The inevitable effect of the coronavirus on the economy and financial markets was bad news for President Trump. As the old saw goes, “ya gotta dance with who brung ya.” Trashing the media and the Democrats worked so well for Trump that he stuck with it.

It had to be “another Democratic and fake news hoax.” 

On March 8, Trump declared a national emergency. What changed?

The stock market’s free fall of March 12 got his attention. It shouldn’t have taken that to awaken Trump and his administration lackeys that there is a limit to “alternative facts.”

Since the Bush Great Recession of 2008, the economy and financial markets had a good run under two Obama administrations. Under Trump, the economy and financial markets continued their good run—until now.

The week of Monday, March 9, began with the Dow’s second largest, followed by Wednesday’s third largest point dip ever. Following Trump’s Wednesday evening message to the nation, Thursday saw the largest ever point decline, and the largest percentage decline, since Black Monday of the 1987 crash — that is, until March 16, an even larger crash, as this draft is written.

With Trump’s Friday, March 13 announcement of a national emergency, markets responded with an impressive rebound that Trump opines should be widely hailed — never mind that it was between historic declines.

The economy with multiple weaknesses, however masked by strong macro statistics, was ripe for decline, and over-priced securities are always ripe for decline. It’s unpredictable when. But when Trump’s chief economic advisor, Larry Kudlow, tries to assure us that “The economy is strong,” it’s high time for suspicion. And when markets fall, they can fall precipitously. 

Financial markets are now in “bear territory,” defined as a 20% drop from recent highs. In contrast to the “drip, drip, drip” path to bear markets in the past, we have reached current bear territory in record time.

The stock market is not the economy. If the economy were in fine shape, markets with over-priced securities would take care of themselves through normal fluctuations. But the economy, its weaknesses masqueraded by strong macro statistics, and notwithstanding the administration’s happy talk, were not in fine shape prior to this virus scare. This coronavirus situation triggered the precipitous decline of the stock market, wiping out in 18 days the entire three year gains for which Trump claims credit. 

The popular conception of a recession is at least two quarters of falling GDP. While this concept is sufficient for discussion, the National Bureau of Economic Research (NBER) is charged with making the official determination of recession, including factors such as real income, employment, industrial production and wholesale and retail trade.

Of course that’s academic. However useful the formal definition for analysis, what counts for here and now is what’s happening to consumers, workers and employers today, and what government should do about it. It matters not to the unemployed and those who can’t pay their bills, or sell goods and services at a profit, whether we are technically in recession. It’s clear that this economy has already slowed down, is getting worse by the day and future prospects are even more ominous.

Recommendations to limit spread of the virus necessarily reduce spending, leading to declining economic activity. A large portion of our economy is service oriented. By its nature, “social distancing” reduces travel, conventions, athletic and entertainment events, restaurant and food services, and all the rest of it involving human services. Multiple cancellations of these events and reduction of airline flights drastically reduce economic activity, leading to reduced income and increased unemployment.

Troublesome economic events often happen in groups that are mutually reinforcing. The virus situation hit during a period of over-priced securities, and multiple economic weaknesses masqueraded by strong macro statistics. To complicate matters, as world demand for oil was softening, Russia and OPEC, dominated by Saudi Arabia, get into a spat over oil, and into a price war. The resulting hit to energy stocks exacerbated the stock market crash.

The accompanying decline in gas prices is good news for consumers. However, lower energy prices will shut down marginal American capital-intensive energy producers that are highly leveraged. This will have negative implications for regional employment and income. If there is a saving grace here, it is that, thanks to Dodd-Frank legislation implemented after the Great Recession, banks are in a stronger position to withstand defaulted loans to marginal shale oil producers. 

So the virus situation hits an economy characterized by dangerously high income inequality, high corporate debt, high consumer debt, over-priced stocks, and unsettled trade wars, just when an oil shock comes along, adding to uncertainty that panics financial markets.

This witch’s brew for economic disaster is made still worse by the Trump Administration’s multiple policy blunders.

Early action on an epidemic is crucial. Through denial, dismissing it as “a Democratic hoax,” and merely as a public relations problem, crucial early weeks were lost in getting ahead of this virus. There is absolutely no excuse for not immediately testing to quickly identify carriers and prevent spread of the virus.

In 2018, the Trump administration dismantled the National Security Council’s pandemic unit. Trump denies knowing anything about it. Is it more incompetent that Trump ordered it, or that he knew nothing about it?

Trump has brow beat Fed Chair Powell for “not cooperating.” Immediately after the Fed had reduced interest rates by a half percentage in response to the virus scare, instead of rising, markets tumbled. Instead of reassuring investors, the Fed’s Sunday emergency meeting announcing further reduced rates further panicked investors, resulting in another circuit breaker to halt trading on Monday. 

The Fed is not equipped to solve these problems. These ill-advised actions and ill-timed announcement blew what little ammunition the Fed could have more effectively used later. Trump is clearly baffled.

One is reminded of Casey Stengel’s question when taking over the hapless New York Mets, “Does anybody here know how to play this game?”

— John Waelti of Monroe can be reached at jjwaelti1@tds.net.