The Great Moderation

This just in:  Among Trump’s many, many problems, the fact that he is an uneducated child is one of the biggest.

I suspect that a lot of presidents have not been good at economics.  I don’t know this for a fact because they could appear knowledgeable by leaning on the expertise of others.

Trump has shrugged off this idea.  “He speaks his mind” is somehow seen as a strength even if what he says is babble.

For example, trade agreements are often seen as a good deal.  Sure, there is some give and take but in the end, we lock in a trading partner instead of losing them to say…China.  Trump, doesn’t agree with this.  He thinks agreements need to be one-sided where he gets all of the gains and the other gets the “privilege” of trading with us.  He is alone in this as country after country turns away from us in search of other partners.

Another example is the Executive use of tariffs.  Tariffs are a tax on ourselves.  Because Trump is trying to bully China or Canada or the EU, we will pay much more for products from those countries.  He’s pretending that if we make Chinese steel more expensive, we will buy steel from the United States.  It’s as if he thinks there are steel mills that are currently idle and just waiting for prices to change in their favor.  Of course, this is pure nonsense.  But, there is a “being a bully” component that seems to give Trump a woodie.

Now he is picking on the Fed.  To talk about this, I need to clarify a couple of terms.

Fiscal Policy is that policy that covers government expenditures. The government can choose to put more money into the economy, or take it out, based on what they want to do.  A tax cut is a fiscal policy.  It puts more money into the economy and thus stokes the fires of growth.

Monetary Policy is controlled by the Federal Reserve.  This is the policy of raising and lowering interest rates to control how much money is in the economy.  The Fed acts to “cool down” an overheated economy or to keep inflation in check.

From the late 1980’s to the mid-2000’s, the U.S. economy didn’t experience huge swings between growth and recession.  This period, known as the Great Moderation, is in large part due to the active role the Federal Reserve played using Monetary Policy.  They raised interest rates when inflation started to rise and they lowered interest rates if a recession started to look likely.

The tax break is causing inflation.  The Fed is controlling this inflation by raising the interest rates.  Higher interest rates increase savings and decreases borrowing and thus…takes money out of the economy.  Money is more scarce so it is more valuable therefore, the buying power of a dollar is greater and thus…inflation is stopped.

Now, if you read and understand everything I just wrote, you know ten times more about economics than Trump.

Today, Trump is trying to pick a fight with the Fed.  This is like a beaver arguing with NASA about the design of a rocket.

Vote in 2018.  Pick a candidate that knows how to use the talent around him or her to make sound choices.  Or, vote Republican and support the uneducated child that is running our country.

Time to save the world.

Up, up and away…

Jim

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2 thoughts on “The Great Moderation

  1. James B. This is your best blog EVER! I must be having some influence on you over your previous hysteria in past blogs.

    I agree but you left a few things out. First, “if” Trump too the time to read this, he would immediately tweet “so is James Dillingham and what ones he know about Seats. My seats aren’t Cheap. Very low IQ this James Dillingham. Very low”

    Up, up and away

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