Periodically I have posted comments from my friend Carl. He is someone that made his fortunes in the stock market and an avid follower of world affairs doing it.

The manufacturing recession is now in full bloom.  The Republican tax cut did nothing to improve the economy, possibly the opposite.  Deflation is now taking control of the world’s economy.  Creative destruction will take aim at jobs next.  Businesses will expand layoffs.  As I pointed out yesterday the number of announcements referencing current and future layoffs is expanding.  Many companies may not be able to wait until after the holidays to make the announcement of job reductions.  I believe low interest rates and their continuing decline are clearly a sign of world economies that are suffering.  Lowering interest rates is no longer supportive to the economy.  People are borrowed out as are corporations and governments.  The only way to stimulate the economy now by governments is with fiscal spending.  The U.S. government cannot afford expanded spending.  A real massive problem of unknown proportions is developing.  Without fiscal spending and the future impact of artificial intelligence on the job market, layoffs will have nothing to offset their impact.  The budget deficit in the U.S. cannot support new spending programs.  The progressive Democrats proposals to tax the wealthy may be dead on arrival since the wealth they propose to tax will shrink.  I have suggested since the Sanders and Warren proposals have been proposed that the ability to pay for them is not fully factored into their proposals.   Sanders, Warren and all other politicians on both sides have been living the last 8 years or so in an expanding economy that is supported by wealth creation.  The next step is wealth destruction.   Once wealth is destroyed it is very difficult to recreate.

 The contraction in manufacturing is now being felt the most of course by those who make products.  However the transportation sector has been sending clear messages that they too are seeing reductions in their business.  Eventually this will spread to services.  Companies that provide services to those with excess cash flow will discover that excess cash flow is being collectively reduced as demand for products is reduced. 

Trump’s destruction of supply chains and the loss of export demand is making the problem worse.  Trade relationships built over decades have been destroyed and they cannot be easily replaced.  So far many companies have been able to delay taking the step of job reductions but they are running out of time.  Neither the Canadian or Mexican trade agreement changes have been approved by Congress.  Trump needs to settle with China for political and economic reasons now.  What economic historians will be attempting to gage is how much did the U.S. lose in order to create an agreement with the Chinese and others.  Trump’s trade wars began as an attempt to demonstrate how the economic powerhouse of the U.S. would “win” and somehow offer protection against the other 96% of the world’s population from making progress in improving their quality of life and become more competitive with the U.S.  

The bottom line is that the trade wars have speed up the slow down of the world economy.  It is also reducing tax receipts in nations with large amounts of debt.  The only thing offsetting the revenue decline is low interest rates and they are currently doing nothing to stimulate, maybe history will eventually demonstrate that when interest rates become to low deflation takes control. 

 Carl H

PS:  Beware of the stock market, its officially October and the averages are already preparing for a rash of bad earnings reports for the Sept quarter.