Donald Trump is an economic ignoramus. I say this all the time.
I keep hoping I’m wrong, but every time he opens his mouth he confirms my worst impression of him.
Trump isn’t dumb, he’s very smart. But, like so many smart people, including myself and FOMC members, he’s over-confident in applying that which he’s been mis-educated about.
Trump is surrounded by monetarists, like Larry Kudlow. Kudlow still believes the Phillips Curve has validity for pity’s sake. Behind the curve doesn’t begin to describe the situation in the White House.
And yet that’s what they think of the Fed.
The Fed is staffed by Keynesians, or more accurately Samuelsonians. All of them have truly bonkers ideas about how markets actually work in the real world versus how they do in their textbooks.
Trump is likely the only one of them with any real world experience. And even he, as a real estate developer, only understands things from his tiny perspective.
In his latest round of anti-Fed tweets Trump lit off a litany of economic bromides as to why the Fed is the problem. And, so help me, Donald Trump is so out of touch with reality that I have been reduced to defending the Fed against him.
*grabs for my ginseng*
As your President, one would think that I would be thrilled with our very strong dollar. I am not! The Fed’s high interest rate level, in comparison to other countries, is keeping the dollar high, making it more difficult for our great manufacturers like Caterpillar, Boeing,…..
— Donald J. Trump (@realDonaldTrump) August 8, 2019
Trump is right that the dollar is strengthening. But he’s dead wrong about why.
On the one hand he wants a weaker currency but then he lauds, in the same Tweet thread, to the high heavens that money is “pouring into the U.S by the tens of billions” because of safety, security and interest rates. The Road to Serfdom: T... Best Price: $3.06 Buy New $1.99 (as of 03:40 EST - Details)
And worse, that that money pouring is money China isn’t getting. And then, after destroying mutually beneficial trade with China he’s going to spend more of our grandkids’ money (because that’s what record budget deficits are) bailing out farmers whose businesses he ruined.
The stupid, it burns.
He invites capital investment into the U.S through a massive corporate and middle class tax cut and then doesn’t expect the dollar to strengthen? The Fed isn’t the cause of this dynamic.
Sure, the Fed could have held off on raising interest rates but that would only have changed the slope of the capital inflow curve, not the direction.
Germany is collapsing, Hurricane Don. The money has to go somewhere, you know, like water.
Trump seems to think the Fed is all-powerful, that all it has to do is snap its fingers, lower interest rates and all will be well again. No. The Fed is a slave to market forces just like everyone else.
And market forces, set in motion by Trump himself, through his responding reflexively with tariff increases and demonization of China.
Trump seems to think the Fed saved the world alone in 2008. He forgets that global ZIRP was only possible because the Chinese economy had the capacity to take the money printed and put it to work.
Without that capacity, as David Stockman pointed out cogently in his book Peak Trump and my interview with him, there would have not been the last decade of muddle through here in the West and explosive growth of China.
So, Trump blaming the Fed for a rising dollar is silly. What’s causing the rising dollar is the very instability he’s creating with his ‘tariff the world/sanction the world’ policy to force change.
The Fed needed to raise rates and force some sanity on the world. It needed to start rewarding savers to rebuild the pool of real savings within the U.S. economy, gutted to rebuild the banks on Wall St. who are now staring at an abyss of red ink from the oil boom and bust Trump thinks will Make America Great Again.
Russia and Iran have something to say about that.
IMO, they didn’t go far enough. If Trump’s goal is a different trade dynamic, a stronger dollar is the path to doing that. The Fed was helping him get what he wants. But because he’s, frankly, a spoiled Baby Boomer he wants it all and he wants it now.
What’s even sadder about this is that not only is Trump getting me to defend the Fed he’s getting me to agree with the shitlibs who say he doesn’t have the temperament to be President. *reaches for The Road to Serfdom*
He clearly doesn’t.
That doesn’t mean I pine for Hillary Clinton in the Oval Office. This is not an “If Not A, then B” situation. Just because Trump is not fit to be President doesn’t mean Hillary was either.
Like everyone else, I’m just trying to make the best of a bad situation rapidly deteriorating. Trump’s inability to grasp the basics of capital flows and the inadequacies of government accounting is yet another catalyst for a global meltdown that the U.S. will be the last one to feel the worst effects of, because the Fed’s ZIRP policy blew the biggest bubble of all time, denominated in, you guessed it, dollars.
There’s more than $50 trillion in dollar-denominated debt out there trading at already historically-low interest rates. What in the actual fuck does Trump think another 25 basis points is going to do?
Cure Cancer? Or get him re-elected so he can terrorize the world with his victimhood mentality he still clings to from when he was a Democrat.
The Fed can’t reverse the capital flowing into the U.S.. Trump started that the right way, he cut taxes and continues to cut regulations while changing the face of the judiciary.
But like the malignant narcissist that he is he refuses to take responsibility for doing so. His inflexibility will doom his presidency but he won’t see that until it’s too late.
So the blame game goes on. When he’s blaming the media and the increasingly bizarre behavior of Democrats trying to oust him from power, he’s spot on. When he tries to make sense of the interface between politics and markets he’s lost in a wilderness of mirrors.
I have only one word of advice at this point.
*checks the price of gold and bitcoin*
Reprinted with permission from Gold Goats ‘n Guns.