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Trump doesn't understand monetary policy - and it's frightening

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MWmetalhead
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Trump doesn't understand monetary policy - and it's frightening

Post by MWmetalhead » Sun Sep 15, 2019 7:53 am

Trump's advocacy for negative central bank (i.e. federal reserve bank) interest rates in the United States is very troubling to me.

I am worried about a scenario where Trump is reelected, his ego swells to unforeseen levels (even for him), he chooses to fire the Fed Chairman, has his decision upheld by a friendly Supreme Court, and then appoints a hacky ideologue to run the Federal Reserve.

Ironically, whenever liberals espouse how they wish the U.S. were more like Europe, conservative talking heads usually mock such individuals.

In this instance, Trump wants the U.S. banking system to follow in Europe's footsteps (Sweden was the birthplace of negative central bank rates), yet Rush, Sean and others are eerily silent on the subject.

I'll cut to the chase - negative central bank interest rates are BAD, are unsustainable, and would lead to a macroeconomic bubble that will eventually burst (much like the housing bubble in '08). Imagine having a money market savings account that pays ZERO in interest w/ fees on top of that resulting in a negative yield. Imagine short and medium term CDs that pay maybe 0.15% per year - far below the rate of inflation. That is EXACTLY what would happen if the Fed were to heed Trump's advice.

Such a dynamic would encourage Banks to pump more money into commercial loans when corporate cash flow leverage ratios are already high and would compel households to maximize spending and minimize savings. While initially such events would prop up the economy, as soon as a little ripple hits, the results would be devastating. Retirees would see their personal wealth erode due to defaults on corporate bonds, those who've been laid off will be at high risk for personal bankruptcy due to lack of personal savings, and the banking system would likely require another bail out - akin to TARP.

Never mind the fact sharply reducing interest rates flies in the face of Trump's repeated statements that the U.S. economy is in marvelous shape, and has "never been better." Many investors subscribe to Trump's rosy view of the economy. A massive rate reduction would be treated as a sign of alarm and would result in a massive selloff on Wall Street. This would deal a devastating blow to everyone's retirement accounts.

https://www.latimes.com/business/story/ ... r-disaster

https://www.investopedia.com/articles/i ... s-work.asp

https://finance.yahoo.com/news/negative ... 24580.html

https://www.barrons.com/articles/trump- ... 1568280604 (best article of the bunch)


Greta Thunberg is a snot nosed brat who needs to STFU.

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Bryce
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Re: Trump doesn't understand monetary policy - and it's frightening

Post by Bryce » Sun Sep 15, 2019 8:51 am

While I wholeheartedly agree with everything you state in your post regarding the total disaster negative interest rate would be, I don't think we need to be overly concerned. T Rump fancies himself as a deal maker. He thinks that way. Deal making 101 is to ask for more than you want/expect.

My thinking is that T Rump does indeed want the fed to lower interest rates, so he asks for the extreme hoping to achieve something less.


Cain killed Abel with a rock. God blamed Cain, NOT the rock.

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Lester The Nightfly
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Re: Trump doesn't understand monetary policy - and it's frightening

Post by Lester The Nightfly » Sun Sep 15, 2019 5:47 pm

Where the problem and false equivalency come into play is that Trump as a businessman has expertise and has found great success in only one singular industry. Real Estate. Period. What strategy and tactics achieve results in one area of finance and commerce may have no bearing whatsoever in a different subset of the field.

If you'll allow... MW appears to be very successful in what I gather is a relatively specialized area of finance. I trust that he's coming from a position of a reasonable understanding about policy issue he raised in his post. I've also gathered over the time I've been on the board that if a transactional event occurs in MW's business dealings that require additional expertise, it will be summoned (hell, maybe MW is the guy they call)

Point being, Trump has stated many times and unambiguously that his decisions are the only one's that matter. The man refuses to act on advise from others who may be infinitely more qualified to offer knowledge and expertise on the nuances of a particular policy. God is in the details and Trump appears to have little use for that. The man listens to no one.

I think what MW was getting at is there's a real danger that Trump might be applying something he knows (low interest rates is a good thing in real estate) without a clue about the ramifications elsewhere in the larger economic picture.



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Re: Trump doesn't understand monetary policy - and it's frightening

Post by bmw » Sun Sep 15, 2019 6:32 pm

Completely absent from any of those articles, and at least worthy of note, is the impact of negative interest rates on the trade deficit, which is approaching $1 trillion per year and makes the GDP roughly 4-5 percent LOWER than it would be if our deficit was neutral. Negative interest rates, in theory, spur exports, and thus would ease the trade deficit. I doubt we'll ever actually see negative interest rates, but my guess is that Trump views this as a way to fight China devaluing their currency.



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MWmetalhead
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Re: Trump doesn't understand monetary policy - and it's frightening

Post by MWmetalhead » Mon Sep 16, 2019 6:58 am

There is no reason to "spur exports." Our economy is doing fine as-is. A massive interest rate drop would do much more harm than good long term and would remove any ability to juice the economy via monetary policy once a stimulus is actually needed.

The trade deficit is a widely misunderstood statistic, IMO. I do not accept the notion that a trade deficit is an inherently bad thing. If anything, the presence of a trade deficit is a sign of a strong and vibrant U.S. economy.

https://www.realclearpolitics.com/artic ... 39696.html

Slashing interest rates, especially making them negative, would cause runaway inflation. Remember, many EU countries were trying to mitigate DEFLATION. Our economic circumstances (thankfully) are much different than the EU countries.


Greta Thunberg is a snot nosed brat who needs to STFU.

bmw
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Re: Trump doesn't understand monetary policy - and it's frightening

Post by bmw » Mon Sep 16, 2019 9:31 am

bmw wrote:
Sun Sep 15, 2019 6:32 pm
...Negative interest rates, in theory, spur exports...my guess is that Trump views this as a way to fight China devaluing their currency.
It is almost like I can read his mind. This, just 2 hours ago:

Image

Did I call it, or did I call it? :lol



bmw
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Re: Trump doesn't understand monetary policy - and it's frightening

Post by bmw » Mon Sep 16, 2019 9:43 am

As to the article you posted MW - I never said I agree with cutting interest rates into negative territory. I think they're fine right where they're at, though I would have no issue with cutting them a quarter or half a point.

My only point about the trade deficit as it pertains to economic growth is that it is directly part of the GDP equation - ie, a deficit is directly subtracted from the GDP. And since the GDP is somewhere around $21 trillion, a trade deficit of $1 trillion weighs down the GDP by nearly 5 percent. What the optimal level for a trade deficit/surplus is is obviously a complex issue and one far outside of my ability to comment beyond pointing out that it is used as part of the GDP measurement. The author of that article you posted does make a good point, though:
...the U.S. dollar is the dominant global currency. It's used by many countries, companies and individuals (not just the United States or Americans) to conduct trade, to finance business, to borrow and lend across borders, [and] to hedge against the instability of other currencies...

This unique role -- no other currency comes close to serving as global currency -- feeds demand for dollars on foreign exchange markets, raising its price. A higher-priced dollar in turn makes U.S. exports more expensive and U.S. imports cheaper.
Seems to me that a strong dollar is a good thing.



screen glare
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Re: Trump doesn't understand monetary policy - and it's frightening

Post by screen glare » Mon Sep 16, 2019 11:34 am

A mentally ill President of the United States.
What could go wrong?

Nightmares galore. And by now even his once ardent supporters realize they can’t rely on ANYTHING he says because they see that he lies pathologically.

Will the military brass follow his orders if they feel he’s flaming flipped out?
Will the US population follow his orders if it’s about an imminent danger to their lives?

He has lost trust on a scale we’ve not seen before - with both the American people and the world - friends and foes alike.

So he’s not just frightening regarding monetary policy. He is scary at every turn - domestic and international.

This is a very grand scale precarious and unprecedented situation.



bmw
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Re: Trump doesn't understand monetary policy - and it's frightening

Post by bmw » Mon Sep 16, 2019 12:09 pm

screen glare wrote:
Mon Sep 16, 2019 11:34 am
He has lost trust on a scale we’ve not seen before - with both the American people and the world - friends and foes alike.
(emphasis added).

That is factually incorrect. He has the most stable approval rating of any President in the history of polling. His rating has remained within an unbelievably tight 4-point range for the entirety of the past 18 months.

And since he took office?

Day he took office - 44.3
Today - 44.1

So losing support from 2 tenths of one percent of the American people equates to "losing trust on a scale never seen before" in your view?

(source - real clear politics polling averages)



screen glare
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Re: Trump doesn't understand monetary policy - and it's frightening

Post by screen glare » Mon Sep 16, 2019 1:45 pm

Keep your eyes averted, bmw. Keep them fixed on stats. Which can be manipulated - especially their meanings.



screen glare
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Re: Trump doesn't understand monetary policy - and it's frightening

Post by screen glare » Sun Sep 22, 2019 8:14 pm

As I said. Trump’s scary symptomatic behaviors and resulting stupidity go way beyond monetary policy.

- There go US troops over to Saudi Arabia and the UAE.
- And there stops the lawful progression of the urgent Whistleblower’s Complaint.



Y M Ionhere
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Re: Trump doesn't understand monetary policy - and it's frightening

Post by Y M Ionhere » Sun Sep 22, 2019 11:34 pm

bmw wrote:
Mon Sep 16, 2019 12:09 pm
screen glare wrote:
Mon Sep 16, 2019 11:34 am
He has lost trust on a scale we’ve not seen before - with both the American people and the world - friends and foes alike.
(emphasis added).

That is factually incorrect. He has the most stable approval rating of any President in the history of polling. His rating has remained within an unbelievably tight 4-point range for the entirety of the past 18 months.

And since he took office?

Day he took office - 44.3
Today - 44.1

So losing support from 2 tenths of one percent of the American people equates to "losing trust on a scale never seen before" in your view?

(source - real clear politics polling averages)
In the interest of objectivity, didnt RCP show Trump losing in every poll? And Gillum being ahead in the Florida gubernatorial race in every poll?



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