On Tuesday, the stock market had yet another finicky day after the Dow Jones went through a historic 2,000 point drop on Monday.
The “Trump Slump” is being fueled by fears of the coronavirus, the price war between Russia and Saudi Arabia, and the fact that Trump’s economic policies have made the U.S. less prepared to deal with a potential recession.
Leaving aside Trump’s inadequate response to the coronavirus, economists have warned that the Trump administration has severely weakened the tools used to mitigate an economic downturn. Normally, the federal government would respond to a recession with interest rate cuts and deficit spending to stimulate the economy. However, under Trump’s tenure, interest rates were already very low and deficit spending already high well before the recent economic turmoil, leaving little room to boost the economy should a recession hit.
“Whatever the shock is— and there will be one— the problem is that we don’t have any shock absorbers anymore,” said economist Paul Krugman earlier this month. Unfortunately, it’s looking increasingly likely that the shock will happen sooner rather than later.
In addition to the coronavirus, Saudi Arabia and Russia have caused oil prices to plummet, further rattling markets. In response to Russia refusing to cut production to offset the effects of the coronavirus, the Saudis have ramped up their own production to punish the Russians. This could have serious ramifications for Texas, where oil is a major economic driver. Indeed, the U.S. shale oil industry could be a casualty of the Saudi-Russia price war and that might be the point. Trump said he recently discussed energy markets with the leader of Saudi Arabia, Crown Prince Mohammad Bin Salman, but the so-called “master negotiator” has clearly failed to dissuade the Saudis from plunging the price of oil.
A bad economy is terrible news for Trump’s re-election prospects given that much of his case for a second term rests on the state of the economy.
With Trump polling underwater in Texas even during good economic times, he should seriously worry about his chances in the Lone Star State if things get worse.
Trump is reportedly considering some sort of fiscal stimulus but faces skepticism from within his own administration and from GOP senators. Meanwhile, Democrats are pushing for paid sick leave to mitigate the economic effects of the coronavirus.
Photo: Win McNamee/Getty Images