Mr Trump, your biggest cheat of all is Janet Yellen
The US Fed Reserve created distortions in the financial markets and the US economy when it kept interest rates low for eight years running
Make America Great Again
-- Donald Trump
You have to hope that not too many countries use the word “great” of themselves.
First we had Maggie Thatcher wanting to put the “great” back in Britain, and now Donald Trump wants to put it back in the United States.
The difference between the two, however, is that Mrs Thatcher always knew that the causes of Britain’s economic malaise of the 1970’s had to do with Britain itself and that the solution lay in Britain.
Mr Trump, however, is busy blaming the rest of the world for America’s economic difficulties. If it’s not the Mexicans it’s the Russians or, most of all, the Chinese, whom he specifically accused of cheating.
There are reasons for sympathising with him. Walk through any American big box store and it’s all Made in China.
Meanwhile, American manufacturing workers go in fear of their jobs and their incomes are shrinking. China cheats in trade, Mr Trump says, through an artificially weak currency, a closed market, state financial support and suppressed wages.
All of these allegations carry a measure of truth but, in my opinion, they are neither singly nor in sum the principal reason that the US economy has faltered.
Mr Trump would have done better to emulate Mrs Thatcher and look for the causes at home. He has a giant cheater right in Washington itself,
I refer, of course, to the US Federal Reserve Board, the chief arbiter of US interest rates, which has now for eight years kept those interest rates at extraordinarily low levels in an attempt to stimulate an economy that is already suffering from over-stimulus.
Interest rates are the price of money and, as in all things that have prices, when you intervene to move these prices in directions that their markets would not otherwise take them, you create distortions that invariably have the effect of slowing down your entire economy.
I cannot say it’s always a bad thing.
It used to be, for instance, that qualifications for street cleaner and toilet attendant in Hong Kong were quite strict. Applicants had to be at least 75 years old, suffer from at least one debilitating physical ailment and accept starvation pay.
Now at least we guarantee them a (low) minimum wage. This has undoubtedly affected the economy a little. Chambers of commerce all tell me so. But let’s agree that we shall accept it for the benefit it confers.
There has not been much benefit, however, to artificially low interest rates in the US.
It is financial markets that have absorbed the stimulus. They have gone up strongly with the distortion of yields and then spawned further distortions of their own.
Why, says a manufacturer of pencils or paper, should I struggle in a moribund industry when I can make myself rich beyond my dreams with a leveraged buyout that the market will take off my hands because the Fed stands behind anyone who will pay ridiculous prices for any cash flow at all?
The chart tells you how that question is answered.
Over the last eight years the S&P 500 index has risen by 183 per cent. The US industrial production index for final products is up only 6 per cent from the end of 2008.
Beijing could give up all its little tricks (they’re mostly little) to rig the US consumer market in favour of Chinese producers, and yet the productive economy of the US would not benefit as long as the Fed persists in distorting the price of money.
So there you have the start of your offensive against cheaters, Mr Trump.
Number one on your target list, the biggest cheater of all, is US Fed chairwoman Janet Yellen.