ECONOMYNEXT – US stocks continued to fall, wiping out gains made in 2025, as Donald Trump’s chaotic interventions in external trade and foreign policy blunders were widely blamed.
The Dow Jones closed down 890 points Monday (2.08 percent) and is down 1.49 percent from December, wiping out all gains made in 2025.
The S&P 500 also fell 2.7 percent, and is down 4.54 percent year to date.
President Trump has threatened wildcat import tariffs for various reasons, which hurts US consumers most, and soured relations with traditional allies including Canada, strengthening authoritarian leaders.
Classical economists have warned for many months that US economy was heading for a recession.
Trump is bothered by by the trade deficit, as countries like Sri Lanka focus on the ‘current account deficit’.
The US economy has been skating on thin ice for months, after the Federal Reserve fired an inflationary bubble delaying prudent policy, blaming cost push factors.
However, its rate hikes and quantity tightening which started in March 2022 failed to stem inflation sufficiently amid remaining large volumes of excess liquidity, thought commodity prices stabilized.
Americas fate under FAIT
The US Federal Reserve is running a discretionary framework called ‘flexible average inflation targeting (FAIT)’ giving itself more room to commit policy errors and delay a return to prudent policy.
Classical economists who studied money supply data however has warned that despite overt numbers, the US was heading for a slowdown.
Feb last fired a big credit bubble in 2000-2008 as it tried to reverse what it called ‘deflation’ which ended in a burst housing and commodity bubble.
Macroeconomists in the US and other countries then went on a stimulus rampage, also destroying fiscal metrics gained during the Great Moderation period.
The inflation and stabilization cycles have strengthened nationalism in both Europe and the US. Trump himself was elected on a nationalist ticket.
The US now moving to a possible downward spiral with badly damaged government finances from deliberate policy pushed by macroeconomists.
Oil prices have also slumped below the 70 to 80 dollar mark it has been holding for over a year. WTI crude fell to 65 dollars and Brent is now at 79.
Falling oil prices tend to weaken authoritative leaders in resource rich countries like Russia in the past. Compared to the US Russian government finances are in much better shape. (Colombo/Mar11/2025)
