Headwinds that are starting to assail deep structural flaws in the US and global economies form the basis for my 2017 economic forecast, which looks like an all-out economic crisis building throughout the world. Some of these headwinds are global; some more locally focused within the United States, but that which brings down the US economy wounds the world anyway. Ultimately, global concerns threaten the US, and US concerns threaten the globe. We’re all in this together, even as we seem to be flying apart in political whirlwinds everywhere and fracturing national alliances all over the world.

Even in the US where the Trump Triumph has ignited consumer and business hopes and inflamed the stock market, time is not on Trump’s side. Trump’s own key advisors — like Steve Bannon and Larry Kudlow — have stated unequivocally that Trump’s plans must happen quickly if they are going to save the US economy. Trump, himself, campaigned on the endless refrain that the US economy was rapidly approaching catastrophe. If we take the architects of these hope-inspiring plans at their word, 2017 is a make-or-break year for the US, and the clock is ticking against their success.

Seven headwinds in my 2017 Economic Forecast that will batter the global economy

(In no particular order of severity.)

1. 2017 starts with near-recession-level rates of growth in the US.

2016 US GDP fell to a lower barometric pressure than economists were expecting, skinning their noses for them at an annualized 1.9% rate of growth, and crashing hopes that the third quarter’s sprint to an annualized 3.5% proved the Fed’s economic recovery was solid. (The average expectation for the fourth quarter had been about 2.5%.) The fourth-quarter plunge brought the annual rate of GDP growth down to the lowest it’s been since the official end of the Great Recession. (Though, as far as I believe, the Great Recession is still a screaming vortex that lies underneath the entire global economy. Its ills have never been healed, only masked.) The services industries took a fall in February that was sharper than its January rise. That appears to mark the end of upward growth that began last September.

2. Trumphoria in the US stock market could run out of hot air

The euphoric rise of the US stock market has formed almost entirely from speculation about Trump’s tax cuts and infrastructure spending, so it is likely to lose steam now that postponement of those plans shows sentiment outpaced reality. The level of irrational exuberance in the market (which typically precedes a big crash) has trumped numerous records for its rate of rise, the duration of its rise, the overall height of its rise, and the number of days of uninterrupted record-breaking.  (See “Will Trump’s Talk Turn the Trump Rally into Lasting Gold or End in the Trump Dump?“)

In spite of the fact that the market’s uplift is built on warm thoughts alone, the US stock market could get a second boost if the Eurozone crumbles and euro capital runs for cover. (Already part of the rise in US stocks.) Ultimately, the collapse of Europe will be bad for trade, so non-European companies that do a lot of exporting into Europe will still suffer. In the event of a euro collapse, any boost will go toward companies that don’t have much European trade. Money fleeing to the US from Europe and China could be the United State’s salvation, but it all depends on who starts to blow apart first — who is seen is the safest harbor in the storm.

Trump may even succeed in getting all of his plans through, though the schedule seems to be shifting toward postponement now that, as Trump revealed, it turns out no one could have foreseen that fixing Obamacare would be this difficult. (Well, except almost all of us. Makes one wonder how much other changes will prove to be more difficult than Trump thought, once actually put before the nation’s most divided congress ever.)

3. China is ready to worsen the economic forecast of the entire world in 2017

We saw it happen a couple of summers ago. A low-pressure zone opened in China that was so big it sucked all the stock markets of the world into it. The yuan crashed, and China seized national control of its stock market to avert total collapse.

While China appears to have stabilized compared to that event, China’s economy today is worse than China says. Smart money has been fleeing China ever since that big scare, going to places like Vancouver, Canada, where it has created a huge housing bubble. About a week ago, we discovered one regional government in China has overstated its GDP by almost 20%. They had reported a drop in GDP of -2.5%, but the real drop was -23%. Since China’s businesses routinely cook their books, keeping one set for the government and one for the proprietor to know what he is really making, real business statistics are almost impossible to know. (See “Data Fraud At Chinese Province Suggests Local GDP Numbers As Much As 20% ‘Overcooked’“.) In truth, we never know when China is going to blow because even China doesn’t know, and what it does know, it doesn’t tell. Corruption will be its undoing, as corruption always is.

China has been blowing through its vast reserves at a rate of $80 billion a month to support the yuan, which it does by mostly dumping US treasuries in order to diminish the value of the competing dollar by increasing the supply of dollar-denominated assets. Some estimate China really only has about $800 billion in US treasuries left that it can actually use for such support, as it must maintain a certain level of holdings for other reasons, such as trade.

If China can no longer dump dollar-denominated bonds, the yuan may crash again in value, causing more capital flight from China. If it keeps dumping US treasuries (as the once largest financier of US national debt), China makes funding the US debt more problematic.

On the one hand, devaluation of the yuan would be good for Chinese exports, but it raises other troubles for China besides capital flight. One such trouble is that Trump (along with other world leaders) will likely accuse China of currency manipulation, saying they are trying to make their exported products more competitive. That would be bad for Chinese exports, as it would lead to a tariff-based trade war.

Federal Reserve interest-rate increases (see below) raise the value of the US dollar compared to other currencies, which also presses China to do more to support the yuan to maintain its credibility as a stable foreign-exchange reserve currency now that the yuan (also called the renminbi) has gained coveted status as one of five currencies used by the IMF for its special drawing rights. Keeping the yuan in that basket is vital to China’s hopes of reducing US hegemony in the world.

With three or more Fed rate increases anticipated for this year, China may have a lot of supporting to do and less than a year before it runs out of US dollars to provide that support. The last time China’s currency faced that kind of crash, the US stock market went into free fall, as did the rest of the world’s stock markets. Because there is no assurance that the flight of capital from China helps the US, China factors into my 2017 economic forecast as a great unknown, but one that has caused a lot of problems in the recent past while not clearly resolving any of its own problems.

4. The Eurozone is blowing up a massive economic storm for 2017

The anti-establishment success that burst onto the European scene with Brexit and that was reinforced by Trump’s anti-globalist victory is emboldening other nations to consider exiting the Eurozone. The UK was not part of the Eurozone, so its departure from the European Union has not created a euro crisis so far, but the breakaway of a single nation within the Eurozone could utterly doom the euro. That would certainly be a disaster for those Eurozone banks that are already teetering on collapse, and some of those banks are so big the euro crisis could develop into a hurricane big enough to envelop the world. The increasing probability of a euro exit by so many nations in the Eurozone has to factor into anyone’s 2017 economic forecast, now that Brexit and Trump-it have proven how real the possibility is and given how they have inspired the hopes of others to follow a similar path.

Frexit is disturbing markets more in the run-up to French elections than Brexit did because investors have learned from Brexit and Trump-it that the possibility of a national exit is far more likely than they thought — even when one is certain the odds are against it. National Front’s Marine Le Pen will likely win the first round in French elections. Le Pen has promised to remove France from the Eurozone if she wins.

Le Pen’s party has said it will redenominate its national debt from euros to francs on a one-to-one basis and then devalue the franc by issuing “helicopter money” in order to reduce its debt burden. If France goes that way, Standard & Poors and Moody have already said they will rate the nation as being in default on its national debt. An independent France has a second temptation toward devaluing its currency, which would be to make itself more competitive in the European world of exports that is dominated by Germany. The currency changes would take longer than 2017 to begin, but they could start a currency war within the Eurozone if they do happen.

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