The Washington PostDemocracy Dies in Darkness

The Finance 202: Elizabeth Warren sees an economic crash ahead. Not all economists agree

with Brent D. Griffiths


Democrats criticizing President Trump’s economic record so far have argued it disproportionately favors the rich.

Sen. Elizabeth Warren (D-Mass.) now is making a much bolder claim. The entire expansion, she argued in a Monday post on Medium, rests on a rickety foundation and probably will come crashing down in a year or two. 

In the post — titled, "The Coming Economic Crash and How to Stop It” — Warren warns that her survey of the economy reveals "a lot to worry about again. I see a manufacturing sector in recession. I see a precarious economy that is built on debt — both household debt and corporate debt — and that is vulnerable to shocks. And I see a number of serious shocks on the horizon that could cause our economy’s shaky foundation to crumble."

The top-tier 2020 Democratic presidential candidate points to a variety of factors and warning signs leading to a recession, including manufacturing weakness, a pileup of corporate and household debt, the inverted yield curve, and sentiment among business economists. She also highlighted her own powers of prognostication, pointing to her warnings before the last recession. 

Warren’s recession warning comes with a potentially high degree of risk. As a presidential candidate, it isn't exactly good politics to cheerlead a recession. But the senator also stands to look badly misguided if the prediction goes bust. 

Then again, as Warren navigates a crowded primary field, the senator's perspective supports her case for an aggressive economic overhaul. And Warren's assessment lines up with Democratic voters’ increasingly negative views of economic conditions. The University of Michigan consumer sentiment survey now shows the widest partisan gap since 2016 when it comes to appraising the economy’s strength. 

Economists don’t all share Warren’s dire outlook. JPMorgan and HSBC Asset Management economists, for example, both called recession fears exaggerated in recent reports. HSBC’s global chief strategist said the United States isn’t showing “large imbalances that could trigger a recession,” adding with the Federal Reserve now taking a more accommodating stance toward monetary policy, growth should slow but won’t drop below 2 percent. 

Others say while the soft spots that Warren identified bear monitoring, none pose a systemic risk to the economy at the moment.

And the White House hopeful’s warnings omit some important context. On household debt, for example, Warren points to the fact that Americans have taken on more debt than ever to argue a downturn could “plunge families over a cliff.” But she fails to factor in Americans’ stronger position to carry that debt burden. As CNBC’s Jeff Cox notes, while nonhousing debt has jumped by more than 50 percent over the past decade, household net worth has more than doubled. And Americans are in the best financial shape to pay down their outstanding debt since the early 1990s: 

“The level of debt makes great headlines. But what’s really important and what matters to the consumer are monthly debt payments,” which aren’t showing signs of stress, says Ryan Sweet, director of real-time economics for Moody’s Analytics. 

And on Warren’s arguable claim that manufacturing is in a recession, Sweet says the sector means less to the broader economy than it did a few decades ago. “Manufacturing is important to the U.S. economy but it’s not the U.S. economy,” he says. “It makes up 8 to 10 percent of GDP, which is a pretty small share … Manufacturing has been weak a couple times throughout this expansion, and the overall economy kept powering forward.”

A recession isn’t off the table, says Oxford Economics chief economist Gregory Daco. But it will take a major event — a significant escalation of the trade war, for example — to force one. “There is a possibility that the economy could face an external shock that would weigh on private sector confidence and in turn lead to reduced spending and be exacerbated by a financial market reaction,” he said. “We just don’t think we’re there yet.”

Sweet says some economists may be trigger-happy in predicting a downturn. “Economists can get a case of the yips because they missed the last recession and don’t want to miss two in a row,” he says. “But fundamentals are fine, and the traditional signs of a recession aren’t overly threatening right now.”

Calling a recession in advance is a difficult task for even the most talented forecasters. Fed officials are struggling with conflicting signals — or “crosswinds,” in the parlance of Fed Chair Jerome Powell — and whether, when and how deeply to cut interest rates as a result. Ellen Zentner, Morgan Stanley’s chief U.S. economist, recently assigned a 20 percent probability of a recession within the next year while acknowledging that could change quickly, especially if trade tensions escalate. 

Warren, in her Monday post, said “bold action now” could head off the risk. She pointed to proposals she has rolled out: raising the federal minimum wage to $15 an hour; empowering workers to elect 40 percent of boards at big American companies; canceling most student debt; investing $2 trillion in “green research, manufacturing, and exporting;” more strictly policing leveraged corporate lending; and backing off Trump’s tariff threats, among others. 

Elsewhere, the Democratic Party is launching an effort to make the case locally that Trump’s economy is underperforming in key swing states. “The effort will include events hosted by the Democratic National Committee and coordinated with state parties in Michigan, Wisconsin, Pennsylvania, Ohio, Florida, Arizona and Nevada, party officials said,” according to Bloomberg News’s Sahil Kapur. “The Democrats’ campaign will focus on the underside of the economic boom, highlighting the struggles working- and middle-class people face from rising costs of living, such as for health care and college tuition, that are outpacing wage gains. They’ll also emphasize Trump’s attempts to repeal Obamacare and argue that his 2017 tax law contributed to rising inequality.”


— Trump backs debt ceiling, budget deal: “The White House and House Speaker Nancy Pelosi (D-Calif.) reached a tentative two-year budget deal Monday that would raise spending limits by $320 billion and suspend the federal debt ceiling until after the 2020 presidential election," my colleagues Damian Paletta and Erica Werner report.

"The agreement, which still must be passed by Congress, probably would prevent a debt-ceiling crisis later this year but also would continue Washington’s borrowing binge for at least two years."

  • Resistance from some Republicans: "The deal was met with fierce resistance from some prominent Republicans who said that it would add too much to the debt, a backlash that will force congressional leaders to work hard this week to ensure they have enough votes for passage." 
  • But possibly liberals too: "The agreement also could spark concerns from some House liberals because of concessions made to the Trump administration, as both parties try to stake out positions that resonate with voters ahead of the 2020 election."
  • A White House retreat: "The agreement marks a significant retreat for the White House, which insisted just a few months ago that it would force Congress to cut spending on a variety of programs to enact fiscal discipline. Instead, the White House agreed to raise spending for most agencies, particularly at the Pentagon."
  • No poison pills: "In exchange, White House officials received verbal assurances from Democrats that they would not seek to attach controversial policy changes to future spending bills, although it’s unclear how that commitment would be enforced."

‘They’re rich and ready’: House Democrats outpace GOP in fundraising by nearly $20 million (Mike DeBonis and Anu Narayanswamy)


— Shelton calls for large rate cut: “Judy Shelton, President Trump’s intended nominee to fill an open seat on the Federal Reserve Board, is calling for a large interest-rate cut at the Fed’s July meeting,” my colleague Heather Long reports. “When asked whether she would support reducing interest rates by half a percentage point in July, Shelton said she would and indicated she would have voted for that size of a cut in June had she been on the Fed board. ‘I would have voted for a 50-basis-point cut at the June meeting,’ she said in an email.”

Global Stocks Gain on U.S. Moves on Trade (WSJ)

Boris Johnson, Brexit cheerleader, to become British prime minister (William Booth and Karla Adam)



Source: Mnuchin, Lighthizer to Beijing next week. South China Morning Post's Zhou Xin and Catherine Wong: "US negotiators led by trade representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are likely to fly to China next week for the first face-to-face talks since President Xi Jinping and US counterpart Donald Trump agreed to a trade war ceasefire at the end of June, according to a source who is familiar with the matter.

"The initial arrangements for the meeting in Beijing, according to the source who declined to be identified, came after the United States announced that it would offer exemptions to 110 Chinese products, including medical equipment and key electronic components, from import tariffs."

— Huawei was secretly working with North Korea: “Huawei Technologies Co., the Chinese tech giant embroiled in President Trump’s trade war with China and blacklisted as a national security threat, secretly helped the North Korean government build and maintain the country’s commercial wireless network, according to internal documents obtained by The Washington Post and people familiar with the arrangement,” my colleagues Ellen Nakashima, Gerry Shih and John Hudson report.

“Huawei partnered with a Chinese state-owned firm, Panda International Information Technology Co. Ltd., on a variety of projects there spanning at least eight years, according to past work orders, contracts and detailed spreadsheets taken from a database that charts the company’s telecom operations worldwide. The arrangement made it difficult to discern Huawei’s involvement.”

  • Trump met with tech execs to talk Huawei. NYT's Alan Rappeport and Kate Conger: "Trump on Monday assured executives of several big technology companies that his administration would make 'timely' decisions about whether to allow American firms to continue selling products to Huawei, the Chinese telecom equipment giant that has been placed on a government blacklist, the White House said in a statement. "Mr. Trump met on Monday afternoon with the leaders of Google, Qualcomm, Cisco, Intel, Micron, Western Digital and Broadcom to discuss the administration’s ban on Huawei as well as the economy and trade relations with China, the White House said."

— Ford’s China struggles have large impact: “Ford Motor Co.’s multibillion-dollar push to expand in China this decade has veered off course, leaving it mired in a sales slump that is weighing on its future in the world’s largest auto market,” the Wall Street Journal’s Trefor Moss and Mike Colias report.

“The No. 2 Detroit auto maker’s sales in China fell 27% in the first six months of 2019 from the prior-year period, as a downturn in the Chinese car market extended to a 12th month in June. The sharp drop-off in China auto sales—the industry’s first since Beijing opened the market to foreign car companies in the 1980s—is challenging even stronger and more-established global car manufacturers in the country, like General Motors Co. and Volkswagen AG.”

— Epstein's deep ties to Wall Street: "When Jeffrey Epstein was serving time in Florida for soliciting prostitution from a minor, he got a surprising visitor: James E. Staley, a top JPMorgan Chase executive and one of the highest-ranking figures on Wall Street," the New York Times'  Kate Kelly, Matthew Goldstein, Jessica Silver-Greenberg and James B. Stewart report. "Mr. Staley had good reason to maintain his relationship with Mr. Epstein, who received him at his Palm Beach office, where he had been permitted to serve some of his 13-month sentence in 2008 and 2009. Over the years, Mr. Epstein had funneled dozens of wealthy clients to Mr. Staley and his bank."

"Mr. Epstein, who was charged this month with sex trafficking of teenage girls, liked to portray himself as a financial wizard, someone whose business and investing acumen made him indispensable to corporate executives and other leaders. But there is little evidence to support that notion. The financial services that Mr. Epstein dispensed appear to have been mostly pedestrian, and his list of clients small. Mr. Epstein nonetheless managed to affix himself to a handful of prominent Wall Street veterans, including Mr. Staley, who is now chief executive of the British bank Barclays."

  • Apollo Global Management and Highbridge Capital chiefs, too. "Mr. Epstein provided personal tax services to Leon D. Black, whose Apollo Global Management is one of the world’s largest private-equity firms. He discussed a major investment idea with and entrusted millions of dollars to Glenn Dubin, who ran the hedge fund Highbridge Capital Management."

Ron Wyden blasts Crowley appointment. From a statement Sen. Ron Wyden (D-Ore.), the top Democrat on the Senate Finance Committee, released Monday: “While the position does not require Senate confirmation, I cannot in good conscience let the hiring of Monica Crowley as the Treasury Department spokesperson go by without pointing out her significant lack of credibility. Credibility is non-negotiable for an agency spokesperson and Ms. Crowley simply does not have any. As a network commentator, she has dabbled in the racist birther conspiracy theory, pushed propaganda about refugees and disparaged the press. Reports that Ms. Crowley plagiarized portions of her Ph.D. dissertation and 2012 book were enough to keep her off the National Security Council. A plum job at the Treasury Department shouldn’t be her consolation prize.”


— Boeing’s woes hurt the economy, too: “The prolonged grounding of Boeing Co.’s 737 MAX aircraft is rippling through the U.S. economy, hurting the nation’s trade balance and clouding the outlook for airlines, suppliers and their tens of thousands of workers,” WSJ’s Doug Cameron and Alison Sider report.

“Companies ranging from American Airlines Group Inc., to engine maker General Electric Co. and smaller parts suppliers have cited the grounding and halt in deliveries of the jetliner for financial damage or the suspension of profit guidance. Several U.S. and foreign airlines are cutting back on routes and capacity growth or delaying pilot hiring and promotions because of the MAX.”

  • GDP hit: "Economists say the production cuts likely weighed on U.S. gross domestic product in the second quarter, and warn the negative impact could intensify as long as the plane maker is unable to resume deliveries."

— Microsoft invests $1 billion in AI: “Microsoft is investing $1 billion in OpenAI, a start-up co-founded by Elon Musk, forging a partnership intent on creating artificial intelligence that rivals the human brain,” my colleague Taylor Telford reports. “Artificial intelligence as it exists involves training machines to solve specific problems or perform particular tasks, like filter spam emails or predict an earthquake. The Microsoft and OpenAI collaboration will zero in on artificial general intelligence: machines capable of learning and operating just as well as, or better than, humans.”

— Equifax to pay up $700 million to settle breach: “Equifax has agreed to pay as much as $700 million to settle a series of state and federal investigations into a massive 2017 data breach that left more than 147 million Americans’ Social Security numbers, credit-card details and other sensitive information exposed,” my colleague Tony Romm reports.

“The punishment includes payments to affected consumers, fines to peeved regulators and a host of required changes to the credit-reporting agency’s business practices, government officials said Monday, as they faulted Equifax for putting more than half of all U.S. adults at risk for identity theft and fraud.”

  • Getting the settlement money could be nearly impossible: “Consumers may also be eligible for payments of up to $20,000 for time they spent remedying fraud or misuse of personal information or out-of-pocket losses. But that will likely be an uphill battle,” CNBC’s Kate Fazzini reports. “The data connected with the Equifax breach has never been found for sale on the dark web. Instead, intelligence experts and security executives have told CNBC that the information was likely stolen by a foreign intelligence agency for spying purposes. This means proving your data was misused as a result of the breach would be a difficult fight.”

FTC under fire for Facebook fine. The Post's Tony Romm: "The package of penalties for Facebook’s past privacy scandals includes a record-breaking $5 billion fine and unprecedented government oversight of its business practices. But a Washington Post review of the 16-month investigation — described by 10 people familiar with the matter — shows that the FTC stopped short of some even tougher punishments it initially had in mind.

"Those included fining Facebook not just $5 billion, but tens of billions of dollars, and imposing more direct liability for the company’s chief executive, Mark Zuckerberg. Facebook, however, fiercely resisted the government’s demands, and in the end, the FTC, facing a formidable foe whose $55 billion in revenue last year amounted to almost 200 times the budget afforded to the federal regulators, settled for less."

  • Facebook, Amazon lobbying set records. Bloomberg's Mark Niquette and Ben Brody: "Facebook Inc. and Inc. set records for lobbying in the second quarter as Washington ramped up scrutiny of big technology companies, while Google’s spending dipped as it continued to reshuffle its influence operations. The world’s largest social media site spent more than $4.1 million on lobbying, the most among big internet platforms, an increase from its previous high in the same period a year earlier."


  • The Senate Banking, Housing and Urban Affairs Committee holds a hearing on the challenges of cannabis and banking.
  • Coca-Cola, Visa, Hasbro, Lockheed Martin, JetBlue, Kimberly-Clark, Sherwin-Williams, Snap Inc., United Technologies are among the notable companies reporting their earnings, per Kiplinger.


  • The House Small Business Committee holds a hearing on the Tax Cut and Jobs Act on Wednesday.
  • The House Financial Services Committee holds a hearing on the proposed merger between SunTrust and BB&T on Wednesday.
  • The Senate Finance Committee holds a hearing on a number of pending nominations, including Treasury general counsel Brent McIntosh’s nomination to become an undersecretary in the department on Wednesday.
  • Facebook, Boeing, Caterpillar, AT& T Anthem, Tesla, United Parcel Service and PayPal are among the notable companies reporting their earnings on Wednesday, per Kiplinger.
  • The Financial Services’ Task Force on Financial Technology holds a hearing on alternative data in underwriting and credit scoring on Thursday.
  • Amazon, Anheuser-Busch InBev, Alphabet, T-Mobile, Intel, Bristol-Myers Squibb, 3M, American Airlines, Comcast, Unilever and Valero Energy are among the notable companies reporting their earnings on Thursday, per Kiplinger.
  • McDonald’s, Goodyear Tire and AbbVie are among the notable companies reporting their earnings on Friday, per Kiplinger.
The former White House communications director tells the Post’s Hannah Jewell how history will remember the Trump years, and why it’s okay to be an opportunist. (Video: The Washington Post)