E Trump Economic Plan Revealed: What Should The Fed Do?

Based on history and the Trump economic plan revealed, it may be that the Federal Reserve should not lower rates too quickly, and should protect the dollar. But before discussing what the Fed should do, it is necessary to talk about negative interest rates and the Trump plan itself. 

The Federal Reserve Bank has choices to make going forward, laboring under the Trump Administration:

1. The Fed can lower rates, and as the trade war and economic world decline goes forward, take them into the negative. Ultimately, if Trump does enough damage to the world economy, data may require this course of action.

2. The Fed can try to hold the line by doing just a little lowering, hoping that another regime would subdue the trade war with compromise.

3. The Fed can totally undermine the Trump administration by raising rates or by keeping them pretty much where they are.

Negative Rates

At this point, Trump appears to be more preoccupied with destroying China and Fed independence than he is helping America prosper. Negative rates would do serious damage to China and Japan and other nations who have bought US bonds. If the economy gets too bad, then the Fed may act on the data, fearing Trump, and go towards negative rates. 

The Fed obviously knows this. During the Great Depression era, the Fed did not act and did not acknowledge its mistakes. It was clearly too slow in lowering rates. But this time is different. The Fed has no interest rate space as Trump wants it to approach the zero lower bound.

The Fed, which wants US bond rates to remain positive, which is a reflection of real growth, does not want POTUS to force it towards the negative. Some of that real growth may be a pipe dream, based on the stock buyback scheme. But the alternative is much worse, negative rates.

So, what are the ramifications? If the Fed lowers rates down to zero or past, this would act as a default on US bonds without actually defaulting. If you don't want to pay interest, you severely punish those who hold your bonds. Some have no choice, like insurance companies, etc. 

The Trump Plan

So Donald Trump wants to really crash the dollar. He wants Americans to build plants and manufacture more for export. This is his plan for America.

Unfortunately, he will likely impoverish our customers abroad as customers in the US are already unable to buy American. The Chinese use US bonds to stabilize the currency. If China's Yuan goes too low, how can the Chinese buy all the new US goods produced? 

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Disclosure: I have no financial interest in any companies or industries mentioned. I am not an investment counselor nor am I an attorney so my views are not to be considered investment ...

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Gary Anderson 1 month ago Author's comment

Update 7: exgovernor Dudley says to leave Trump out to dry. I suggested before Dudley the Fed leaving POTUS45 out on a limb, in order to protect positive yields in the USA bond market.

Gary Anderson 1 month ago Author's comment

Update 6: Tariff man now is ordering 900 US businesses to leave China. This is the rant of a fascist dictator. I tried to warn Wall Street. Fascism does not nationalize business. It just leads business around by the nose.

Gary Anderson 1 month ago Author's comment

Update 5: Trump has told his friends that a fun second term project would be the gutting of Medicare. That would be a reason he would embrace recession, to kill old people, many of whom cannot physically survive without Medicare. Like native Americans leaving their elderly behind, is POTUS45 delighting in the imposition of suffering on older Americans? He has already given up on the American consumer in wanting to weaken the dollar to make a few widgets.

Gary Anderson 1 month ago Author's comment

Update 4: I thought the Fed would play down Trump. Now he wants a recession. Easier to impose fascism in a recession. That is exactly what Hitler did. He has to be removed from office by the powers that be.

Gary Anderson 2 months ago Author's comment

Update 3: Having been abandoned by the Fed and the yield curve, stocks are acting today like they have had enough of POTUS45.

Gary Anderson 2 months ago Author's comment

Update 2: #Trump says he doesn't want to be the grinch this Christmas. Maybe he wants to wait til next Christmas? And retail is suffering anyway. There is no proof that the consumer will enjoy a strong Christmas shopping season anyway.

Gary Anderson 2 months ago Author's comment

Update: Today, Donald Trump blinked, backing off on some tariffs on China, while delaying the September 1 tariffs. This reveals he was losing the trade war. He should just admit it. But he could delay, get reelected, and put them all on again. What can the Fed do? I think the Fed should economically strangle this trade war once and for all.