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Mar 25, 2018

The Telegraph | Former Bank of England guru warns Trump’s ‘economic madness’ will lead world into recession on March 25,2018.

telegraph.co.uk

Former Bank of England guru warns Trump’s ‘economic madness’ will lead world into recession

Tim Wallace 25 March 2018 • 9:09pm

Donald Trump
Donald Trump is slashing taxes and embarking on a spending spree at precisely the wrong time, and will overheat the US economy, Paul Fisher fears Credit: Mark Wilson/Getty 
Donald Trump’s “economic madness” will push the US into a sharp ­recession that risks dragging the rest of the world down with it, one of Britain’s most senior economists has warned.
Paul Fisher, a former Bank of England policymaker, fears that slashing taxes and raising spending will cause America’s strengthening economy to overheat dramatically.
Excessive stimulus will push up ­inflation to painful and potentially ­uncontrollable levels, forcing the Federal Reserve to hike interest rates too quickly, ultimately resulting in a recession, Mr Fisher said.
“It is economic madness to think that this is the time to do a fiscal expansion in the US,” he said. “The economy [will] be in a complete mess” in around five years’ time, he predicted.
Boosting infrastructure or taking other measures to improve the economy’s capacity could help, but that is not the likely outcome here, he said.
“All countries in the West could do with that, but you do that slowly over time, you can’t spend $1.5 trillion that quickly even if you wanted to,” Mr Fisher said.
“I can see why Trump might do it – by the time the next US election comes around you will have had the benefits but you won’t have had the costs. It is the old stop-go cycle we had in Western economies for years and years.”
Overspending will present the Fed with another challenge as it tries to raise interest rates from record lows.
“Monetary policy is not going to be able to move quickly enough to offset the fiscal expansion, so you are bound to get inflation,” he warned.
Paul Fisher spent 26 years at the Bank of England Credit: Jane Mingay
“The Fed will then have to keep on tightening and tightening to get inflation under control. The whole point about having low and stable inflation is that you can control it once it is low and stable. Once you start getting 4, 5, 6pc inflation, it is really difficult to get back under control.”
As a result the poorest people in the US will feel the impact the most as their incomes are eroded by rising prices.
The warnings chime with recent analysis from other top economists.
“There are no signs of this expansion slowing down anytime soon,” said Torsten Slok at Deutsche Bank, citing surging business and consumer confidence indicators as evidence.
“Overheating is coming,” he said.
If the E.U. wants to further increase their already massive tariffs and barriers on U.S. companies doing business there, we will simply apply a Tax on their Cars which freely pour into the U.S. They make it impossible for our cars (and more) to sell there. Big trade imbalance!
— Donald J. Trump (@realDonaldTrump) March 3, 2018
Bank of America Merrill Lynch’s survey of fund managers globally found 74pc believe the economy is “late cycle”, which usually means it is not the moment to stimulate more growth.
Mr Fisher spent 26 years at the Bank of England, culminating in five years on the Monetary Policy Committee, which ended in 2014, and a spell as executive director for supervisory risk and regulatory operations until 2016.
Mr Fisher’s experience gives him valuable insight into the way the Bank operates and the way in which it views risks building in the global economy and financial markets.
New Fed chair Jerome Powell will not be able to raise rates fast enough to stop inflation resurging, Mr Fisher fears Credit: Samuel Corum/nadolu Agency/Getty Images
He fears that a recession in the world’s biggest economy will harm the rest of the world.
“They will get a boost initially from it [the US boom], then suffer when it collapses,” he said.
He also said the president’s threatened trade war can only be bad for growth. “One thing we know from thousands of years of history is that trade makes you rich, and anything that damages trade is probably not a good idea,” he warned.