Mr. Trump needs a recession in the worst way.
Larry McDonald (NY Times Bestselling Author and Financial Analyst) was on this recent Julia La Roche episode – Larry McDonald: Trump Needs a Recession to Fix the Economy – explaining why Mr. Trump needs a recession.
McDonald first explains why the economic models with massive stimulus never work and can’t work – and why the mass-stimulus approach has to come to an end.
After the 2008 Great Financial Crisis, the government injected about $4 trillion in stimulus into the economy to prop it up.
As a result of COVID, the government injected over $5 trillion of stimulus – if all of the spending packages are accounted for.
So, woohoo, the government saved the economy, right?
Not even close.
The government saved the top 10%, sacrificed the bottom 90%, and crushed the bottom 50%.
Excess stimulus results in inflation – which pushes up interest rates, increases asset values, and raises prices for goods and services.
So, the wealthy benefit tremendously as their investment portfolios and their interest income (from money market funds earning higher rates) surge.
The lower economic echelons, without investment portfolios, simply get crushed by higher prices.
Why George Gammon Hates Politicians
NOTE: This is why George Gammon and Jeff Snider despise politicians on both sides of the aisle. Politicians always resort to stimulus to prop up economies to ensure re-election, even though the stimulus always ends up distorting economies, slowing economic growth in the long run, increasing prices, exacerbating the wealth divide, and making most voters much worse off in the end. Snider insists that we’d have $5 trillion more of GDP right now if the government had not started to intervene so much after 2008.
So, yes, Trump could continue to stimulate the economy like Bush, Obama, Trump 1.0, and Biden did, but we’d end up with an even bigger wealth divide, much more inflation, and a very angry middle class.
Mr. McDonald says that Mr. Trump purposely talks up tariffs because he knows they will slow the economy and bring down asset prices. McDonald also says the ICE deportation raids have a similar impact.
Mr. Trump needs a recession because it will bring down interest rates. And he desperately needs lower rates to finance and refinance all of the debt coming to the market this year.
A 1% drop in rates will save the government $400 billion in interest! We currently pay $1.3 trillion in interest every year, and we could go bankrupt without a drop in interest rates.
The other reasons Mr. Trump would like to see a recession soon include:
- He can blame the previous President, much like Reagan blamed Carter for the recession early in Reagan’s term.
- Recessions clear out dead wood and lower asset prices, making them more accessible to the middle class.
- Recessions often tame inflation, helping the middle class.And
- We have to stop the endless stimulus train at some point.
TLDR: Expect rates to fall this year (I still say at least 1%). We had a very soft employment report surface this morning already, so I think we’re well on our way to a recession in any case.
