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2025 Economic Crash Status March 1: Data is trickling in and economists are bouncing off the couch [1]
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Date: 2025-02-28
“Chaos is bad for business,” Paul Krugman notes in his latest substack, [LINK] in which Krugman mentions the on-again off-again tariffs, the incipient trade war with Europe, the potential for a government shut-down March 14, the chainsaw massacre of the civil service, and a potential de facto default on US debt. “Uncertainty” is a term of art in economics. In this case it means not only chaos, but questions about whether the government, the rule of law, political institutions, and even the money can be trusted. With such uncertainty, you can easily imagine a pause in investment by business and a slowdown in spending by households. These private sector reactions can cascade, and are sometimes hard to reverse when they get going. The uncertainty index is at its highest reading, actually marginally higher than at any time since the GFC.
This mixture of direct economic damage and uncertainty can and likely will create an economic crash. Not a downturn, not a recession, not a slump. It has all the potential to create market panic, unemployment, inflation, and a big mess. This may be the first intentional crashing of an economy in history. Or it may not be intention, just incompetence and corruption. In either case, it’s a virtual certainty. A good flavor of the potential is here from Ambrose Evans-Pritchard in the Telegraph.
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It is an odd affect of the economists of the past three or four decades, that they need to see numbers and charts and graphs and footnotes before they can acknowledge what is right outside the window. That aside, the data is trickling in and it’s becoming harder not to take notice, and yes, the economists are scrambling. Krugman put up the chart for consumer spending. But that is a little dated.
Elsewhere, a measurement that is on top of the moment, but somewhat unrealiable, GDP Now from the Atlanta Fed is as dramatic as the actual facts. Caveat: It may not BE the actual facts. The model is sensitive enough to see things that are not there, but are quirks of reporting or anomalies that can be explained in some other way. So the means by which the line is traced may not be valid, but I believe the line is an accurate description of what is going on, and revisions will cancel each other out.
Another term economists like is “shock”. They like it so much they use it for anything they cannot or do not want to explain. This was not always so. The definition prior to the GFC was that it occurred as a force from outside the economy, external, or “exogenous.” When the GFC occurred directly in the core financial sector of consumer capitalism, hardly exogenous, it was hard to call “exogenous,” so the definition had to be changed. Now it is just something unexpected, kind of like the plain English version. Covid was a shock in the original meaning, and so is Trump. An external force acting on the workings of the economy, exogenous to business as usual. Or as Krugman puts it: “Where is this uncertainty coming from? That’s easy: The U.S. government is currently under the control of a deeply ignorant, vengeful megalomaniac with zero impulse control. And it’s not just Elon Musk: Trump shares the same characteristics.”
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Consumer confidence bounces around, but forward-looking consumer expectations are turning south. From the Conference Board’s release February 25:
Expectations Six Months Hence
Consumers’ outlook for business conditions turned negative in February. 20.2% of consumers expected business conditions to improve, down from 20.8% in January.
26.7% expected business conditions to worsen, up from 19.6%. Consumers’ pessimism about the labor market outlook worsened. 18.4% of consumers expected more jobs to be available, down from 19.1% in January.
25.9% anticipated fewer jobs, up from 21.0% in January. Consumers were less optimistic about their income prospects in February. 18.2% of consumers expected their incomes to increase, a slight uptick from 18.1% in January.
But 13.7% expected their incomes to decrease, up from 12.3%.
We’ve been predicting doom for a month. Nothing has changed to make us feel better. For a look at those calls:
The Crash is coming; how big is not clear, but big. Soon. Keep your calendar clear for early summer (Feb 17)
How do you know the economy will fail? Because Trump is doing the exact opposite of what Biden did. (Feb 14)
Trump will crash the economy, like the last three GOP administrations have done (Jan 27)
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