Select Page
Trump is Beating the Fed like a Rented Drum Set

Trump is Beating the Fed like a Rented Drum Set

Despite the fact that he is now 100% complicit in blowing a giant bubble that will eventually destroy the US economy as we know it, Trump is looking like a game theory genius.

Trump as Bagholder

Before he took office Trump knew the stock market was in a “big, fat, ugly bubble”.

Of course after he took office that capacious and ill-favored looking bubble magically transformed into a beautiful example of legitimate growth thanks to President Donald J. Trump parking his rump in the oval office. But I digress.

I thought the powers that be were going to crash the stock market in time for Trump to be defeated by whichever Democrat candidate manages to climb over the metaphorical bodies of the other ones.

After all, President Obama got a sweetheart deal from the Fed in the form of the lowest interest rates for the longest amount of time ever.

Meanwhile Trump got the beginnings of a tightening cycle. In other words, under Obama everyone got drunk and partied, but when Trump took over the booze started to get packed up and the markets began to sober up with a nasty hangover.

However, by using tariffs Trump is forcing the US Federal Reserve to cut interest rates. This will re-inebriate the markets and probably ensure his re-election.

Trump will keep doing erratic tariff threatening, forcing the Fed to lower rates, until rates are as low as Trump wants, then he’ll declare victory in the trade war. The removal of the trade war worries coupled with low interest rates would rally the markets skywards like bubbles in a tornado.

Trump has found a way to avoid being the bag-holder of the next stock market crash, at least until his second term.

At least that is the theory to which I subscribe.

The Fed Doesn’t Want to be Blamed

One potential problem with this theory is that if the Fed really was out to get Trump, they could simply ignore his antics, hike rates and that combined with the tariffs would cause the markets to sell off, a lot, and probably trigger the next great depression and ensure that Trump couldn’t win the 2020 election against the devil himself.

However, Trump has talked about the Fed a lot, and put them more in the spotlight, so if the markets do crash, they might be afraid that Trump will successfully be able to blame them. So while the Fed would like to tighten, and lay the blame of the market crash at Trumps feet, they are afraid of Trump on the bully pulpit saying that the Fed crashed the markets and causes the recession.

So they essentially are caving to his desires to avoid being perceived as the bad guys. I think this explains why, against all conventional wisdom, with the markets at all time highs, price inflation as measured by the CPI near the 2% target, and low unemployment, the Federal Reserve cut rates.

If they had continued to tighten, while Trump was complaining about them, they might get blamed and they can’t have that.

At the same time they don’t want to look like they are not “independent” as they are so proud of claiming, so they can’t do the full 50 basis point cut and start easing, as it will look as though they are just following orders.

Trump Turns to Twitter

Consider that yesterday, July 31st 2019 Powell’s Fed cut rates by 25 basis points, but indicated it was basically a one and done insurance cut and not the start of a new easing cycle.

Mr. Market didn’t like this and sold off with only a modest partial rally going into the close as you can see from the SPY chart below.

Now at around 10am on August 1st the S&P 500 had rallied back to about where it was before Jerome Powell spoiled the party with a paltry 25 basis point cut and jaw-flapping about this not being the start of a new easing cycle.

Trump is fond of taking credit for the stock market highs, as Presidents are wont to do, so he wouldn’t throw cold water on the post rate cut rally, right?

Wrong, sir! Wrong!

By announcing new Tariffs on China he stopped the rally dead in its tracks.

Why? Because Trump wanted the Fed to cut 50 basis points and he wants an easing cycle.

So the market tanks down even lower than it was before, and the odds of a rate cut in September increases from less than 50% up to 84%!


I should be mad at Trump for encouraging bubble blowing and what is incredibly destructive economic policy, but I have to admit I’m impressed with his gamesmanship.

A lot of people can’t see past Trump’s third grade vocabulary and “unpresidential” comportment–this causes them to underestimate him. I think Trump is good at persuasion and he understands perception and negotiation.

If it continues to work I think he’ll be re-elected. Of course it means that the day of economic judgment, while postponed will only be worse later.

On the bright side, investments in gold are looking quite shiny. And if the market doesn’t crash on Trump’s watch free markets won’t get wrongfully blamed.

Even though laissez-faire he is not, Trump does represent capitalism in the minds of many, and if the market crashes on his watch the United States will unfortunately pivot violently even more to the left.

Trump Card: Economy

Trump Card: Economy

Few predicted Donald Trump would be the 45th President of the United States.

Early on in the 2016 campaign, I believed it was going to be an election between Hillary R. Clinton and Jeb Bush. I actually won a bet (1 ounce of silver) that Hillary would be the Democratic presidential nominee.

I was certainly wrong about Trump.

[poll id=”4″]

Democrats hate Trump, the establishment Republicans hate Trump, there was no major news network that was even remotely neutral regarding Trump. He broke all the conventional rules. Trump disregarded the sacred institutions and unspoken rules of politics in the US, communicated directly to the people and defeated the Clinton machine.

Anyone who can set their preferences and biases aside for a minute should be able to appreciate the genius of Trump’s campaign, similar in magnitude to the genius of Barrack Obama’s 2008 campaign.

Trump Spoke Some Truths

Wars of Conquest and Adventure

The Iraq and Afghanistan wars were unpopular and Trump tapped into that sentiment. These wars were foolish, unnecessary and costly both in terms of money but also human lives and global standing.

Trump was right to criticize these wars. His anti-war rhetoric was a welcome divergence from the bi-partisan pro-war agenda that has gone back at least as far as George W. Bush.

An Economy that Left Many Behind

The economy was worse than any other candidates admitted–for people who did not own stocks or real estate. Trump emphasized jobs and restoring the United States to whatever perceived former glory it had.

President Obama presided over a stock market that recovered and made new highs as well as reclaimed highs in real estate prices. But this did not benefit younger people or middle and lower class folks who don’t own a lot of these assets and do have lots of debt and stagnant jobs. So these and the shrinking middle class were primed for Trump’s message.

I don’t know what impact this would have outside of some libertarian and Austrian economics circles, but my ears perked up when Trump made the following statement:

We are in a big, fat, ugly bubble. And we better be awfully careful. And we have a Fed that’s doing political things. This Janet Yellen of the Fed. The Fed is doing political — by keeping the interest rates at this level. And believe me: The day Obama goes off, and he leaves, and goes out to the golf course for the rest of his life to play golf, when they raise interest rates, you’re going to see some very bad things happen, because the Fed is not doing their job.

Candidate Trump, September 2016 Source:

Trump’s comments regarding stocks being in,”Big, Fat, Ugly Bubble,” as well as commenting that interest rates were too low for too long, certainly resonated with me.

Trump Contradicted Himself

It is standard practice for a politician to say one thing at one time and then say or do quite another thing. Trump was no exception.

Early on in his presidency Trump began to take credit for the stock market. In Trump’s mind the stock market seems to have magically gone from being a big, fat, ugly bubble to legitimate growth once he was in office.

If this is how you view Trump, you probably don’t care what he does or says.

He has even gone on to demand low interest rates as well as quantitative easing!

I think they should drop rates. I think they really slowed us down. There’s no inflation.

President Trump, April 2019 Source: Source:


Trump also attacked Syria and has not stopped aggressive “freedom of navigation” exercises directed towards China. I find this bellicose foreign policy a deviation from what his foreign policy view seemed to be during his candidacy.

Trump’s Reelection will Sink or Swim with the Economy

Typically both the red and blue teams tend to pivot to the center after being elected.

But if the Democratic candidates running are any indication, the country will move significantly in a socialist direction.

Not many people believe in reincarnation, and yet believe Trump is literally Hitler.

Unless for the first time in history socialism actually works, this move to the so-called left will be bad for stocks and the country as a whole.

However the world has underestimated Trump before and there are a lot of factors. A big factor is of course the candidate that wins the Democratic primary.

Trump could also initiate some type of military conflict around the world and a president perceived to be tough could be more likely to be re-elected in a time of war.

A large percentage of people who voted for Trump won’t admit or won’t care that he acted in complete contradiction to key elements of his campaign rhetoric. But will the swing voters or people who turned out because they thought Trump was different do so again if the stock market crashes or they lose their jobs?

If the economy crashes before the next presidential election I’m inclined to think Trump will not be re-elected. I think this is the Trump card, which makes his focus on the trade war with China so dangerous for him.

Crushing Debt in the United States Limits Economic Growth

Crushing Debt in the United States Limits Economic Growth

There is faulty wiring running throughout the US economy and economy at large. Previously I wrote about how the real economy is weak, pointing to stagnant wages and a low labor force participation rate.

Today I’m going to talk about how debt at the federal, state and personal levels are unrepayable.

Debt at the Federal Level is Unrepayable

As of 1 February 2018 total public debt outstanding is $20,494,566,890,206.07.


Not only is this debt impossible to repay but it continues to grow with little chance that this spending will subside until it has to.

According the United States Congressional Budget office the US Federal Government brought in $3.3 trillion in taxes in 2016. The US Federal Government spent $3.9 trillion.

But the vast majority of expenses was in areas that simply will not be cut.

The United States spent $910 billion on Social Security, $588 billion on Medicare, $368 billion on Medicaid, and another $563 billion on other mandatory spending which includes items such as Federal employee retirement programs, SNAP (food stamps) and Veteran’s Benefits. So total “Mandatory” spending was $2.4 trillion. These are the kinds of programs that will never be voluntarily cut by any congress and in the case of Social Security and Medicare, will only go up in cost as more people retire.

Not only that, once you factor in interest on the $241 billion in net interest paid on the national debt (another item that congress won’t cut because it would tank the credit rating of the United States) total spending rises over $2.6 trillion. Considering congress keeps borrowing and that interest rates are rising these borrowing costs will only continue to rise.

This leaves $630 billion left to spend.

But $584 billion goes to the military. Which leaves $36 billion left. However in 2016 the US Federal Government spent an additional $600 billion in discretionary money.


The red team politicians will never cut defense spending (the blues realistically won’t either).

Neither side is interested in cutting social safety net programs either like Medicaid or SNAP.

Neither side will cut Social Security or Medicare.

There a Fiscal Crisis on the Horizon

The $20.49 trillion in “Total Public Debt Outstanding” does not include unfunded Social Security and Medicare obligations.

The 2017 Social Security and Medicare Boards of Trustees report has again stated that these programs are underfunded. “The Trustees project that the combined trust funds will be depleted in 2034, the same year projected in last year’s report.”

The Trustees cite an increase in baby boomer retirees drawing Social Security and Medicare and fewer workers paying into the system.

How will the United States Federal government make up the difference between the benefits promised to be paid out and a depleted “fund”? In reality there is no “fund” and the money from payroll taxes goes into the general budget. Lawmakers only have a few options to “save” Social Security and Medicare: some combination of raising taxes and lowering benefits (either by raising the retirement age or reducing the monetary value of benefits paid out). That is of course unless people start having a lot more kids who in turn have jobs and pay into the system.

The last option, which is really a way of lowering benefits in a dishonest way, is simply borrowing and or “printing” the money to pay the benefits.

But these expenses incurred in 2016 don’t include a multi-billion dollar bailout of some kind, funding a new war or some other large, unforeseen expense. So what would happen to the Federal debt if one of these events occurred?

Debt at the federal level will continue to climb.

Debt at the State Level is Unrepayable

I grew up and lived in Illinois for most of my life. It is just about the most indebted state in the United States, surpassed only by New Jersey.

Illinois only had enough revenue to cover 96% of expenses in 2015. The Illinois government is more than capable of overspending in any circumstance, but the revenue shortfall continues to be exacerbated by the state population decline. A total of 114,144 residents moved out of the state in 2016 and new residents plus births could not offset this exodus. The result was the count of Illinois residents dropping by 37,508 people in 2016.


Despite this Illinois remains the 5th most populous state in the US and the fact that the fifth most populous state is in such a bad financial position does not bode well.


While Illinois can issue debt and for some reason their debt continues to be purchased, their financial risk means the cost of borrowing is high and without a central bank they aren’t able to drive down the cost of borrowing or print currency. Not that those strategies work in the long term, but they don’t have those tools to delay the pain.

I choose to single out Illinois since they spent years of my hard earned tax dollars so recklessly but many other states are in bad shape as well.

Overall state pensions are underfunded by a total of between $1 trillion to $4.3 trillion depending on how well you think the pensions will perform.


Despite years of economic “recovery” since the 2008-2009 financial crisis these problems have only gotten worse. With this “recovery” getting long in the tooth, what will happen when the economy officially slips back into a recession?

Debt at the Personal Level is Unrepayable

Student Loan Debt

Some of the most indebted people in the United States are also some of the least capable of repaying it. I’m talking about former college students. According to there are over 45 million individuals in the US with student loan debt. The default rate is 11.5%.

A study by indicated the average person with student loan debt owes $46,597 with a total owed of $1.36 trillion.


So there are 45 million people in the US that have a considerable amount of student loan debt.

These are these are the same people who will presumably have to shoulder the burden of the $20 trillion debt and accept delaying retirement or paying more in taxes to pay for baby boomer’s retirement and medical cost.

Auto Loan Debt

US consumers owed $1.21 trillion in auto loans in 2017. Unlike student loans (in which theoretically you borrow money to increase your purchasing power for the rest of your life) or mortgages used to buy a house (which can theoretically go up in value), auto loan debts are taken out on an asset that rapidly depreciates.

On average a person in the US with this kind of debt owes $27,669.


Credit Card Debt

While I am sympathetic to people who have to use a credit card to pay for the basics of life such as food or utilities–credit card debt is a horrible form of debt.

Credit cards are primary used to consume and they carry high interest rates. If you need to use a credit card to pay for something it is likely that you will not be able to pay for it later when it effectively costs more due to the credit card interest.

In 2017 individuals in the US owed $905 billion in credit card debt. Households with credit card debt owed $15,654.


Mortgage Debt

The total amount of Mortgage debt in the US is $8.74 trillion. The average person who has a mortgage owes $173,995.


While housing can go up in price, it is not guaranteed to do so, as many people learned in 2008.

With many Americans burdened with debt and without savings the only way they can purchase a house is to borrow the money. As interest rates rise the cost of a mortgage will increase and therefore people will not be able to borrow as much, the result is that housing prices must fall.

Why Does this Debt Matter?

Debt, specifically debt to consume, does not grow the economy. It is a drag on the economy. The amount of debt in the United States will eventually crush the US economy.

Lets assume for a moment that consumption grows the economy even though it does not. If a debtor pays back the loan that means that is money that goes towards the person who loaned the money and not towards buying goods and service. Thus a person is not able to buy as much in the future when they are servicing a debt, all else equal. So even if consumption did grow the economy consumer debt can only pull consumption into the present at the expense of future consumption.

What does grow the economy is capital investment in machinery, tools, training and other technology that make the economy more efficient and allow the production of more goods and services. If there are more goods and services prices will fall and this allows people to buy more goods and services. If it takes less materiel and labor to make something those people and materials can go to work in other or new areas of the economy that they would not otherwise be free to do so.

With wages stagnant and labor force participation rates at decade lows that does not bode well for Americans to be able to repay these debts.

Another problem is that the person borrowing the money might not be able to repay it, in which case the person who loaned the money will have to take a loss. This does not benefit the economy either.

The massive amount of Federal, State and Personal debt in the United States is a huge drag on the economy and is one of the biggest problems or “faulty wirings” that is coursing through the US economy.

My next article will be about one of the last main areas of faulty wiring in the US economic house: an overvalued stock market.

I’m not all doom and gloom. Far from it. I think there are tremendous opportunities to grow and protect your wealth through alternative investments.