Trump's biggest weakness is monetary policy - he seems clueless about it!
Here goes the Fed, monetizing 700 billion in government debt today. Just what the HELL??!
This is problem, because the last times rates were this low, banks were borrowing money in order to invest in the market...not loan out. With removing any ratios on the banks, the potential for an anything goes approach is very real.
I remember being in a conference in NYC and a banker predicting the markets would hit 18k. When queried based on what fundamentals was the prediction being made, he basically shrugged and said that’s the trajectory. There was no reason for the market to reach 18k, let alone 27k. But when the savings accounts pay next to nothing, it’s better to make something on it, so people went to stocks.
I just see bigger problems on the horizons with this move.
So what’s your answer?
The fed rate reduction is, just like the tariffs, wrong in theory, but right in practice. They are both needed as a retaliatory response to unfair foreign economic strategies.
President Trump is the most financially astute POTUS we’ve had in modern times.
Import tariffs are theoretically an awful idea, because they are effectively paid by American consumers in the form of higher prices. But if our trading partners engage in unfair practices, such as slave labor, unsafe working conditions, quality control violations, corporate theft of intellectual property, etc., in order to undercut prices, retaliatory import tariffs are the only means we have of leveling the playing field. Hopefully, China and others will eventually choose to conform to modern labor, safety and quality standards to avoid the tariffs.
Reducing the Fed rate is exactly the same. It is not good in theory, but it is the only way to incentivize foreign competitors to stop manipulating their currencies to take unfair advantage in trade. Again, hopefully, they will eventually choose to reform their central banks, when they realize President Trump will not allow the US to be taken advantage of.
The way President Trump put it the other day was that the US is paying “above market rates” on our debt (compared to our trading partners) and we need to “refinance” our debt at a fair rate. This is actually a very smart way of looking at it. If they are going to devalue their currency, we have no choice but to do it too, otherwise we are being taken to the cleaners.
Just as with the tariffs, it’s a classic case of two wrongs DO make a right.
Ideally, the world would stop all these games of human rights violations and currency manipulation and there would be no need for tariffs or central bank manipulations - let the markets sort things out.
But until then, we need to retaliate or watch as our manufacturing base continues to evaporate, and our wealth continues to be redistributed abroad.
I know - it’s the Banksters that win from all this - and that’s true. But they are global - they will profit no matter which nations win or lose. I’d rather see the banks profit from a strong US economy than profit from a weak US economy. We need to win in trade or our standard of living suffers - and let the bankers take their piece of the action - but win or lose, bankers will profit - that’s how capitalism works.