Why Trump Wants The Fed To Pump Even More Easy Money

Friday, April 5, 2019
By Paul Martin

by Ryan McMaken via The Mises Institute,
Fri, 04/05/2019

Donald Trump this morning condemned the Federal Reserve’s “unnecessary and destructive actions,” by which he presumably means the Fed’s recent attempts to tighten monetary policy.

Since 2016 — after nearly a decade of ultra-accommodative monetary policy, the Fed began to ever-so-slightly scale back its easy-money policies, beginning with gradual increases in the federal funds rate. It wasn’t until the spring of 2018, however, that the Fed began to slowly reduce its portfolio, which the fed had accumulated to inflate asset prices and bail out major banks.

But even this reduction in the balance sheet was never more than even a tiny scaling back. Total assets were reduced from $4.4 trillion to $3.9 trillion. Prior to 2008, however, assets totaled well under one trillion.

So, even this very small move away from the Fed’s easy-money stance is too much for Trump, who has repeatedly condemned the Fed over the past year months for not creating enough money out of thin air.

The Problem is the Boom, Not the Bust
Like the public in general, Donald Trump continues to labor under the mistaken impression that the threats to the economy come during the tightening stage of Fed policy, although the real problem comes in long before this.

After all, economic busts do not materialize out of market forces or magical phenomena which will forever remain a mystery. Rather, the bust is a result of new money creation by commercial banks and central banks — but always enabled by central banks and government policy.

Thus, the bust is created in the boom phase as central bank policy leads to the creation of new money “out of thin air.” This excess money then finds its way into a variety of non-productive areas of the economy — areas and industries that would never had received so much spending and investment in the absence of new, unbacked money.

The result is malinvestment and resulting bubbles.

The Rest…HERE

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