Thursday, March 12, 2020

TRUMP’S CHEAP POPULISM HAS MUCH TO DO WITH THE CURRENT PREDICAMENT OF THE ECONOMY

Standard practice is to maintain higher interest rates when the economy is in its expansion phase and lower interest rates when times are bad in order to stimulate recovery. The Federal Reserve lowered interest rates after the 2008 crash in order to get us out of the Great Recession. However it made no sense to maintain low interest rates during the subsequent years of unprecedented expansion. Interest rates in savings accounts and even CDs were a small fraction of one percent as opposed to inflation which ate away at savings. It forced people to place their savings including retirement savings in stocks and bonds, and it turned us all into gamblers. That meant gambling with our future and the security of our families. The policy gave a boost to the stock market, as did the practice of the economic elite, awash in cash, to buy up the stock of companies they controlled. But the dance of millions had to end. The coronavirus was just the spark. 

About a year ago, in the midst of unprecedented stock market gains, the Federal Reserve finally decided to increase interest rates. Trump pressured the Fed to lower them again. Now the Fed lacks one of the most effective instruments to mitigate against the crash of the last week. Trump, of course, when he opposed higher interest rates, wasn’t thinking of the medium and long term economic stability of the nation, he was only concerned about maintaining Wall Street prosperity until November, 2020.      

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