This morning we learn the European Central Bank (ECB) led by Mario Draghi, whom I wrote about at length in Money, Wealth & War, not only cut interest rates to zero, but one-upped the former US Fed of Helicopter Ben Bernanke by including CORPORATE bonds in their Quantitative Easing (QE) program. See article. Euro declined, making US exports to Europe more expensive, and the European stock market rose.
US markets did NOT rise. Our economy is already under pressure from trade imbalance, because we are not matching the rest of the world’s attempt to keep their economies from sinking. The WORLD is not printing enough money to pay for the oil, tablets, phones, copper, and services of all kinds that its billions of educated, productive people produce.
The ONLY US PRESIDENTIAL CANDIDATE to respond, indicating at least that he grasps where the problem is, was the widely-despised Donald Trump. He plans to institute tariffs. See article.
Is Trump right or wrong? If he were president, who would prevail, him or Draghi?
- The US need not respond at all if it had a “correct” monetary policy of printing enough money to cover its own productivity, including the productivity of oil producers inventing new and ever cheaper production technology. It has not had a correct policy since Bernanke left the Fed. Our QE was ended abruptly, stalling our economy and virtually producing the oil crash, which could destabilize the planet if it continues too low for too long, not to mention lead to global warming if you believe that.
- The US president is not in charge of monetary policy, so Trump cannot realistically promise to print more dollars. That statement wouldn’t be popular with his political base, who are dangerously ignorant of monetary matters (some of them would like to abolish the Fed and go on a gold standard, which was tried in 1900 and led to WWI, the Great Depression, and WWII). So instead Trump proposed tariffs.
- Tariffs would impose costs, lower US demand for foreign products, and reduce consumer funds available in the US economy by transferring them to the government, for building walls and warplanes if we are to believe Trump’s promises. This would create some jobs, but overall the reduction in demand would reduce prices and the Fed would have to act to prevent deflation.
- It’s also possible that tariffs would prove difficult to implement in the context of existing trade treaties and organizations such as the WTO. The threats and discussions might have enough impact to get the Fed to act.
In other words, we don’t know if Trump understands what to do, only that he understands what area contains the problem. We know the other candidates don’t understand even this much. There is some potential for harm if his suggestion is actually carried out, but likely it is political and negotiation posturing (which he freely admits to), and the effect would be to get someone he doesn’t control (the Fed) to do the “right thing.” Without disaffecting his political base. If he does have that figured out, and of course I can’t be sure, he’s even smarter than I would have thought.
The NET effect of the battle between Trump and Draghi will be sufficient money-printing to keep the world from deflating. Money must grow along with the supply of products and services, or else asset values will decline and everyone will go bankrupt. Both sides win.
Hmm, who would win if Draghi could be granted US-born status and run for president? Probably he is not charismatic enough, but I would vote for him. Since that is not going to happen, which unlikable candidate should I vote for? One that has no clue, or one that knows where the problem lies even if not exactly what to do about it?
On the Republican side, the last opponent standing is Cruz, who also wants to build a wall, and being an ex-prosecutor, knows nothing about money and says nothing about it. Nothing attractive there.
On the Democratic side, is there any doubt Hillary would raise taxes as much as Trump raises tariffs (without the preferential pressure on the trade balance tariffs would provide)? No doubt at all. And of course Socialist Bernie has absolutely promised to do that.
If you want to keep your job, and want your son or daughter to ever have a chance at having one, and you voted on that only, who would you vote for? What else is so important that it takes precedence, and wouldn’t also be helped by simple full employment? If you can think of something, use the comment button to post it here and we’ll see if a good idea emerges!