Just over a month ago, as the deadly coronavirus spread around the globe and the Dow Jones Industrial Average reacted by falling a now quaint 600 points, Donald Trump, who cares exclusively about the stock market and his reelection chances, reportedly “grew concerned that any stronger action by his administration would hurt the economy,” telling advisers not to “do or say anything that would further spook the markets.” How’d that plan of action, or in this case inaction, work out for the president? In a word, badly. In two words, quite badly. In 40 words, like a bomb that won’t stop exploding in your face, even after the flesh has been completely singed off and the only thing that’s left is a light shadow of bronzer that went all the way through to the bone. One, because the virus has since surged outside of mainland China, with cases in the U.S. topping 500 and the stateside and global death counts hitting 22 and nearly 4,000, respectively. And two, because those 600 points represent a simpler time, when panic had barely registered and all-out pandemonium was but a glimmer in the global markets’ collective eye. Fast-forward a little more than a month later, and things have changed just a bit!
From the Archive: Profiles in Wall Street Panic
On Monday the Dow Jones dropped more than 1,800 points at the open while the S&P 500 fell more than 7%, a massive sell-off that triggered a circuit breaker and halted trading for 15 minutes. (If it falls 13%, there will be another 15-minute pause; if it falls 20%, the markets will close for the day.) Why is all this happening? Well it turns out that President Windmills Give You Cancer doesn’t actually have any idea what he’s talking about, and the rapidly spreading disease is going to have a big impact on the global economy. On Sunday the threat of a “coronavirus-fueled oil war” hit crude prices by more than 20%, after Saudi Arabia, deadlocked with Russia over production, announced that it would slash the price of oil it sells and flood the market with hundreds of thousands more barrels per day at a huge discount. That may sound like a sweet deal, but it’s actually not a good thing. “Cheap oil is one thing. Super-cheap oil is another,” John Kilduff, of Again Capital, told the Washington Post. “The stock market is looking at the oil-price plunge as a canary in the coal mine of a disinflationary one-two punch, driven partly by cratering demand for transportation fuels and a wanton price war among the major oil producers” that will result in serious losses for U.S. and Canadian producers. In times like these, steady leadership can often do wonders or, at the very least, not make things worse. Unfortunately we’ve got Donald Trump, who spent the morning—one of the most consequential of his presidency!—doing this:
In addition, Trump lashed out at New York governor Andrew Cuomo, accusing him of “political weaponization” of the virus, while also referring to the governor’s brother, CNN anchor Chris Cuomo, as “Fredo,” because if there’s a time to bust out references to The Godfather, it’s now. The attack was actually Trump’s second against the governor of a Democratic state since Friday, having described Washington’s Jay Inslee as a “snake” while touring the Centers for Disease Control and Prevention headquarters in Atlanta, telling reporters he had urged Vice President Mike Pence not to be complimentary to Inslee re: his handling of the crisis.
Meanwhile, if you were holding out hope that the administration had things handled behind the scenes, keep holding:
Not only do the Fed and the White House appear to disagree on the severity of the potential economic hit, they’re at odds about the power of interest-rate cuts to stem the panic. Trump and [National Economic Council director Larry] Kudlow have emphasized the Fed’s power to cut interest rates as the primary economic response to the crisis. But although they have moved to cut rates, Powell and others at the Fed have suggested that they have only a limited role to play, with some Fed officials arguing that spending or tax stimulus from Congress and the president would have a greater effect.
The White House hasn’t, however, shown consistent support for such stimulus, with Trump and his top advisers showing daylight among themselves. Although the president has raised the idea of a payroll tax cut to put more money in people’s pockets, Kudlow has rejected such broad-based efforts and on Friday called for more targeted relief for specific industries. Others in the White House are advocating tax reductions on investment income, a longtime conservative wish, or tariff relief with China, but these ideas have not moved forward. Some White House officials have said they would consider more dramatic action, if necessary. This discord, described in new detail from interviews with more than 15 current and former Trump administration officials and Fed leaders, threatens to undermine how Trump’s team handles its gravest economic challenge to date.
While historically the public could take some small solace in the idea that there were “adults in the room,” such is not the case this time around, given that the current president prioritizes ring-kissing first and professional expertise last:
Unlike the seasoned economists and Wall Street players who dealt with the 2008 financial panic, such as Lawrence H. Summers, Timothy F. Geithner, and Ben Bernanke, or the 1999 “Committee to Save the World” that quelled the Asian financial crisis, today’s top policymakers have less expertise steering the government through a crisis. “There is not any sense yet of a coherent American economic strategy for responding to what’s clearly a very important set of developments,” said Summers, a former Treasury secretary who played a key role in financial crises in the Clinton and Obama administrations. “From the outside, things seem amateurish in terms of international coordination, cooperation with international financial institutions, and the presentation of a joint front by Treasury and the Fed.”
During the Asian financial crisis, Summers said, it was not unusual for the Treasury to talk to Fed chair Alan Greenspan multiple times a day along with the International Monetary Fund and the World Bank. Today there is a more awkward relationship among the key players. Trump distrusts many global institutions, and he frequently criticizes [Fed chair Jerome] Powell on Twitter, even calling him an “enemy” in August. These repeated attacks on the Fed alarm many who have steered the economy in the past.
So while previous crises had the steadying hand of, say, a Ben Bernanke, today we’ve got a never-right TV show host advising the equally never-right reality-TV president:
Kudlow built a career on TV in part by telling investors not to overreact to short-term financial panics. He used the same phrase―“buy these dips”―on his 2014 podcast when markets careened during the Ebola crisis under President Barack Obama. Kudlow believes he was vindicated last summer when he urged calm amid fear that tensions with China would spark a recession.
But his approach has caused internal frustration. Health officials, even in the Trump administration, are angered that he played down the risks of coronavirus. Since January, public health officials have been urging others in the administration not to use the word “contained” in reference to the virus. They were alarmed when Kudlow said the virus was “contained” during a CNBC interview on February 25.
To reiterate, for the cheap seats:
“The possibility of a downward spiral is quite large. It will be devastating for small business and lower-wage workers throughout the economy,” Adam Posen, president of the Peterson Institute for International Economics, told the Post. “It’s just bizarre there’s not more action.”
If you would like to receive the Levin Report in your inbox daily, click here to subscribe.
— How coronavirus is creating a fake-news nightmarescape
— Why do Dubai’s princesses keep trying to escape?
— Is Karen Pence’s transformation a play for 2024?
— A Nassim Taleb protégé has tips on how to prepare for the coming market crash
— Health officials and scientists are now banned from speaking about coronavirus
— This is how Matt Gaetz became Trump’s ultimate protégé
— From the Archive: Inside Stephen Glass’s web of deception that emerged as the most sustained fraud in modern journalism
Looking for more? Sign up for our daily Hive newsletter and never miss a story.