Tuesday, August 13, 2019

IS Trump Using Tariffs To "Strong Arm" The Fed Into Cutting Rates? The Nasty Meme (And Truth) Is Now Afoot

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On Thursday Trump squealed in a deranged tweet:

"One would think 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 to compete."

Anyone who knows the extent of Trump's chronic derangement knows he'd be all too happy to pursue a sordid policy of dollar debasement to try to get a few market brownie points.  Also, they'd know what's making life more difficult for manufacturers - as well as farmers (and soon U.S. consumers) - are Trump's idiotic tariffs, which are really a tax on domestic interests.  But the malicious buffoon is savvy enough - in a twisted sense- to grasp he can use tariffs to pressure the Fed to lower rates.

It's a fair bet that few,  if any,  citizens are aware of the appalling degree to which American farmers are being put through the economic wringer for Trump.  The tariffs he's now increased on China - causing it to retaliate- will have devastating consequences on farmers as they are unable to sell hogs to the biggest pork consumers, or soybeans.

Less likely is that many would have seen what I read a few days ago in the Business & Finance section of The Wall Street Journal (p. B14,  Aug. 7) i.e.  that many economics experts and finance mavens now believe our nutso occupant of the Oval Office is using tariffs to "strongarm the Fed"  into cutting interest rates.

Look, we already know Tyrant Trump has been on Fed Chair Jerome Powell's case the past year to cut rates.  We know the swine has berated the Fed incessantly about lowering rates,  going so far as  to try to tilt the Federal Reserve Board with two unqualified lackeys: Herman Cain and Stephen Moore.  Fortunately, after much media heat centered on their woeful and clown -like backgrounds both backed out. 

But Donnie Dumpsterfire  never let up on his Fed attacks and search for leverage so pushed a new toady - Judy Shelton  (see photo above)- who, wait for it:   Yearns for the resurrection of the gold standard.   As a recent (July 3rd) Reuters report  described her:

"She has long advocated a return to the gold standard for the U.S. dollar, something most economists regard as a deflationary regime that would curb the Fed’s ability to respond to an economic downturn. She has also criticized the central bank’s post-crisis policies of zero interest rates and bond buying.
She has changed her tune in recent weeks, arguing that the Fed should be cutting rates to allow the administration’s tax cuts and deregulation to benefit the economy. That seems expedient, perhaps indicating that Shelton will in fact reflect the president’s views at the Fed."
Well, we all ought to worry if she succeeds in getting  a place on the Federal Reserve board, especially if this vapid virago still believes the gold standard is an answer. And also if she practices the financial philosophy of "political winds' directions", i.e. criticizing Fed near zero interest rates when Obama was president, but now ready to go against them with Dotard having seized the office with the Russkies' help and an archaic Electoral college. 

But the percipient will see her as yet another Trump pawn to try to push the Fed to fulfill his will, i.e. to lower interest rates to try to stimulate the economy when it doesn't need it. The increased tariffs (up to 10 % on all Chinese goods now)  are an even more potent force in this direction, because they tend to create weakened economic conditions for the U.S. which need addressing and for which few other options exist. The problem is that they are destroying the livelihood and  financial stability of the nation's ordinary (non-corporate) farmers. See e.g.


Key takeaways from the piece:

  • U.S. farmers lost their fourth largest customer this week after China officially cancelled all purchases of U.S. agricultural products, a retaliatory move following President Donald Trump’s pledge to slap 10% tariffs on $300 billion of Chinese imports.
  • China’s exit piles on to a devastating year for farmers, who’ve struggled through record flooding and droughts that destroyed crop yields, and trade war escalations that have lowered prices and profits this year.
  • “It’s really, really getting bad out here,” Bob Kuylen, a farmer of 35 years in North Dakota, told CNBC.
  • “There’s no incentive to keep farming, except that I’ve invested everything I have in farming, and it’s hard to walk away.”
Process that, and then the meme that Trump is using tariffs to strong arm the Fed.  They are not mutually exclusive. Indeed, in the WSJ Op-ed 'A Fed Reversal Will Store Up Trouble' (July 30, p. A17) we learned:

"The escalating U.S. - China trade war had led bond markets to price almost three rate cuts by the end of 2019 at one point, signaling the Federal Reserve will do whatever it takes to maintain GDP growth"

This after already observing (ibid.), the action has been spawned by "Trump's increasing criticism and calling for rate cuts and another round of quantitative easing."    Put the two together and what do you get?  Well,  that Trump is stoking the trade war with his escalating tariffs and will continue to do so to try to strong arm Powell's Fed into giving rate cuts.    But as the authors (Danny Yong and Nikhil Srinivasan)  also warn:

"By folding to these external pressures and cutting interest rates while U.S. equity markets are at all time highs and unemployment is at multi-decade lows the Fed is putting its credibility at stake."

Worse, the meme is out that a prime Trump Toady, Peter Navarro, in league with Trump, will trigger another recession with this madness. (cf.  WSJ, 'A Navarro Recession?',  Aug. 8, p. A14).  The Journal editors had a clear warning for Trump, writing:

"The irony, and a dangerous one, is that Mr. Trump doesn't seem to understand that his trade policy is contributing to exchange rate instability and a rising dollar."

Which is interesting given that Dotard - from his tweeting rant (see top quote)- accused the Fed and Powell of the rising dollar.  It's clear even the WSJ perceives he really is the dumbass we all suspected, certainly  in terms of  his inane  economic policies. The editors go on:

"When he slaps tariffs on China he reduces the demand for Chinese yuan. He also encourages capital flight to safe havens like the dollar, which encourages more capital into dollar instruments and the U.S."

In other words, Trump is acting the part of a mentally deficient kid playing with matches near a gas stove. The moron has no conception of cause and effect- i.e. between his tariffs and the flight to the dollar (raising the greenback's value).  As the editors conclude:

"If Mr. Trump can't strike  a broader trade deal with China before the election, he should at least call a trade truce to reduce the damage...Trump's willy-nilly trade offensive could be the mistake that turns a slow down into the Navarro recession'"

Let's also note that in an earlier editorial ('The Confusing Federal Reserve', July 30, p. A16) the WSJ editors were alarmed enough by the Fed's quixotic moves re: rate cuts that they noted: "This contributes to the suspicion in markets that the Fed is really trying to accommodate Mr. Trump's public demand for rate cuts."

In other words, Powell and the Fed have shown - and likely will further show  - even with rate cuts into negative interest territory they they are at the beck and call of the narcissistic autocrat in the White House.

This elicits the question: Does Powell even know that he and his compadres are being strong armed into rate cuts?   To quote the WSJ editors (ibid.):

"We'd like to think that's not true and it's dangerous for the Fed's credibility if it is.  But as long as the Fed bounces from tightening to easing based on inconsistent logic, the suspicion will persist."

See also:


Ed said...

Fragile Systems, Resilient Communities by Jim Davidson https://zerogov.com/fragile-systems-resilient-communities-by-jim-davidson/

Unknown said...

Hooverville here we come. Maybe a great depression will ease some of the racist hate going on today?