Thursday, December 27, 2018

Please, Trump, shut up about the stock market, Fed, and everything financial. You are rocking a boat that was sailing along just fine.

Please, please, let Trump just shut the F up about the stock market. I don’t think anyone believes that he is good for Wall Street or Main Street.

Steven Benen (MSNBC/MaddowBlog) makes the case:As economic anxieties rise, Trump and his team make matters worse.

About a week ago, the Washington Post noted that Donald Trump has kept “an almost obsessive watch on the stock market,” while complaining to aides “about how unfair it is that he is blamed for the market’s slide.” The major indexes have fallen quite a bit further since the article was published.

At a certain level, the presidential agita is understandable: no one individual is ever responsible for the health of the economy, the direction of the unemployment rate, or the stock market’s fluctuations. But for Trump, the picture is more complex. For one thing, he spent months telling the public that he deserves all of the credit for Wall Street’s gains, confident that his overpowering greatness would prevent a downturn.

For another, it’s easy to make the case that the president deserves at least some of the blame for recent developments. Were it not for Trump’s trade war, his shutdown, and his successful-for-now lawsuit against the Affordable Care Act, recent losses likely wouldn’t have been nearly this severe.

Making matters worse, Trump and his team are making matters worse. CNBC’s John Harwood had a good piece on this yesterday.

Characteristically, President Donald Trump responded to bad news on Christmas Eve by blaming others. As battered markets slumped again, he faulted the Federal Reserve. “The only problem our economy has is the Fed,” the president declared of the central bank chaired by his appointee Jerome Powell. Yet simply by making the assertion, Trump negated it. […]

Trump’s erratic behavior and weak leadership have unsettled Wall Street and Washington alike – and there’s every reason to expect things will get worse.

A responsible and mature leader, wielding a steady and measured hand, would be well positioned to make a positive difference right about now.

Instead, we have Donald J. Trump, who doesn’t appear to have any idea what he’s doing.

Catherine Rampbell noted on Christmas Eve, “The Keystone Cops are officially in charge of our economy.” Is it any wonder many are nervous?

Rampell wrote Wonder how the Trump administration would handle a financial crisis? Well, now we know.

As Trump and his surrogates love to remind us, most major economic measures — unemployment, gross domestic product, consumer spending — still look strong. Under such circumstances, it’s unsurprising that Powell has continued the gradual interest rate increases begun three years ago under his predecessor, Janet L. Yellen.

Nonetheless, Trump has said the Fed should stop its rate hikes because the economy is apparently too fragile to withstand them. Instead of abiding by tradition and never talking about monetary policy, the president has gone public with his fury with the Fed.

Then, over the weekend, things got exponentially worse: News broke that Trump was thinking about firing Powell.

Whether Trump has the legal authority to do so remains ambiguous. Unambiguous, though, is how economically cataclysmic even such an attempt would be.

There are good reasons we want central banks to remain politically independent. As Argentina, Venezuela, Turkey and other hyperinflationary economies have shown us, putting the printing press in the hands of politicians is a recipe for disaster. Politicians always have an incentive to crank out a little more money today, which juices growth in the short term but jeopardizes price stability in the long run.

Scriber adds: Trump, with the enthusiastic support of his secondary cabinet (aka Republicans in Congress), already cranked out more money to juice growth – that would be the tax cut for the rich.

Rampell has lots more to say about Trump’s Munchkin at Treasury but I will let some other columnists weigh in.

Bill Saporito, contributor to the NY Times editorial board, fingers Trump’s King Minus Touch. Whatever the president says, the Fed chairman, Jerome Powell, is not the problem.

Trump spent the week before Christmas doing what Trump does: shifting blame for his own misdeeds and warped political calculations to others. This time he launched attacks against the Fed and its chairman Jerome Powell. The problem, of course, is not the Fed. The problem is Trump and his minions.

The Federal Reserve Board has had the temerity to do exactly what it had signaled for months it would do, steadily raise interest rates to prevent the economy from overheating. The Fed is legally mandated to maximize employment and contain inflation, not to prop up the stock market on presidential orders. Mr. Powell also signaled that the Fed would pause in this rate-raising mode if the economy began to slow. Wall Street was not surprised in the least by this pronouncement.

What surprised Wall Street — what terrifies Wall Street — was Mr. Trump’s inquiry as to whether he had the power to fire Mr. Powell, whom he appointed in February. That injection of uncertainty was then magnified when Mr. Mnuchin announced from his Mexican vacation spot that he had chatted with six big bank C.E.O.s in an attempt to assure investors that there was adequate liquidity in the financial system. Anyone who experienced the Great Recession might recall that merely raising the idea that there might not be adequate liquidity immediately injects doubt into investors’ minds about adequate liquidity, whatever assurances you attach afterward. The Dow promptly had its worst Christmas Eve trading day ever, disgorging 653 points, or 2.9 percent.

Mr. Trump is King Minus. Everything he touches turns to lead. And everyone else is at fault but him. He can’t understand it. …

In Mr. Trump’s snow-globe reality, our days are merry and bright as long as he’s in charge. It’s only when those other fools interfere — the courts, Congress, whoever is chief of staff — that things go wrong. Thus the government shutdown that he bragged he would own he now says belongs to the Democrats. No one is buying that one, not even in his own party. And no one is buying his $5 billion Mexico wall, either. And that includes the Mexicans. Nor should they. The number of people entering the United States from Mexico has been declining for a decade, but Mr. Trump has now wasted hundreds of millions of taxpayer dollars placing American troops in Texas to protect us from an immigration threat that doesn’t exist.

While a paralyzed federal government is not yet damaging the economy, the damage from Mr. Trump’s other personal policy perversions is piling up. On its own, the economy, while clearly slowing, is doing well enough and will probably continue to do well enough with minimal fine tuning. Mr. Trump complains bitterly that Mr. Powell is going to turn him into Herbert Hoover by doing what the Fed is mandated to do. But what turned Hoover into Hoover is a Federal Reserve that did nothing and a Republican Congress that conducted a disastrous trade policy rife with tariffs.

The really scary part, if one continues this historical comparison, is that the Great Depression was ended not as much by smart economic policy as it was failed foreign policy marked by American isolationism in the years leading to World War II. Today, Mr. Trump’s America First posture is behind his abrupt decision last week to withdraw antiterrorism troops from Syria. His own generals — “my generals” — and national security staff have warned that such a retreat could allow the shattered ISIS to regroup and spread global chaos again.

Paul Krugman also writing in the Times, provides some cautionary comments in The Ghost of Trump Chaos Future. Sorry, investors, but there is no sanity clause.

The truth is that most of the time, presidential actions don’t matter much for the economy; short-term economic management is mainly up to the Fed. But when bad things happen, we do need the White House to step up. In 2008 and 2009, it mattered a lot that officials of both the outgoing Bush administration and the incoming Obama administration responded competently and intelligently to the financial crisis.

Unfortunately, there’s no reason to expect a comparable degree of competence if something goes wrong again.

Consider how the Trumpistas have responded to falling stocks. So far these are just a minor economic bobble. Yet Trump himself, having claimed credit when stocks were rising, has flown into a rage and lashed out; hence the attacks on Powell. Meanwhile, top officials are still claiming that last year’s tax cut was a triumph in the teeth of the evidence, and issuing bizarre statements — via Twitter — about the health of the banks, which nobody was questioning.

Now imagine how this administration team might cope with a real economic setback, whatever its source. Would Trump look for solutions or refuse to accept responsibility and focus mainly on blaming other people? Would his Treasury secretary and chief economic advisers coolly analyze the problem and formulate a course of action, or would they respond with a combination of sycophancy to the boss and denials that anything was wrong? What do you think?

Let’s be clear: There isn’t an obvious crisis-level threat looming at the moment. But growth is slowing, and as the bumper stickers don’t quite say, stuff happens. And if and when it does, the people who would be supposed to deal with it are the gang that can’t think straight. Merry Christmas.

It seems that we are in for a financial rough ride as we “brace for King Minus’s next touch.” Or maybe not so much if Krugman’s “minor economic bobble” is not a bursting bubble.

UPDATE: I compiled all those posts on Dec. 26. By the end of the day the DJIA closed at 22,878, up 1,086. That’s good news and not just because investors have some reason to hope. The gloom-and-doom tenor of what I posted was triggered by worries about what Trump might do to the Fed given his threats to fire the Fed chair. But the other theme in yesterday’s post was that the economy as as whole was healthy, there was some hope that getting Trump to calm down might settle everyone’s financial nerves.

The NY Times report yesterday afternoon explains why the market reacted the way it did in Stocks Bounce Back From Edge of Bear Market.

It didn’t take much, just some early reports of a strong holiday season for retailers and reassuring murmurs from Washington and Moscow, to put Wall Street in a brighter frame of mind.

Stocks broke their losing streak on Wednesday, as sales data showed spending by American consumers remains healthy and Russia signaled that it was willing to help keep oil prices higher. Investors were also reassured by a White House official’s statement that Jerome H. Powell’s job as Federal Reserve chairman was “100 percent” safe.

However, one day’s data point does not make a trend. Take the opening Dow on the week of Dec. 3rd as a bench mark, 25,826. By the 24th, the Dow had lost 4,034. Today’s reversal with the 1,086 gain is welcome, but the Dow is still about 3,000 shy of its opening at the beginning of the month. Perhaps if Trump will keep his mouth shut, the markets will make up the rest of the ground lost in December.

I suspect many if us will breathe a big sigh of relief if the reversal in trends holds for the remainder of the week and we see continued recovery of market losses. Stay tuned.

ANOTHER UPDATE:

Dec. 27 - The Dow ended at 23,138 - up 260 points. Perhaps Trump heard my opening exhortation and shut up about the economy, the Fed, and anything that might spook investors. But also bear (pardon the pun) in mind that we’re not that far from a Bear market and the Dow swung 870 points! As one observer heard on TV this morning put it, what is predictable is more volatility.

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