In a recent meeting with Federal Reserve Chair Jerome Powell, President Donald Trump and Treasury Secretary Steve Mnuchin discussed the idea of negative interest rates. They focused mostly on “economy, growth, employment, and inflation.”
Trump has clashed with Powell in the past over his reluctance to lower interest rates down to zero or even into negative territory. Although the economy could be in much worse shape, Trump’s monetary suggestions should have Americans worried. Economist Peter Schiff raised valid points about Donald Trump’s claims that we have the “best economy ever.” If the economy is so good, why does the economy require more monetary stimulus? It makes one wonder how rickety America’s economic fundamentals are.
Trump has gotten numerous deregulation and tax cut reforms right, which helps improve the health of the American economy and keeps the state away from the voluntary affairs of free people. However, this growth has come at a massive cost. In 2018, the national debt increased by $1.27 trillion. Putting this in perspective, this represented a twofold increase in the national debt when compared to 2005 — when it rose by $554 billion. The U.S. has essentially borrowed its way into growth. Eventually, fiscal chickens will come home to roost as deficits grow and the national debt balloons.
The problem with this mission is that it ignores the pitfalls of central banking. Such interventions, such as expansionary monetary policy, cause the notorious boom and bust cycles that we have all been acquainted with. More fundamentally, expansions in the monetary base will ultimately lead to the devaluation of the currency, which puts the wealth of millions of Americans in jeopardy.
Questioning central banking is something that never pops up on D.C. politicians’ radars, despite America’s early tradition of questioning central banks. After all, America has been in a great spot since 1945 as the preeminent military and economic power. The American political class has ridden this envious position high for decades. Given the dollar’s status as the world reserve currency, the Federal Reserve can print money away as it pleases, without seeing very pronounced inflationary effects in the short-term.
Globally speaking, U.S. dollars are high in demand. However, violating economic laws can only go on for so long. Once the American welfare state implodes and people clamor for more benefits, the Federal Reserve will likely be called upon to crank up the printing presses. Monetary expansion will most certainly bring about inflationary scenarios and place the country in uncharted economic waters.
And if history is a good indicator, an America plagued by inflation will be a poorer America.