When do you think the US economy will tank?

The US economy will tank when the false perception of a great economy catches up with the reality of mathematics. Trump predicted economic growth of 4 percent due to his business acumen, success in the real estate market and a “great brain.” However, recent revelations by the New York Times contradicts this assertion by saying that Trump inherited over $400 million dollars using fraudulent schemes to avoid paying taxes and then squandered most of that wealth in bad business decisions only to be rescued by Russian “credit lines” that will become due during his time in office.

Economic forecast for gross domestic product, is that it will rise to 2.4 percent in 2019 according to the Federal Reserve which is 1.6 percent Trump’s wishful prediction. Moreover, the U.S. debt exceeded $21 trillion in 2018 although it had remained stable after sequestration was activated requiring a mandatory 10 percent federal budget cut through 2021. Moreover, Trump might repeal it as tax collections fall below projections from his tax largess for wealthy Americans. Never mind that he promised to reduce the debt as his policies may increase it by $5.6 trillion.

The U.S. debt-to-GDP ratio is forecast to hit 108 percent by the end of 2018, a level that is not a sustainable and well above the 77 percent benchmark that the International Monetary Fund recommends for a healthy economy.

The appointment of Lawrence Kudlow as head of the National Economic Council indicates how firmly Trump and supply-side economics control the republican view of wealth distribution and the how it should take place. However, lowering taxes can create a budget hole that can only be filled by printing new money which many economic researches agree on the notion that new printed money becomes proportional to inflation. These supply-side view ignores that it doesn't work when the maximum tax rate is below 50 percent, according to the Laffer Curve which Kudlow argues as his basis for the economic policy!

On another front China is the world's second-largest economy, behind the U.S. since 2014. Notwithstanding, China's economic growth is slowing from double digits to 7 percent annually but proportionally to its size it will continue to affect the U.S. economy with a higher influence than in the past. One reason is of course the U.S. debt to China which still is larger than to any other country while China continues to accumulate US treasuries for its international trade needs.

Another economic pressure comes from energy price inflation. The International Energy Forum projected, in 2007, that by 2030, oil prices will be $95 a barrel in nominal dollars. “The EIA's Annual Energy Outlook predicts that U.S. shale oil production will level off after that. As a result, oil prices will rise to $114 a barrel by 2050.”

One of the most important functions of the Fed is managing public expectations of inflation for once the public expects inflation, “it becomes a self-fulfilling prophecy.” Confidence in the current economy is Trumpian and the Feds must walk a high rope balancing act managing Trumpian politics with economic reality in order to moderate public behavior. But as the Fed continues to raise interest rates even though at a slow pace, it knows that mortgage rates will rise, and housing prices will drop to offset the higher cost to home buyers. The public on the other hand, thinks the real estate market will crash in the next few years as housing prices rise, combined with raises in interest rates by the Fed. To many observers, it looks simply as an asset bubble that will be followed by a collapse.