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Despite massive amounts of money being pumped into the economy by both fiscal and monetary policy, U.S. growth is slowing, not accelerating.
Why it matters: Last year Congress signed a 2-year agreement to increase spending $300 billion, in part to pull the economy out of its slow-growth malaise following the financial crisis and put the U.S. back on track for 3% annual growth or higher.
Driving the news: The U.S. budget deficit rose by nearly $120 billion in July, a 27% increase over a year ago, the Treasury Department announced Monday. The fiscal year deficit through July is now $866.8 billion, higher than the entire deficit from fiscal 2018 and on pace to top $1 trillion, making it the largest U.S. deficit since 2011.
Reality check: The spending binge that has taken place during the late stages of an economic recovery has U.S. GDP on pace to grow around 2% this year, which is about the average for the previous 8 years.
What they're saying: "The direct impacts and uncertainty of tariffs, trade and other policy disruptions have mitigated the intended stimulus from the individual and business tax cuts," Steve Skancke, chief economic adviser for investment manager Keel Point and a former Treasury Department official in the Reagan administration, tells Axios.
The bottom line: "America should be in a boom, with three enormous fiscal-stimulus measures in the past three years," Nobel laureate Joseph Stiglitz wrote in an op-ed for Project Syndicate on Friday.
Wall Street has hit the panic button and is selling risky assets like stocks at a breakneck pace while piling into safe-haven bonds and money market funds.
What happened: The Dow fell 391 points, or 1.5%, to 25,896.44, with the blue-chip gauge hitting an intraday low of 25,824.94, and the S&P 500 dropped 1.2% with all 11 of its sectors ending lower.
The big picture: Monday was just the latest bout of selling. Deutsche Bank reported the largest fund outflows of the year across risk assets last week, with equity funds registering $25 billion in outflows — the most since the December stock market meltdown.
Conversely, data from Lipper showed a clear flight to safety last week with money market funds, which are effectively savings accounts, seeing $64.7 billion of inflows and municipal bond funds recording their largest weekly net inflows since Lipper began keeping track in 1992.
The unrest in Hong Kong hit the market hard Tuesday as the Hang Seng Index fell 2.1%. The territory's flagship airline Cathay Pacific saw shares tumble 2.55%, after a 4.9% slide on Monday that pushed the stock to its lowest price in a decade.
Background: Hong Kong International Airport stopped all flights Monday after protesters occupied the building for a fourth straight day as part of escalating citywide protests against a law that would allow China to extradite and try citizens from Hong Kong in the mainland.
Watch this space: Steve Eisman, a fund manager portrayed in “The Big Short,” says the Hong Kong protests are his biggest worry, as they could endanger the likelihood of a trade deal between the U.S. and China and hurt the global economy.
Another major risk to a trade deal is the still-unresolved issue of Chinese telecom Huawei and its ability to do business with U.S. companies.
Why it matters: President Trump allowed companies to work with Huawei during a 90-day "truce" that ends on Aug. 19. Dec Mullarkey, managing director of SLC Management, says the date will prove to be a major "inflection point" for investors, as it could be a bellwether for the fate of a deal.
"If the U.S. decides to renew support for Huawei it should create some goodwill. However, a hard stance on both Huawei and trade tariffs will likely to polarize renewed trade negotiations in September, rather than pressure the Chinese into easy concessions.
"The collateral damage to the rest of the global economy from trade wars is real, as global manufacturing is in a recession. We are at an inflection point right now. The tone and progress on trade in the next several months will dictate the pace at which the current slowdown could migrate to a serious downturn."
The Argentine peso fell 30% and its stock market sank 37% on Monday, the worst market collapse for the country in more than 2 decades. In dollar terms, Bloomberg reported it was the second-biggest 1-day rout on any of the 94 world stock exchanges it tracks since at least 1950.
The market could have seen this coming: The economy has been in recession for 3 of the 4 years Macri has been president, record inflation has increased and the government has slashed subsidies for the poor and implemented sky-high interest rates, choking off business.
Why it matters this much: Fund managers who have spoken to Axios over the past year say they foresee an economic collapse and wide-ranging debt defaults with Fernández de Kirchner back at the country's helm, even as vice president.