Friday night used to be the ‘best night on television.’ But today Friday afternoon is becoming the best soap opera we could hope for as President Trump pulls out all the stops to keep us both horrified and entertained.
It’s better than reruns of Dallas, for sure, though the hair is just as ludicrous.
Trump laid into FOMC Chairman Jerome Powell again musing aloud on Twitter as to who the bigger enemy of the U.S. was — The Fed or China.
….My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?
— Donald J. Trump (@realDonaldTrump) August 23, 2019
Now, far be it for me to get upset with anyone criticizing the Federal Reserve. The FOMC is really just a Politburo of Ivory Tower intellectuals with neither the practical experience nor the specific knowledge needed to ‘run the economy.’
But, news tip for you, neither does Donald Trump.
If you listen to Trump carefully, seeing him for what he is not what you think he is, what you want him to be or, most importantly, what he wants you to see, you hear a man who fully believes the Fed controls the economy.
You hear a man that firmly believes in the power of the government to remake the world in whatever image it wants, whenever it wants.
You hear a man so solipsistic he can only see the world in terms he defined more than thirty years ago.
You hear a man who fundamentally doesn’t believe trade results in both sides winning but that everyone either wins a deal or loses. If he didn’t extract maximum pain from the other side he ‘lost.’
It’s the source of Trump’s inherent mercantilism.
And that fault in Donald Trump’s character is leading him to ever more extreme behavior as he refuses to reconcile the world we have versus the world he wants.
So he keeps pressuring, embarrassing and humiliating people he wants to make deals with. And when they refuse to do so, he explodes and, like a child who didn’t get his cookie, uses the power of the Presidency to still try to get what he wants.
Treating his opposition like the Democrats and the Media this way is fine. They treat him far worse than he does them; giving back in kind what he gets.
But his stance on the Fed, who are actually helping him in the long run, is insane. And it proves the point that no matter how smart you are, if you are mis-educated and have spent a life building wealth based on that mis-education, you will not be able to see the other side of the problem.
The strong dollar he is so angry about isn’t a function of the Fed’s raising interest rates. It’s not about policy bifurcation between the Fed and the ECB and the Bank of Japan.
It’s come about because of the continued application of the same mis-education Trump received about the role of interest rates that the Fed consistently (and wrongly) applies.
The world is just short dollars Don. And lowering borrowing costs won’t help the situation. It’s what created it in the first place.
Trump’s not a multi-dimensional analyst. He isn’t a 4-d chess player. He’s actually a very simple creature. He believes the crap spewed by CNBC. He’s hired advisers who worked there for pity’s sake.
The Fed is now in fear for its independence and Trump, again very child-like, wants the world remade in his image yesterday and on his time table not the world’s.
So, all of the radical changes he has pushed to the flow of global capital through his near daily abuse of sanctions and tariffs have created immense uncertainty in dollar funding markets around the world.
And with a $60 trillion synthetic short position against the dollar extent thanks to a decade of zero-bound interest rates courtesy of the Fed, dollar hoarding is a very real thing.
Martin Armstrong blogged the other day remarking that there are more $100 bills in existence today than $1 bills. Why? Overseas mattress stuffing.
More recently, the amount of US currency in circulation outside the United States has now exceeded 70%. The world is hoarding dollars for they fear the cancellation of their own currencies as talk of eliminating cash in Europe has escalated with the prospect of Christine Lagarde replacing Draghi.
As Americans have moved increasingly toward debit and credit cards, the rest of the world has been sucking-up US dollars beyond belief. Anyone who questions whether the US dollar is the reserve currency, well the cash is not being held by governments or central banks. The people are now hoarding US dollars at record levels.
Every day that Trump complains about the Fed or China or Europe or Iran is another day in which he himself helps force more dollars into those mattresses overseas. Some of those hundreds of billions get converted into gold and bitcoin.
Further, the Fed lowering rates will only signal to those people that they have the right idea because the Fed wouldn’t be doing that if the global economy was in such good shape.
They would be raising rates.
And it’s a point Trump refuses to understand. Lowering rates here will not free up capital at home to be lent. Banks are already as loathe to lend as I am to write anything on a Thursday lest I misread the upcoming episode of Trump’s version of Freaky Friday in Fedlandia.
If banks were confident of the returns on their loan prospects they wouldn’t still be hoarding excess reserves at the Fed like everyone else.
They’ve disgorged more than $1 trillion over the past year as the Fed has wound down its balance sheet. This is the Fed, in its own ham-fisted way trying to free up dollars for circulation. Because when you create a backwards market you have to do things backwards to unwind them.
The Fed never intended for the trillions it printed bailing out the world in 2008-09 to circulate. If it did it would have never paid interest on excess reserves (IOER) in the first place.
This is also why the recovery has been a long, slow water-torture affair only kept alive by China blowing a massive credit bubble which Trump wants to prick but without it he would have never gotten the opportunity to MAGA.
The truth is, Powell’s helping with that, Don. Higher rates are what China can’t handle. Part of what’s worked for them is keeping rates above 3% while the Fed was zero-bound.
Raising rates has capital pouring into the U.S. and out of China, searching for yield as the yuan falls. But he, like all children, like the infantilized Baby Boomer he is, wants it all and he wants it now, before re-election.
This is ultimately what all of this whining is about, Trump’s re-election.
What this means, of course, is that we have at least another year of the best soap opera fake money can buy. I’m just waiting for someone to take on the role of Kramer banging open the door to Don’s apartment randomly and saying, “Hello! Deflation is Here…. or is that Inflation?”
Powell’s hair isn’t crazy enough for it.
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