Welcome to another installment of Swamponomics: Liberty Nation’s dive into the week’s morass of top news stories and the stream of economic fallacies that have been accepted as conventional wisdom by swamp creatures for years.
Christine Lagarde to the Rescue?
European Central Bank (ECB) President Mario Draghi’s term is set to expire in October, and it cannot be renewed. A successor to continue the aggressive monetary stimulus policies of Draghi needs to be named. Brussels may have found their man, er, woman in the head of the International Monetary Fund (IMF).
Recently, the European Union leaders convened a meeting in Brussels to make a bulk of appointments. One of these included the next ECB president, and after 20 hours of deliberations, officials selected Christine Lagarde. Since some procedural maneuvers need to take place, the official nomination will not happen for several more weeks. For now, Lagarde confirmed that she is temporarily relinquishing her responsibilities as IMF managing director throughout the nomination period.
Can Europeans expect anything different? Hardly. For the last decade, Draghi has adopted a zero-interest-rate-policy (ZIRP), introduced a few rounds of quantitative easing, and achieved very little economic growth. With the eurozone chugging along at an anemic pace, Draghi confirmed that he is ready to bring interest rates into negative territory and expand the bond-buying program. With his tenure coming to an end, Lagarde is widely expected to continue where he left off – and then some.
Lagarde is no different than any of her central banking colleagues. She is a Keynesian interventionist, a staunch defender of subzero rates, and is frightened of deflation. Her prescription for growth is injecting more credit into the economy, which will hardly achieve anything significant.
As the Money Maven wrote: “It’s rare to find someone who is consistently wrong on everything. Christine Lagarde…comes close.”
By the way, the E.U. tapped Ursul von der Leyen as the European Commission President, Charles Michel as the European Council President, and Josep Borrell as E.U. Foreign Policy Chief.
Paul Krugman Wrong – Again
When making the above statement about Lagarde, it seems the Money Maven forgot about Paul Krugman. Does he ever get anything right?
The Keynesian it-girl is on a rampage against the GOP and Republican voters again. Writing in a New York Times blog post, titled “The Moochers of Middle America,” Krugman carried the bag for the Democrats and their asinine proposals, slammed Republicans for calling every government program socialist, and parroted some economic fallacies.
One of these is a common tactic used on the left whenever the hive opposes a tax cut. Soon after President Donald Trump and the Republicans introduced across-the-board tax reductions, opponents suddenly clutched their pearls and asked, “What about the debt?” As Krugman writes in his latest magnum opus to emerge from the sewer of The Times building, “That tax cut, after all, appears likely to add around $2 trillion to federal debt — with around a third of that going to foreigners.”
Once again, by asserting that the federal government needs to somehow find a way to pay for a tax cut suggests that the state owns your property and the fruits of your labor. Washington does not have to figure out how to pay for a tax cut because it is returning the money to you – the people.
Now, the real way to address the concern about the debt and deficit is to ask: “How will the government offset revenue to prevent a debt explosion?” In other words, the government needs to cut spending to prevent a greater shortfall, which the Trump administration or GOP leadership has not done.
This is one of the more frustrating economic fallacies parroted by Krugman and his ilk.
Trump Wants Weaker Dollar
President Trump took to Twitter to complain about monetary policy again. But while he did not mention the Federal Reserve by name, he seemed to encourage the U.S. central bank to emulate China and Europe to play the “big currency manipulation game.” Otherwise, Trump tweeted, the U.S. will “continue being the dummies who sit back and politely watch as other countries continue to play their games.”
This comes soon after Trump said that he would prefer Draghi to helm the Fed over his own nominee, Jerome Powell. Yes, Draghi has pumped and continues to pump a lot of money into the system, but the results have not been great.
So, how would a Draghi-Powell trade even benefit the United States economy?
The president’s suggestion to manage the dollar is interesting for two reasons. The first is that the Fed has been manipulating the greenback for more than a century. The second is that Trump ostensibly wants to weaken the buck, which would theoretically support his agenda of boosting exports but hurt average Americans.
Since the mid-1990s, the U.S. government has maintained a strong-dollar policy. The currency has fluctuated for three decades, but it has performed modestly well throughout Trump’s time in the White House, advancing nearly 2%. This should relieve Trump because, in theory, the trade war should have sent the dollar crashing. Instead, the buck has weathered the storm. The president is not pleased because if the yuan or the euro is weaker, then it makes European or Chinese exports cheaper to purchase. On the other hand, if the dollar is appreciating, then it makes the country’s goods more expensive to import.
The U.S. has defied all expectation because exports have surged in the last three years and the dollar soared as high as 5% before paring those gains. Put simply, Trump is getting the best of both worlds: higher exports and a strengthening dollar that gives consumers a greater purchasing power.
Solving the State’s Problems
Interventionism, whether in economics or on foreign policy, is not beneficial to the people. Anytime the government sticks its nose in the business of others, its results are disastrous. The state creates a problem and then proposes a myriad of solutions to solve that same quandary. The people’s income, currency markets, or the economy – politicians and unelected central bankers have proven that they don’t know what they are doing, and they are hanging by the seat of their pants.
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