Monday, December 24, 2018

What did Donald Trump do today?

He found a scapegoat for the bear market that the stock markets have entered recently.

Trump hasn't said much about the stock market lately, because he took credit on the way up for its 10-year bull run, and lately it's been doing very poorly. But with major indices officially entering bear market status this month (down 20% or more from their high water mark), he may have felt he couldn't avoid the subject any longer. That led to this tweet this morning:

It would be generous to call this nonsense, but it is worth considering each part of this in turn.

The golf analogy. Trump knows about as much about golf as it is possible to know without being a pro himself, and in fact has spent much of his time since being elected on the course schmoozing with professional golfers. It is reasonable to assume that he has something specific in mind with his analogy to a golfer with a poor short game.

Unfortunately, this is where it stops making sense.

Putting all the blame on someone who isn't him. The clear advantage to Trump of blaming the Fed for market downturns is that the Fed isn't Trump—although he has appointed its chair and 80% of its governing board. Under normal circumstances, it's not really fair to give presidents much credit for stock market gains or losses, since even presidents who are actively trying to move the economy in a particular direction don't usually see the effects of their actions for years.

That said, there are exceptions. Trump's pro-trade-war stance impacts so many businesses (and so few of them positively) that it is probably the greatest single drag on the economy at the moment. And the specific cause of today's 2-3% downturns was comments by Trump's handpicked Treasury Secretary Steve Mnuchin, who tried to reassure investors today that banks had enough cash on hand to stay in business. (It's an ominous signal that Mnuchin was worried enough about another financial sector collapse to check in the first place.)

"Necessary trade wars." This is a contradiction in terms. Trade policy is necessary; trade wars—where trading partners get locked in mutual punishment and trade volume overall decreases—are not. More or less by definition, there are no "winners" in a trade war except the countries that aren't part of them. And consumers—who pay the taxes that are the only weapons in a trade war—are the losers.

Trump may or may not have figured this out, but obviously feels politically cornered by his previous cheerleading on the subject.

"Strong dollars." Trump famously cannot remember from day to day whether he wants a strong dollar or a weak one, or even who to call to help him figure it out.

"Democrat Shutdowns over borders." Setting aside the fact that Trump was claiming credit in advance for the current shutdown last week (before he realized, once again, that shutdowns are not popular with voters), the current shutdown is the least of the markets' or the country's economic worries. Shutdowns are inefficient and paradoxically expensive, but they have absolutely nothing to do with Federal Reserve monetary policy.

Who cares?

  • America's financial security is more important than any president's political standing.
  • A president who can't take responsibility for a problem can't fix it.
  • Presidents are responsible for the actions of the people they appoint to high office.