Trump’s incipient stagflation Updated.
will be hard to disguise even if the White House shoots all the messengers.
The economic “phoney war” of the last six months is over. America, Europe and the world, are finally starting to suffer real damage from the destruction of the post-war trading system.
Wall Street has shrugged off the slowdown but that is because traders are betting on the “Fed put”. Fed will ensure that the Schiller price-to-earnings ratio on Wall Street remains near the peak of the dotcom bubble at over 38,
and junk bond spreads remain as compressed as they were at the peak of the Lehman credit bubble.
Uncle Jerome will keep investors fat and happy.
The next shocker may well be the core inflation figures out next week.
The delayed effects of the tariffs are about to feed through with malicious and unstoppable force.
Welcome to 1970s Nixonian stagflation.
Stagflation
Donald Trump will doubtless declare that the index has been manipulated by Marxist fifth columnists. Good luck with that.
Britain and Europe are in a different position.
They are absorbing the brunt of China’s galactic overcapacity, and absorbing some of its deflation too as a wave of cheap Chinese exports are diverted from the US and into their markets.
The market narrative that the worst is over and that stability will come will surely become a collectors’ item for historians and students of the capitalist psyche.
Nothing is ever stable with Trump. He has just inflicted the biggest trade shock in peacetime since the origins of the modern economy in the 17th Century.
He has killed Pax Americana stone dead, destroyed Nato credibility, carpet-bombed the West and smashed the rules-based order to smithereens on every level.
Yet asset markets remain insouciantly priced for perfection.
What can possibly go wrong?
Ambrose Evans-Pritchard 8 August 2025
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