Today, the Federal Reserve promised to do its job, to “sustain the expansion” of the economy. They rebuked President Donald Trump with their plan.
One line in the description of the struggle between the president and the central bank tells all that needs to be told about the Trump mindset:
“While most business leaders and economists say the trade war is driving all the problems in the economy, Trump continues to blame the Fed — and Powell.”
Everyone else, every expert, says Trump’s tariffs and Trump’s trade wars are what are dragging our economy down.
Trump, the guy who can’t seem to stay out of bankruptcy and who reportedly lost more wealth during the decade from 1985-1994 than anyone else in America is sure that he alone is right and every expert is wrong.
And you know what?
He does not care.
He is gambling with OUR money. When he’s proven wrong, it is we who will have lost jobs, or lost homes, or watched as our 401k evaporate as the stock market crashes.
And we won’t even get to enjoy an “I told you so” as Trump will have plenty of scapegoats not named Trump who he will point fingers at, as soon as Fox News tells him who they are.
The Fed IS doing things to balance the economy.
For example, the Fed accumulated more than $4 trillion in assets (bonds, etc.) on its balance sheet since the last recession began in 2007. They have been slowly unwinding that, allowing $50 billion per month to ‘roll off’ by allowing investors in the economy to buy the bonds reissued when currently held ones mature instead of repurchasing the bonds themselves. They previously announced that process would stop in September while they sort of “take the pulse” of the economy to see how strong it is and how much it can absorb going forward.
Also, the Fed cut interest rates a quarter-point last session, and are expected to repeat that cut in September. Trump demands a full-point cut immediately.
Anyone have a lawnmower or boat engine with a manual choke? When the engine is cold, or running rough, you pull the choke out a little bit. Little more gasoline. Little more air. Engine roars. That is a quarter-point rate cut. Now start that engine and let it get warm, running smoothly, purring even. Pull the choke all the way out. Does it run faster? Smoother? Nope. It might initially rev higher, but then it gags and stalls. That is a full-point cut at this point.
Same was true of the last massive tax cut. Doing so at a strong point, when the economy was already running well, gained a little extra oomph but mostly wasted gas (or in this case, tax revenue) with almost no benefit to the economic engine.
Worst of all, Trump seems to not understand that there are really only four ways to kickstart a slumping economy:
- Tax cuts
- Interest rate cuts
- Quantitative Easing (QE)
We are not even in a recession yet and Trump is proposing payroll tax cuts to Medicare and Social Security taxes while his advisors push him to seek Tax Cut 2.0, another round of massive capital gains taxes for the wealthy.
We are not even in a recession yet and Trump (and the GOP leadership which passed the recent tax cuts and current spending plan) are already running trillion dollar deficits.
We are not even in a recession yet and Trump wants to cut the benchmark rate to 1%.
We are not even in a recession yet and Trump has bullied the Fed into stopping the roll-off of assets from their balance sheet.
These are the four tools available to the Fed and to the President and Congress to lift an economy mired in a recession. But if Medicare and Social Security taxes and paused for a year (or two) now trying to prolong the expansion, and we are already running record deficits, and the interest rates are cut to near record lows as Trump demands (again, trying to prolong the expansion), and the Fed balance sheet is still stuffed with assets acquired during the last recession a decade ago…what options will remain to provide the boost the economy will need to rise from the recession we are bound to slip into eventually?
The simple truth is that President Donald Trump and Senate Majority Leader Mitch McConnell DO NOT CARE about the long term consequences . They care about both of them winning re-election in 2020, a feat that will be more difficult if the economy spends most of next spring and summer contracting.
But if they can pull out every tool and stave-off the recession for a year, maybe even only three more quarters, they win.
Trump gets a second term. That would not only validate his belief (and that of his supporters) that he won fair and square the first time, it would ensure that the statute of limitations passes on any potential charges he might have faced related to his actions in 2016 and early 2017. And he would be free to begin pardoning at will, freeing those associates he deems political victims and protecting his family and collaborators.
McConnell gets a last term, through age 85. He almost certainly gets to replace Justice Ruth Bader Ginsburg with another Trump pick. He might even get to replace Justice Clarence Thomas (who would be 76 by the end of Trump’s second term) should Thomas decide to retire at a time when the Senate and White House were in Republican hands to ensure the seat stays firmly right for another generation. If McConnell lucks into a Republican House majority either session, he can enact every remaining item on the Republican legislative wish list, likely even eliminating the filibuster to ensure passage of legislation without needing a single Democratic vote. If not, he can continue to act as the ultimate roadblock.
Sure, Trump and his collaborators pulling out all the stops now to prevent a recession will lead to a deeper, longer, and more damaging recession when it does come. But hey, Trump won’t be the first Republican president to preside over an economic catastrophe and leave the mess for a Democrat to fix, right?
So remember when you hear Trump suggesting (or demanding) changes to interest rates, tax rates, or Federal Reserve policies, he does not have our best interest in mind. He has his own. He has Mitch McConnell’s. He has the terrifying agenda he seeks to complete if he only has the time.
He wants to buy HIS victories, THEIR victories, with OUR money and with OUR future.
Don’t let him win.