Trump’s War On Sound Money, Part 2

Had he accepted it, the true mission of the Low Interest Man—- who has stumbled into the Oval Office on the back of China’s cyclonic economic blow-back to the great Greenspanian monetary error—was to make the dollar good as gold again. That meant big budget surpluses, high interest rates, a tumbling stock market, the end of financial engineering in the C-suites and the painful sweating out of inflation that became embedded over the last several decades in wages, prices, costs, house prices and much more on main street.

Those were the things which draining the Swamp was actually all about.

But none of that was in the Donald’s DNA. Not even remotely. Nevertheless, deflationary austerity was and remains the only viable alternative to the failed spend, borrow, print and inflate economic policies of the Washington uniparty—the embedded groupthink apostasy that Donald Trump embraced with unreserved gusto.

The truth is, all of today’s maladies—low growth, high inflation, a shrinking middle class and the concentration of vast windfall wealth at the tippy-top of the economic ladder—stem from the central bank’s basic modus operandi. That is, the Fed’s overwhelming presence in Wall Street money and capital markets via massive bond-buying, interest rate pegging, yield curve manipulation and price keeping operations designed to prop-up equities and other risk assets.

Needless to say, this modern form of Wall Street-centric central banking has been an abject failure and not just because it is anti-growth, pro-inflation and deeply biased in favor of the super-rich, who own most of the financial assets which have been inflated to a fare-thee-well. Its even more fatal defect is that it led to near total capture of the Fed by Wall Street operators, traders, speculators and their shills in the financial press.

The result was crony capitalism in capital letters. And that put the Eccles Building at the very epicenter of the Swamp.

There is no mystery as to why this is the case—even crediting the arguably good intentions of the 12 people who serve on the FOMC (Federal Open Market Committee), which is the Fed’s policy-making forum. To wit, at the time of every Fed meeting there are extant literally tens of trillions worth of bets that have been placed by Wall Street’s fast money-operators based on the expected FOMC policy announcement. The latter include changes in money market rates by as little as 25 basis points, guidance on the monthly rate of bond-buying or selling to the nearest $5 billion and hints in the post-meeting statement and chairman’s press conference as to what hairline maneuver the FOMC might undertake at the next monthly meeting and in the months immediately beyond that.

In a word, the rise at the Fed of what Alan Greenspan called “the wealth effects doctrine” has fundamentally changed Wall Street. In days of yore it invested based on the facts embedded in the flow of business and financial information on the free market. But now it trades overwhelmingly on the flow of monetary policy tweaks coursing through the brains of the 12 FOMC members and a handful of Wall Street gurus who attempt to divine their latest revelations and intentions.