa. Remember, interest never sleeps.
3
If inflation fears are driving this market plunge, it will be temporary. Inflation will be primarily driven by putting more money in the hands of people who will spend it. Charles Koch will not spend his additional income from the tax cut, except perhaps to buy more politicians, unless he doesn't think he has enough already. Middle and lower income people will not benefit much, as the article points out.
There are several reasons why money will not wind up in the hands of ordinary Americans. As pointed out in an article in the NYT last week, (1) the decline in unions, (2) low minimum wage, (3) monopsonies in the labor market, (4) non-compete agreements, (5) outsourcing, (6) globalization, (7) technological advances have all contributed to holding wages down. These will not change any time soon. Therefore, no significant inflation on the horizon.
22
This quote sums it up well "they sold because they saw that other people were selling." Worries about inflation and interest rates may have been a trigger last week, but the magnitude of today's drop is just herd mentality at work. Now that is a good thing to resist. I'll be curious to see where this goes next. I would not be surprised to see February end flat or even slightly positive. Or, maybe down 5%.
17
Love your prediction!
There was no recession following the sharp 1987 market decline:
https://fred.stlouisfed.org/graph/?g=i9gu
January 15, 2018
Total Share Prices for All Shares for United States and Interest Rate on 3-Month Treasury, 1981-1988
(Indexed to 1981)
1
"There was no recession following the sharp 1987 market decline ...."
If that's to counter PK, sorry, it's exactly what he wrote in the article.
1
Professor, could I encourage you to look at gas prices.
After several years of steady decline, they seem to have risen by 10% between 2016 and 2017. While this does not follow the economy, it is likely to put pressure on inflation – and I am curious as to what might be driving the price increase, and whether it could stem from deregulation.
17
Oil industry collusion, as usual.
The stock market is just more realistically valued now. The theoretical value of a stock is the present value of its expected future dividends. By this measure, stocks are still overvalued.
8
Stocks still pay dividends?
One other point about Janet Yellen. Ben Bernanke had to deal with the worst financial crisis since the Great Depression. Yellen, in contrast, inherited an slow but steady recovery which enjoyed a constantly falling unemployment and steady job creation with no financial crises of any kind to deal with as well the fruits of Dodd-Frank for added financial stability. In other words, Yellen has never been tested by a crisis and probably will serve out her term before the next one hits.
Now it's true that the FOMC members vote on policy but the Fed chair has a great deal of influence on policy if he or she were to chose to use it. I can only imagine what kind of chairman Larry Summers would have been but I would bet he'd have used all of his abilities of persuasion and argument to steer the FOMC in an entirely different direction than Yellen who could have pushed back more strongly against the move to "normalize" interest rates.
4
Um... Yellen's term ended two days ago.
1
Volatility in the market is a good thing, not a bad thing. It brings alertness to money managers many of whom do little more than just simply follow the indicator lights ahead of them. Bob follows Jack and Jack follows Jill, sometimes right into the deep well.
Rising bond market yields also allow Pension funds to strategize and find more diversified allocations for their portfolio holdings rather than just simply trust rising valuations to rise even more. That is a good thing not just for fund of funds but many large company treasuries which in recent years have to write down the value of their pension funds because of low bond yields.
And another thing. If the falling stock markets mean that the hand of a White Supremacist gets weakened, then here is my toast - Fall Baby Fall.
70
I am somewhat puzzled that the Prof does not mention either the "animal spirits" of investors or the fact that any investment has a bubble component. Any investor has expectations to guide him. Optimism feeds expansion and pessimism feeds contraction. Last Friday I sent a comment indicating that no one should be surprised id the DJ index dropped at some time in the near future. I did not expect it that fast. But it was clear that the growth of the index for the last year did not have strong bases except for the optimism of investors on the right wing Trump delivering less health care for the poor and less taxes for the rich. Deliveries have not been good enough.
Let us expect that we get serious enough about the economy as to have a solid base for optimism about how the US inserts itself into the world economy.
7
I always enjoy listening to "stock experts" answer the question "why did the stock market do (X) today?"
Without exception, the answer always starts with "Well..." and then meanders thru a couple wild guesses that sound like a meteorologist explaining why it didn't rain like it was supposed to.
There is nothing connecting the stock market to the actual economy. It's a casino played by the oligarchs for their own amusement.
30
Well I remember back when only "rich" people played in the stock market. But that was before Reagan and corporate America convinced us all that our retirements should be self-funded via stock purchases (sometimes with a corporate match) and so now most of us of a certain age are seriously invested in the market. No casino for oligarchs anymore, This is Us, as they say:)
24
“…don’t assume that the stock price decline tells us much about the economic future…”
That is correct.
But the following might tell us something:
1. The tax cut, including the provision for depreciating new assets in just one year, will cut deeply into revenues in 2018.
2. This will require additional borrowing, increasing the supply of treasuries.
3. The winding down of “quantitative easing” will reduce the demand for treasuries.
4. The 15% drop in the value of the dollar in the last twelve months should also reduce the demand for (dollar-denominated) treasuries.
An increased supply of treasuries coupled with decreased demand for them should make their price drop, which in turn would increase long term interest rates, which might in turn depress both the stock market and economic activity.
If so, both the decline in the stock market and the decline in the economy have a common cause: the tax cut. However, the stock market reacts faster, whereas it takes the economy longer to react. Thus the stock market becomes a “leading indicator” for the economy.
1
Yeah, no. IRA holders are the sheep who get sheared on a regular basis by the more nimble and savvy players in the market.
The stock market and how it does has become completely dissociated from how the average American is doing. It's been doing quite well since the second or third year of the Obama administration. Employees haven't done as well. Raises have been stingy. Wages are not up to snuff for most of us. But the cost of living in America have continued to increase more than our wages.
In other words, the stock market is not the best way to judge how the average citizen is doing here or anywhere else. If there's anything to be learned from this and every other correction or crash that occurs in the stock market it's this: our retirement funds ought not to be based on the stock market and its whims. We should have a pension system in place for each worker instead of telling every American to become an expert on stocks and 401Ks, etc. We could use Social Security if we lifted the income cap but we won't.
If the market crashes I'm sure that Trump and the GOP will blame Obama, loosen regulations even more, give more tax breaks to every rich person and corporation, and shred the meager safety net for the rest of us. But it won't be Trump's fault. He's perfect. Just ask him. On second thought, don't. He'll tell us.
179
Social Security is a hedge against the failure of privatization. The recent market behavior is a sign it should be strengthened rather than weakened.
9
We just lost a Colts player and his Uber driver, killed by a twice deported drunk illegal, so I’m pretty sure that’s why the market tanked.
1
The stock market gets the big news, but the bond market is at least twice as large money wise. The yield on bonds has been rising, yield rises when prices decline. The government will have to sell bonds, that is how it borrows, and it is projecting borrowing $1trillion. Those bonds have to pay interest, and the lower they sell, the higher to cost to sell them.
The interest rate has to exceed the inflation rate to make it worthwhile to buy them. Bond buyers discount the price by the inflation rate plus the taxes when buying them. The current discount means the government will have to pay the higher inters rates to finance their fantasy projects. So the money available will not be what tRump and those GOP tellers of tall tales are trying to convince the public it can finance.
Under these circumstances the GOP tax scam can not possible pay for itself in higher yield from businesses supposedly making more profits. Even after today's debacle, these sociopaths are attempting to convince the voters that all is ok.
They want us to believe:
All is for the best, in this best of all possible worlds.
41
"Nothing to see here, folks. Just move along....". -- Fox this afternoon.
I think its also important to continuously remind readers of the Republican disinformation regarding the expected growth leading to the tax cuts paying for themselves. That trifecta, i.e. rising interest rates, declining asset prices and a broke govt, will show us the true mettle of Trump's economic team.
54
We all learned that the "market" climbs a "wall of worry" and there has been lots to worry about since the last recession.The Fed has been judicious about keeping interest rates low and only raising them slowly.Along come Trump and CO. and inflate the economy with tax cuts, mainly for the wealthy, but hype the great economy and its widespread benefit. More money circulating means inflation and higher borrowing costsHigher borrowing costs means higher interest rates and that means that bonds yield more then stocks.How could Trump have missed the fact that the market hates a roaring economy ---- it rises in anticipation of such an economy!
6
"How could Trump have missed the fact that the market hates a roaring economy..."
The same way Trump has missed just about any and all facts that relate to anything. Facts don't exist for Der Tveeter, only applause—real or imaginary—hits that sweet spot for him,
i would add a few points to PK's excellent article.
1. the herd mentality operates not only on sell side, as he notes, but also on the buy side where one doesn't want to miss the train, as it did with housing and internet bubbles.
2 at current levels, a 1% increase of interest rates results in the value of bonds decreasing by up to about 10% depending on maturity. but many panic when they see their asset total decrease even though the income remains the same. if you sell before maturity a loss is locked in. and if you sell to raise capital for something else the loss gets locked in.
this particularly effects retired people since the wholly grail of investing is to hold bonds with the allocation increasing along with age. ing this can be a substantial percentage. As their portfolio value decrease substantially as interest rates rise will this mean that retirees will cut back on purchases since their apparently disposable assets are no longer liquidated?
3. it is often said that the stock market is a market of stocks. but as wealth is concentrated in a small number of people, a significant portion of the stock market's gain comes from the bandwagon of a small number of stocks (think Amazon, Facebook, Netflix and a few others). the gain is not broad based.
4 finally, many of the people hired into the financial industry have never seen a market which does not go down and these are also many of the people who handle the day-to-day trading. Will they manage portfolio's?
12
But what about the inevitable dazzling economic impact of bringing back beautiful, delicious, nutritious 19th century coal ?
Surely drop-dead gorgeous coal will save the day.
Donald "I'm like, really smart" Trump and his IQ-challenged Energy Secretary Rick Perry are starting an American energy revolution like the world has never seen (except in the 1800's) and leaving the rest of the world in the solar-and-wind-powered dust.
As the world ramps up on cheap, clean energy technology, jobs, infrastructure and clean air, America's Village Idiot From Queens is leading us backward at warp speed with an antediluvian fondness for gorgeous mercury-cadmium-arsenic-sulfur-dioxide-laden coal.
When national economies lose momentum and falter, it would at least be nice to know that there were some adults in charge with IQs above room temperature...or that there was a leader whose main 'economic' experience' was NOT in casino gambling, real estate gambling, branding, stiffing creditors, banks and the IRS, pathologically lying for a living, and the joys of unfettered greed.
The Trump Slump was bound to arrive once the Birther-Liar-In-Chief finished surfing Obama's fumes, and unfortunately for America, Bozo-The-Narcissistic Clown, his orange hair and the Russian-Republican band are in incompetent charge and they're investing heavily in billionaire bank accounts, not in America, not in 320 million Americans, and not in roads and bridges.
"I'm With Stupid" is no way to run a country.
841
Let us not forget it wasn't the derivatives themselves that were the problem in 2008 nor the poor people buying overvalued homes. It was the discovery that the assets were worth far less than the ratings agencies had said they were (they criminally lied) that led to the crash. Then millions lost their jobs and were unable to pay for their overvalued home. Result a huge recession. We can't just wish things to get better, we need to build things that are worth something and have lasting value. Right now a lot of people "own" their music in the cloud and have a bunch of cheap plastic furniture and clothing that falls apart quickly. These are not things of value, everything is throwaway including the workers. When the slump comes back few will have anything of value to sell and those that do will find no buyers. The oligarchs think they can just move somewhere else but the contagion is world wide.
6
Socrates-you forgot to mention the economic 'experience' of declaring bankruptcy four times.
2
"...the inevitable dazzling economic impact of bringing back beautiful, delicious, nutritious 19th century coal?"
Socrates, old boy, it's almost impossible, no matter how beautifully formed the words, to turn truthful cynicism into poetic truth, but I think you've done it here. We need to start a political vermin control organization called pest removal by "non-stable, non-genii real people" Once the US wakes up to Trump's hidden in plain site disaster, we'll be the only takedown organization in town and make a mint.
4
Take it from Paul Krugman, 3 days ago
"interest rates rose because the odds of Fed rate hikes to limit inflation have risen. And that hit stocks."
https://www.nytimes.com/2018/02/02/opinion/the-bad-news-in-the-good-news...
That is the truth.
Very , very simplified : The Federal Reserve blew a giant bubbly, by forcing people that would have preferred safer investments (e.g.) with its zero interest rate policy (real return on T bills negative) into the casino of the stock market.
Now , that the option returns to have investments that do NOT have negative returns (The 5 year TIPS return, today + 0.55 %) people are fleeing to safer investments.
Blame Ms Yellen, if you must blame some. But Trump had nothing to do with it
The stock market lives and dies on the word of the Fed.
5
So Trump had nothing to do with the rising market he crowed about?
1
Even a dead dog can be right twice a day. Of course Trump had nothing to do with it. He only involves himself in winning propositions like his Casinos (whoops), his "university" (whoops), his leadership style since elected (oh yeah, whoops), and his on-going inability to believe that what he said two weeks, two days, or two hours, or two minutes ago is what he believes now. The "market," invisible hands and all, really, really likes stability. Woof, even a dog, dead or not, knows that Der Tveeter is not even faintly interested in boring, losing stability.
1
Bruce Bartlett, who's spent many years in government-- and a critic of "trickle down economics"-- commented today the stock market just noticed that an unstable lunatic is president of the United States.
It's been the candor of talented practitioners such as Krugman, Bartlett and Richard Painter, the ethics expert, who call out this president---- that maintains sanity of many of us. Painter offered some snark that this president is about as good an investment adviser as he is a president.
Me personally? Trump should have kept the fabulous Janet Yellen on as Treasury Secretary. And should immediately stop tweeting.
37
Yeah, it's hit the wall, Dr. Paul. And word is there are folks standing at their windows on Wall Street, wearing flying suits. '29 redux. Who ever heard of a president of the United States calling members of the opposition party "treasonous"? We have no idea what's coming down the pike tomorrow.
55
Stocks are not the economy. Stocks *are* a reservoir of wealth. If we believe the Republican dogma of the last 40 years, the 'trickle down' that will lift the fortunes of ordinary, working-class, middle-class people starts from the wealthy. When the wealth evaporates, the trickle turns into bricks, falling down on all us 'little people'. Of course, -we- still have to pay our taxes. It might be time to consider that a market spooked by worker wage increases of 2-3% was inflated by wealthy incomes rising 6-8-10% a year, year after year, while worker incomes stagnated. As income inequality increases, economic volatility increases - there sure seems to be a linkage. Trump only claims credit for the market increases; have -no- doubt he will have tweets full of excuses for ducking the 'credit' for this Trump correction.
18
So, the stock market is not the economy? Odd that I never heard that when the market was shooting upwards!
7
You heard it plenty of times, when myriad commentators talked about a "jobless" recovery that raised all yachts but left worker's wages stagnant. You heard it from the false populism of the Trump right and the pie-in-the-sky progressive populism of Bernie Sanders, and from almost everyone in between. You heard it for at least the past decade. If this is the first time you've heard it you were either born yesterday or just not paying attention, rendering such a comment irrelevant and uninformed.
1
Isn’t this just a slow motion pump and dump? Anyone could reason out that the tax cuts were for the investor class and that would shoot it to the moon.
Now the dumping as the smart money cashed out.
Hugh
9
Is this the start of the great Trump depression? For some inane reason, there are a number of people that think that Trump knows something about business but mostly he seems to know how to cheat and threaten people with lawsuits. Remember that he went bankrupt running a casino which is close to legalized theft.
47
No owning a casino is close to being able to print money.
I agree.
There will come a day of reckoning where all the blame our president can muster won’t solve our nations problems nor make his incompetent appointments capable.
10
This year already Trump trumpeted and bragged that the booming stock market was his doing. Will he take the blame for the bust? Of course not, it's all Obama's fault and the democrats, because they won't want the WALL that would keep America safe and the Markets high, as all those undesirable freeloaders of our economy would not be able to come here.
15
Imagine if this bunch were in charge back in 2009? Obama and Geithner never got the credit they deserved from avoiding turning the Great Recession into a Great Depression Redux.
42
If things fall apart, I'm sure Trump and his minions will blame it all on Obama and his administration one way or the other.
If Trump runs America the way he ran his varied business ventures there is trouble ahead. Bankruptcy,fraud and reckless moves are the Trump modus operandi. Maybe that is the message of the market. As Trump would say. Not Good.
23
And what happens when Mueller teaches a conclusion? Is that factored as well?
1
The market's exuberance over the last year has been premised on a now wobbly experiment, long pursued by the "business community"-
1- One of their own as president- a regular guy, no politician-
just a (white) man to take an meat ax to pesky regulations, and sign stuff.
2- A cabinet packed with billionaires, financiers, corporate titans, incompetents, and saboteurs.
3- All three branches in "pro-business" Republican hands.
3- "Huge" tax cuts, that skew to the winners, and trickle down to the losers.
The results of the big business-as-government experiment are piking up, day after disastrous day. So the fat cats are cashing out, and leaving the lab rats to take the big losses.
17
The GOP needs to get a handle on this because perception is reality and having a recession under two GOP presidents a decade apart won't be good for their brand. This may very well be nothing more than a market correction that economists have been predicting or it could be a signal that the worst is yet to come. Historically recessions tend to follow tax cuts so time will tell if this is something that we need to be concerned about.
381
The problem isn't that perception is reality, it's that reality is reality, and this is the sort of reality that will hit people over the head. The GOP got us into this mess and they have demonstrated neither the inclination nor qualifications to get us out of it. I could not care less about their brand. The GOP brand is the least of the country's worries.
3
If you think today's GOP will be affected by "facts", then you haven't been watching today's GOP.
5
Massive borrowing that is not invested in the country, but simply injected into the economy, is a good way to set the stage for a recession, too. Headlines say, "US Government Will Borrow $1.5Trillion" but make no mistake, it is you and I and our children who are going to pay it back.
4
For corporate America, higher wages mean lower profits, but for the domestic economy, higher wages mean greater economic activity, since wages get spent rather than plowed back into the market. The fact that good news for the economy is such bad news for the markets reflects how far the interests of the financial industry and investor class have diverged from the interests of ordinary Americans. Sadly, somewhere along the way (maybe it was the 401K), those ordinary Americans started fancying themselves 'investors', and forgot the old poker adage, if you don't know who the sucker at the table is, it's you.
8
Well, now it really is the Trump economy.
9
All we know of for sure is that Trump will blame Hillary and the democrats for the downturn in the stock market (that he seemed to think he was responsible only for its rise). The Ryan House will be calling for cuts in Social Security and Medicare, even though they have nothing to do with the stock market. And the Trump supporters will continue to numb their brains by watching Faux News and listening to right wing screaming radio.
21
Great op-ed, Mr. Krugman. You have been talking about the 1-½% vs. 3% growth rate for some time now, and I guess we know who does not read you (surprise, surprise). As for the satanic forces, they poked their flaming heads out the ground several years ago with the Obama birth certificate nonsense, and reached their peak with the 2016 election. So, I’m thinking this is not so bad. I will take my market lumps, and even happy to do so if the right people learn to ignore any economic advice given by Steven Mnuchin.
15
Could it be that the traders—like the Democrats—have become unpatriotic? That they were selling short when they should have been applauding the State of the Union Address? Yeah. That must be it.
20
Hurry up Mr Mueller, if you want to prevent a second global recession.
5
The Rich have finally gotten their Huuuge Tax Cuts, for decades to come.
Now, they are selling and taking profits. It's all downhill from here, until the Conman in Chief is gone. Then, as usual, a Democrat will be elected to clean up the mess. It's Deja Vu, all over again, GOP style. The dumbing down of America WORKED, Bigly. NOVEMBER.
25
Wall Street is a fantasy world that has little to do with reality.
3
Perhaps as the Mueller probe gets closer to resolution, investors are seeing
mr. trump for the scam that he is.
4
This news does not shock me even tho I have money in a market invested 401K. I have always believed that the market is only a form of gambling rather than a reality based system. Yet the Dow and S&P have become reified into something important. I don't understand the economics of this corrupt system. If you want to get rich quick, give it a try. Just know that you will lose.
5
You're putting money into stocks half-minded, I gather...
Why half-minded? You're on the right course in my view!
This is because stock market is just another division of US Govt., except it has no Secretary appointed by the President. IRS code is all intermingled with how markets perform.
So go into markets in full confidence (there is no way escaping it (the irony is that you are in it even if you don't invest a cent of your hard-earned money)), please read my POST, under "Readers' Picks" around 250 down the list, for why.
Trump, in 2006, said regarding a crash: “I sort of hope that happens because then people like me would go in and buy.”
Then, on the campaign trail, he bragged about all the money he made during the financial crash, emphasizing how much he loves playing with debt.
I know, I know, we can't be expected to pay attention to every little tidbit in the president's constant verbal diarrhea, but that's a pretty important one.
So I don't think Mnuchin's lack of experience is what we should be worried about. We should be more concerned about the fact that Trump's cabinet is stacked with people just like him: billionaires who stand to profit "bigly" from a crash.
14
The market is a concept made into a mechanism driven by people and businesses buying and selling stocks, bonds, and what not. There is no magic or arcane knowledge. Only greed and profit edging the money holders into this and that. Concerned about lose and hopeful about gain. Is there any action more translatable to life's many actions than this?
3
The market is undergoing a drastic yet not astonishing correction. The next correction must occur by correcting the fraudulent and Russian-aided presidential election by removing Trump from office and righting the ship of the United States.
10
The dominating force propelling securities prices is the massive tax-policy-induced increase in inequality that causes the excess of loanable and investable funds, and that just got a lot stronger with the new tax bill.
The quandary for investors can be described as someone who has seen the first and last page of a book, but does not know either how long the book is or what happened between the first and last pages. We know that a massive transfer to the rich will happen. We know that the middle class has a much higher marginal propensity to consume than the rich. We know that initially the rich, or if you rather the job creators, use their additional after-tax income to invest. This extra investment initially boosts securities prices. The higher prices for securities enable investments to occur that might have otherwise been undertaken. These can range from factories, shopping centers and housing. What we don't know is the path that equity prices and interest rates will take between the enactment of the tax shift and the overinvestment, as consumers can not afford to buy all the goods being produced or repay their loans, results in an eventual financial crisis or other event occurs, at which time the massive excess supply of loanable funds as compared to demand for loans will push risk-free short-term interest rates down to near the lower bound, as was the case during the 1930s, in Japan for decades and in America since 2008.."
https://seekingalpha.com/article/4139026
1
This is bigger than the Eagles beating the Patriots this is the victory of the Hedge Fund managers pulverizing the Masters of the Universe.
Without interest rates that could keep money out of real estate and the markets surplus cash gravitated into the only places it could deliver 6 plus %.
Without the ability of lower interest rates to boost a sluggish economy there is only rising interest rates to slow an overheated economy. With a slowly rising stable economy things have gone well for 9 years. Slow growing and stable are an anathema to the hedge fund managers as much as they are heaven to the Masters of the Universe. Sometimes the greatest quarterbacks in the history of economics cannot succeed in last minute rescues when their best options are out with concussions.
2