https://www.bloomberg.com/opinion/articles/2026-03-04/iran-war-dials-us-economic-danger-up-to-11?srnd=phx-opinion: March 4, 2026 at 2:00 AM PST. Newspaper Reader.

stephenkmacksd.com/

Mar 04, 2026

Editor: Clive Crook’s sedate commentary on the feckless and illfated attack on Iran opens with a first paragraph, that then metaticises, as if the first and its sucessor are mirrors of each other, with this ‘The immediate danger is a setback in financial markets that gets out of hand’

President Trump’s extraordinary gamble in attacking Iran and risking a wider conflagration in the Middle East dials up the economic hazards facing the US economy from “very high” to “extreme.” The point is, this new stress compounds a series of other severe pressures already facing the economy, which is now even more unlikely to emerge unscathed.

The immediate danger is a setback in financial markets that gets out of hand. In many ways, some such reversal was already overdue, given the apparent overvaluation of US equities, the weight that the administration’s tariffs had already put on the economy’s back, a still-deteriorating fiscal outlook and a stubbornly persistent rate of inflation. Now let’s add the possibility of spiking energy prices, interrupted trade flows and global political turbulence.

Editor: Mr. Crook does not explore the pressing question of Trump as the political creature of Miriam Adelson! Mr. Crook spends his time via my selections of the economic questions he articulates as pressing – yet Adam Smith in his ‘Theory of Moral Sentiments’ and his ‘The Wealth of Nations’ viewed these two imperatives as congruent with each other!

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Last week’s new inflation numbers were already cause for concern. The core producer price index, which excludes food and energy, increased by 0.8% in January, markedly higher than expected. Its main components feed into the Federal Reserve’s preferred metric, core PCE inflation.

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Last week’s new inflation numbers were already cause for concern. The core producer price index, which excludes food and energy, increased by 0.8% in January, markedly higher than expected. Its main components feed into the Federal Reserve’s preferred metric, core PCE inflation.

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Echoes of the 1970s: A lasting spike in oil prices would mean stagflation – higher inflation plus slower growth, a combination that the Fed is powerless to defeat.

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Even before the Supreme Court overturned the administration’s so-called reciprocal tariffs, the outlook for public borrowing was testing limits. Budget deficits at 6% of gross domestic product, even with the economy at full employment and comfortably quiescent interest rates, mean that public debt (already near records) will continue to grow faster than the economy. That’s what “unsustainable” means.

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To make good the shortfall, Trump has announced a new global tariff of 10% rising to 15% under Section 122 of the 1974 Trade Act; he also promised new “investigations” that could lead to new taxes under other authorities – actions that threaten to upend trade deals already made with numerous partners. In short, the court’s ruling guarantees two things: less revenue than previously expected, combined with even greater uncertainty about the future tariff regime.

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(The US has a big current-account deficit, financed by an equally big capital-account surplus, but no “balance-of-payments deficit” in the usual meaning of that term.)

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As long as import taxes can’t be relied on, and until Congress is forced to take budget control seriously, the revenue shortfall will worsen and maximum fiscal uncertainty will prevail. As a result, Washington will have little or no “fiscal space” to respond to a big economic setback with tax cuts and extra public spending.

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How much disruption can the US economy, for all its amazing strengths, absorb? The Trump administration’s trade and budget policies were already gambling with financial disaster. Now, with the Iran strikes, the White House has just doubled down again.

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