Scapegoat?

Here’s Bloomberg:

The markets have spoken. If they are to be believed, the potential for a U.S. recession has never been greater in the post-crisis era than it is right now.

That’s a problem for President Donald Trump because after the events of the past few days, it should be clear that he has effectively forfeited the ability to use the Federal Reserve as a scapegoat for any economic slowdown, an angle he was clearly prepared to play.

Think back to previous administrations that had to run for re-election during periods of high unemployment, such as Hoover, Carter, or the first Bush administration. How well do you think they would have done by pointing to the Fed?

I’m trying to imagine a bunch of unemployed steel workers in Ohio, sitting in a bar and commiserating over their plight. “You know, I’d like to blame the President, but it was not really his fault. Rather it was a tight money policy by the Federal Reserve that reduced aggregate demand and increased unemployment.”

Pretty funny, eh?

But it gets worse. Under Hoover and Carter, the onset of recession was actually associated with a high interest rate policy. If we have a recession in 2020 it will be trigger by a 2.4% interest rate policy. How many voters are going to blame the Fed?

I haven’t even gotten to the funny part yet:

“You know, I’d like to blame President Trump, but it was not really his fault. Rather it was a tight money policy instituted by key Federal Reserve officials such as Powell, Quarles and Clarida, people that Trump appointed to the Fed. So Trump himself is blameless for the insanely high 2.4% interest rates that clearly caused the recession.”

Yeah, that’ll work.

The article is correct that as of today Trump has no ability to scapegoat the Fed. The truth is that he never did.

PS. Three months ago I argued that pundits were underestimating the strength of China’s negotiating position in the trade war. Today, I see lots of other pundits jumping on board. If you want to read what the zeitgeist will be in three months, read the MoneyIllusion and Econlog today.

Here’s today’s FT:

Larry Kudlow, the top White House economic adviser, told CNBC on Tuesday that the Trump administration wanted to continue talks with China and suggested that the president could adopt a flexible approach on tariffs. Mr Trump on Friday said he would impose tariffs on another $300bn in Chinese products from September 1.

“The reality is we would like to negotiate,” Mr Kudlow told CNBC. “We’re planning for the Chinese team to come here in September. Things could change with respect to the tariffs.”

Hmmm, “things could change”.


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5 Responses to “Scapegoat?”

  1. Gravatar of George George
    8. August 2019 at 19:11

    >”You know, I’d like to blame President Trump, but it was not really his fault. Rather it was a tight money policy instituted by key Federal Reserve officials such as Powell, Quarles and Clarida, people that Trump appointed to the Fed. So Trump himself is blameless for the insanely high 2.4% interest rates that clearly caused the recession.”

    >Yeah, that’ll work.

    >The article is correct that as of today Trump has no ability to scapegoat the Fed. The truth is that he never did.”

    This contradicts the blog author’s previous claim that Presidents have no impact on monetary policy..

    Orange man bad!

  2. Gravatar of Michael Sandifer Michael Sandifer
    8. August 2019 at 20:55

    It is certainly the case that most pundits I heard even a couple of weeks ago were still saying China had more to lose in the trade war. I think it’s increasingly dawning on people that Trump is not worth negotiating with, so China might be foolish to do anything, but delay until the next election.

  3. Gravatar of Jeff L Jeff L
    8. August 2019 at 21:24

    A semantic point from the linked piece: Low wages are an advantage, the clarification that is somewhat implicit but needs to be stated outright at some point is that the advantage exists when wages are low due to the absence of capital, and the addition of capital has the potential to significantly increase worker productivity.

  4. Gravatar of cove77 cove77
    9. August 2019 at 12:38

    so Michael 2020 will be Biden/China vs Trump/Russia ?

  5. Gravatar of George George
    9. August 2019 at 12:58

    https://www.documentcloud.org/documents/6250478-Giuffre-Exhibits.html

    Epstein docs released.

    Trump exonerated.

    Fake News BTFO **AGAIN**.

    But the sheep keep watching and keep believing.

    Fake News HATES their viewers, they laugh at them behind closed doors.

    Quick, someone post an article that refutes all of this! Please make it credible, like “according to people familiar with the matter”. That will fish in at least one monetarist blogger with TDS.

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