Rate Cut. Bad Solution for Trade War Slump

Fed rate cuts shouldn’t be the tool to offset the chaos caused by Trump’s trade war.

Unintended consequences. Person stymied by blackboard of divergent arrows
Unintended consequences
  • When one policy mistake is made (Trump’s trade war) it is unwise to force a tool designed for a different economic purpose to correct the primary mistake. Why? Because the inherent purposes of the tool (Fed rate cuts) will affect its intended purposes in ways unexpected.
  • Fed rate cuts are to boost economic activity and keep prices stable. We have been in that condition, ever since the Fed, Bush, and Obama avoided turning the Great Recession into another Great Depression.
  • Cutting rates now, increases risks of creating supply with no new markets, leading to a later sharp economic recession.
  • Any review of Trump’s pre-presidential business activities shows his propensity for this mistake. He does not understand the relationship between debt and capacity.
  • He only understands debt, except as a sole entrepreneur gaming the system. There he can borrow and later repudiate it. That concept does not work well when the country is the system.

The past shows that Trump mania is always been followed by ruin for his associates.

Are we, the nation, to be the next associates?

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