The IMF: World Economic Growth has “Plateaued” and it’s Trump’s Fault

Oct. 10, 2018
by Bob Adelmann

Maurice Obstfeld saw an opportunity to turn his commentary on the latest World Economic Report from the International Monetary Fund (IMF) into an oblique critique of U.S. President Donald Trump. Without saying so in so many words, world economic growth has “plateaued,” said Obstfeld, and it’s Trump’s fault:  

Last April, the world economy’s broad-based momentum led us to project a 3.9 percent growth rate for both this year and next. Considering developments since then, however, that number appears over-optimistic: rather than rising, growth has plateaued at 3.7 percent.

Those “developments,” not surprisingly, have to do with Trump’s trade wars and his “unsustainable” economic policies:

Not only have some downside risks that the last WEO identified been realized, the likelihood of further negative shocks to our growth forecast has risen. In several key economies [that would include, of course, those policies undertaken in the United States], moreover, growth is being supported by policies that seem unsustainable over the long term.

Obstfeld, the Economic Counselor and Director of Research at the IMF, added that the present roaring economy in the U.S. is only temporary:

Growth in the United States, buoyed by a procyclical fiscal package, continues at a robust pace and is driving US interest rates higher. But US growth will decline once parts of its fiscal stimulus go into reverse.

There’s so much that’s just plain wrong or confusing in that last paragraph, one doesn’t know where to begin. For the uninitiated, Obsfeld apparently uses the adjective “procyclical” to mean “goosing the economy when it’s already going great guns.” That would be the one-two punch of Trump’s Tax Cuts and Jobs Act (TCJA): cutting taxes and regulations at the same time. That combination has unleashed the sleeping giant that was frightened into hibernation during the Obama administration.

The economy isn’t “driving US interest rates higher,” the Federal Reserve is.

And “US growth will decline once parts of its fiscal stimulus go into reverse”? What parts of Trump’s TCJA would that be, exactly? Is Obstfeld referring to the 52 “temporary” provisions that were added to the bill before it passed? If so, which ones are likely to “go into reverse,” exactly? That’s important to know because if Obstfeld got them wrong then one can surmise that this is an ideological rant rather than a careful consideration of the facts.

Of those 52 temporary provisions, a very few expire before 2025, seven years from now. So: how would something that might or might not occur seven years from now impact the world economy next year?

Obstfeld doesn’t say. He’s reaching.

His CV is revealing. He’s an economics professor on leave from the University of California, Berkeley. He got his Keynesian education (a Ph.D. in economics) from MIT, but only after attending the University of Pennsylvania and King’s College, Cambridge University. He served as a member of President Obama’s Council of Economic Advisors. So he’s perfect to promote the globalist agenda for an outfit that got its start, along with the World Bank, during the Bretton Woods conference near the end of the Second World War. The two sisters were planning to serve as the world’s central bank and the world’s financial manager and overseer. Please note: these are not von Mises’ worldviews.

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The IMF did get part of its forecast right: China’s economy is faltering, and, with the assistance of Trump’s tariffs, both present and prospective, is likely to decline further. It projects China’s GDP to drop from 6.6 percent this year to 6.2 percent next year, its lowest since 1990.

Missing from his commentary is any mention of the strategy Trump is employing, but instead assumes that the tariffs he is using to get China to come to the negotiating table will continue forever.

To his credit, deep into his commentary, Obstfeld gets it right: when China comes to terms acceptable to Trump, that “would be a significant upside to [our] forecast.”

That “significant upside” is going to take place even if China resists coming to the table, thanks to the half a trillion dollars that have already been repatriated under Trump’s TCJA, with another trillion likely to be returning to the U.S. over the next couple of years. When those funds are put to work, they will act as a jet engine’s afterburner.

Those temporary “high tariffs” will ultimately result in permanently low tariffs, providing another stimulus to the world economy that Obsfeld cannot, or will not, foresee. And if Congress makes those “temporary” tax cuts permanent, then the IMF will be forced to adjust upwards significantly its future World Economic Outlook reports. 

As this writer noted here in Monday’s article, the only thing that can slow Trump’s economy is the Federal Reserve. But Mr. Obstfeld had nothing to say about that.

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Sources:

Definition of procyclical

BusinessInsider.com: The IMF again downgrades outlook for the global economy

CNBC.com: IMF cuts its global growth forecasts, citing trade tensions between the US and its trading partners

USNews.com: IMF Downgrades Outlook for World Economy to 3.7 Pct. Growth

Background on the IMF

Reuters.com: IMF cuts world economic growth forecasts on tariff war, emerging market strains

IMF’s 2018 World Economic Outlook, released October 9, 2018

Maurice Obstfeld’s blog on the latest WEO report

Background on Maurice Obstfeld, IMF’s Director of Research

Tax cuts that expire in 2025

Expiring Provisions of the Tax Cuts and Jobs Act

McAlvanyIntelligenceAdvisor.com: Investors Remember William McChesney Martin, and Sell

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