BY JOHN RUBINO
President Trump and Congresswoman Alexandria Ocasio-Cortez don’t agree on much – and would be loath to admit it if they did. But their ideas on monetary policy are converging on the same goal: easy money forever.
Trump is now trying to force the deep state to devalue the dollar:
(CNBC) – The U.S. president has reportedly asked aides to find a way to weaken the dollar in an effort to boost the economy ahead of the 2020 election.
The strength of the greenback has proven a headache for Trump, who’s made reducing the U.S. trade deficit a priority.
Last week, the president said in a tweet that the U.S. should match China and Europe’s “currency manipulation game.”
“China and Europe playing big currency manipulation game and pumping money into their system in order to compete with USA,” Trump said on Twitter. “We should MATCH, or continue being the dummies who sit back and politely watch as other countries continue to play their games – as they have for many years!”
The president also asked about the greenback while interviewing Federal Reserve Board nominees Judy Shelton and Christopher Waller, people familiar with the matter told Bloomberg News.
A strong dollar tends to give American consumers an advantage when purchasing foreign goods but can hurt domestic exporters as other nations are forced to shell out larger sums for goods produced in the U.S. That’s proven a headache for Trump, who’s made reducing the U.S. trade deficit a priority.
His questioning of Shelton and Waller come after months of White House attacks on the Fed and its hesitation to cut borrowing costs, a move that would reduce the value of the dollar as investors look for higher interest rates elsewhere.
AOC, meanwhile, is doing basically the same thing:
(New York Magazine) – There’s a strong case that the most important economic policy decisions of the past decade have been at the Federal Reserve. In the wake of the 2008 financial crisis, America’s central bank decided which troubled financial institutions would live and which would die, created a public option for short-term corporate financing, manipulated asset prices by creating artificial demand for various securities, provided an unlimited supply of dollars to some cash-strapped European nations (but not to others), and began deliberately suppressing economic growth in 2015, on the grounds that the U.S. could not sustain an official unemployment rate of below 5 percent without triggering runaway inflation.
All these decisions had profound consequences for the global economy; and that last one might very well have cost the Democratic Party the last presidential election by slowing economic growth in 2016.
And yet, the Fed’s policies attracted scant attention from the mainstream media or elected Democrats. An unthinking reverence for the central bank’s political independence kept the American public ignorant of — and unelected bureaucrats, unaccountable for — exercises of discretion that helped determine the availability of jobs, cost of credit, and distribution of wealth in the United States. Conservative Republicans may have been willing to threaten Fed governors with violence if they didn’t start fighting non-existent inflation — but liberal Democrats barely made a peep as Janet Yellen’s rate hikes needlessly jeopardized the job prospects of low-income workers (and Hillary Clinton).
Fortunately, the 2018 midterms brought some new Democrats to town. And the new generation is woke on monetary policy.
In recent Congressional hearings with Fed chair Gerome Powell, Alexandria Ocasio-Cortez noted that over the past five years, the central bank had repeatedly suggested that unemployment could not fall much lower without triggering high inflation — only to see unemployment fall much lower without triggering high inflation.
Ocasio-Cortez: In early 2014, the Federal Reserve believed that the long run unemployment rate was around 5.4 percent. In early 2018, it as estimated that this was now lower, around 4.5 percent. Now, the estimate is around 4.2 percent. What is the current unemployment rate today?
Powell: 3.7 percent.
Ocasio: 3.7 percent…Unemployment has fallen about three full points since 2014 but inflation is no higher today than it was five years ago. Given these facts, do you think it’s possible that the Fed’s estimates of the lowest sustainable unemployment rate may have been too high?
This exchange may sound dull and technical. But the congresswoman’s point has real human stakes. America’s central bank has a dual mandate: to promote full employment and price stability. How the Fed chooses to balance those two objectives has redistributive implications. The wealthy have far more to lose from inflation than they do from modest levels of unemployment. In fact, many business owners may actually prefer for the U.S. economy not to achieve full employment, since workers tend to be less demanding when jobs are scarce. By contrast, the most vulnerable workers in the U.S. — such as those with criminal records or little experience — will struggle to get a foothold in the labor market unless policymakers err on the side of letting unemployment fall “too low.”
AOC was effectively pressuring Powell to pursue an accommodative monetary policy that would improve Donald Trump’s chances of reelection (or so, Trump himself seems to think).
It would be epically ironic if Congress’ most outspoken socialist turned out to be instrumental in re-electing Trump by making easy money acceptable just in time for 2020.
But – as strange as this new alignment of the political stars looks at first glance – it’s also inevitable. Once a society takes on more debt than it can ever hope to pay off, the only way to avoid another Great Depression is to inflate away the currency. So it should come as no surprise that both ends of the ideological spectrum are rationalizing lower (and soon negative) interest rates and next-gen QE.
And it won’t be a surprise when these policies create exactly the kind of chaos that always results when governments try this kind of thing.
Now for the obligatory gold plug: Each and every time something similar has happened in the past, gold and silver preserved purchasing power – which is to say they soared in local currency terms. This time will be no different.