Trump, the Fed, and a Trillion Dollar Game of Hot Potato

by | Oct 19, 2018

Trump, the Fed, and a Trillion Dollar Game of Hot Potato

by | Oct 19, 2018

This Tuesday, President Donald Trump further fanned the flames of his already contentious relationship with the Federal Reserve, referring to the central bank as his “biggest threat.” Fed Chairman Jerome Powell, a Trump appointee, caught the ire of the president. Of the appointment, Trump recently told Fox News, “Maybe it’s right, maybe it’s wrong…There are a lot of other people there I’m not so happy with.”

This is only the latest slight by President Trump. Just last week he referred to the Fed’s recent decision making as having “gone crazy,” though he backpedaled on that statement by admitting, “It’s a correction that we’ve been waiting for for a long time, but I really disagree with what the Fed is doing.”

So what is the Fed up to that has the president so out of sorts?

It isn’t the Fed’s dubious constitutionality that has Trump flustered, nor is it the fact that the purchasing power of the U.S. dollar has diminished by over 96 percent since the Fed was established in 1913. It certainly isn’t the Fed’s ability to facilitate the bailout of politically connected corporations and industry sectors. Trump himself pushed for over $12 billion in bailout funds for farmers who have borne the brunt of the president’s trade wars. No, President Trump is singularly concerned with the Federal Reserve’s command over interest rates; namely the fact that the Fed has raised rates three times this year, with a fourth raise likely before the end of 2018.

If President Trump understands that this raise in rates is causing “a correction that we’ve been waiting for for a long time,” then what is the problem?

The problem is Trump has already taken credit for the positive economic numbers associated with the current bubble. Rising interest rates may cause a chain reaction that leads to yet another bursting bubble, not unlike the financial crisis of 2008.

Tweets from the president just this week included self-adulation for a rebounding stock market and an apparent job openings record of 7.14 million, proceeded by the quip, “It’s all working…tremendous potential of USA, also, strong profits. We are number one in the world by far!”

But, if the current administration wants to revel in the economic outcome of yet another Fed-induced bubble, then it may not be able to escape a harsh rebuke should the correction come under Trump’s watch.

Per AFP (Agence France-Presse), the Fed’s move to raise interest rates this year sought to “prevent a vibrant economy from overheating.” That sounds reasonable. So, what’s the problem? As Tenth Amendment Center national communications director Mike Maharrey explained, rising interest rates simply aren’t sustainable in an economy built on debt.

“We have record levels of government debt –  now over $21.6 trillion. We have record levels of household debt. Americans owe over $1 trillion on credit card bills alone. And we have record levels of corporate debt. As interest rates go up, the cost of servicing all of this debt goes up. That means everybody is paying higher interest payment and they has less money to buy stuff. At some point the whole house of cards collapses. The bubbles burst and the economy tumbles into recession.”

In the broad view, it is perfectly reasonable to be angry, but it’s important to be angry at the right people for the right reasons. When President Trump publicly decries the Fed as an adversary, the “End the Fed” crowd might be quick to cheer. After all, it is by the power of the monetary printing press that the Federal Reserve is able to finance the welfare/warfare state, while simultaneously bankrolling any number of projects for wayward politicians fulfilling their promises to the special interests that got them elected. Such government growth and subsequent cronyism wouldn’t be possible without the Feds monetary mechanizations. But President Trump’s barbs are hardly the strike at the root that is required, because he has no political interest in taking the Fed on outright. With his swiftness to claim the most recent financial bubble as proof positive of his economic brilliance, the president has entered into a trillion dollar game of “Hot Potato,” and being the one holding it when the bubble bursts could spell disaster for his party and administration.

About Alan Mosley

Alan Mosley is a historian, jazz musician, policy researcher for the Tenth Amendment Center, and host of It's Too Late, "The #1 Late Night Show in America (NOT hosted by a Communist)!" New episodes debut every Wednesday night at 9ET across all major platforms; just search "AlanMosleyTV" or "It's Too Late with Alan Mosley."

Our Books

thisone

Related Articles

Related

We’re Governed by the Communist Manifesto

We’re Governed by the Communist Manifesto

Since its publication the Communist Manifesto has influenced most forms of government. The ideology has mutated from one of utopian ambition to providing a framework that uses the language of egalitarian justice. Marxist ideology no longer has a revolutionary spirit...

read more
Why I Won’t Vote For Donald Trump in 2024

Why I Won’t Vote For Donald Trump in 2024

Will he or won't he? That was the question on people's minds as news broke last month of former president Donald Trump suggesting he has made up his mind on running for president again. Grover Cleveland first won the presidency in 1884, and won the popular vote in the...

read more

Pin It on Pinterest

Share This