When it comes to economics, the Donald is truly a knucklehead. So he is now preparing to monkey-hammer the entire $105 trillion global economy by putting a US naval blockade on top of the Iranian blockade.
The latter, of course, has already ground normal traffic of 115 ships per day through the Strait of Hormuz (SOH) to a single digit handful, at best. And even this de minimis daily total consists exclusively of IRGC approved shipments, mainly of Iranian crude oil at about 1.4 mb/d, going to China and other friends of Tehran.
So what we now actually have, therefore, is a dual blockade:
- Iran is stopping most of the normal traffic, which is deemed as either friendly to the US and/or Israel, or which has refused to pay the $2 million per ship Iranian transit fee.
- The US Navy will now be stopping the residual of shipments by Iran to friends like China and India.
Taken together, therefore, that’s zero SOH traffic starting at 10AM today of anything and everything that originates in the hydrocarbon mother-lode of the global economy. In his continuously unfolding mania against Iran, the Donald has simply stuffed an airtight cork in the narrow waterway which drives the global economy on a daily basis.
The baleful quantitative impact cannot be gainsaid. Normally, upwards of 24 million BOE/day (barrels of oil equivalent) of crude oil, refined products, LNG, LPGs, Naphtha, urea and nitrogen fertilizer are sent into export markets thru the SOH. And only a small part of that – about 2-3 million incremental barrels/day of Saudi crude – is now being re-routed to the Red Sea ports via the East/West pipeline. And even this workaround might be jeopardized soon if the Houthis close the Bab-El-Mandeb entrance to the Red Sea, as is now being threatened.
Indeed, getting Persian Gulf oil to the Far East via a workaround of a closed Red Sea entrance would be one for the record books. To wit, the large 2 million barrel VLCC tankers that would normally take Saudi crude from Yanbu on the Red Sea to the Far East through the Bab-El-Mandeb can only carry a half a load through the Suez canal due to draft limitations.
And then at 50% loaded, the VLCC would need to transit the Mediterranean thru the Strait-of Gibraltar for a trip around the Cape of Africa. From there, it would be accross the Indian Ocean and thru the Strait of Malacca to China, South Koran and Japan. The trip to Japan in this manner would be 11,200 nautical miles and take upwards of 45 days.
So if the US Navy now blocks all Iran-approved shipments that have paid the Iranian transit fee, on the one hand, and Iran, in turn, continues to block everything else from the Gulf exporters, you’ve got one hell of an instantaneous hole in the global hydrocarbon supply system.
But here’s the thing. In the short-run, these products have almost no demand elasticity. So prices will soar by 2X to 4X in order to generate the “demand destruction” needed to rebalance the market.
Of course, “demand destruction” is an economist’s euphemism. It really means RECESSION, to express the point in Trumpian format. That is, less hydrocarbon demand because –
- laid off employees are not commuting to work.
- shutdown factories are not consuming process fuel and feedstocks.
- travel-based discretionary spending for leisure and hospitality is being sharply throttled back.
In other words, the double-whammy of BibDon’s idiotic Iranian sneak attack and war is going to push the already powerful “stagflationary” trend of the US economy even harder. In turn, the deadly combo of rising prices and rising pink slip notices at one and the same time will likely foster a GOP wipe-out of biblical proportions come November.
Indeed, no one ever said that the Donald was an adroit politicians. He has ended up in the Oval Office by a fluke accident – twice now – because the identity-politics obsessed Dems picked the two worst candidates ever fielded by a major political party in all of American history.
So what we have is a monumental shoot-yourself-in-the-kneecap play underway. The Donald has now effectively destroyed his Presidency, and just to put a fine point on it, this morning he attacked the Pope after posting a picture of himself last night depicting a self-resemblant Orange Jesus.
What remains, therefore, is just for the receipts to come due: Namely, sweeping Congressional losses in November, and a first-in-history presidential impeachment before tax day 2027.
In any event, here is a flashing red warning light about the stagflationary forces rushing down the pipeline. The 12-month rolling Federal deficit for March 2026 clocked in at $1.6 trillion – the same level it has been stranded at for the last 36 months running, and that’s despite a unsustainable revenue boost (see below) from the Donald’s now illegal tariffs and the collection of capital gains taxes on last year’s stock market bubble.
Needless to say, therefore, the Federal deficit is fixing to accelerate skyward again owing to a coming spurt in spending and a recession-induced downdraft in the Uncle Sam’s revenue stream. Accordingly, the 12 month rolling deficit will be heading back toward the $3.0 trillion to $4.0 trillion range during the years immediately ahead.
That should be no surprise. The Federal outlays level is about to explode owing to the Donald’s insane war on the Persian Gulf, which isn’t in a real sustainable “truce” by any way, shape or pause. This is just a “pause” that will soon break wide open again because there is no way to square the circle as between the Bibi/neocon quest to obliterate Iran as a functioning state and the latter’s evident unwillingness to submit to a suicidal surrender.
Still, when you examine the revenue side of the March YTD budget figures, the footprint of impending recession is unmistakable. To wit, the fiscal YTD collection from withheld income taxes as of March 2026 amounted to $1.087 trillion. By contrast, the inflation-adjusted figure for March 2025 YTD was $1.088 trillion.
That’s right. In constant dollars, there has been zero gain in withheld payroll taxes, meaning the US economy is already treading water. And even when you look at withheld social security and related payroll taxes, the story is essentially the same–with constant dollar revenue collection up just 1.7% on a Y/Y basis for March YTD.
As we have frequently noted, the green eye-shades at the BLS have a seemingly inexhaustible tool kit of methods to fiddle with the reported “jobs” numbers, but one thing is sure: None of America’s 155 million taxpaying employers are about to send in tax payments for phantom employees – just to make the joker in the White House look good at any given point in time.
So here in inflation-adjusted dollars is what employers have done during the first six months of the fiscal year on a Y/Y basis. A gain of total payroll tax collections of just 0.7%, therefore, does indeed depict an economy on the slippery slope toward recession.
March YTD Withheld Income and Social Security Taxes:
- March YTD 2025: $1.931 trillion.
- March YTD 2026: $1.944 trillion.
- Y/Y increase: +0.7%
In this case, the honest numbers from the IRS tax collectors actually pretty much track what the BLS has been reporting in its monthly “Jobs” reports. For instance, between December 2024 and March 2025, the total count of non-farm jobs rose form 158.316 million to 158.637 million. That’s a gain of just 21,000 jobs per month, when the working age population grew by roughly 225,000 per month during the same period.
Of course, we don’t think the arbitrary dates of a presidential term have much to do with the cycles of economic rise and fall or the trend rate of jobs growth. But, still, the anemic gains during the Donald’s 15 months to date stand in sharp contrast to the alleged “disaster” of Sleepy Joe’s term, where monthly non-farm job growth averaged 329,000 job gains per month.
That’s right. On a pure paint-by-the-numbers basis, Joe Biden’s jobs growth rate clocked in at 16Xthe rate on the Donald’s watch since December 2024. So, the Donald has not yet delivered the Golden Age of prosperity to be sure, but there is something even more crucial in the numbers: Namely, that non-farm job gains of just 21,000 per month in a macroeconomic setting where the working age population (18-70 years) is growing by 225,000 per month is indicative of an economy lapsing into recessionary contraction.
And yet, that’s actually not the half of it. Since December 2024, total non-farm employment has grown by just +321,000 jobs. Yet during the same 15- month period, employment in the government financed private education, health and social services sector has risen by +856,000!
On the math, therefore, there has actually been a 535,000 net loss of non-farm jobs out side of the education, health care and social services sector. That hardly smacks of a golden era of prosperity. Not when you start with the age old GOP principle that prosperity stems form investment, productivity and output in the true private sector.
To that end, the graph below strips out both the government sector (local, state, Federal and post office) and the primarily government-financed education, health care and social services sector from the nonfarm payroll total.
The graph leaves nothing to the imagination. When the “socialistic” Dems were in power during the 48 months between December 2020 and December 2024, the true private sector jobs count rose by+229,000 per month. Alas, during the Donald first 15 months the second time around the barn, the true private sector jobs count has contracted by -21,000 per month.
That’s right. Employment levels in the true private sector have been shrinking for more than a year – all of the MAGA chest-beating to the contrary notwithstanding. Yet the real shellacking from the economic whirlwind spreading outward from the Persian Gulf – now intensified by the blockade of the blockade – is still months from making landfall in the government’s inherently lagging monthly economic numbers.
Moreover, the graph below is a reminder of an even broader point: Namely, that the whole MAGA spiel about the fulsome virtues of Trump-O-Nomics is just groundless bull shit.
Under the King of Debt, fiscal spending and borrowing were already out of control as of February 27th. And now with a full on war in the Persian Gulf that the Donald has no clue about how to end, the budget will soon be exploding in red ink at a $3-4 trillion or higher annual rate.
After all, incremental war spending is already running at $700 billion annual rate; about $4 trillion of government spending driven by COLAs and inflationary services procurement (e.g. Medicare/Medicaid) is also set to get an inflation shock for next year’s spending adjustments; and the recessionary subtraction from revenues is just around the corner.
Recent reports have given the same stagflationary signal, as well. For instance, real GDP clocked in during Q4 2025 at a limpid 2.0% rate, which is among the three lowest gains since 2013, and materially below the 2.5% average for 2012-2024.
To be sure, real GDP is a somewhat flaky number to begin with and is also a measure out the rear-view mirror. But the point is, the US economy was already struggling under the weight of $105 trillion of public and private debt, and a financial system that is rampant with reckless speculation, malinvestment and unproductive waste of economic resources.
That is to say, the last thing America needed was another Forever War, but that’s exactly what the Donald needlessly foisted upon the nation on February 28th.
Year 4Q Y/Y Growth Rate (%)
2013 3.0%
2014 2.7
2015 2.1
2016 2.2
2017 3.0
2018 2.1
2019 3.4
2020 -0.9
2021 5.8
2022 1.3
2023 3.4
2024 2.4
2025 2.0
While we think the major impact of the Persian Gulf energy and food price tsunami will be contractionary, causing widespread layoffs, idle capacity and shrinking income and profits, it is also going to exacerbate the “affordability” issue mightily, as well.
With the March CPI report now in, the drastic setback in real consumer purchasing power is already starkly apparent – with Y/Y inflation now posting at +44% for home heating oil and nearly +19% for gasoline, +6.4% for utility gas and +4.6% for electric bills – all the way through continuing stubbornly increasing prices for health care and other services.
In fact, the key sub-index for CPI services excluding energy services tells you all you need to know. It posted at a 3.05% Y/Y gain in March, meaning that it has returned to its June 2021 starting point, but refuses to shrink any further.
That’s a big time problem, of course, because the Iran War’s devastating impact on the global commodity complex – from gasoline to LNG, to urea and fertilizer derivatives, to the helium by product production in Persian Gulf natural gas processing plants, to sulfur recoveries from refinery desulfurization plants and much more—is sure to take goods price back into another cyclical spurt materially higher.
Indeed, the far more real time data from the Truflation index reminds clearly what is just around the corner. To wit, goods prices overall are already rising at a 4% annual rate, but the Persian Gulf supply shocks have barely yet entered the indices.
The surging gains in the array of goods prices reflected in the graph below will soon by posting at double-digit Y/Y rates, coming in on top of core services inflation that remains at 3% or higher.
Of course, the Donald is clueless about the booby-trap he has foisted upon the American economy and will likely be making social media posts for some months yet that deny the reality coming down to the track: To wit, a virulent Trumpite Stagflation is now locked and loaded.
Alas, the American public may not be so dense. Already, consumer expectations of worsening inflationary impacts on their own personal finances are at the highest level in the last 56 year of the University of Michigan index shown below.
The only issue now is how long the Donald will survive the impending stagflationary economic storm. When the Donald fluked back into the oval Office in January 2025, the underlying US economy was already a combustible mess of debt, speculation, malinvestment and lagging productivity.
And the Donald has now thrown on the match.
