Judd Gregg: The recession snowball may be rolling

Recessions come about for many reasons.

“Irrational Exuberance” to cite Alan Greenspan — otherwise known as a bubble — is certainly one of the most common causes. Risks are taken in assets, which simply turn out not to have the value that the people who rushed to invest in them believed they had.

The internet bubble of the late 1990s and many real-estate bubbles in history have driven recessions.

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In 2008, a real-estate bubble was coupled with a massive failure of underwriting standards and compounded by an acute derivatives’ disease. The result was the worst recession since the Second World War.

The end of the business cycle also often leads to a recession. This usually occurs when growth outstrips the fuel for growth, driving up costs and generating inflation.

But today, there appears to be a different set of events causing the snowball of recession to gain mass.

There is President TrumpDonald John TrumpTrump threatening to fire Mulvaney: report Giuliani pens op-ed slamming 'unprecedented' impeachment inquiry Giuliani associate Lev Parnas discussed Ukraine with Trump at private dinner: report MORE’s trade war with China.

It is producing no discernible positive results.

China understands that it can wait this president out.

The people who run China do not have to be elected every four years. In fact, they do not plan to ever be elected.

Democratic governments have time horizons. Autocratic governments do not.

This makes it fairly difficult to get a change in policy from an autocratic government by negotiation — unless the dictators who run that country see some benefit to them in making that change.

China obviously does not.

Thus the president’s tariffs create little in the way of progress toward good policy and much in the way of progress toward an economic slowdown.

Tariffs as assessed by this president and his aide de camp Peter Navarro are essentially a massive national sales tax laid on the back of the American consumer. This tax in turn clogs the country’s economic growth engine.

It creates a business expense that is not recoverable and has no worth.

Ironically, the revenue derived in this way is being used to try to repair the damage the trade war is doing to American farmers who depend on the Chinese markets — now closed to them — for their livelihood.

We already have a heavily subsidized farming industry in this country. Now the president has doubled down on those subsidies in an effort to alleviate the deep damage his own trade policies are inflicting.

It is an understatement to say this Trump-led trade war is causing significant concern amongst American business leaders. The angst is palpable.

Next there is the Democratic Party. It has essentially adopted socialism as its cause du jour. This is anathema to a market-based economy.

The Federal Reserve is also in the mix.

The president wants the Fed to cut interest rates so that the dollar will weaken. In his world, easy money and a weak dollar lead to a more competitive international position for the United States.

This can be added to the list of really stupid (to use a term often thrown about by the president) ideas he has put forth.

A nation gets a weak currency because it has a weak economy often dominated by uncontrolled inflation. This fact seems to have escaped the observation of the president.

If Trump wants to weaken the dollar, all he needs to do is start a recession or generate massive inflation — or energize a destructive trade war, as happened with the Smoot-Hawley Tariff Act almost 90 years ago.

Of course it is the Fed’s job to avoid a recession.

It may be appropriate to cut interest rates to ratchet up economic growth. But it certainly is not appropriate to do so to devalue the currency, which is the president’s goal.

It is inevitably unsettling for the private sector — the key job creation engine in our economy — to watch this dance between the president and the Fed.

On top of all this, the political leadership of both major parties is layering on an obscene level of deficit spending.

It is usually argued that deficit spending is stimulative.

This is true if it is done during a time when stimulative activity by the government is needed and the finances of the government are strong enough that people can look at the heightening of deficits as a blip on the government ledger.

This is not the case with the present explosion of deficit spending and the national debt.

This is no blip.

It is a systematic collapse of fiscal discipline.

At some point, it will lead to a dramatic economic adjustment, also know as a currency crisis.

The stimulus that might come from the trillion-dollar deficits the Democratic and Republican leaderships are about to give our nation is transitory, but the damage will be permanent. It will undermine our future economic growth.

Business leaders look at all this and they say, “This is not good”.

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As a result, these pivotal players in our economy feel a responsibility to their companies, employees and shareholders to get ready for a slowdown.

Across the board, these real leaders are taking action.

They are reducing their capital investment, reducing their debt, building their cash and curtailing expansions that have high risk factors.

They are contracting their activity.

The snowball of a recession has begun to roll.

When the mindset of American business shifts from expansion to defensive restructuring, a recession cannot be far behind.

It becomes a self-fulfilling event.

If all the folks who are responsible for energizing growth are getting ready for a slowdown, then the slowdown will come.

Once that snowball has started to roll, it is difficult — maybe impossible — to stop.

The irony is that, if this recession occurs, it will be the first one since the Second World War to be purely self-inflicted.

Of course, the president will blame it on the Fed. The Democrats will blame it on the president and big business.

Neither will admit that they are the cause and the culprits.

Judd Gregg (R) is a former governor and three-term senator from New Hampshire who served as chairman and ranking member of the Senate Budget Committee, and as ranking member of the Senate Appropriations Foreign Operations subcommittee.