Dr. M on Nostr: My guess is that the US has a 90% chance of ending up in a recession. In fact, it is ...
My guess is that the US has a 90% chance of ending up in a recession. In fact, it is highly likely that it is already in a recession, it will just take many more months to confirm this.
I give a small chance of 10% that they will miraculously pull out, that Trump significantly reduces tariffs and quickly makes agreements with other countries, but I would not bet on that.
Many people wonder why it is important that the “US stock markets crashed” or that stocks fell sharply. There is something called the “wealth effect”. It is an economic phenomenon that refers to changes in consumer behavior that occur as a result of changes in the value of household assets. When the value of assets (stocks, real estate, etc.) increases, people feel richer, which often encourages them to spend more. Conversely, if the value of assets falls, people may feel poorer, which can lead to a decrease in consumption.
In the US, most people, directly or indirectly (through 401k) invest in stocks. However, the inequalities there are huge, with the richest 10% holding over 90% of all stocks. So, most are affected by the decline in stocks, but the richest are the most affected. Why does that matter?
Well, because the top 10% of people with the highest incomes are responsible for half of all personal consumption in the US! Look at the attached image. And keep in mind that personal consumption is the most important component of GDP, accounting for about 70% of GDP.
So, when someone sees their wealth "disappear" (stocks lose value), they certainly don't feel as comfortable continuing with the same level of consumption as when the value of their stocks increases.
And what will happen to those who earn less and who spend all their income on current expenses anyway (so the decline in stocks doesn't seem to affect them much)? They will receive higher prices for goods imported from Mexico, China, the EU, Vietnam, etc. as a gift due to tariffs. These increases will be significant, especially on goods coming from China (current tariffs are stuck at 104%). If these people's incomes don't increase significantly, what can they do but reduce real consumption?
And where can US GDP go without real consumption growth but down?
Continue with your daily activities.
#US #Trump #tariffs #GDP #recession #markets #stocks
I give a small chance of 10% that they will miraculously pull out, that Trump significantly reduces tariffs and quickly makes agreements with other countries, but I would not bet on that.
Many people wonder why it is important that the “US stock markets crashed” or that stocks fell sharply. There is something called the “wealth effect”. It is an economic phenomenon that refers to changes in consumer behavior that occur as a result of changes in the value of household assets. When the value of assets (stocks, real estate, etc.) increases, people feel richer, which often encourages them to spend more. Conversely, if the value of assets falls, people may feel poorer, which can lead to a decrease in consumption.
In the US, most people, directly or indirectly (through 401k) invest in stocks. However, the inequalities there are huge, with the richest 10% holding over 90% of all stocks. So, most are affected by the decline in stocks, but the richest are the most affected. Why does that matter?
Well, because the top 10% of people with the highest incomes are responsible for half of all personal consumption in the US! Look at the attached image. And keep in mind that personal consumption is the most important component of GDP, accounting for about 70% of GDP.
So, when someone sees their wealth "disappear" (stocks lose value), they certainly don't feel as comfortable continuing with the same level of consumption as when the value of their stocks increases.
And what will happen to those who earn less and who spend all their income on current expenses anyway (so the decline in stocks doesn't seem to affect them much)? They will receive higher prices for goods imported from Mexico, China, the EU, Vietnam, etc. as a gift due to tariffs. These increases will be significant, especially on goods coming from China (current tariffs are stuck at 104%). If these people's incomes don't increase significantly, what can they do but reduce real consumption?
And where can US GDP go without real consumption growth but down?
Continue with your daily activities.
#US #Trump #tariffs #GDP #recession #markets #stocks