Government Watch / Politics

Is the Fed Trying to Kill the Trump Economy?

economy-fed-trumpWilliam McChesney Martin, the ninth and longest running Chairman of the Federal Reserve, said “The Federal Reserve … is in the position of the chaperone who has ordered the punch bowl removed just when the party was really warming up.” Rudi Dornbusch, the German economist who worked for most of his career in the United States, was more blunt: “None of the U.S. [economic] expansions of the past 40 years died in bed of old age; every one was murdered by the Federal Reserve.”

Is the sharp selloff in stocks following the sharp rise in interest rates last week signaling the death throes of the longest-running bull market in history, to be followed by similar expiration of the 112-month long economic expansion? On Tuesday, October 2, the key financial instrument followed by most observers — the U.S. 10 Year Treasury Note — was yielding 3.06 percent, just slightly above its yield over the previous couple of weeks. Three days later, the yield had jumped to 3.26 percent, triggering the selloff in stocks. The day after the Treasury note bottomed, the Dow Jones Industrial Average (DJIA) was closing in on 27,000. By Friday, October 5, it had lost 500 points. The decline picked up where it left off on Monday, and by Thursday last week, it was down 1,700 points.

Is this the beginning of the end? Is this the death knell for stocks and bonds, administered by the Fed in the name of taming “inflation?” As Investor’s Business Daily (IBD) editorialized, investors in stocks and bonds “knew that the growth-averse Fed will now almost certainly raise rates in December. Before [the sudden avalanche of good news about the economy] it was only considered a possibility.”

Fed Chairman Jerome Powell is being less than forthright about raising interest rates. The Fed has been slowly pressuring the bond market in its program of selling off its vast horde of maturing U.S. securities, forcing the bond market to absorb more than $170 billion of them in just the last year. The market, in adjusting to this new supply, raises interest rates to compensate (i.e., when the supply of something increases, demand decreases). While investors have been focusing on Powell’s remarks, many failed to look behind the curtain at how his bank was already setting the stage for the rise in interest rates that only became obvious last week.

Whether he intends to kill the economy or just throttle it down remains uncertain. What isn’t uncertain is his timing: Just a month before the midterms, the economy which should redound to Republicans’ benefit is now being questioned. The headlines are delivering the message that Powell wants delivered: “Is the Stock Market Going to Crash?” asked Mark Skousen. “Here’s Why the Stock Market is Dropping — and What You Should Do About It Now” shouts Money Magazine. “Stocks are Sliding: Here’s How to Protect Your Portfolio From a Crash, According to Experts” provided by MoneyForbes screamed: “Why Stock Markets Crash” while Fortune magazine explored the rubble from the bursting bubble: “The Stock Market Cleaned Out Billionaires in the Past Week: Here’s Who Lost the Most.”

Commentators rolled out the usual culprits for the selloff: trade “tensions” with China, rising oil and gas prices, slowing global growth, and so on. But in order to stop the economy there have to be fundamental reasons, not just frothy headlines. Is growth slowing? Is unemployment climbing? Are earnings declining? Patrick Kaser, managing director and portfolio manager at Brandywine Global, got it right: “All the leading indicators that would point to a recession in the next year just aren’t there.”

So, why are interest rates rising? Give credit to economics professor Dr. Stephen Kirchner at the University of Sydney to explain how the free market works, if it is allowed to: “Rising real [inflation-adjusted] interest rates are not a surprise given the current strength of the US economy. What is surprising [to Keynesians] is the lack of inflationary pressure flowing from that strength.” Translation: Interest rates are the price of money, and when the demand for money — for investment purposes, for bonuses, for salary increases, or for increased contributions to pension plans for employees — increases, so do interest rates. As the demand for money grows, the price of money increases. Said Kirchner: “All the [upward] movement has been in real interest rates, with the US 10-year yield adjusted for inflation rising above 1.00% for the first time since 2011.”

To confirm the Fed’s fraudulent claim that it’s working to “tame inflation” came the August PCE (personal consumption expenditure) rate that the Fed claims drives its decisions. The PCE for August was  — wait for it — 1.3 percent annualized. And when the volatile food and energy prices were excluded, PCE inflation for August was 0.4 percent!

The Fed has the power to murder. It also has the power to deceive. As The New American has reported, there are some clouds forming on the economic horizon, but none of them are sufficient to rain on Trump’s economic parade. Only the Fed can do that.


Reprinted with permission from The New American - by Bob Adelmann

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TomB
4 years ago

As President Trump continues his attempts to fulfill promises, the extent of our government’s underlying corruption is slowly being exposed. The establishment’s Deep State appears a lot deeper than anyone thought and the FED is a definite and important factor. Personnel appointed by the President (Sessions, Wray, Powell, etc.) have seemingly evolved into deep state players after taking office, almost in defiance of the administration’s agenda. The power of our congressional representatives has diminished to a level where a request to testify and congressional subpoenas are all but ignored. And without serious consequence, Democrats, who can’t seem to focus of a discussion of ideas, have resorted to running all over the Country assaulting, disrupting, damaging property, as would be expected from bands of juvenile delinquents. Thomas Jefferson said … “When the government fears the people there is liberty; when the people fear the government there is tyranny”. And currently, our deep state government shows no sign of “fearing” the people. As President Trump would say …. Sad. The upcoming mid-term election becomes more important every day.

Mickey
4 years ago

Eliminate the fed with the other swamp creations

Drue
4 years ago

This is just a way for the Fed to torpedo President Trump’s attempt to regain economic stability and prosperity to our country. Make no mistake, Obama, Soros and many far-left Democrats are behind this move.

Poque Mahoney
4 years ago

I believe the FED is doing the right thing. Super low interest rates just encourage profligate borrowing and spending. It’s about time that savers
got a break with decent interest rates. We really don’t need our government to be able to get easy money and start another giant borrowing spree.

Thomas H
4 years ago

Another one of my predictions fulfilled – that the “apolitical” Federal Reserve, which had no trouble keeping interest rates near 0% to help ObeyMe, will suddenly hike the rate several times to try to make the deficit unpayable (hoping to bring about an economic collapse under Trump). The second part of the prediction (that the “unbiased” media will start talking about a coming economic catastrophe under Trump) is coming true as we speak. Predicting democRats is just too easy!

Larry Pierson
4 years ago

Can the fed be charged with treason? We need a strong economy to rebuild our military after it was decimated by Obama. Cratering the economy provides aid and comfort to our enemies.

Paul W
4 years ago

No entity with this kind of tremendous control over the U.S. economy should exist without any oversight at all. They should be audited…and then eliminated,

PaulE
4 years ago
Reply to  Paul W

Hi,

They are accountable to both Congress and the President. The Fed appears before both houses of Congress twice a year to answer questions. The problem is that Congress squanders these times by preening before the TV cameras instead of grilling the Fed on substanative issues. So the Fed is not like the CFPB, which is truly unaccountable to anyone, that was created by Dodd-Frank and the Democrats under Obama in 2010.

Same question I posed to Jaye. Read my reply to her. What do you mean by audit and what is the objective you are trying to achieve?

Paul W
4 years ago
Reply to  PaulE

I basically agree with Thomas Massie (R KY) when he said, “It is time to force the Federal Reserve to operate by the same standards of transparency and accountability to the taxpayers that we should demand of all government agencies,”

Those in the Fed vehemently deny any political bias in their decision making. Gee…now where have I heard that before? Maybe it’s just me, but I don’t believe anything that the heads of federal agencies say. Not one d*mn word!
Auditing, in ernest, would lead to more transparency in their decision making. Maybe…who knows?
Overall, I think that the bulk of federal government agencies (including independent) need to be combined, downsized or in many cases eliminated.

As for an ultimate objective, that is a tough one. Trusting politicians to police an agency that, in my opinion, operates without true oversight and an obviously political bias. Pandora’s box is open, genie’s out of the bottle…take your pick. The federal government and its agencies have been allowed to grow into an enormous, bottomless swamp. To be honest, despite some excellent short term improvements from this administration, I believe the long term future of this nation is bleak…extremely bleak.

PaulE
4 years ago
Reply to  Paul W

Basically I agree with your objectives of a massively smaller, much more constrained federal government. In reality, 75 to 85 percent of the federal agencies and departments in existence today should either be greatly reduced or completely eliminated. Whatever original purpose was used to justify many of these entities is either obsolete, an inefficient use of manpower, money and time or were flawed in their original justification to begin with and thus exist simply to exist. Performing no useful or necessary function for the country as a whole.

With that being said, if you read my post to Jaye, you would see that the GAO already does annual reviews of the Federal Reserve and it is as compliant as every other federal department or agency. The reality is the Fed is already as transparent as the rest of our federal government. That is cold comfort of course, as we see how open and transparent other departments and agencies are such as DOJ, FBI, CIA, NSA, etc., etc. Oh and by the way, that also includes many members of Congress, who have used their office to go from average Janes snd Joes to multi-millionaires in usuallt less than a decade and on a modest government salary.

So what everyone seems to really want is to see how the Fed formulates what it does and then have a say in what they do. In our republic, that means Congressional involvement. To answer the first part, don’t expect to find a nice, neat paper trail outlining how things are done. No more than you would expect to find print-outs of discussions between Comey, Rosenstein, and McCabe after Trump won the election. Doesn’t exist.

To answer the second part entailing Congressional involvement, again read my post to Jaye where that would lead. Putting economically illiterate Congressional politicians (their skill set is primarily lawyers, not finance or business people so they don’t possess the knowledge base to responsibly have access to manipulating our $14 trillion dollar economy) into the mix, especially if they are progressive Democrats, would be a disaster. Think of Maxine Waters, Elizabeth Warren or any if the other morons that make up the Democrat part of Congress deciding what the value of the dollar should be to reflect their social justice values.

I agree with you that the Fed needs serious reform to strictly reduce its mandate and limit the actions it can unilaterally. That is something Congress could accomplish with legislation, that Trump would probably sign. Getting Congress to actually do something is another matter though. Lots of members who think simply showing up is a big accomplishment. The legislative route is far more preferable than allowing 535 members of Congress, many of whom can’t even balance their own office budgets, access and control to the entire financial worth of the United States.

I also agree that unless the American people really want to keep the progress made under Trump, they are going to have to be much more engaged and informed than they have been in the past.if they are not, then this time will have been nothing but a brief reprieve from our slide into becoming another socialist wonderland.

Paul W
4 years ago
Reply to  PaulE

Agreed. Like I said in my response, ‘Auditing, in ernest, would lead to more transparency in their decision making. Maybe…who knows?” I probably should’ve said, “then again, probably not. I also agree that most in Congress are the last people I’d want balancing a checkbook.
As for the future, the big four have been very deeply compromised by Marxists. Politics, news media, entertainment and education.
What has played out with the DOJ, FBI, CIA et.al. not to mention the Clintons, Obama and those within their sphere, unlikely to be held accountable for anything (At least no criminal action) is the stuff that banana republics are made of. What’s worse, if all of the indictments that could be handed down led to some convictions, the Soros paid for astroturf anarchists would start a quasi-guerilla, hit and run civil war that would tie up any potential for real recovery in this country for a very long time. Long enough, at any rate for the weak of heart and courage to throw in the towel. Have I mentioned that I’m not overly optimistic on the fate of this nation in the decades to come? God in heaven, I pray that I’m wrong.

Alan
4 years ago

Is William McChesney Martin a Democrat? Just a thought.

Jaye
4 years ago

I still think what the Federal Reserve needs is to be audited.

PaulE
4 years ago
Reply to  Jaye

I frequently see people posting this statement. The most famous being Ron Paul and Rand Paul. Yet what they both generally refer to as an audit is actuallly not an audit at all. Both are referring to being allowed to pour through the paper trails of meetings and discussions looking for how the Fed makes policy. That isn’t an audit as much as it is trying to allow Congress to directly have a say or politicize how the Fed makes decisions.

If people think having Congress essentially make Fed policy will improve things, then that is how the discussion should be portrayed. Having the likes of Maxine Waters, Chuck Schumer, Elizabeth Warren, Bernie Sanders, etc., as well as the Republicans have an active, daily voice in how the Federal Reserve intervenes in foreign currency markets to maintain the value of the dollar on a daily basis or set interest rate policy, then we would be going from the frying pan into the roaring blast furance. That would not be an improvement and yes, I do think the Fed needs to be drastically improved to curtail their destructive tendencies. More government intervention in the currency and interest rate market’s is NOT what we should be shooting for. The value of the dollar has depreciated 98 percent since the Federal Reserve was created. More unqualified and inept hands on the controls, that being our Congress, would NOT result in better performance. The objective should be minimizing the distortions of government on markets, not magnifying them.

The Federal Reserve, like all other federal government entities (the Federal Reserve being accountable to Congress as part of the U.S. Treasury), is regularly audited by the GAO for adherence to government standards. It is also ALWAYS running at a profit and turning over all revenue in excess of what is required to conduct normal operations to the Treasury every year. It is the only federal entity that operates at a net profit and acts to pay down the national debt every year. So could you please explain specifically what you think an audit will find or accomplish or what you mean by an audit?

Thanks

Papa Coach
4 years ago

Seems to me that the banks are going to reap the benefits of higher interest rates. So could it be possible that the folks making decisions about increased interest rates might be putting extra cash in their pockets courtesy of the big banks?

MegP
4 years ago

I believe the Saudi situation is a contrived by enemies to Saudi, USA and Trump to stop the economic growth in both Saudi and USA. The Saudis themselves may have encouraged this type of behavior, but Both Saudi and USA have plenty of enemies in that area and elsewhere. Hope all this can be exposed, contained and solved so it will not have much effect on either Saudi or US economy.

PaulE
4 years ago
Reply to  MegP

Yes, this story is being blown up primarily as a way to try and get at Trump. The so-called journalist was an active member of the Muslim Brotherhood. Big supporter of the disastrous Islamic Spring that nearly converted Egypt into a second Iran. So he was clearly against any of the reforms being enacted by the Saudi Crown Prince. There are many factions in Saudi Arabia, Turkey and here that do not want any reformation of Islam. No matter how small.

Killing the guy was clearly wrong, but we have to remember most of the nation’s around the world do NOT reflect our values. That is simply a fact and an acknowledgement of reality. Several of our trading partners and allies have policies that not only condone torture and imprisonment of their citizens or enemies, but also regularly eliminate those they cannot silence by other means.

You’ll notice that this killing is receiving far more ongoing media coverage than either the death of journalist Pearl, who was beheaded, or the four Americans killed in Benghazi. Chiefly because the media sees an opportunity to try and trap Trump into making a strategic blunder if possible.

Barbara S.
4 years ago

I believe the average informed middle and upper class citizen is more in touch than the Fed is as to the happenings on the ground….these people whoever they are seem to have one road they travel and must keep changing/adjusting course to keep the Fed Reserve within their line of thinking…totally out of touch with whats happening in America and maybe this is their biased end game…..to ruin what a good economy has created….

MegP
4 years ago

Glade you are saying it out loud.

Army Vet
4 years ago

The Fed has been a detriment to the U.S. economy since its inception, keeping America on a steady path from one recession to another, wreaking more havoc on the American taxpayer than WWII. It is time to get rid of this instrument of ruin that is unaccountable to Congress, the President, and the American people.

Kim
4 years ago

Last week’s blip in the stock market can hardly be seen as a “CRASH!” when compared to 1987 or 2008, when the markets dropped by a much higher percentage. I would not have thought that the Fed would play with rates based on who sits in the White House, until now. And if that’s what happened…oh, my!

With businesses growing, hiring, and showing more profits, and with the relatively low inflation we’ve had during this expansion, I decided to invest some money that was on the sidelines. When the economy is doing this well, a small dip is a buying opportunity.

PaulE
4 years ago
Reply to  Kim

Last week’s market action was definitely not a crash by any stretch of the imagination. It was merely a slight correction to take into account the more hawkish rhetoric voiced by both Powell and other members of the Federal Reserve the week before. If anything, last week’s minor correction was an opportunity to pick-up some additional shares of ETFs, mutual funds, stocks and bonds at discounted prices. Wednesday and Thursday of last week presented some great bargains for the long-term investors.

Far too many writers of these articles like to hype every dip or correction as the beginning of the next major market sell-off or crash. Sensation sells and most writers are not concerned with the potential damage they do by hyping things beyond what the reality of the situation is. As for the Fed, I can tell you from first hand experience, that they are no more unbiased than the rest of the federal government, but not in the way you might think. They care far less about who actually sits in the White House, from a party perspective any way, then how well that person is aligned with the globalist view of how things should be done. Obviously, President Trump, like President Reagan in the 1980’s, is not a fan or avid supporter of the One World inter-locked economic control model, as it essentially entails “managing down” the economy of the United States over time in order to build up other nations around the world. Global economic equilibrium. You can draw your own conclusions from there.

Kim
4 years ago
Reply to  PaulE

Thanks for your comments, PaulE.
I like watching the Fox Business channel, and appreciate hearing both sides. There are a few guests who are less optimistic about long-term economic growth, but as long as earnings are good, I’m confident we’ll continue to “win”. When I used to put a few dollars on the line in thoroughbred horse races, speed-ratings that I computed myself were the most important variable. Is there something you look at in the economy that you see as the deciding factor?
Thank goodness President Trump does not subscribe to the global groupthink mentality. When there is no country left that believes in sovereign superiority, if I can say that, then there will be no one left to emulate.

PaulE
4 years ago
Reply to  Kim

First off, to me long-term means a minimum of 5 to 7 years to me. To most Wall Street trader types, which I know quite a few of, and the majority of pundits that regularly appear on TV, long-term is defined as somewhere between 3 to 6 months if you ever asked them. When I used to work in NYC, I frequently did that in order to understand the frame of reference they were discussing. That is something that is rarely ever discussed when you see all these people talking on TV about the long-term prospects for the economy or the stock market. Kind of a bad omission, as the average viewer probably thinks these folks are talking about years, not months, when discussing what they call long-term. From my perspective, there are too many potential variables that could potentially shift to be able to accurately be able to forecast economic or market trends much past the one year mark. Anyone who tells you they can accurately forecast 3 to 5 years out on where the economy of the United States and the rest of the global economy will be is either a fool or an idiot, as literally dozen of factors that represent hundreds of billions in potential change daily and create ripple effects on a global scale.

Here are the issues that could derail the our current economy in the short-term (30 to 90 days):

1) The Democrats win majority control of one or both houses of Congress. In either outcome, this would completely stop the Trump agenda in its tracks. Businesses would rightly assume that the era of regulatory relaxation and easing of business bashing were over. That would cause businesses to re-examine their plans for expansion and hiring in the U.S.. That in turn would impact projected GDP growth, as businesses would once again begin preparing for a possible return of a Democrat to the WH in 2020. I could go into much more detail how a Democrat win in the Congressional mid-terms would cause a series of negative events to ripple through the economy, but this is just a brief post.

2) The Fed could decide to make further miss-steps in how they portray the need to continue hiking interest rates. This could cause a repeat of last week’s action, which the mainstream media will seize on for all their worth to try and “talk down” consumer confidence in the economy and the Trump agenda. As I spelled out above, the Fed is less concerned with whether their actions trigger a recession, than if the policies they see Washington enacting are counter to the globalist economic perspective they seek to protect. If it takes creating a recession to get Trump and his policies stopped, then that would likely be considered an acceptable trade-off in the minds of many at the Fed.

Just as an FYI, in our current economic and debt environment, interest rates should be considered nominal at 3.5 to 3.75 percent. Not the 5 or 6 percent many on TV keep talking about. They are quoting numbers based on a completely different set of circumstances that existed in the past and which are no longer applicable to our current national debt circumstances and the rest of the global interest rate and economic environments.

Again, for most of the folks that appear on TV, their entire frame of reference is the last 10 years (2008 to 2018). All they know is the ultra low performing economy of Obama and the Fed suppressing interest rates to zero for an extended period of time. They are not doing analysis based on global economic conditions relative to historical events and changing conditions to determine the net relative impact on the United States economy. They are simply looking at how things may play out over the next 3 to 6 months for their investment book (portfolio of investments their company or they themselves have). That is not how you determine economic policy for an TV audience to follow.

Kim
4 years ago
Reply to  PaulE

Thanks, PaulE, for your insight.
When investing, I do so looking at a long horizon–a few years at least, but I can always put everything into something safe almost instantly if I have to. As long as Republicans have Congress and President Trump is in the White House, I’m willing to take more risk in stock funds.
Because of the Federal Reserve and because our elected officials come up for a vote every 2, 4, or 6 years, the markets and the economy are subjected to the quick-change scenario that results in either joy or dread. With Obama, dread was all I felt. No wonder the financial pundits don’t like to look beyond the short term.
And thanks for the thought about the Fed wanting the US to follow the One World Wallet mentality. I have to pay more attention to what globalists think and get over this idea of our being a sovereign nation…

PaulE
4 years ago

Rudi Dornbusch, the German economist who worked for most of his career in the United States, was indeed correct in his assessment. The Federal Reserve generally can not tell the difference between wage inflation caused by sustained and healthy economic growth and inflation brought about by artificial manipulation of the money supply and short-term interest rates. To the Federal Reserve both are equally bad, even though only the latter creates negative economic consequences and is what the Federal Reserve directly controls and constantly manipulates to try and achieve what they deem a “neutral interest rate environment”. The 8 years under Obama where the Federal Reserve held interest rates well below normal market levels had the intended, yes I said intended as the Federal Reserve understood the consequence of their actions, driving up the value of all sorts of commodities and suppressing economic growth in several major areas of the United States economy. All in pursuit of their artificially created target of a 2 percent annual inflation rate. So the Federal Reserve applies the same blunt tool to both cases in order to correct what they perceive as a problem. They robotically begin raising interest rates, almost always over-shooting the optimal, market-based level to achieve their artificial inflation target, until they finally cause a recession.

So to answer the question posed by the title of this article, I would say yes the Federal Reserve is indeed trying to kill the Trump economy. They perceive wage growth resulting from a growing, healthy economy as inflationary and thus something that needs to be stuffed out. Causing a recession is simply considered acceptable collateral damage in their pursuit of containing inflation. You can trace public statements of members of the FOMC (the Fed’s Open Market Committee) to subsequent market sell-offs as business leaders and investors understand how the Federal Reserve intends to act.

Good article AMAC. This is the kind of article that you should be running in your weekend editions. The average person really needs to better understand the reasoning and methodology used by various areas of our government and how it impacts the broader economy.

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