Wednesday, February 1, 2017

Crisis Watch Update

It looks like the latest trend for crisis watching is to suggest that Donald Trump may trigger the next major financial crisis. Below are examples of several recent articles that follow that theme. Is Trump being setup as the scapegoat? We report, you decide.


Larry Summers - Trump Could Trigger Next Crisis

"Former U.S. Treasury Secretary Lawrence Summers attacked the policy proposals of Donald Trump on several fronts, saying the president-elect’s plans for deregulation were setting the stage for the next financial crisis.

Washington Post - How Donald Trump Could Creat a Financial Crisis

"What, then, might be the economic consequences of the president-elect's tax cuts, tariffs and deregulation? Well, as we'll get to in a minute, they sure seem like they would raise the odds of a financial crisis happening overseas, and maybe here too. It's a story about the dollar and housing."

Fortune - Trumps Dismantling of Dodd-Frank will be 2008 All Over Again

"Ending Dodd-Frank would be deeply misguided and likely to recreate the very conditions that led to the 2008 financial crisis, shuttered American businesses, and cost millions of Americans their jobs. The financial sector will get a nice sugar high for a few years, and then crash the economy."

Newsweek - Why Trump's Policy Could Recreate 2008 Crisis

"In particular, he has spoken of dismantling the Dodd-Frank Act, which introduced extensive regulation of the financial industry in the wake of the global financial crisis. This is pleasing the markets, but may lead to the same kind of risk-taking that precipitated the 2008 crisis."

Independent (UK) - Look out for Financial Crisis - Part II

"Boom and bust economic theory suggests that, however we regulate banks, we should expect another financial crisis in the near future. With Goldman Sachs president and COO as the new national economic council director under Donald Trump, that theory might materialise a lot quicker."

The Herald - Trump Protectionist Tendencies Can Cause Another Financial Crisis

"German Chancellor, Angela Merkel warned incoming United States president, Donald Trump to guard against his protectionist tendencies, citing lessons learned in the 2008 global financial crash and stressing the need to “move forward together”.
“My profound conviction is that there are more advantages… to moving forward together than when everyone resolves their problems for themselves. I am truly convinced of this,” she told a press conference at a meeting of her CDU party.
Asked if she believed “protectionist tendencies” by Trump could pose a threat, Merkel recalled the example of the 2008 global financial crisis, which “came from the United States”.

Jim Rickards - Trump Can't Stop the Next Financial Crisis

(note: Jim does not blame Trump for the crisis, but predicts he will not be able to avoid it during his term and suggests he will be blamed for it)

MW: How does the election of Donald Trump play into your scenario of a 2018 crisis? What policies would you recommend that he adopt or push Congress for? How much of a difference can that make?
J.R.: The election of Donald Trump does little to change my analysis. The Trump administration is focusing on macroeconomic policy relating to taxes, spending and regulation. That’s fine, but it does not address the issue of systemic risk, which exists separately from normal business-cycle and credit-cycle considerations (although credit cycles and systemic-risk event may coincide at times).

"Taking these various vectors into account, this is the most accurate assessment: The global economy is poised on a knife-edge between inflation and deflation.
The inflationary vector could dominate quickly, based on a combination of Trump deficits and Fed accommodation. Conversely, the deflationary vector could dominate based on fundamental factors such as a strong dollar, deleveraging, demographics and technology combined with premature Fed tightening.
Waiting in the wings is a systemic crisis, which could result in inflation (due to massive SDR issuance) or deflation (due to lack of a coordinated global response). You should prepare for both."

Deseret News - Peter Morici (U. of Maryland)  - Takes similar view to Rickards

"Donald Trump promises sweeping changes in economic policies to make Americans more prosperous. However, asset and debt bubbles, enabled by easy money policies, could derail his plans and thrust the global economy into another recession."

. . . . .

"Should theses bubbles burst and the yuan collapse, Asian and other developing economies dependent on exports to China could easily become unable to service their dollar-denominated debt. All this is reminiscent of the Asian currency crisis of the 1990s, which left many American lenders holding the bag."


  1. Inflation or deflation. Got it. Rickards not holding back or sitting on the fence. He says prepare for both, but preparing for both is called hedging. Not really informative stuff from him lately.

    1. Jim has been saying pretty much this same thing for some time. I think he is just acknowledging that he does not know which way things will tip. I think this is why he suggests 10% in precious metals along with a hefty cash position for those who have available funds.