{"id":1116265,"date":"2019-05-09T19:20:31","date_gmt":"2019-05-09T19:20:31","guid":{"rendered":"https:\/\/dailyreckoning.com\/?p=107386"},"modified":"2019-05-09T19:20:31","modified_gmt":"2019-05-09T19:20:31","slug":"what-trumps-really-thinking","status":"publish","type":"post","link":"https:\/\/juniorminingnews.com\/?p=1116265","title":{"rendered":"What Trump\u2019s Really Thinking"},"content":{"rendered":"

This post What Trump\u2019s Really Thinking<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n

Last week the president thundered for a 100-basis-point rate cut\u2026 and a resumption of quantitative easing.<\/p>\n

But why has President Trump raged anew for rate cuts?<\/p>\n

After all…<\/p>\n

Latest GDP officially hums at a tuneful 3.2% \u2014 and official unemployment scarcely has existence.<\/p>\n

Is it simply because the president is a \u201clow interest rate guy\u201d?<\/p>\n

Is he merely setting his cap for 2020? Or is his concern far more immediate?<\/p>\n

Today we don our detective hat, open our sleuth kit\u2026 and piece things out.<\/p>\n

But first, another day of long faces on Wall Street \u2014 the fourth consecutive losing session.<\/p>\n

The Dow Jones shed another 139 points. The S&P lost nine; the Nasdaq 33.<\/p>\n

The tariffs go up tonight at 12:01 Eastern should final hour diplomacy fail.<\/p>\n

And the hourglass runs low.<\/p>\n

But why again the president\u2019s latest shouts for rate cuts?<\/p>\n

\u201cGiven the Economic Situation, the Federal Funds Rate Should Be Closer to 5% than the Current 2%\u201d<\/strong><\/h2>\n

Scratching his head is Michael Carino, CEO of Greenwich Endeavors:<\/p>\n

\n

President Trump tweeted that the Federal Reserve should lower the federal funds rate by 100 bps and reengage their bond buying program known as quantitative easing to accelerate the current and longest-ever expansion in the U.S.<\/em><\/p>\n

What could possibly convince President Trump that such aggressive monetary policy is required. After all, GDP is running well above average at 3.2%, unemployment is at historic lows of 3.6% and\u2026 given the economic situation, the federal funds rate should be closer to 5% than the current 2%. Talking about unconventional monetary policy that should only be used in times of extreme crisis is, to be polite, premature.<\/em><\/p>\n<\/blockquote>\n

Then why?<\/p>\n

Carino began sniffing for clues\u2026<\/p>\n

Instantly he plucked one from the presidential tweet above mentioned:<\/p>\n

\u201cChina is adding great stimulus to its economy while at the same time keeping interest rates low.\u201d<\/p>\n

China?<\/p>\n

Now he had the president\u2019s scent. Down dark and bending roads he pursued it:<\/p>\n

Trump\u2019s Real Motivation?<\/strong><\/h2>\n
\n

… The trade war with China is about to get expensive with tariffs increasing from 10% to 25%.<\/em><\/p>\n

With China trade at $500 billion, a 25% tariff would be the equivalent of taxing the U.S. $125 billion. This tax is enough to bring the change in GDP in any quarter from a healthy 2\u20133% to zero or negative.\u00a0<\/em><\/p>\n<\/blockquote>\n

Zero or negative GDP growth would pry from Trump his principle selling point \u2014 the economy.<\/p>\n

At last, this Carino ran down his quarry, seized him by the collar\u2026 and hauled him in:<\/p>\n

\n

Though a simplistic thought process, it\u2019s obvious President Trump wants to use the Federal Reserve to offset costs of upcoming government action…<\/em><\/p>\n

Putting it bluntly, China\u2019s central bank is funding state policies and subsidizing the costs of those policies and President Trump wants to do the same.\u00a0<\/em><\/p>\n<\/blockquote>\n

Have we solved a puzzle?<\/p>\n

Perhaps it explains the president\u2019s most recent wailing for drastic rate cuts and quantitative easing.<\/p>\n

But even if inclined, it is far from certain the Federal Reserve can equal the task.<\/p>\n

A Decade of Futility<\/strong><\/h2>\n

Ten years running the central bank has nailed interest rates to the floor \u2014 or just above it.<\/p>\n

Rates still remain at levels historically low.<\/p>\n

Yet the present economic expansion remains the most punchless on record.<\/p>\n

And growth today pegs along at roughly the same rate as under Mr. Barack Obama.<\/p>\n

Even he had his scintillating and bedazzling quarters of growth. Yet each proved a false start, a false dawn \u2014 a false hope.<\/p>\n

Have conditions materially changed under No. 45?<\/p>\n

Alas\u2026 they have not.<\/p>\n

Prior to 2019\u2019s first-quarter 3.2%, growth has trended wrong since 2018\u2019s second quarter.<\/p>\n

And Q1\u2019s 3.2% likely owes to transient and passing factors \u2014 business inventories to name one.<\/p>\n

Second-quarter GDP Will Likely Disappoint<\/strong><\/h2>\n

The perpetual bright-siders at the Federal Reserve\u2019s Atlanta wing project Q2 growth of 1.6%.<\/p>\n

How about the wizards at Morgan Stanley?<\/p>\n

1.1%<\/p>\n

And what figure does Goldman Sachs hazard for Q2 GDP?<\/p>\n

Only marginally greater \u2014 2.2%.<\/p>\n

But these are mere crystal gazings, you say. These seers badly botched the first quarter\u2019s reading.<\/p>\n

Maybe they\u2019ll blunder again.<\/p>\n

Perhaps they will.<\/p>\n

But let us glance again beneath the first quarter\u2019s shimmering 3.2% GDP\u2026<\/p>\n

Subtract from the mix inventories and the \u201caddition\u201d of government spending.<\/p>\n

We are left with GDP expansion not of 3.2%… but 1.3%.<\/p>\n

More:<\/p>\n

Consumer durable goods spending sank 5.3% \u2014 the steepest plunge in 10 years.<\/p>\n

Private-sector consumption and investment trickled to a semicomatose 1.3%.<\/p>\n

Consumer spending overall increased a mere 1.2%\u2026 off from 2.5% the quarter previous.<\/p>\n

And from the previous quarter\u2019s 5.4%, Q1 business investment halved \u2014 to 2.7%.<\/p>\n

Can the Federal Reserve work a reversal of existing trends?<\/p>\n

Not in our telling \u2014 its ammunition is largely blank.<\/p>\n

The Federal Reserve Is \u201cLargely Irrelevant\u201d<\/strong><\/h2>\n

Here<\/strong><\/a>, here<\/strong><\/a> and here<\/strong><\/a> we have presented this argument: The central bank is a false fee-fi-fo-fum.<\/p>\n

It pulls false levers, yanks false pulleys.<\/p>\n

It is not, in fact, central.<\/p>\n

The Daily Reckoning<\/em>, one week ago today:<\/p>\n

\n

The Fed is, largely outside of temporary sentiment, irrelevant. The central bank is not central\u2026 The thing people have the most trouble with is the idea that central banks are not central. It flies in the face of everything you have been taught and told your whole life\u2026\u00a0<\/em><\/p>\n

There is absolutely no legitimate reason why anyone should [notice federal funds.] The federal funds market is a nonentity\u2026 pocket change\u2026 It is the sparest of spare liquidity\u2026 Today, federal funds are nothing, an extraneous anachronism.<\/em><\/p>\n<\/blockquote>\n

The true kingpin of the banking system \u2014 we maintained \u2014 is an invisible \u201cshadow\u201d banking system.<\/p>\n

This shadow system consists of the major banks and their offshore subsidiaries.<\/p>\n

This shadow banking system has never recovered from the Great Financial Crisis.<\/p>\n

Until it does, the economy will likely wallow along at existing speeds \u2014 or perhaps slower.<\/p>\n

But if the Federal Reserve is a helpless homunculus and the banking system crippled\u2026 what might \u201cfund state policies and subsidize the costs of those policies?\u201d<\/p>\n

MMT Is “Inevitable”<\/p>\n

Modern Monetary Theory (MMT)… or \u201cQE for the people.\u201d<\/p>\n

The Treasury will seize the role of the Federal Reserve. It will hose money directly onto Main Street. It will also fund extravagant government programs.<\/p>\n

We suspect MMT will gain a vastly wider hearing come the next downturn.<\/p>\n

And why wouldn\u2019t President Trump line up behind it if he is in office at the time?<\/p>\n

He has demonstrated little opposition to spending money. Quite the contrary\u2026 in fact.<\/p>\n

There is even a \u201cconservative\u201d version of MMT<\/strong><\/a> he could pull from his hat as a \u201cresponsible\u201d alternative.<\/p>\n

Tycoon Ray Dalio spots the handwriting scribbled upon the wall.<\/p>\n

\u201cInevitable\u201d is how he describes MMT:<\/p>\n

\n

To me the most important engineering puzzle policy makers around the world have to solve for the years ahead is how to get the economic machine to produce economic well-being for most people when monetary policy does not work\u2026<\/em><\/p>\n

It is inevitable that this shift will happen because it is inevitable that central bankers will want to ease when interest rates are pinned at 0% and when quantitative easing will be ineffective in achieving the goal.<\/em><\/p>\n<\/blockquote>\n

We fear Mr. Dalio may be correct.<\/p>\n

Unfortunately, this cure will likely prove worse than the disease…<\/p>\n

Regards,<\/p>\n

Brian Maher
\nManaging editor, The Daily Reckoning<\/em><\/p>\n

The post What Trump\u2019s Really Thinking<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

This post What Trump’s Really Thinking<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n

Trump looks to China for monetary policy… Second-quarter GDP is expected to plummet… Is Modern Monetary Theory (MMT) “inevitable?”…<\/p>\n

The post What Trump’s Really Thinking<\/a> appeared first on Daily Reckoning<\/a>.<\/p>\n","protected":false},"author":16,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[484,366,1325,490,463,467],"tags":[],"class_list":["post-1116265","post","type-post","status-publish","format-standard","hentry","category-brian-maher","category-dailyreckoning","category-modern-monetary-theory","category-money","category-the-daily-reckoning","category-trump"],"_links":{"self":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1116265","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/users\/16"}],"replies":[{"embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1116265"}],"version-history":[{"count":1,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1116265\/revisions"}],"predecessor-version":[{"id":1116266,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=\/wp\/v2\/posts\/1116265\/revisions\/1116266"}],"wp:attachment":[{"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1116265"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1116265"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/juniorminingnews.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1116265"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}