The Economic Consequences of Trump’s Iran War (w/ Catherine Rampell)

Summary

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Bulwark Takes: The Economic Consequences of Trump’s Iran War (w/ Catherine Rampell)

Podcast: Bulwark Takes
Host: Bill Kristol
Guest: Catherine Rampell
Date: March 22, 2026

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Episode Overview

This episode explores the unfolding economic impacts of President Trump’s war with Iran, with Bill Kristol hosting Catherine Rampell, columnist and Bulwark contributor. Together, they break down how the war acts as an accelerant to pre-existing economic vulnerabilities, such as stagnant job growth, persistent inflation, and policy missteps (tariffs, immigration). The conversation critically examines the unique risks posed by oil and supply shocks from the conflict, the limits of potential policy responses, and the looming danger of stagflation or global recession.

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Key Discussion Points & Insights

The Economy Before the Iran War

• Stagnant Job Creation: Rampell notes that, per Fed data, there was “zero job creation in the past six months” before the war, with sluggish hiring and minimal firing, leading to economic stasis.

  “If you kind of adjust for some methodological issues, we've had no jobs added.” (Catherine Rampell, 01:53)

• Inflation Sticking Around: Inflation remained elevated for years, driven by COVID-19 shocks, fiscal policy errors, and especially Trump/Biden tariffs, which reignited price increases.
• Policy Problems: Trump’s tariffs and anti-immigration policies both contributed—tariffs to inflation, immigration curbs to labor market tightness.

  “Those two Trump administration policies… anti-immigration and tariffs have contributed to… one of those two problems.” (Bill Kristol, 04:08)

Immigration, Labor Market Stagnation & Tariffs

• Immigrants as Economic Drivers: Immigrants largely fueled recent US job gains. Deportations and declining in-migration shrink the working-age labor force, leading to frictionless unemployment stats but increased fragility under stress.

  “Immigrants are disproportionately working age. So they have been filling jobs… They’re more likely to come here and… actively contribute to the economy.” (Catherine Rampell, 05:17)

• Churn Matters: Healthy economies need churn—new jobs, business investments, workers quitting/finding better roles—but stasis and uncertainty predated the war.

The Economic Shock of the Iran War

Supply Chain & Energy Disruptions

• Strait of Hormuz Is Pivotal: Roughly 20% of world oil and a similar share of global LNG transits the Strait; its closure or infrastructure damage is globally consequential.

  “Once the infrastructure is gone, it is gone. It will take a while for it to come back.” (Catherine Rampell, 11:54)

• Physical Destruction is Key Difference: Unlike Iraq or Venezuelan conflicts, this war is destroying oil and gas infrastructure (South Pars field, Qatari facilities), causing potentially irreversible (or long-term) supply shocks.
• Knock-on Effects: Beyond fuel, disruptions affect fertilizers, crop prices, and petrochemical-based goods (e.g., shampoo, foams).

  “A third of the world’s urea… which goes into a nitrogen fertilizer comes through the Strait of Hormuz that is now disrupted.” (Catherine Rampell, 14:36)

Oil Markets & Price Volatility

• Spike in Oil and Jet Fuel: Oil has swung above $119/barrel, with expectations from industry (e.g., United Airlines) planning for $175/barrel scenarios; jet fuel prices have doubled, raising consumer costs.
• Airline/Travel Ripple: Rising operational costs force airlines to increase fares or cut flights, affecting global mobility and trade.

War Uncertainty, Consumer Behavior & Vicious Cycles

• Economic Confidence Erodes: High oil/gas prices mean consumers divert spending from other sectors ($300M/day more on gasoline), hurting retail, services, and leading businesses to freeze hiring/investment.

  “There can become kind of a vicious cycle… all of those things are bad.” (Catherine Rampell, 18:37)

• Risk of Recession High: Pre-war, economists put recession risk at 1-in-3; post-war, that number likely rises, given heightened uncertainty and the potential for “stagflation” (high inflation plus stagnating or falling growth).

  “When we’ve had big oil shocks before… in the 70s we had a bad recession, we had stagflation.” (Catherine Rampell, 24:11)

Policy Response Constraints

• No Good Levers: Fed is stuck—raising rates tames inflation but worsens stagnation; fiscal stimulus (like checks, oil reserves) are limited or self-undermining. Removing Iranian oil sanctions gives only short-term relief and has global consequences (e.g., benefiting Russia).

  “This is why stagflation sucks so much… the things that you would do to fix one… make the other problem worse.” (Catherine Rampell, 33:53)

• China & Renewables: China is less vulnerable due to heavy investment in renewable energy and coal; Europe and Japan remain highly exposed.

Market Psychology & Feedback Loops

• Broken Feedback Loops: Trump previously adjusted policy (e.g., delayed tariffs) when markets reacted strongly—market “forgiveness” or anticipation may now be dulling feedback at a critical juncture.

  “Now the markets are like preemptively… assuming that he'll lay off. And…I worry that… feedback loop is for oil markets is also going to get destroyed.” (Catherine Rampell, 28:35)

• AI Bubble Risks: Concentration in AI stocks (40% of S&P 500 in 10 names) is reminiscent of past bubbles; a simultaneous tech correction and energy crisis could produce a severe recession.

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Notable Quotes & Memorable Moments

• On Economic Fragility Pre-War:

  “We are in this situation where… the fact that net population or net working age population may be falling… maybe you don't notice it as much in the unemployment numbers… but maybe it's sort of being hidden by these other migration related issues.” (Catherine Rampell, 08:20)

• On Supply Destruction:

  “It’s not just about reopening a strait again, it’s about destroying the infrastructure for the stuff that would go through the strait.” (Catherine Rampell, 15:40)

• On Policy Tools:

  “Short of just—don’t start a war in the Middle East to begin with—that would have been helpful. There just are not that many levers available to them.” (Catherine Rampell, 34:53)

• On Market Feedback:

  “The thing that was causing Trump to chicken out was the market flip out. So if the markets are not flipping out, the worry is he's not getting the feedback that he needs.” (Catherine Rampell, 28:35)

• On the Difficulty of Policy Response:

  “The Fed has been kind of stuck in this horrible situation that they have one blunt instrument effectively that they can use and whatever they do will, will screw up something.” (Catherine Rampell, 33:59)

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Important Timestamps & Segments

• [01:52] – Rampell summarizes pre-war economic status and risks
• [04:15] – Discussion of immigration's complex effects and deportation fears
• [09:18] – Kristol frames the escalation: “We were in a one or two alarm situation and now we’re in a three or four”
• [10:57] – Rampell explains the unique role of the Strait of Hormuz and physical supply destruction
• [14:36] – Knock-on effects: fertilizer and product price inflation
• [18:02] – Rampell on consumer impacts and economic “vicious cycles”
• [24:11] – Historical context: past oil shocks and risks of stagflation
• [28:35] – The breakdown of the market-policy feedback loop under Trump
• [33:53] – Constraints on monetary and fiscal policy; policy gridlock
• [45:21] – What economic indicators to watch for war impacts in coming weeks

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Closing Points

• Short-Term Outlook: Risks to growth and inflation are real, with limited tools to stabilize the economy; consequences hinge on duration and scale of war.
• Long-Term Risks & Unknowns: The possibility of compounded shocks (war + tech bubble + credit issues) could tip the US and world economy into a deep recession.
• Indicators to Watch: Inflation readings (esp. March and going forward), job data, oil/jet fuel/fertilizer prices, crop futures, and the pace of consumer spending shifts.
• Policymaker Dilemma: The lack of coherent feedback loops and confusing signals from markets/policy threaten effective crisis management.

“We don’t have that many levers. The best thing that they could do is to try to find a way to get oil flowing again.” (Catherine Rampell, 34:53)

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This episode offers a sobering and clear-eyed analysis of the potentially cascading economic consequences of Trump’s Iran war, emphasizing the precarious state of the US and global economy, and the daunting limitations facing policymakers.

Transcript

[A]

The Bleacher Report app is your destination for sports right now. The NBA is heating up, March Madness is here, and MLB is almost back. Every day there's a new headline, a new highlight, a new moment you've got to see for yourself. That's why I stay locked in with the Bleacher Report app. For me, it's about staying connected to my sports. I can follow the teams I care about, get real time, scores, breaking news and highlights all in one place. Download the Bleacher Report app today so you never miss a moment.

[B]

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[C]

In partnership with Level Up Expo.

[D]

Hi, Bill Kristol here. Very happy to be joined today by Katherine Rampel, my colleague here at the Bulwark. It's midday Sunday and we're going to discuss the economy both in terms of the Iran war and what was happening beforehand as well. And obviously you all read Catherine's excellent weekly newsletter Receipts, which comes out Thursday, I think, and for Catherine's obviously on many times on video and weighing in, did an excellent discussion with Samsung just Friday. But I thought, you know, this kind of changes pretty quickly and so worth. Plus we probably have somewhat different audiences. So worth going over, trying to step back maybe a little bit more from the day that was really based on that day's news and say, where are we three weeks into the war in terms of its economic effects? Where were we before the war in terms of the economy? And give us the. Give us the bottom line up front, as they say.

[C]

Sure. I guess I would say before the war started, the economy was kind of like chugging along, but there were definitely some signs of fragility out there. So just as an example, if you look at the jobs numbers, the Fed thinks that we have had zero job creation in the past six months. They think that, like if you kind of adjust for some methodological issues, we've had no jobs added. On top of that, of course you have inflation that is still higher than the Fed wants, certainly than the general population wants. And that's partly about, you know, inflation being elevated coming out of COVID A bunch of fiscal policy mistakes that were also made, I think by the Biden administration and by the Trump administration. Inflation has been elevated for a while, like I guess close to five, around five years now. And then the tariffs did not help that the tariffs probably reignited inflation to some extent. So that was the setting coming into this war. And then the war has likely made both of those variables worse in the sense that it is likely to supercharge prices and in fact it already has supercharged some prices and is also likely to weigh on growth and potentially increase the risk of a recession.

[D]

Yikes. Okay, let's get to the war in a second. I, I'm curious, I read something yesterday. I think it was, I think it was from a reliable source, but you never know. Already reliable economists, but of course they could also not every economist could be right all the time sort of saying that actually the tariffs, I mean one of the sort of pieces of conventional wisdom I guess I've also accepted is midweek. So a lot of people overestimated how important the tariffs would be, how much of an immediate shock they would cost to the economy. But, but he said he thought some studies were showing the tariffs were responsible for a non trivial uptick in inflation. And then the immigration policy, the cutoff really of immigrant, of legal, well, of immigration period and net out migration maybe is not helping on the employment side. So that even pre war. I don't want to be partisan or anything, but it would be analytically fair to say that those two Trump administration policies, which are pretty central to the administration, anti immigration and tariffs have contributed to each one has contributed to one of those two problems.

[C]

Yeah, yeah. And with immigration, you know, it's a little bit complicated. Like immigrants are both consumers and producers. So how it shakes out in terms of their effect on inflation, if you reduce the number of immigrants in this country, it's a little bit unclear, but we know that immigrants, for example, are much more likely to be employed in certain sectors like construction and agriculture. And so there is also some sign or mostly it's fear at this point that deportations could disproportionately increase prices, at least in those sectors. So it's like immigrants actually they buy housing, obviously, but they also disproportionately build housing. So we already have a housing shortage in this country, at least on the margin. It is not helpful. Sorry, I have things pinging on my computer, then I will silence. Rookie mistake.

[D]

On the employment side though, immigration may be responsible for the fact that as Jerome Powell said, there's no net increase in.

[C]

Yeah, so basically immigrants are responsible for a large share of the job gains in the past few years, which Trumpers have suggested is like some kind of smoking gun that immigrants are stealing the jobs of Americans and that they, they are filling positions that would have otherwise gone to native born heritage Americans, to use their term of art. There is not really a lot of evidence that that is true in part because native born Americans are, tend to be much older. So we do, we have like a, we have had a shrinking labor force of native born people often over the last decade or so because you have so many boomers who are aging into retirement. Immigrants are disproportionately working age. So they have been filling jobs. You know, they're, they're more likely to come here and to be contributing actively to the economy because they're just in their working age years. And so one thing that the Fed is trying to weigh is that if we've had zero job growth over the past six months, as they think is the case, is that a problem? Is that because employers are not hiring and they don't want to hire, is that because there are no workers for them to hire? Because you know, again, on the margin, like a lot of the working age people are either getting deported, they're afraid to go to work, or maybe they're not coming here at all because in migration has declined as well. And you know, if it's the case that it's kind of both, which seems to be what the Fed is, is guessing at that it's like, well, employers both don't have that many jobs open and there are not that many new workers. Maybe it's okay if we have zero job growth, but the risk is of course that like if you have any little thing that kind of tips us off balance and we're like already just breaking even essentially in terms of overall jobs, that there's, you know, things could go south. Like you want at least some cushion there, that there are jobs being added, that we have some dynamism in the economy. And in fact in the past few months we have had very low hiring and also very low firing, which doesn't sound like it should be a bad problem, right? Like who wants to increase the firing rate? But you want some churn in the economy, some reallocation of people, you want people quitting so that they can find new jobs. And right now we're just in this kind of stasis that's again predating the war that's partly about the tariffs and the increasing uncertainty that has kind of cast a pal, a pall over the entire economy where businesses are afraid to make decisions. They're afraid to invest in new, in new inventory, new infrastructure, new factories, new offices and new hires. So we're kind of in this situation where yeah, the fact that net population or net working age population may be falling, you know, we'll have to see where the numbers ultimately shake out. And so like maybe you don't notice it as much in the unemployment numbers because the unemployment numbers only reflect people who are actively looking for work, who cannot find it. If there aren't that many people actively looking for work, then maybe you're not going to see that much of an increase in unemployment. And that looks on the surface, okay, but maybe it's like sort of being hidden by these other migration related issues. And so that's what that economist you were referring to was talking about that it's like on the one hand maybe it means that yeah, like you, it's not such a five alarm fire if we see zero job growth because like actually we're not adding that many workers. But on the other hand it's still not great and there's a downside risk that something could throw us off kilter. And hey, guess what, we just had a war. We just started a war that could be very much the thing that throws us off kilter.

[D]

Right. So we were in a one or two alarm situation and now we're in a, I don't know what, three or four alarms. So, okay, three weeks ago we went to war against Iran. And I think President Trump thought it would be a, I think he thought it would be a few days, a little bit longer than the June one day bombing effort, but basically over pretty quickly and without much in the way of, you know, broader side effects. And obviously the first day was extremely successful when Israel killed all their leader leadership and we demolished an awful lot of targets and reduced their missile capacity and so forth. And to be fair, I'd say if you look, sorry, I look back and look quickly at Iraq and some of the other, it's some of the Venezuela. These wars can often be contained, but even Iraq, which went very, very long obviously is very difficult for us. It didn't have massive spillover effects into the world economy that I know of. And it wasn't obvious oil prices didn't go up particularly or anything. I mean these wars can be cont, you know, if you want to think of it that way. But this one seems not to, you know, it's, God knows it's only been three weeks, but yeah, as you say, Venezuela had almost no effect. Right. And so, yeah, so to talk about what we've seen in the three weeks and then of course, where you think, where you think it's going, I'd have

[C]

to go actually back and look at what happened with oil prices in Iraq because my guess is that they did go up. I don't have the number, I don't think so.

[D]

First of all, was extremely plentiful, like it was in the 20s when we went to war in Iraq. $20 a barrel, 30 maybe. And I think it just sort of stayed there really for the next couple of years. But I could be wrong. Someone should, someone should double. I'm sure one of our, one of our knowledgeable viewers is right now double checking this and we'll get, yeah, this

[C]

is, this is easy to look up. Go. Somebody who's watching. Go to EIA Dot.

[D]

Not necessary. But anyway, now we know what's happening in this three weeks. In this three weeks.

[C]

So yes, I take your point. So in this case, whatever happened then, the Strait of Hormuz is a different beast. So the Strait of Hormuz, which probably no one had to learn about in America and until very recently because Americans are very insular and probably don't, you know, don't, whatever, don't. This is not a geographic feature that is central to American schoolrooms. The Strait of Hormuz, as people probably now know transit, is responsible for transiting 20% of the world's oil supply through there. I think it's a similar fraction of the world's liquefied natural gas goes through there. And when that gets shut down, as was not the case presumably in some of these other conflicts that just unilaterally, like in one fell swoop takes out a fifth of the world's oil from traveling. That's kind of a best case scenario. Now you see this additional escalation where the infrastructure is getting targeted. So it's not just that like, oh, you can, if we simply unblocked the strait and let things resume, it might take a little while for that resumption to happen, but it would happen. Now you're seeing. Well, first of all, even before, even before the escalation, you saw a bunch of countries like Iraq and I think Kuwait maybe stopped producing as much because they ran out of storage because they couldn't ship it through the strait. So you already have kind of a backlog there, a gap in Production. And now you have Israel bombed the South Pars natural gas field, which is the largest natural gas field in the world. So you have, like, natural resources getting bombed and disrupted and potentially destroyed. You had Iran bombing a bunch of refineries or other kinds of facilities around the region. I think they bombed the largest natural gas processing facility in the world, which is in Qatar. And there have been remarks made by the, the CEO of the company that manages that, that it'll be like, five years before potentially they get that back online. So all of these, that it's not like, you know, you could just flip the switch back on. You are permanently destroying a lot of this infrastructure. And once the infrastructure is gone, it is gone. It will take a while for it to come back. And that's why you are seeing oil markets be so volatile. At one point, I think oil prices touched above $119 a barrel. Then they went back down when, like, Trump suggested he was going to Taco. And we were winding it down, we were winding down the war. But, you know, it's a little hard to know, as you pointed out, what the administration's plan is, if they have a plan, how quickly this thing will be over. And a lot of businesses are having to plan for the worst. I saw that the CEO of United Airlines said that they were planning on the assumption that oil will go to $175 a barrel and that it will remain elevated above $100 a barrel until at least 20, 26. So what does that mean? Well, for United Airlines, it means that jet fuel, which I think has already doubled in price because jet fuel is made from oil, jet fuel is going to continue to be really expensive. That means these airlines are going to have to absorb this cost and, or pass it on to their consumers. We are now seeing airfares jump. We are seeing flights get canceled where, like, the economics no longer make sense for these airlines. That's happening not just with United, but lots of airlines around the world. We are obviously seeing prices go way up at the pump. And then there's a lot of other things that get made from oil and gas that are not solely about energy. Right. Like, I think I saw some analyst post something the other day. It's like, people think that if you can just swap out these electrons for other electrons, like if we just, you know, put up a lot more solar panels or something like that, have a lot more EVs, then if we could magically, you know, snap our fingers and, and have this, have like, all of the, the fuels replaced by Other kinds of renewables, that would be fine and that would help with a lot of the pain. It's obviously not feasible, but it still wouldn't help with everything else. There's like fertilizer that gets made from the byproducts of natural gas. And I think something like, I forget what it is. It's like a third of the world's urea which goes into a nitrogen fertilizer comes through the Strait of Hormuz that is now disrupted. So you're going to see, or you have already seen, fertilizer prices go up, which feeds into crop prices which go up. So all of these things have knock on effects, including in lots of products that people don't think about, you know, beyond fuel, beyond fertilizer. It's like shampoo has some kind of petrochemicals in it. They're like foams and things like that that are made from byproducts of oil and gas. So all of these things will eventually get more expensive, particularly if this conflict persists for a long time and if we have this sort of permanent scarring from the conflict where it's not just about reopening a strait again, it's about destroying the infrastructure for the stuff that would go through the strait.

[A]

The Bleacher Report app is your destination for sports right now. The NBA is heating up, March Madness is here and MLB is almost back. Every day there's a new headline, a new highlight, a new moment you've got to see for yourself. That's why I stay locked in with the Bleacher Report app. For me, it's about staying connected to my sports. I can follow the teams I care about, get real time, scores, breaking news and highlights all in one place. Download the Bleacher Report app today so you never miss a moment.

[B]

The Global Gaming League is presented by Atlas Earth, the fun cashback app. Hey, it's Howie Mandel and I am inviting you to witness history as me and my how we do it gaming team take on Gilly the king and wallow. 2, 6, $7 million gaming in an epic global Gaming league video game showdown. Plus a halftime performance by multi platinum artist Travy McCoy. Watch all the action and see who wins and advances to the championship match right [e-mail] that's globalgamingleague.com in partnership with Level Up Expo.

[D]

Yeah, that's an important distinction. Those two things. Well, so give me a. I mean if. Let's just say Trump's the threat to blow up the power plants of Iran was his final sort of bluff. And Iran does accede to a couple of things and they work out some deal. And I'm making this up, obviously, in a week, which I don't think is impossible, incidentally, if you buy it to the taco side of the fork on the road, I mean, how much have. I suppose we were. And so there's not that much more permanent damage to the infrastructure. How big a hit will we have taken and how quickly to recover? And conversely, if it goes on, I don't know, another month, which certainly seems quite possible if we're going to actually land Marines and so forth and not taco, so to speak. Where do you think. How big a. I mean, how. How big a variance do we have here in terms of future both?

[C]

I don't think anybody knows. Yeah, I don't think anybody knows the answer to that. I've seen a bunch of estimates for like, well, if oil stays above $100 a barrel for X number of weeks, it'll shave this many, you know, tenths of a percentage point off of GDP or whatever. Like, there are estimates like that, and they are probably based in, you know, some kind of regressions of what happened in the past. But there's a lot of uncertainty here. We don't really know. I think we don't also know the extent of a lot of the damage to the infrastructure. I mean, you know, I just to. Just for anybody who's watching, who may be horrified that we're, like, talking only about the economic costs of what is clearly a humanitarian issue as well, I do want to emphasize that I recognize that the, the number one thing we should be paying attention to, that we should care about for things like Trump threatening to bomb power plants is like, people will die. You know, that is probably a war crime. As I understand it from talking with lawyers, that stuff is all bad. The reason I'm talking about some of these downstream consequences, these economic consequences, is in part that I think American voters are not as attuned to those kinds of issues, particularly when they're happening abroad. People dying abroad, whether it's because of us or otherwise. They will notice, however, when gas prices go up. They have noticed when gas prices go up. And there is also sort of a. A fear that the. There can become kind of a vicious cycle, if that makes sense. So as I mentioned before, a lot of companies have held off on hiring. They've held off on expanding because of uncertainty. If everybody's sort of like freezing at once and not spending, if consumers are either not spending because they're worried about losing their job. Or more likely, they're not spending on stuff that is not oil and not gasoline because they are spending so much more on gasoline that has these ripple effects. So the number that I saw was that, like, American consumers are spending an extra $300 million a day than they were about a month ago just on gasoline. And they can't easily scale back from that because they have to drive to work, they have to take their kids to school, et cetera. So that's an extra. That's a $300 million chunk of change that they cannot spend on other goods and services in the economy. And so all of the businesses that they would be patronizing are like, oh, crap, I'm losing customers. Maybe I should hold back and not hire and not expand. Maybe they're losing money already. They're not. They're uncertain about how long this thing is going to go on. And so the uncertainty itself about how long this will go on, how long the disruption will be, how painful the disruption will be, is corrosive to the economy as well as the actual war and its very real downstream economic impacts. That sort of uncertainty and fear that, like, you don't want to be the one caught holding the bag. So all of those things are bad. And again, some of this uncertainty stuff, a lot of this uncertainty dragging on. The economy predates the war, but the war has heightened all of those risks. If you look at what economists say, there were a bunch of economists who are regularly surveyed by the Wall Street Journal about their forecasts for inflation, gdp, et cetera. Their most recent numbers suggested like a, a third chance, you know, one in three chance of a recession in the next year. But I believe most of them were surveyed before the bomb started being dropped on infrastructure. So I kind of wonder what they would be saying if you surveyed them today. I mean, they still may say it's not, you know, more than 50%. And I'm, to be clear, I'm not saying it's like, inevitable we're going to have a recession in the next few months or even more likely than not, in part because we just don't know. But none of these things are helpful. And we haven't even talked about, like, some other risks to the economy they're not solely about or not even mostly about Trump, like, you know, the potential AI bubble and stuff like that. So there are a bunch of other things that if we got very unlucky, AI bubble burst at the same time that this Iran war is disrupting Global supply chains, those things, even if they are mostly independent, can feed on each other. And even if like the war is over miraculously in a month or something like that, like you could still end up in a very bad place, you know, a global recession or worse. I very much hope we don't end up there, but I just wish our policymakers were like thinking about these possibilities. Even if they don't think it's the likely outcome, how do we avoid them? And it doesn't seem like anyone in leadership, surprise, surprise, is taking any of this seriously, let alone planning for how we try to avoid the worst possible economic outcomes.

[D]

I suppose it's not that easy to know how to, because it's two points. Correct me if I'm wrong. My big impression over the years, decades now, is that these things go, I don't know, markets and economists actually are slow in adjusting some degree slow, maybe reasonably slow though in adjusting to sudden shocks because most sudden shocks are sudden shocks and go, you know, and fade away pretty quickly. Right? So you'd go crazy if you were running a business or trying to do economic forecasting. And every time there's like one bad piece of bad news or one, you know, event somewhere in the world that looks very scary, you suddenly radically change your forecast. But so they're a little bit behind sometimes where things are going and then, and then things speed up, you know what I mean? There's a little bit. What's the joke about there? You know, everything goes fine until you fall off a cliff. I feel like it's a little, the markets can be more, they can be more of an inflection points than people realize, I guess. And it is a bit of you said earlier, it's a knock on. It's sort of a vicious cycle type thing, you know, and so I wonder, I don't know what the odds of that are, but I guess you mentioned global recession. It doesn't seem to me that that's out of the question. I guess the other, well, just the other question.

[C]

When we've had big oil shocks before, you know, in the 70s we had a bad recession, we had stagflation, you know, the same kind of thing that I was warning about earlier, high prices and stagnant or falling growth. So it's certainly not out of the question. It is well precedented here and elsewhere. To your point about like, do our markets reacting at the right time? I mean, who knows? Markets have what they say, animal spirits. You know, there is also an expression about like, how did you go bankrupt Very slowly and then all at once or something like that. And there's. It could be a little bit like that right now where it's. I think particularly with certain things like AI, there's kind of a widespread recognition or suspicion that maybe things are overvalued now or the market is kind of frothy, that something is wrong. It's something like 40% of the S&P 500, which is supposed to be a broad representative index of the entire economy, or at least, you know, publicly traded companies in the economy. It's like 40% of the S&P 500 is in 10 stocks right now. And they're all AI related stocks. Like, you know, there, there. People know that there are weird things happening that probably don't seem sustainable, but it's like people keep dancing until the music stops. And then you could imagine this is basically what happened with the financial crisis. Right.

[D]

Right.

[C]

In 2007, 2008. It's like everybody kind of knew there was a housing bubble and there were problems, but like, let's, you know, let's keep on making merry while we can and then, then things collapse and there's, you know, I think that some version of that may eventually happen with AI not because AI is not going to like, have transformative effects on the economy. And like, I don't think AI in and of itself is like, is not going to have a, you know, major consequential disruption. It's more that there's like a lot of bad money going after good and we just don't know which is which. And at some point that's, that bubble will probably pop and like, some of the companies that are making big investments are going to pull their investments and, and that's, that's been sort of keeping the economy afloat. And the question is just like, how, how much does that affect the rest of the economy? It's, you know, it's probably not like the financial crisis exactly, because the financial crisis like, affected all of the plumbing of everything. And maybe AI won't be. But if you have that happening at the same time that you had an oil shock or you have this other problem in the financial sector relating to private credit markets, which is a whole other boring thing. But like, if you have, you know, they're like sort of these ticking time bombs and the question is we don't know how big they are. We don't know how much they'll overlap and how much they will like, mutually reinforce each other and how much this sort of like, what's the word. You know, pessimism can feed on itself and can like create, can become a self fulfilling prophecy and like create a recession in that sense. So there are, you know, a lot of things to worry about. The other thing I would mention on the markets thing is that markets initially did freak out pretty vividly in response to dumb stuff that Trump did, like around Liberation Day, for example. And then they started like market participants started sort of tempering, tempering their response because of Taco.

[D]

Right.

[C]

Because it became evident that Trump would like announce a really horrific economically thing and then he would be chastened by the market reaction and he would pare it back. You know, he would delay the tariffs or, or otherwise like mute their impact, you know, delay them, suspend them, have lots of exemptions, whatever. And so markets began to anticipate this. And so like, well, of course we're not going to like freak out every time he announces tariffs because we know that he's going to, he's going to chicken out or he's going to pull back. And one problem that has evolved out of that is like, now you're missing the feedback loop. The thing that was causing Trump to chicken out was the market flip out. So if the markets are not flipping out, the worry is he's not getting the feedback that he needs. I mean, you would think he would be getting feedback like from his advisors about why something is bad for the economy or for our geopolitical relationships or whatever, but that doesn't seem to be happening. The only thing he was responding to for a while seemed to be the markets. Now the markets are like preemptively sort of not forgiving him, but assuming that he'll lay off. And I think that feedback mechanism got broken. And I wonder to what extent we're seeing the same thing kind of happen now with oil markets where like they'll, you know, prices will ratchet up and then they'll go down when Trump tweets or whatever that like, oh, we're almost done, we're ahead of schedule. And it's like, you know, you like, you almost want markets to like reinforce that the things that he wants to do are going to be pretty destructive in a clear enough voice that he recognizes these things will be destructive. And I don't know, we're like, I worry that that feedback loop is for oil markets is also going to get destroyed.

[D]

Yeah. Or even the stock markets being excessively confident, as it turns out. You know what, you made money if you bought on the dips. That's what Taco literally was invented for that. It was by traders. It wasn't by, you know, it was, it was the buying the dips. Buying the dips. And those always work. Until some case it doesn't work that way. As you say. I hadn't thought about the feedback loop. That's a very good point. I guess looking at it from the outside also, it does seem like there's a fair number of downside risks. There may be some upside opportunities in terms of real growth, real economic growth and reduction of inflation over the next year or two or three here in the US and the world. There could well be growth, obviously, but a little hard to see what upside surprises, I guess there are. It's easier to see downside surprises than upside surprises. That's my basic, basic.

[C]

Yeah, I take your point. It is much easier to. Well, it's always, I mean, by definition a surprise is a surprise. Right?

[D]

Right.

[C]

So it's hard to know, like it's hard to calculate or to, to, to incorporate that into your overall outlook or if you're like literally coming up with a forecast or prediction. Right. How does it, how does it get quantified? But there are things that are fairly obvious problems. Maybe there'll be, you know, there may be some huge productivity boom that comes from AI which will have winners and losers, but you know, there may be, like I saw something the other day about how AI was being used by meat processing plants to figure out how to get more meat off of the bone, which is like a, literally a grisly example to be, to be highlighting. But what does that mean? It's good for the company. It means that they can, you know, that they, they're, they're able to produce more with the same amount of inputs because they have some kind of technology that allows them to do that. Maybe that will one day translate into lower meat prices. So there are things that, like I would, that never would have occurred to me to be an application from AI. And maybe there'll be other things like that that even the vegans can enjoy out there that will, will help increase productivity and potentially decrease costs for people. I don't know. Again, there'll be people who lose jobs as a result of some of this stuff too. But it, like maybe this, maybe huge increases in standards of living are possible and we just haven't thought about them yet. I think that a lot of the upside of AI just as an example, is probably longer term. Whereas the things that we're talking about like the tariffs or the war, those are pretty short term and may be felt are being felt right now.

[D]

No, that's very. Yeah, that's very interesting and helpful. Two final questions, maybe just combine them. First of all, I mean you mentioned good if the policymakers are thinking more about this, I think that certainly that must be true. Well, so the two questions are they do in fact seem to be flailing around a little. I mean taking away, removing the sanctions on Iranian oil that's at sea, I guess, which gives you like a one day relief maybe or maybe even in terms of the oil markets and a return sort of guts. I don't know. It seems kind of crazy to be removing sanctions from someone we're bombing and then benefiting Putin. I mean, I just feel like if you're watching this and you're a business trying to decide how things six months out going to be, it's one thing if you have confidence that they know what they're doing and it's a little bit of a rough patch. It's another thing if you think they seem to be caught by surprise on the straight and of a ruse and they're more broadly don't quite know what to do. And secondly, and this is more charitable to them in a way, what are their big levers? I mean, right there's fiscal policy is stimulative. I don't think it can get much more. So the tax cuts are already in and they don't new ones coming along, presumably. You could propose some, I suppose, but then you just have massive deficit increases. And monetary policy, as the Fed chairman Joe Powell has pointed out, is sort of between a rock and a hard place which inflation is ticking up. And so you can't do the normal stimulative thing which is to cut rates, which Trump wants them to do. So I don't know. I mean it does feel to me like even it's sort of, you know, if interest rates were very high, I don't know if some of those at different times people have had those mechanisms to try to deal with these problems in the short, medium term. It feels like they're a little less available now maybe.

[C]

Yeah. I mean this is why stagflation sucks so much. Right. It's not just that it is painful to be experiencing both high prices and you know, potentially stagnation or a recession. Those things are unpleasant to deal with on their own and especially simultaneously. They're also really difficult to solve simultaneously because as you point out, the Federal Reserve would often be a major player in dealing with either of those issues. In fact, their Dual mandate is stable prices and maximum employment. And right now, the things that you would do to fix one of those problems or address one half of the mandate will make the other problem, the other half of the mandate, worse. The things that you would do to deal with high prices would be raising interest rates, as you point out. The things that you would do to deal with maybe zero job growth, if you think that's an issue, or potentially job losses, which we may ultimately see, you know. Well, we've seen for several months. The things you would do for that would be to cut interest rates, which would make inflation worse. So the Fed has been kind of stuck in this horrible situation that they have one blunt instrument effectively that they can use and whatever they do will, will screw up something. So there's that then there. To your point, you know, what can fiscal policymakers do? Well, Trump has announced that he would release oil from the Strategic Petroleum Reserve, which in theory should be helpful. We don't have that much oil in the Strategic Petroleum Reserve and it, it's slow to come out. Presumably that reserve is there also for emergencies like we might want it for, you know, access to our, for our military to access or what have you. So there are trade offs there. Not that presidents have like been particularly self disciplined about not releasing that oil. They have often done it when oil prices have been politically painfully high. So, you know, there's that. I have seen calls for stimulus checks both at the state level and potentially at the federal level. Again, if you're dealing with inflation, if you give people more money, that's not necessarily going to be helpful. In fact, it may be harmful. That's part of the problem that we saw in 2021. And there were a bunch of state level stimulus checks like inflation relief checks, which is kind of ironic in 2022, 2023. Ironic because it's probably going to make the problem worse. So, you know, there just are not that many tools like short of just don't start a war in the Middle east to begin with, that would have been helpful. They're just, there are not that many levers available to them. And the best thing that they could do is to try to find a way to get oil flowing again. You know, in theory, again, some of the electrons that come from fuel could be replaced by other electrons like from solar or wind or you know, other alternative non fossil fuel based energies. Those are, those take a really long time to build up. In fact, the Trump administration has blocked a lot of development that had been kind of put in place. They rescinded these tax subsidies that Biden and the Democrats had put in place. And you know, you can argue about whether it was like the best way to do it. I don't think it necessarily was, but it was in my view better than nothing. But now we have kind of pulled the rug out from a lot of those kinds of investments which long, mostly longer term issues, but still unhelpful if you're trying to blunt the, the pain, the impact of these higher costs. So there are a lot of things like in theory we could be doing China. It's interesting to see what's going on with China. So China is in some ways expected or has been among the largest economic victims, economic victims of this war because they purchased so much of their oil from Iran, whereas the rest of the world, at least until recently could not because of US Sanctions, among other decisions. So the expectation was that China would be hurt so badly and you know, they certainly, they've been hurt. But China has seen the writing on the wall for a long time and has been explicitly, has explicitly made the decision to invest more in renewables. Like they've had huge subsidies for their solar industry because they really that, that energy independence. They don't want to be batted around by global oil price shocks. And so they've been a little more resilient than you would think because they, they started consciously making the switch a while ago. They've also by the way, like invested a lot in coal which is not so climate friendly but for the same reason. So they, you know, they've been trying to, to find ways to make themselves less vulnerable to shocks like this in a way that the United States, we produce a lot more oil than we used to in many ways we are more resilient, more insulated, but not completely. We're better off than the Europeans are who don't have their own source of fossil fuels and who are buying, have been buying from Russia and, or the Middle east, both oil and natural gas. They've had, you know, Europeans are, there's going to be tons of unrest I

[A]

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No purchase necessary VGW Group Void where prohibited by law 21 terms and conditions apply. All of this, but I don't know. Sorry, I'm off on a tangent, but

[D]

no, no, it's important though because I think it means the Europeans and the Japanese for that matter, would be very happy if Trump tacoed and found a way out of this, if Iran permit him to at this point, which in the end they have some, well, who knows how much influence they have with Trump. But I mean they have some presumably and a lot of economists, presumably people he knows are telling him, you know, maybe a little bit ending the sooner rather than later is a good idea. On the other hand, it's just hard for me. I therefore have sort of assumed he would but because he's sensitive to markets and to economic forces. The foreign policy types though, and some of the Trump military types are, they seem all in, you know, I'm a little perplexed about which way he, he, which, you know, and also the megalomania, I think it's gone to his head. So which, which way which is the bigger. Is the prudence that led to the tacoing on tariffs ultimately, does that win out or does the megalomania that led her to do this in the first place, which was first, that one day with Iran in June was great. The drug boats went from his point of view. Well, I mean the reaction wasn't as great as he might have feared and I don't know if it had any effect on drug use in the US But I mean he got away with it, let's put it that way. Venezuela went well and I think that very much contributed to him doing what he's doing. And Israel told him we're going to pump, we can bump off the top 40 leaders. And that was a great first couple of days. So which of those two outweighs each other? I don't know. I really don't know.

[C]

Well, I Think one of the challenges here is, like, what would it even mean for him to taco at this point with tariffs? I know what that means. It means he removes the tariffs. What does it mean if he stops?

[D]

I think he lets a third country informally work out a deal, which you can certainly see the shape of. No, it's not too easy. Having said that. Well, it assumes that Iran is getting pummeled badly enough that for all their talk about escalation and stuff, they wouldn't mind a deal in which they stop getting bombed, basically, and are left alone and the regime is left in place and they've shown they can close the strait. They get real victories out of this, but they stop getting bombed and they reopen the strait and there's no handshake, there's no peace treaty or anything. And they're sort of assured quietly that we probably won't. This won't start up again in the very near future. They sort of assure us quietly that they'll try to keep things calm on this. They won't have to encourage the Houthis to do any trouble. You know, everyone can sort of. One can imagine, I believe right now that the Omadis and the Qataris and for that matter, European nations and Japanese and all kinds of people are trying to sort of see whether they can't find. You can see the Venn diagram overlaps a fair amount in terms of the economic interests. I'd say this is where, if the economics prevails, I should think there's a kind of a way for Trump to get there. Who knows what Iran thinks? So I agree. Even the tacoing thing, it's easy for me to sort of semi easy for me to say it. Doing it in the real world wouldn't be so easy. And it might take quite a while, a week or two. And I don't know. But I also, that's been my view for three weeks. But I've been. Look, he took the risk in the first place, as a friend of mine who's a foreign policy guy put it out to me this morning. That sounds good, Bill. But if he were thinking this way, he would have ended it after three days. What would this feel like if he had said, after four days, okay, the regime is much weakened, missile capacity down, leaders. Ayatollah Khamenei, whom we've all, you know, killed, has American blood on his hands for 30 years. Whatever is gone. And now we're going to try to give, you know, see if we can work, you know, we're not going to continue this forever. I've said I wouldn't get involved in long term, you know, endless wars in the Middle East. I mean, that would be pretty different. He didn't make that decision. And he certainly has signaled escalation. Right. In terms of the deployment of the Marines, hexa rhetoric and so forth. So I think I've been a little too confident that the overlearned the lesson of the tariffs as well and maybe again under learned the lesson of either the megalomania, that's the nasty way of putting it. Or the, I mean, maybe if you want to call it the foreign policy imperatives that lead him to think you can't let a hostile regime like Iran get away with this. But then you really are talking ground troops and then you're in a whole different world, which not only hasn't he wanted to do, we haven't prepared for it. Again, whatever thought of Iraq, we spent a long time preparing for that still didn't go well. I mean, the idea that you're rushing Marines from Japan here with, I mean the military is very good at this and they have plans obviously for various contingencies, but still not so easy to make these things happen very quickly. And not with 4 or 5,000 Marines either. I think you're talking more troops. So I don't know. I really don't know. I mean, what do you, what do you think? Let's close with this indicators. I mean, obviously we can all follow what Trump says and I suppose what he does in these cases we can follow what Iran says and does. The real world indicators on the economic front, when will you feel you'll get a better sense of how much price we're paying, how much things are slowing, what the knockout effects are? Is there data that comes out at a certain time? Are there?

[C]

Yeah. So I mean the obvious things are like we have various measures of inflation. We don't have them yet for, for March or post, I guess, February 28th. February, yeah, February 28th. Right. That's when the bombing started. So we don't have those numbers yet. But I will obviously be looking for what happens there. The numbers that have been coming in that have gotten some headlines recently on inflation, like wholesale prices and things like that, they're all. Which didn't look good. They all predate the war. So be looking for things like that. Obviously looking at what happens with jobs. There are other markets that are worth watching. Oil gets a lot of coverage these days. But watch what happens to fertilizer prices. Watch, watch what happens to Wholesale or crops futures for that matter. So there are a lot of things that will be leading indicators, I guess, for like what it should be something what we care about, if we care about, like the political feedback, we will see further upstream in the supply chain and we'll see what it. And then that will indicate what it means for consumers later on. Consumer slash voters, I guess, is my point, later on. So I'll be watching all of those things and I'm sure somebody in the White House is, too, but I don't know how much of that information is making its way to the president.

[D]

Yeah, that's an interesting question, isn't it? I mean, that's another thing. We're fighting a war without a good feedback loop, as they say. Whatever is not a. I mean, that was a real problem in Iraq. And I was in the middle of some of those arguments and they push was just not listening to the people who, like John McCain were saying, hey, look, we're in favor of this, but you got to do it in the right way. And that means more troops and counterinsurgency. And he and Rumsfeld and Casey were just stuck on this for two or three years, really. We paid a huge price.

[C]

Sometimes we'll get a. Someday we'll get a drink and we'll talk all about.

[D]

No, I don't want to reminisce about it. We'd love to have a drink with you and. But we don't have to talk about Iraq for the whole time, really. That would be okay. But this has been very helpful, really, Catherine, very interesting. Really shows the kind of complexity of the situation, I think, and also the key things to look for, I think, in the coming days and weeks. And yeah, it's fine. He starts this one war, which I think he had a very somewhat confined Iran, terrible regime. Israel is going to hit them anyway. Let's do that. And then it turns out to have real US Consequences here at home, beyond the casualties, obviously, which is the number one consequence, but also globally. Right. I mean, it's, in a way, it's his first real global crisis. You could say that he's been in the middle of.

[C]

Well, there was the pandemic, but yeah, yeah. No, first Trump made entirely. Trump made.

[D]

Right. And second term first he's had a pretty. For all the drama of the terrorists and the, and the, you know, Venezuela and all this. This is the real, I guess the biggest crisis of the second term, I suppose, in the real world, I think. Yeah. Catherine, thank you for taking time out for your busy weekend to join me on Sunday. And thank you all for joining us on Global Work on Sunday.

[C]

Thanks for having me.

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