Treasury Secretary Steve Mnuchin promised the world on Sunday that things are going great regarding major banks’ ability to lend support to business growth and consumer spending.
Taking a pause from his holiday travel in Mexico, Mnuchin called up the heads of six of the country’s largest banks to ask them about their lending capacity. He then put out a formal statement on Department letterhead crowing that nobody needs to worry.
Problem is, nobody was worried — at least not about the core lending mechanics Mnuchin named. Now, they’re wondering if they should be.
It was the second act of a busy weekend for the secretary. A day prior, he did damage control for President Donald Trump’s alarming insinuation that he might try to remove the sitting chairman of the Federal Reserve, Jerome Powell.
Those who worry about day-to-day market function have, by now, mostly adjusted to President Trump’s penchant for setting a given trading cycle on its ear with his Twitter thumbs. The vertigo on Wall Street hasn’t yet got many people worried about a near-term recession since even the extreme levels of stock volatility seen since Trump’s election generally haven’t had spillover effects on the “real economy” of jobs and services and family incomes.
But Mnuchin’s tweeted statement about bank liquidity and lending capacity on Sunday seems only to have compounded some nascent fears that the economy could jump its tracks soon. And it didn’t help that the statement also announced he was making the so-called “Plunge Protection Team” work on Christmas Eve.
No doubt intended to project confidence, Mnuchin’s surprise announcement instead drew the kind of concerned, uncomfortable reaction you’d get for keeping a manic grin frozen on your unblinking face for the first 45 minutes of a funeral. The government’s top money man succeeded in channeling the energy of Kevin Bacon shouting “Keep calm, all is well” to rioters at the end of Animal House, but not in shoring up faith in the economy.
Even before markets dived again at Monday’s opening bell, and models said Christmas Eve would be the seventh straight day of significant declines as investors moved to sturdier assets, it was clear Mnuchin’s gambit was backfiring with a great many market observers and participants.
“It’s as if Mnuchin was trying to create a panic over something nobody was worried about until this release,” Paul Krugman tweeted. The Sunday spasm “isn’t helping,” former Fed analyst Mayra Rodriguez Valladares told Bloomberg. “For him to come out and explain what Trump is expressing is bizarre. It adds to the nervousness.”
Eurasia Group president Ian Bremmer summed it up more bluntly to Bloomberg: “The Secretary of the Treasury calling the nation’s top bankers on a Sunday to confirm they have cash to lend. Not exactly confidence inspiring.”
Reassurances that the market for business loans and consumer credit isn’t about to lock up usually don’t come until people have already started to panic. By taking time out from his family vacation in Mexico to collect and relay such affirming noise about the core societal function of the finance business, Mnuchin could just be trying to get ahead of the mounting signs of panic.
Or, he could be under pressure from his famously stock-obsessed boss — whose railing at the Federal Reserve and extra-chaotic period of staffing and policy maneuvers in December have only helped raise recession fears further.
Domestic forecasters are not openly predicting a recession for next year, when the period of economic growth from the official end of the Great Recession will mark its tenth birthday. But they do say the music will stop relatively soon on that expansion, with medium-term outlooks having taken on a decidedly darker tone over the course of the fall and early winter.
The anticipated U.S. and global headwinds for the new year — from Brexit’s shakeup of European commerce and a continued Trump trade war with China, the country most American exporters rely upon, to the current government shutdown in the States, and geopolitical turmoil in several different places — are driving predictions of a serious slow-down in growth compared to 2018.
The odds are somewhat less grim in consensus forecasts like the Reuters monthly tracking poll of economist expectations. But even the median chance of a recession by 2020 has jumped from 30 percent in October to 40 percent as of the most recent report.
That kind of rapid downward momentum in forecasts tends to froth trading markets. The Thanksgiving to Christmas period was already a bloodbath for stocks before Mnuchin’s unanticipated protest-too-much charm offensive over the weekend. Each of the Dow Jones Industrial Average, Nasdaq, and S&P 500 repeatedly posted huge drops throughout the fall, with total dips so big that the three major U.S. stock exchanges have given back all their substantial gains from earlier in the year.
Stock volatility is one thing. The Treasury Secretary publicly declaring that you need not worry about something you hadn’t been worrying about is another.
“It’s like sending out a message saying our space shields can intercept incoming asteroids,” former White House economist Jared Bernstein told the Washington Post. “Uh, I didn’t know there were any coming our way.”