This is not a rhetorical question but a very direct concern about the leverage that President Trump has in dealings with Federal Reserve Chairman Jerome Powell.
After listening to European Central Bank President Mario Draghi’s press conference Thursday and then learning about the White House meeting about the possibility of currency intervention, I am wondering whether the president is using TARIFFS as leverage to satiate his desire for lower U.S. interest rates.
As the latest drama of the U.S./China trade negotiations unfolds, there are several that continue to boil. The president is tweeting less about stock market valuations and more about the revenue impact from the fresh tariffs On Sunday, Fox News’ Chris Wallace disrobed Larry Kudlow. The economic adviser epitomized the age-old adage: “An honest person sent abroad to lie for their country.” Yes, Mr. President. A tariff is a tax on your populace. If tariffs are great for the U.S. economy, then raise them 1000% and balance the budget without inflicting any harm on Americans’ pocket books. [Yes, that’s sarcasm.]
In the previous blog post, I suggested that if the FED was afraid of flat yield curves then they OUGHT to CUT overnight rates immediately by 50 basis points in an effort to steepen the curves to a more NORMAL slope. On Friday, in a nod to Notes From Underground, President Trump’s latest Fed nominee Steve Moore and White House advisor Larry Kudlow said that the central bank should slash interest rates by 50 basis points. Unlike my suggestion, the avid supply-siders offered no context for the rate cuts. There was no discussion of yield curves, dollar strength or the problems confronting global growth.
Make no mistake, Larry Kudlow is worthless as a source of financial wisdom because he wishes to be everybody’s friend. That prevents him from having a discussion about serious financial concerns. The Kudlow mantra is: Pay attention to the growth coming from the tax and regulatory reforms put in place by the Trump administration. I agree with the great need for regulatory reform, but the Kudlow mantra of “don’t worry about budget deficits because growth will take care of it” is RUBBISH. The Trump administration has increased spending while cutting taxes, which in my opinion has merely resulted in INTERTEMPORAL MISALLOCATION. The TRUMP White House has merely brought forth demand from the near future with no genuine way to pay for it. This is of course right out of the Nixon play book in which “we are all Keynesians now.”
First, to all of those in the NOTES community who celebrate the Jewish New Year, I wish you a year of health, peace and prosperity. To those who celebrate other spiritual endeavors I offer you a wish for health, peace and prosperity. Now, to the markets. In the past month I have spent time putting issues we’ve been discussing for the last nine years into perspective. Lately, the airwaves are filled with the accolades laid upon the policy makers who SAVED CAPITALISM. Listening to Paulson, Geithner and Bernanke pontificate on how they acted to save the system is enough to send me into fits of rage as the culprits who failed to act to halt the housing bubble praise themselves for the “Courage To Act.”
On April 19, the FRA’s Richard Bonugli moderated a discussion between the highly regarded Cal Professor Barry Eichengreen and yours truly. The discussion centered around the issue of China and the Trump administration’s trade policy. The podcast was a result of a piece Eichengreen published at Project Syndicate that I cited in a recent blog post. It was a great honor to partake in a direct discussion with the professor as I have read his work on the global political economy for many years. I advise googling his earlier work on analyzing gold role in the Great Depression and many of his other articles on the EU and the EURO.
The newswires were flushed with either praise about the appointment of Larry Kudlow to lead the National Economic Council, or concerns about his past dalliances with drugs and supply-side economics. This BLOG doesn’t care about one’s past human foibles as we all have failings. But the addiction to supply-side economics is and will be an issue of concern as the White House attempts to push forward with a coherent policy. The great showpiece of last week’s media frenzy over Kudlow was the transparency of what I have referred to as the mainstream media’s desire for access versus genuine discourse. CNBC was giddy over the idea that one of the network’s talking heads was going to be a key figure in forthcoming economic discussions and old loyalty OUGHT to provide greater ACCESS. The questions for the consumers of financial news will be who abuses the relationship more. But enough editorializing.