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Will Trump Set off a Global Economic Collapse? [1]

['This Content Is Not Subject To Review Daily Kos Staff Prior To Publication.']

Date: 2025-03-12

According to Forbes magazine, the major U.S. stock exchanges are in panic mode because of Donald Trump’s on again, off-again tariff pronouncements. Since February 19, the value of stock on the Nasdaq exchange has decline by 13%, S&P is down 9%, and the Dow is down 6% or 2,700 points. Meanwhile egg prices in the United States reached an all-time high this month. As a candidate, Trump promised Americans an economic “boom like no other,” but he now concedes the country may being on the brink of a recession.

You know Donald Trump will blame the Democrats, but his push for deregulation of banks, markets, and industries and attacks on U.S. global trading partners, will leave the United States and international financial organizations less able to respond and prevent a recession from turning into a collapse. Think 1929 rather than 2008.

There are a number of reasons to expect a major economic downturn. Economies tend to be cyclical with expansions, peaks, contractions, and troughs and then repeat, however they can stall in a contraction, or recession, with negative economic growth for a prolonged period of time, or a deep trough as they did during the Great Depression of the 1930s.

Former Alan Greenspan blamed the collapse of the dot.com bubble in 2000 and the ensuing steep economic contraction on “irrational exuberance,” risky invest in overvalued Internet trading companies. “Bubbles” or “booms” have a history of collapsing and plunging the economy into a recession. There was overinvestment and a boom in railroad construction in the 1840s followed by an economic downturn, similarly in auto in the early decades of the 20th century and technology companies in the second half of the 20th century. Unsupportable banking investments in derivatives, mortgages that could never be paid off, brought on the financial collapse of 2008. The immediate cause of the Great Depression of 1929-1941 was a Stock Market collapse when stocks bought on margin, a form of credit, began to lose value leading to a rapid sell-off and a run on banks that did not have sufficient reserves to pay depositors. The Stock Market was a giant Ponzi scheme. As long as prices rose nobody was paying attention to the fact that there was nothing backing supposed assets. Many of the economic regulations that prevented another collapse of that magnitude were in response to the Great Depression, regulations that have already been weakened and that the Trump administration plans to weaken even further.

Nobel prize winning economist and commentator Paul Krugman sees “Minsky Cycles” at work in the economy today. In 1992, Hyman Minsky, an economics professor at Washington University in St. Louis and a Distinguished Scholar at the Levy Economics Institute at Bard College, published a paper a “The Financial Instability Hypothesis.” According to Minsky and Krugman, financial markets are driven by greed and fear and because of this they are not efficient in assessing asset prices, the value of a company and its stock shares.

After a financial crisis investors pour money into stocks gambling on an economic expansion. As stock prices rebound, investors grow less risk adverse, more willing to speculate, borrow money, and markets enter a manic phase, what Krugman characterizes as “essentially a Ponzi scheme producing a ‘golden age of fraud.’” All that is needed for the entire system to collapse is something to set off panic selling and Krugman believes there are a number of potential candidates. It could be Trump’s tariff war disrupting global trade, a new pandemic, the discovery that nothing is behind cryptocurrencies, the exposure of unregulated private credit market high-risk, high-interest loans, insurance companies unable to cover climate change induced natural disasters, or recognition that heavy investing in AI is a losing proposition..

I think the biggest threat may be industrial overcapacity. For example, India and China are expanding electric vehicle production. It is not clear how many electric vehicles the world needs or if companies like Musk’s Tesla can compete? Additionally, as electric vehicle sales increase, there will be less demand for traditional gas-fuel vehicles. What will happen to those producers?

Meanwhile, the Trump-Musk team wants to prevent the Federal Reserve from overseeing and regulating Wall Street and close the Consumer Financial Protection Bureau whose job it is to protect people from fraud. Trump appointees to other key government positions are also generally hostile to government regulation. Combined, their inaction will make the inevitable economic downturn much worse.

MAGA voters who thought Trump would bring down the price of eggs will be very disappointed.

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