Many Trump tweets will live in infamy. We may have gotten a Top 10er this week.
On Sept. 11, President Trump declared that the Federal Reserve should cut interest rates “to ZERO, or less.” He also said the United States should take advantage of low rates to refinance its debt. The reason none of this is happening? “A once in a lifetime opportunity that we are missing because of ‘Boneheads.’”
Trump’s boneheads are clearly the people running the Fed, including chair Jay Powell. The Fed does make mistakes, and it may have pushed interest rates a bit too high during its final hike at the end of 2018. But the Fed generally keeps the economy from overheating or underperforming, and it even rescues erratic policymakers like Trump, whose protectionist trade policy could hurt the economy rather than helping it.
Powell is no bonehead, but there are boneheads in Washington. Trump, for instance, is envious of the negative interest rates in Europe, which he seems to think have a magic stimulus effect on the economy. But the opposite is true. Negative rates are a glaring sign that something’s wrong with the economy. That’s true in stagnant Europe, where the euro-zone economy is growing at a flaccid 1.1%. Germany, the continent’s most important economy, is probably in recession. Europe has badly underperformed the United States since the global recession ended in 2009.
Why does Trump want that? To help his reelection odds, no doubt. While cutting interest rates can stimulate lending and spending, it doesn’t follow that if cutting rates is good, cutting to zero is better and cutting below zero is even better than that. If we really had negative interest rates, savers would potentially lose money by putting it in a bank account, and banks might start charging for routine accounts, since they wouldn’t be making any money on interest. Americans should pray we never have negative rates here.
The Trump-o-meter doesn’t overheat at every Trump misconception. What’s setting it off this week, however, is Trump’s total lack of irony awareness: He’s calling someone else a bonehead while calling for monetary policies normally associated with gloomy times. That’s why this week’s rating is FAILING, our second lowest.
Trump’s call to refinance the federal debt is similarly incoherent. Lower rates do lower borrowing costs, one reason Treasury Secretary Steven Mnuchin said the government may issue a 50-year bond that would allow Uncle Sam to lock in low rates for longer than it can with 30-year bonds. But the government can’t refinance its debt the way a homeowner can take out a new mortgage to pay off an old one at a higher rate. Treasuries simply don’t work that way.
There may have been some good news this week, with Trump delaying a deadline for tariff hikes on Chinese imports, and China agreeing to restart purchases of some U.S. agriculture products. It’s possible this is the beginning of a thaw that could lead to a peace treaty in Trump’s trade war with China. But it’s more likely both sides are taking a temporary breather, like boxers exhausting each other in a grueling match. China has soaring pork prices and needs some imports to build supply and lower prices. Trump is getting nervous about the harm his trade war could cause his reelection odds. Each side could be preparing the ground for a longer showdown.
There will be further negotiation between the two sides in coming weeks. But fundamental problems remain. China still seems unlikely to grant core U.S. demands such as changing its laws and ending its theft of western technology. And Trump would look weak if he caves. Every “sign” of progress so far has been a head fake, with escalation always resuming. Only a bonehead would think this time is different.
Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. Confidential tip line: firstname.lastname@example.org. Encrypted communication available. Click here to get Rick’s stories by email.