There is a strange sentiment among a large portion of the American electorate that presidents are in charge of the economy, and that any positive or negative change is because of the White House occupant. Whether it is out of political opportunism or just wishful thinking, Republicans and Democrats fall into the trap of casting blame or attributing success to the chief resident of 1600 Pennsylvania Avenue. It doesn’t work that way; if politicians controlled markets, you would have socialism.
Case in point, the U.S. stock market.
When President Barack Obama led the country for eight long years, Democrats cheered the stock market and Republicans dismissed it as not being the real economy. With President Donald Trump at the helm, Democrats are either attributing the gains to his predecessor or rejecting it as not being part of the real economy. Republicans, meanwhile, are celebrating and forgetting everything that happened before Trump’s inauguration.
Democrats and Republicans have a terrible habit of taking credit for economic successes and shifting the blame for economic failures to their precursors. This needs to stop, or at least Americans need to stop playing this game.
Like Trump said during the 2016 election, the stock market is a “big, fat, ugly bubble.” And he’s right.
Presidents Don’t Control Stock Markets
Under Trump’s watch, the Dow Jones Industrial Average (DJIA) has surged from under 20,000 points to a record high of 26,000. In just one year, the Dow has climbed an incredible 6,000 points. What the president fails to mention is that the stock index increased 11,000 points during Obama’s entire tenure.
In a debate with former Secretary of State Hillary Clinton, Trump called the impressive gains as nothing more than a bubble fueled by the Federal Reserve. He averred in September 2016:
“Believe me: We’re in a bubble right now. And the only thing that looks good is the stock market—but if you raise interest rates even a little bit, that’s going to come crashing down. We are in a big, fat, ugly bubble. And we better be awfully careful.”
Prior to that, he told business networks that shares are ballooning because of the swelling bubble amid historically low interest rates and money-printing. Trump went as far as hoping for a correction before he became president because “I don’t want to inherit all this stuff.” He was also correct when he labeled the Fed as a political institution.
Did Trump read Representative Ron Paul (R-TX)’s End the Fed during the election?
Unfortunately, the Fed’s influence on stocks didn’t suddenly cease with Trump becoming president. The M2 money stock has spiked $600 billion over the last 12 months, which means easy dollars are continually seeping into the New York Stock Exchange. Interest rates are still far from normalizing – the average U.S. Fed Funds Rate has been about 5% to 7% over the years.
Of course, the stock market has responded positively to the landmark corporate tax cuts, the reductions of regulations, and the pro-business agenda of the Trump administration. But that is as far as the Oval Office and Capitol Hill can go in influencing the Dow, NASDAQ, or S&P 500.
Should Politicians Take Credit for Everything?
President Obama was lambasted (rightly so) when he told business owners “you didn’t build that.” It suggested that the government should be lauded for all the good that has ever transpired in the country – it is unlikely Obama, or other statists, would slam government for all the bad stuff.
But businesses did build that. Entrepreneurs took the risk with their capital to sell goods and services, hire employees, satisfy consumer demand, and make a profit. A bureaucrat didn’t do that, and a president was certainly not responsible.
Why is the stock market any different? The DAX, FTSE, or TSX send signals to traders, consumers, and businesses all the time. One can only imagine if the state managed the sending of signals to these parties – you’d have Venezuela.
Republican and Democratic politicians set themselves up for criticism when they employ these political methods. Trump, for example, routinely lauds his administration for overseeing meteoric stock increases, taking credit for all-time highs in FAANGs, low-cap stocks, or tech. By adopting this attitude, as logic would dictate, he should be culpable for the 665-point loss on Friday, the 1,100-point crash on Monday, and the seesaw event on Tuesday.
Indeed, the left doesn’t know how to respond. At first, sufferers of Trump Derangement Syndrome argued that all the positive events until Thursday were because of Obama. But when the stock market collapsed, they turned to Trump as a scapegoat. Which is it? It can’t be both. Nor should it be.
The Federal Reserve System is the most powerful agency in the U.S. today. The smartest men in the Eccles Building manipulate interest rates, debase the currency, enable excessive spending in Washington, blow bubbles, and cause recessions. President Trump should channel Candidate Trump and inform the American people of the dangers of the Fed – and merely swapping one swamp creature for another will not suffice.
Should Donald Trump take all the credit for stock market gains and losses? Let us know in the comments section!
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