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The good, bad and the ugly: Economic commentary on Friday, March 22

By Masao Suzuki |
March 24, 2019
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San Jose, CA - Friday, March 22 was a day of good news, bad news, and ugly news.

The GOOD: it was Friday. TGIF.

The BAD: U.S. and global stock markets fell almost 2%, with the U.S. Dow Jones index falling almost 500 points on bad economic news out of Europe. A Eurozone measure of manufacturing for March fell more than expected, increasing fears of a recession in Europe. This increased worries about the U.S. economy, and interest rates on longer term (10-year) bonds fell as investors expected interest rates in the future to go down with a slowing economy. Typically interest rates on longer term loans are higher than short term ones as there is greater danger that inflation will reduce the purchasing power of interest and loan repayments in the future. But on Friday, interest rates on 10-year bonds fell below interest rates on short-term, 30-day bonds, a so-called ‘inversion’ of interest rates. This inversion has happened before every U.S. recession since 1975, increasing fears of a recession in the United States, causing the stock market to plunge.

[Editor’s note: you can read Suzuki’s speculation about a U.S. recession that he made in December here]

The UGLY: President Trump announced that he plans to nominate Stephan Moore to the Federal Reserve board of directors. The Federal Reserve or Fed is the U.S. central bank, in charge of printing money (check out your paper bills, they are all “Federal Reserve Notes”) and setting interest rates. The Federal Reserve traditionally follows a bank and business-friendly policy, indeed, the current chair of the Fed, Jerome Powell, had a long career on Wall Street. But Moore is more (or less), a Trump toady who makes up facts like the president. While Trump has claimed that President Obama was not born in the United States (he was) and that Trump won the popular vote in 2016 (Clinton did), Moore is a supply-sider who claims that cutting taxes will increase government tax revenues (it didn’t under Reagan in the 1980s, and isn’t now - in both cases the tax cuts led to far larger U.S. government budget deficits). Even worse, Moore claims that the U.S. is going through deflation, that is, that prices are dropping. He obvious is unaware of - or doesn’t care, or easily lies about - the fact that prices, especially rents, are on the rise for working people. Having such a hack on the government’s most powerful economic institution is downright scary.

But please, enjoy your weekend. Saturday is National Puppy Day! Hooray!