Conspiracy theories are usually wrong even though they seem to explain a lot. The latest conspiracy theory floating on social media is that President Donald Trump is causing a recession to bring interest rates down to reduce the federal government's net interest outlays and to lower mortgage rates to make homes more affordable. A recession would also weaken the foreign exchange value of the dollar, which would boost exports and depress imports. Trump's tariffs should force manufacturers to move to the US and reduce foreign demand for American farm products, which would lower food prices in the US. What about the stock market crash? Not that many Americans own stocks, according to this conspiracy theory.
Sounds nuts to us! However, on April 4 at 8:25 am, Trump reposted a TikTok video on his Truth Social that follows this script! The original tweet noted, "Trump is playing chess while everyone else is playing checkers." The video concludes that Trump is "taking from the rich short-term and handing it to the middle class through lower prices."
So perhaps the conspiracy theory isn't nuts after all since Trump is either confirming it or toying with us. In any case, there are so many holes in this seemingly logical narrative. For now, let's just focus on stock ownership:
(1) Gallup survey. Trump's tariffs are causing a stock market crash that is hurting millions of Americans, especially the middle class and retired or retiring seniors. Gallup's annual poll of stock ownership shows that 62% of US adults have money invested in the stock market (chart). The vast majority (87%) of upper-income Americans, those with annual household incomes of $100,000 or more, own stock. That compares with 25% of lower-income Americans (those whose annual incomes are less than $40,000). However, two-thirds of middle-income Americans, 65%, own stock.
(2) Equity shares. Fed data show that a record 43.5% of the financial assets of US households (including nonprofit organizations) is in equities (chart). That makes consumer spending especially vulnerable to a negative wealth effect from rapidly falling stock prices. That is certainly one way to engineer a consumer-led recession that would hurt lower-income and middle-income households very hard.
