Defeating The Greater Lawlessness

 Popular Economics Weekly

“The Republicans’ hunger for power has now reached such a point that they have selected and continue to support a president who has lied and cheated his whole adult life; from Trump Casinos to Trump Towers, from stiffing bankers and his workers to cooking the books.” H Green/Huffington Post

NYTimes

We knew as long ago as Nixon’s Watergate that the Republican Party harbored a lawless tendency when it suited them. Why else would President Reagan engineer the illicit Iran contra arms deal with Khomeini, or President GW Bush invade Iraq when UN inspectors already knew Saddam Hussein had destroyed his weapons of mass destruction a decade earlier, I said in 2017?

Now we have illegal tariffs and an unpopular war with Iran, one that will drive inflation even higher and might take years to return to the Federal Reserve’s 2 percent target to fulfill its mandate of full employment with stable prices.

The result? Another recession, sooner or later, as happened during Presidents Reagan (2) and GW Bush terms. In Bush’s case, he managed to turn four years of Clinton budget surpluses (1996-2000) that could have kept social security and Medicare solvent for decades into a worldwide Great Recession (2008-09), the worst since the Great Depression, according to most economists.

President Trump’s Republicans are following the same path with his huge tax cuts while borrowing $trillions to fight his wars, cutting public services to the bone and closing whole departments by firing more than 300,000 federal employees.

Republicans have doubled down on their lawlessness by allowing his illegal wars and tariffs, and maybe what could precipitate the next recession; their determination to deport as many undocumented immigrants as possible without allowing them due process or a legal pathway to citizenship.

Immigrants are taxpayers that add workers to our shrinking population, and their loss is depriving our economy of essential services—agricultural workers that supply our groceries, for starters, but also a large part of construction, healthcare, transportation and lower paying service workers in leisure and hospitality.

This can only be done because Trump’s Republicans either ignore or disregard the civil laws, as well as economic laws, and even the constitution in their hunger for power. This is impoverishing more Americans, not to speak of turning a blind eye to the illegal enrichment of the Trump family and their supporters.

What can be done to return the $trillions in wealth and power that Republicans have taken away from the American people via their massive tax cuts to corporations and wars that were never paid and ignore the most basic rules of capitalist enterprise, such as debts must be paid, contracts and treaties honored?

The sad fact is that the Iran war wasn’t necessary because President Obama had already negotiated a nuclear arms agreement with Iran and Trump’s tariffs have been mostly based on ignorance of foreign trade tradeoffs, not unfair trade practices.

The history of greater lawlessness and hunger for more power is leading to a massive disruption in foreign trade which is the life blood of the world’s economies. It is repeating the mistakes that choked off world trade in 1930 and led to the Great Depression.

The question is how much longer will consumers and voters tolerate the record of Republicans’ failures that have led to four recessions just since 1980 that were the result of their hunger for more power?

Polls are showing that ordinary Americans are beginning to understand what it means.

Harlan Green © 2026

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Another Housing Bubble?

 The Mortgage Corner

“WASHINGTON (July 9, 2026) – Existing-home sales decreased by 2.4% month-over-month and increased 2.8% year-over-year, according to the National Association of REALTORS® Existing-Home Sales report. NAR

FRED30yrmortgage

It’s been months since I last wrote about the housing market, and why it’s had such a slow recovery. FRED’s 30-year fixed mortgage graph tells us why, and why we have a housing shortage.

And the 30-year fixed rate mortgage has hovered above 5 percent since 2023, its longest stretch above 5 percent since 2007 and the start of the Great Recession. Lower interest rates would certainly stimulate more housing construction, especially on the affordable end.

But new Fed Chair Kevin Warsh has been repeating that inflation is too high at his congressional hearings and the Fed may have to make some hard choices and become an inflation hawk to bring inflation back to its 2 percent target rate.

If only we still had Ayn Rand disciple and free market lover Alan Greenspan as the Fed Chair! In a similar situation during the GW Bush 2000 decade, Fed Governors resisted raising the Fed rates to help fund the Bush administration’s wars on terror, despite enacting the large Republican tax cuts that caused the first $trillion in federal debt.

A caveat is to be careful what you wish for, since the last such building surge inflated the housing bubble for mostly the wrong reasons.

And the busted housing bubble that led to the Great Recession of 2008-09 also led to the current housing shortage. Can we ever return to the ‘good old days’ when there was enough housing for those that want to own?

It fueled an earlier housing bubble It was the combination of interest rates being held below rising inflation that caused housing prices to increase by double digits for a couple of years and we were left when a massive oversupply of unsold homes.

Right now we have both a demand and supply problem—how to bring down mortgage rates to lure more home buyers, and kick start more housing construction.

The Trump administration is also attempting to talk down interest rates in the face of its massive tax cuts as it has been waging war on several fronts—from attacking Venezuela to Iran, while again ballooning the federal debt.

The 30-year average fixed mortgage was last at a much more affordable 3 percent rate during the COVID-19 pandemic. It is 6.58 percent at this writing and has remained above 6 percent since 2022 when the Fed last raised interest rates to combat inflation as world economies began to recover from COVID.

And we know both home buyers and mortgage lenders are incredibly sensitive to mortgage rates, in part because mortgage lenders have kept credit standards much higher than they were in the lead up to the housing bubble that caused so many defaults. Anyone remember the no-income verification, liar loans of that time?

The National Association of Realtors remain hopeful that the home buyer market will approve.

"The back-and-forth in monthly home sales activity, driven by mild fluctuations in mortgage rates, shows how sensitive home buyers are to affordability conditions,” said NAR Chief Economist Lawrence Yun. “However, job gains—more than half a million since the beginning of the year—will continue to provide support for the housing market.”

But so much is similar to the housing bubble and bust. Trump’s Big Beautiful Tax Bill and Iran war is raising the costs of everything as did Bush’s tax cuts and war on terror.

Are we seeing a housing revival with the slight uptick in existing home sales? Hope springs eternal, as the saying goes. Sales have hovered around 4 million residential units since the busted housing bubble and 2008-09 Great Recession. There has never been enough supply to satisfy the demand of an increasing population since then because the busted housing bubble restricted new home building for almost 10 years, and 30-year fixed rate mortgages have hovered above 6 percent ever since, per the FRED graph.

Higher interest rates are raising construction costs. Trump’s tariffs on steel, copper, lumber and other materials are lifting construction prices and interrupting some jobs. This is while immigration enforcement is worsening worker shortages and delaying projects.

I said last week,

“We get so many things thrown at us in the construction industry,” said Tony Rader, the chief relationship officer at National Roofing Partners, a commercial roofing company in Coppell, Texas. “It just seems like every time we turn around, we’ve got something else to fight.”

The bottom line is too many resources have been diverted to funding wars, not peaceful enterprises since then, leaving little room for more housing construction, or curing our homeless problem.

When will that change?

Harlan Green © 2026

Follow Harlan Green on: https://twitter.com/HarlanGreen

“The economy hasn’t lost its mojo.” MarketWatch

 Financial FAQs

“Advance estimates of U.S. retail and food services sales for June 2026, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $768.6 billion, up 0.2 percent (±0.4 percent)* from the previous month, and up 6.7 percent (±0.5 percent) from June 2025.” Census.gov

FREDretailsales

Headlines, such as that consumers “haven’t lost their mojo” have popped up when retail sales rose 0.2 percent in June. It’s a sign of consumers are willing to ‘shop until they drop’, which may keep the U.S. economy growing for some time.

It also means that same level of irrational exuberance of the 1990s is back once again, with the major market indexes at record levels, and consumers seemingly oblivious to the conditions that prevailed during the late 1990s.

 Nobel Laureate Robert Shiller first presented the term irrational exuberance to Alan Greenspan’s Federal Reserve Governors in 1996 to evidence how overvalued stock market levels had become at the time. But it wasn’t until 2000 that the dot-com asset bubble burst that many market commentators and some economists are comparing to the current record market rally.

The MarketWatch headline portrays most of the media’s reaction to the latest Advance Retail and Food sales report by the U.S. Census Bureau. The slightly hysterical headline is really a sign of relief because of the slight drop in monthly gas prices that prevailed during the 60-day cease fire agreement.

But the cease fire has ended. And it reveals how badly the Trump tariffs and Iran war have hurt consumer spending, still the backbone of U.S. economic growth. We have been a consumer-driven economy since the 1950s and end of World War II.

And since retail sales are not inflation adjusted, when adjusted for inflation, gas and food in particular have become less affordable. Retail inflation is still above 3 percent. Retail sales have fluctuated wildly, as per the above graph, rising 6.7 percent in 12 months because consumer bought more in earlier months to get ahead of the rising inflation—i.e., before the Iran War began to jack up everyday prices.

Though sales at car dealers and online merchants both jumped about 2 percent in June, sales fell at grocery, clothing and healthcare stores, says MarketWatch.

So, consumers are still shopping because they must, putting them further in debt. The Consumer Price Index for basic necessities like gas and food is still above 3 percent, as I said, and the wholesale (PPI) price index for raw materials that go into retail goods is 5.5 percent annually, the U.S. Bureau of Labor Statistics reported. It’s still the largest rise in more than three years.

We don’t have to look at just the dot-com bubble to compare, either. I see an unsettling resemblance to the ‘roaring twenties’ of an earlier era from the recovery of another pandemic, the Spanish Flu pandemic of 1919 to 1920 that killed what would be millions of Americans if at our current population level.

It was a long recovery—until 1929 and the Black Friday stock market crash that led to the Great Depression, caused in part by another era of high tariffs that led to product shortages.

How long may this era of irrational exuberance last that has driven the financial markets to record levels with so much wealth pouring into a new space age that will take us years to return to the moon, much less turn a profit?

We are at another turning point in what currently looks like an A.I. revolution, much like the Internet’s introduction that took decades to adopt, and recovered from a Great Recession, let’s not forget.

So the best way to survive another bout of irrational exuberance is to be patient, in my opinion, rather than listen to the crowd that promises the next big thing.

Harlan Green © 2026

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Does Inflation Ever Come Down?

Popular Economics Weekly

“From the preceding month, the PCE price index for March increased 0.7 percent. From the same month one year ago, the PCE price index for March increased 3.5 percent.” BEA.gov

FREDpce

Inflation is rising again, to no one’s surprise, from its low of 2.3 percent in April 2025 when Trump first announced his worldwide tariff hikes, to 3.5 percent in March this year. The reasons are clear, inflation is rising on Trump’s watch, not Biden’s.

And inflation almost never comes down without another recession. This is verified in the above graph of Federal Reserve’s preferred Personal Consumption Expenditure price index from 1980. The gray bars are the five recessions since 1980, and each clearly shows the beginning of the sharp downward move of prices in the PCE index

The only time prices have come down without a recession since then was during President Biden’s term—from its high in June 2022 to slightly above 3 percent at the end of his term.

Biden could do this because the Fed used its best tool to combat inflation; raising interest rates at the same time as Biden succeeded in lowering the federal debt by raising corporate taxes to counter the huge influx of government money injected into the economy ($5 trillion) from Biden’s bipartisan Infrastructure, Inflation Reduction and CHIPS Acts.

The bills were passed to inaugurate the biggest modernization of the U.S. economy since the Great Depression that employed a record number of workers.

So it is possible to bring down inflation without a recession. And there is substantial harm, especially to working Americans who face higher prices for basic necessities, such as gas and healthcare, for prolonging this inflation surge.

What had caused the five recessions since 1980? Republican administrations cut taxes without paying for them, ballooning the federal debt instead of reducing it. Recessions (gray bars) occurred in 1980, 1981, 1990, 2008-09, all during Republican administrations. The short 2000 recession happened because of the COVID-19 pandemic.

This is an unnecessary inflation surge, in other words. It’s because of multiple wars being fought and a Republican congress that will not curb a president who doesn’t care about the costs and harm he is doing to Americans and the American economy.

Harlan Green © 2026

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Fitrst Quarter Economic Growth Improves

 Financial FAQs

Real gross domestic product (GDP) increased at an annual rate of 2.0 percent in the first quarter of 2026 (January, February, and March), according to the advance estimate released today by the U.S. Bureau of Economic Analysis. In the fourth quarter of 2025, real GDP increased 0.5 percent.

BEA.gov

“The U.S. economy has just powered through shock after shock,” was Fed Chair Powell’s summation of the state of the U.S. economy at his last press conference as Federal Reserve Chairmen.

First quarter 2026 real (inflation adjusted) GDP growth picked up +2.0% in the government’s first estimate, following +0.5% growth in Q4 2025, thanks to the $billions being spent in AI energy center build outs.

Kevin Warsh will take over as the new Fed Chairman in May, so there is speculation that he will push for easier monetary policy as President Trump’s pick for the new Fed Chairman by lowering the Fed’s interest rates and a more hands off management style.

Trump badly needs easy credit to maintain growth because of his economic mismanagement. A barely functioning government is either tied up in congress with the various shutdowns (last fall and current DHS funding), while illegal tariffs have choked supply chains.

Meanwhile, to Powell’s consternation, economic growth is picking up “through shock after shock”, from the Great Recession, COVID-19 pandemic, the 37-day fall government shutdown, tariffs, and the various wars that have caused energy prices to skyrocket.

The AI build out was predicted to boost growth, consumers continued to hold up their end, and government spent more on the Ukraine and Iran wars. The Defense Department reported the Iran war has already cost $25 billion in just the first two months.

And the financial markets continue to rally to new highs, so we are seeing some irrational exuberance, despite the game of chicken by Iran and Trump over the Hormuz Strait blockade. It’s obvious market investors continue to believe that Trump with his TACO policies will find a way to extricate American out of his latest war sooner rather than later.

But it also means $4 plus gas prices and soaring inflation for months to come. Even if the Iran war is settled sooner, predictions are that Middle East energy production won’t be restored to previous levels for at least one year.

The real problem is the Trump administration’s economic mistakes have taken us back to a Cold War economy—more military spending, fewer government social services, while endangering the good faith and credit of the U.S. federal government as the debt continues to balloon.

Something has to give, in other words. The financial markets won’t rally forever on the AI investment bubble, and consumers won’t keep shopping until they drop without an ensuing downturn.

The question is when on so many fronts. When will the wars end? When will enough consumers realize prices won’t come down and elect a congress that will control Trump’s extravagance and greed before he bankrupts the American economy?

When will it be one shock too many that drives us into another recession?

Harlan Green © 2026

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

What, Another Great Recession?

 Financial FAQs

 “The conflict with Iran has already put fresh stress on the U.S. economy, as businesses are reporting rising prices, fewer orders and a decline in employment. A survey of service-oriented companies — the sector that employs most Americans — fell to an 11-month low of 51.1 in March from 51.7 in the prior month, S&P Global said Tuesday.” MarketWatch

FREDpayrolls

Maybe we shouldn’t be looking at the 1970’s era of stagflation for the kind of economic damage from the Iran War and closing of the Strait of Hormuz to oil shipments. There is a short-term spike in oil prices, though oil from other sources than the Gulf can eventually make up the difference in supplies.

The war’s damage may take longer to materialize but look more like the Great Recession, which we shouldn’t forget was a worldwide recession that occurred in 2008-09, the worst since the Great Depression of the 1930s.

We shouldn’t forget that the Great Recession Bush/Cheney and their oil barons ultimately spawned with the ill-planned invasions of Iraq and Afghanistan was based on lies about the weapons of mass destruction that Saddam Hussein didn’t have.

And now Trump and his Robber Barons are taking the Gilded Age dreams of William Mckinley one step further with lies that Iran is preparing nuclear weapons to justify the ill-prepared war with Iran while aliening the allies that would help them succeed.

This is even though Trump’s just-resigned Counterterrorism czar Joe Kent said Iran posed no imminent threat with nuclear weapons.

The Great Recession was caused by more than the Bush wars on terror, of course. It was caused by putting too many regulation-cutting foxes in the Bush/Cheney hen house that literally resulted in the failure of nonbank banks like Bear Stearns and Lehman Brothers to fail.

Trump is following the same playbook by gutting the government’s regulatory agencies that could prevent the blatant fraud occurring with the Trump administration’s Bitcoin investments that have no regulations or backing with assets.

This time negative GDP growth could come from the faltering labor market, which is frozen in place with almost no net new job creation at all in 2015 as highlighted in the above FRED graph. Fed Chair Powell remarked at his latest press conference that they were torn over whether to cut interest rates or raise them because Trump’s immigrant deportations were causing a labor shortage.

Economic growth ground to a halt as well in 2008, even when Fed Chair Greenspan anxiously began to cut interest rates to prevent the near failure of our banking system.

Powell’s Fed Governors also predicted overall GDP growth of 2.4 percent in 2026, even though Q4 2025 Real GDP growth slowed from 1.4 to just 0.7 percent. So I don’t understand the Fed’s optimism over economic growth.

And history has shown that no job growth will ultimately lead to no economic growth,

The frightening truth is that both Republican administrations have made bad decisions for the same wrong reasons.

Harlan Green © 2026

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Great Recession Lessons

 Financial FAQs

“Irrational Exuberance. Economists who adhere to rational-expectations models of the world will never admit it, but a lot of what happens in markets is driven by pure stupidity – or, rather, inattention, misinformation about fundamentals, and an exaggerated focus on currently circulating stories. Robert J. Shiller

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Nobel Laureate Robert Shiller is best known for his book, Irrational Exuberance, that he wrote in 2000 predicting the Dot-com recession. But it applies as well to the Great Recession of 2007-09, the worst world-wide recession since the Great Depression, which was precipitated by the busted housing bubble that in turn was based on the irrational belief housing prices would never fall.

And former Fed Chair Alan Greenspan’s Fed cooperated by pushing its Fed Funds rate to 1% in 2004 per the FRED graph, after which inflation took off. CPI (consumer) inflation ultimately reached 5 percent and Greenspan’s Fed then had to sharply raise its Fed Funds rates to combat it, busting the housing bubble.

The Great Recession that lost more than eight million jobs was ultimately based on President GW Bush pursuing the time-honored Republican agenda of multiple tax cuts and borrowed money while advocating ultra-low interest rates that created the first $1 trillion federal budget deficit.

Sound familiar? Trump is pushing for lower interest rates once again when Chairman Powell’s term at the Fed ends in the spring and his own Fed Chairman takes over with a majority of more inflation-friendly Trump-appointed Governors.

The Great Recession was caused by pure greed, in other words. Republican tax cuts mainly benefited their wealthiest supporters and the higher federal debt incurred was paid for by taxpayers. The Trump administration is running up another $4 trillion to the federal debt from its Big Beautiful Tax Bill renewing the tax cuts enacted during his first term that had already added $5 trillion to the debt.

There were also other lessons from the 2007-09 Great Recession. Bush had championed cutting regulations that ‘freed’ more market speculation and appointed regulators who were in reality foxes in the hen house. They refused to enforce existing regulations, allowing banks to buy and sell junk bonds that were falsely rated as investment grade, causing several investment banks to fail (e.g., Bear Stearns, Lehman Bros).

How close are we to another recession of any kind? The November unemployment report comes out on December 16, as I’ve said, (skipping October’s report) after the Fed’s FOMC meet that decides whether another rate cut is appropriate, so we have only the ‘unofficial’ ADP private payrolls report on employment that showed -32,000 private payrolls were lost in November.

We do have the just out October JOLTS report on monthly hirings and layoffs that said job openings jumped to 7.7 million in October from a 7.2 million reading in August that had been close to a pandemic low.

“Yet the number of people hired in October was basically the same as the number who found jobs in August: 5.1 million. That was the second-lowest number since the pandemic and the lowest since 2015 if the COVID-19 era is omitted,” said MarketWatch’s Jeffry Bartash.

That’s hardly a reason for optimism on future job growth. The fear of higher inflation from the tariffs is causing higher long-term bond and mortgage rates, stopping the housing market from growing at all.

A recession is basically a vote by consumers that they will spend less (because fewer can afford the higher prices, in this case). It’s possible that Republican priorities will fool some of their poorer, MAGA supporters some of the time, but not all Americans.

Yet Donald Trump will continue to pursue more rate cuts when his Fed Governor takes control, telling everyone it won’t cause higher inflation.

This could be the Great Recession scenario all over again, with a deflated AI asset bubble instead of the busted housing bubble. Consumers will know first, even though Trump likes to fire those government statisticians that don’t agree with him and hire incompetents in their place.

There are even more lessons to learn, such as history has a habit of repeating itself when “markets are driven by pure stupidity.”

Harlan Green © 2025

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Will Fed Give Up the Inflation Fight?

 Financial FAQs

 “Consumers continue to express frustration over the persistence of high prices, with 44% spontaneously mentioning that high prices are eroding their personal finances, the highest reading in a year.” University of Michigan Sentiment Survey

FREDcpi

Federal Reserve Chair Jerome Powell said at his most recent press conference (after the Fed’s October FOMC meet) that they were still committed to achieving a 2 percent inflation target.

Why ? Because inflation is still too high and Chair Powell, et. al., see too much uncertainty ahead. That’s no surprise given the government shutdown, and continuing tariff wars.

The last period of moderate inflation was the decade after the Great Recession, as seen in the Fred Consumer Price Index chart (large gray bar is GR)—that ended with the COVID-19 pandemic. It was during the Obama administration when regulations were created that required banks to play by the rules and hold more capital.

But what if the rules are changed again that allow higher inflation and fewer regulations that the Trump administration says it wants?

The moderate inflation ended because of the COVID-19 pandemic when massive liquidity was injected into the economy during the first Trump and Biden administrations to speed up the recovery. Inflation jumped to a high of 9 percent before declining until the retaliatory tariffs, rising again to its current 3%.

So now there is growing doubt that the Fed can maintain the 2 percent inflation target, since the newest members of the Fed Governors that vote on interest rates were Trump-appointed. And a Trump pick will become the new Federal Reserve Chair next year.

This is while President Trump has been calling for lower interest rates, which with higher tariffs would lead to higher inflation.

Trump claims that won’t happen even though he has raised tariffs to Taft-Hartley, Great Depression levels (thus raising import prices), has raised federal debt because of his Big Beautiful Tax Bill, and is loosening financial regulations that limit market speculation (e.g., in Bitcoin).

Add all this to the chaos generated by a White House that almost daily revises its decisions (e.g., TACO Trump), which makes it almost impossible to predict what will happen next.

Trump won’t admit he is responsible for the rise in consumer prices since April 2. But it happened at the same time that he announced his retaliatory tariffs on the rest of the world.

There is pushback from the bond market, which doesn’t like inflation because it reduces the value of bonds. We can see that certain financial markets are already reacting to the inflation uptick with higher interest rates, which is making consumers increasingly unhappy, even with the second -0.25 percent rate cut in October.

This translates into higher mortgage rates as well, which won’t make the housing industry happy either. So, who will lobby against more easy money to prevent another Great Recession, which happened the last time Republicans pushed through such an easy money agenda by blatantly ignoring financial regulations?

Though no one was punished for it, and American taxpayers paid for the bailout of our financial system. Will that happen again, now that Republicans are once again in charge?

Consumers don’t like higher prices, period, and there is another election in 2026. They might even remember the eight million job losses that followed what was the worst economic downturn since the Great Depression.

Harlan Green © 2025

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

It's Trump's Economy Now--Part II

 Financial FAQs

“Despite the strong economic growth we saw in the second quarter, this month's release further validates what we've been seeing in the labor market, that U.S. employers have been cautious with hiring. ADP

That’s one way to characterize the U.S. Economy. But it’s Trump and his Republicans’ economy now, no matter what happens next. The government shutdown that began on October 1 will have little effect on economic growth, regardless of who is blamed for it, according to most economists.

ADP, a private payrolls processor, reported September was the third month in a row that businesses eliminated jobs. Small and medium-sized companies lost jobs, while companies with more than 500 employees gained 33,000 jobs, mostly in healthcare and education.

It is the only employment report we may have for a while, since the Labor Department says that September’s official US unemployment report will be postponed because of the government shutdown.

Conferenceboard.org

The decline in job availability is beginning to affect consumers, reports the Conference Board’s Consumer Confidence Survey:

“Consumer confidence weakened in September, declining to the lowest level since April 2025,” said Stephanie Guichard, Senior Economist, Global Indicators at The Conference Board. “Consumers’ assessment of business conditions was much less positive than in recent months, while their appraisal of current job availability fell for the ninth straight month to reach a new multiyear low.”

It’s no wonder the Federal Reserve finally cut interest rates two weeks ago for the first time since last December, and two more cuts are scheduled for this year.

The government shutdown will make things even worse, since employees will be either furloughed, or must work without pay in its most essential functions like the military, social security, Medicare, and Medicaid.

About 750,000 federal employees could be furloughed every day, according to a Congressional Budget Office estimate out Tuesday, cited my MarketWatch’s Victor Reklaitis. “The number of furloughed employees could vary by the day because some agencies might furlough more employees the longer a shutdown persists and others might recall some initially furloughed employees,” the CBO said.

Yet inflation continues to rise with the latest Personal Consumption Expenditures (PCE) core index reporting a 2.9% inflation rate, up from its low of 2.4% in the spring.

And the manufacturing sector has been contracting for seven months, reports the Institute for Supply Management (ISM). The index of future sales orders has declined in seven of the last eight months.

“We believe we are in a stagflation period where prices are up but orders are down due to tariff policy, and, again, customers are not willing to pay the higher prices, so they are just not buying,” said one executive in the transportation sector, also cited by MarketWatch.

So, the stagflation term is rearing its ugly head once again. What a time for another government shutdown as happened during Trump and Republicans first term! It lasted 37 days and this one will create even more uncertainty with the looming tariffs.

Guess what that means for more stagflation? Fewer jobs mean consumers have less purchasing power. They have continued buying until now because most tariffs are still being negotiated, hence the current effective tariff rate is still in the teens.

But sooner or later Trump will reach agreement on the tariffs, since they still must be ratified by congress.

The Trump administration has really little room to maneuver to keep the U.S. economy from shrinking. It has added an average of just 25,000 new jobs a month from May through August after the benchmark revisions, marking the weakest four-month stretch since 2010, ignoring the COVID-19 era.

We don’t need another prolonged government shutdown or another Great Recession, in other words. Nobody wins.

Harlan Green © 2025

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Irrational Exuberance is Back

 Financial FAQs

“How errors of human judgment can infect even the smartest people, thanks to overconfidence, lack of attention to details, and excessive trust in the judgments of others, stemming from a failure to understand that others are not making independent judgments but are themselves following still others—the blind leading the blind.” Robert Shiller, Irrational Exuberance

FREDS&P

Both the DOW and S&P 500 indexes of the largest publicly traded companies in the U.S. are at record levels, despite Donald Trump having just raised tariffs on 90 countries that he doesn’t like for some reason. April 2 was the last time he made such an announcement and the S&P plunged 828 pts. on the same day (see dip in graph), and the DOW more than 1,000 pts. before resuming their climb.

Yet the financial markets aren’t panicking this time, maybe for the wrong reasons. Their over enthusiasm, which was first termed irrational exuberance by Fed Chair Alan Greenspan in the mid-1990s as a warning that stocks were overpriced, has created a new asset bubble much like the dot-com asset bubble, and housing bubble that led to the Great Recession.

And such massive overinvestment in new technologies such as the current AI investment boom haven’t turned out well, historically.

Nobel Laureate Robert Shiller first wrote about it in his 2000 book, Irrational Exuberance, just before the bursting of the dot-com speculative bubble, which was precipitated by overinvestment in communication technologies such as the nationwide laying of fiber optic cables.

He said at the time: “I define a speculative bubble as a situation in which news of price increases spurs investor enthusiasm, which spreads by psychological contagion from person to person, in the process amplifying stories that might justify the price increases, and bringing in a larger and larger class of investors who, despite doubts about the real value of an investment, are drawn to it partly by envy of others' successes and partly through a gamblers' excitement.^”

Companies are investing $trillions in developing AI, which is powering the largest Magnificent 7 tech stocks such as Apple and Facebook to record highs. Market analysts on CNBC have noted that ten stocks are driving 40 percent of the market’s current rally.

Yet just 9.4% of U.S. businesses used AI in July, including machine learning, natural language processing, virtual agents, and voice recognition, according to the Census Bureau as cited by Barron’s Megan Leonhardt.

S&P members’ current earnings per share reflect this. Stock prices have climbed to 29 times earnings which, according to Professor Shiller’s research, is approaching irrational exuberance territory. This is double the S&P’s historical EPS average price of 15 times earnings over the past 100 years that Dr. Shiller has researched.

The markets seem to be ignoring Trump’s erratic behavior for other reasons as well. This is in part because of investors’ belief that inflation is mild, though still rising. The Fed’s favored PCE inflation index for June increased 2.6 percent. Excluding food and energy, the PCE price index increased 2.8 percent from one year ago, still above the Federal Reserve target inflation rate.

And the long-awaited interest rate cuts financial markets haven been hoping for could begin in September after the very weak July unemployment report that caused Trump to fire the BLS Director.

The markets are also ignoring the damage Trump’s higher tariffs will cause to economic growth. History has shown that stagflation is a recurring problem, even during the COVID-19 pandemic. Supply chains dried up then as the world economies shut down, elevating inflation. And supply deliveries have already slowed from the effects of Trump’s on-again, off-again executive orders, as countries look for ways to reroute their exports.

Maybe the greatest sign of irrational exuberance is investors’ assumption that TACO Trump will eventually settle tariffs back to the 10 to 15 percent rates that he initially promised. But when?

Trump and Republicans have always had a problem with the truth and economic facts (like who benefits most from tax cuts), as has been pointed out by those professionals whose job it is to ascertain the facts (with many losing their jobs because of it).

Irrational exuberance has seriously damaged financial markets in the past and caused $trillions in losses. It happens when investors ignore financial facts that aren’t convenient or follow the herd rather than make the effort to read below the headlines.

What will happen this time when market investors realize this administration doesn’t believe in the facts at all?

Harlan Green © 2025

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

The Return of Stagflation

 The Mortgage Corner

“From the same month one year ago, the PCE price index for June increased 2.6 percent. Excluding food and energy, the PCE price index increased 2.8 percent from one year ago.” BEA.gov

FREDpceinflation

President Trump hasn’t succeeded in convincing the Federal Reserve to cut interest rates or fired Chairman Jerome Powell just yet. So he fired the head of the Labor Department’s Bureau of Labor Statistics without cause that published the weak July unemployment report instead.

It is heralding another era of stagflation that has destroyed the wealth of too many Americans.

It now looks like he wants to recreate what happened to two other Republican Presidents—manipulating the data to disguise the fact that looming inflation can be a big problem as it was in the stagflation of the 1970s and housing bubble and Great Recession of 2008 that was the worst economic downturn since the Great Depression.

President Nixon first tried it when combatting the looming oil price-inspired inflation from the Arab Oil Embargo by fixing prices to keep them artificially low, then pushed his Fed Chair Arthur Burns to keep interest rates low in the face of slowing economic growth caused by the OPEC embargo.

It resulted in 14 percent inflation in 1980 that caused then Fed Chair Paul Volcker to raise the Fed Funds rate to 20 percent, resulting in two recessions early in President Reagan’s tenure.

President GW Bush also tried it in 2000 by pushing then Fed Chair Alan Greenspan to keep interest rates low to finance his wars on terror. Greenspan held interest rates too low for too long, which resulted in the housing bubble and Great Recession that followed.

And now Trump is looking for a successor to the Senate-vetted BLS official, Dr. Erika McEntarfer, who will manipulate employment statistics for him. The result will be less trusted unemployment reports, masking the effects of historically high tariffs that will again create product shortages and slow economic growth.

The Labor Department’s unemployment report understated what happened in the past three months, as I said last week. The U.S. economy created 73,000 nonfarm payroll jobs, but just 19,000 and 14,000 payroll jobs in revisions to May and June totals when more data came in (see graph).

The change in total nonfarm payroll employment for May was revised down by 125,000, from +144,000 to +19,000, and the change for June was revised down by 133,000, from +147,000 to +14,000, per the BLS.

Trump’s main reason for wanting to manipulate economic facts? He also wants to hide the damage to the employment numbers from what could be the loss of one million immigrants leaving the adult labor force, many of them running for cover because of the Gestapo tactics of Trump’s Homeland Security masked Storm Troopers breaking into homes and businesses to round up as many undocumented immigrants as possible, as I said last Friday.

It’s really the first indication of the immigrant’s importance in our economy, and why most of July’s hiring was in healthcare (55,000) while government employment lost 12.000 jobs and -87,000 jobs this year.

The next economic shoe to drop will be the changing of the guard at the Federal Reserve. Trump could not bully Fed Chair Powell to lower interest rates sooner, but that will soon change when he appoints a new Fed Chairman.

He will want to politicize the Fed as he is doing to the rest of the federal government when Powell steps down next year, so that he can enact more Republican ‘trickle down’ economic policies first initiated by President Reagan: in particular the tax cuts + deregulation that supposedly increases efficiencies and productivity, but instead increased corporate CEO pay to more than 300 times that of their employees while weakening union collective bargaining laws.

The results of ‘trickle-down’ economics have been frightfully obvious for decades. The Reagan-era creation has succeeded in maximizing profits of the owners of capital and corporate CEOs while suppressing incomes of salaried workers via right to work laws and low minimum wages, mostly in the poorest Republican controlled red states.

It’s why economists are now calling this the second Gilded Age. We are seeing the results—higher inflation and slowing economic growth once again unless a majority of Americans can be convinced to stop the steal of the worst robber baron of all.

Harlan Green © 2023

Follow Harlan Green on: https://twitter.com/HarlanGreen

Second Quarter Growth No Big Deal

 Financial FAQs

“Real gross domestic product (GDP) increased at an annual rate of 3.0 percent in the second quarter of 2025 (April, May, and June), according to the advance estimate released by the U.S. Bureau of Economic Analysis. In the first quarter, real GDP decreased 0.5 percent.” BEA.gov

BEA.gov

The big jump in second quarter economic growth wasn’t a surprise. Consumers continued to shop but bought fewer imported goods because Trump's tariff wars were already raising prices. Imports are a subtraction in the GDP equation.

It might be a one time jump because consumers are saving more and buying less these days, as I’ve been saying, while waiting to see how much damage the Trump tax cuts and higher tariffs might wreak on the U.S. economy, especially to those it will harm the most.

The two-month GDP average was a 1.3% growth rate. The U.S. economy expanded at a 2.8% rate in 2024 and 2.9% in 2023 under President Biden, which was in large part because of the New Deal legislation that pumped $billions into economic growth and caused higher inflation.

The Fed then raised their interest rates to bring inflation back down to its present mid-2% range, and Republicans took over the congress. The result was Trump initiated his tariff wars and passage of the big beautiful big tax bill that will increase the federal debt by some $4 trillion.

But because at least some of the additional federal debt must be paid for to preserve the no longer great faith and credit of our economy, Trump has raised tariff rates to 15-20 percent, which means raising taxes on U.S. consumers and businesses.

And as any economist will tell you, taxes slow economic growth, regardless of what Trump and his cabinet cronies say. And our economy is slowing. The so-called final sales of consumers and businesses increased just 1.2 % in Q2, and there is no indication that it might pick up as the tariff agreements (i.e., taxes) are finalized.

Inflation has declined because of less spending. Consumers spending as measured by the personal consumption expenditures (PCE) price index in the Q2 GDP report increased just 2.1 percent, compared with an increase of 3.7 percent. Excluding food and energy prices, the PCE price index increased 2.5 percent, compared with an increase of 3.5 percent because consumers bought ahead of the price increases due to the April 2 tariff announcements.

What about those Federal Reserve interest rate cuts that Trump wants? Fed Chair Powell said at his latest press conference after the July FOMC meet that its twin mandates of price stability and maximum growth are still in balance, so there’s no reason to lower interest rates at this time.

The unemployment rate remains stuck at 4.1-4.2 percent because the mandates are in balance. Powell said the Fed would act to lower interest rates sooner—i.e., ease credit conditions--if the unemployment rate were to increase substantially.

The Trump administration’s agenda paints a sordid picture in following a very similar trajectory of the GW Bush administration—with its wars on terror (like Trump’s tariff wars), huge tax cuts for the wealthiest and less regulation (like Trump’s big beautiful bill) fueling what became the Great Recession.

Trump’s tariffs won’t help the very people in the red states that elected him but raise their prices. His cuts to social services harm those in red states in the most need. His DOGE cuts are not only endangering air travel, but disaster relief when the worst storms are also happening in mainly red state territories.

So, its not even the blue states that Trump wants most to harm, but his own MAGA supporters that will suffer the most. It’s what bullies do, prey on the weakest and most vulnerable, especially immigrants and minorities that are least able to protect themselves.

Harlan Green © 2025

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

When Will Housing Recover?

 The Mortgage Corner

“Overall, I expect tariffs to boost inflation by about 1 percentage point over the second half of this year and the first part of next year,” John Williams, New York Fed President.

 

NPR

Such remarks mirror what many of the Fed Governors who vote on interest rates are saying. Expectations for higher interest rates abound as a result of the inflation expectations. It’s why the housing market may have to wait until next year to recover. The 30-year fixed mortgage rate is still hovering close to 7 percent, which is keeping first-time buyers out of the housing market and elevating rental rates.

There are other reasons to wait, of course. The housing shortage, a lingering victim of the slow recovery from the Great Recession’s busted housing bubble, is keeping home prices from declining.

And President Trump’s on-and-off attempts to bully Fed President Jerome Powell and the 12 Fed Governors to lower interest rates isn’t succeeding, despite Trump’s daily insults.

It’s another version of TACO Trump’s negotiating skills. He only knows how to bully, which is why he has left a trail of bankruptcies and lawsuits throughout his business career. But Trump keeps denying he is about to fire the Fed Chairman that he appointed in his first term.

It’s also why Trump and his allies claim tariffs are not causing inflation, and the president saying, “inflation is dead” so he can justify his push for rate cuts. Trump has called on the Fed to slash interest rates by as much as 1%, with the Fed’s benchmark rate still in the 4.25%-4.5% range.

That will ultimately happen because there is almost unanimity among economists that the tariffs will make everything more expensive, which will ultimately slow growth enough to require the Fed to act.

Realtors and some economists are also calling for lower mortgage rates to strengthen the housing market. Mark Zandi, chief economist of Moody’s Analytics is worried “Housing will … soon be a full-blown headwind to broader economic growth,” he wrote in a post on X and LinkedIn, “adding to the growing list of reasons to be worried about the economy’s prospects later this year and early next,” as cited by MarketWatch.

There is a slight hope that home sales might improve this year, according to the National Association of Realtors (NAR). Pending home sales—that are homes under contract but not closed—increased by 1.8% in May from the prior month and 1.1% year-over-year, according to the National Association of REALTORS® Pending Home Sales report.

"Consistent job gains and rising wages are modestly helping the housing market," said NAR Chief Economist Lawrence Yun. "Hourly wages are increasing faster than home prices. However, mortgage rate fluctuations are the primary driver of homebuying decisions and impact housing affordability more than wage gains.”

Existing-home sales have been stagnant for years, hovering around 4 million annual sales since January 2022 when the Fed first began to raise interest rates, but were up +0.8% from April to a seasonally adjusted rate of 4.03 million in May 2025. Sales declined 0.7% year-over-year, however.

When will builders have enough confidence to build more homes, including affordably priced homes? New home sales, which constitute approximately 13.4% of all US home sales, dropped 13.7% in May 2025 to a seven-month low of 623,000 units. This decline was the largest since June 2022.

Builder confidence in the market for newly built single-family homes was 34 in May, down six points from April, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI). This ties the November 2023 reading and is the lowest since the index hit 31 in December 2022.

Interest rates must eventually come down because as Mark Zandi says, poor housing sales are already a “full-blown head wind” to higher growth and the Fed will have to act to counter the added ‘head wind’ from the tariffs.

But how long must we wait for that to happen, and will it be soon enough to prevent something even more serious from happening?

Harlan Green © 2025

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen