Trump needs to let interest rise
Posted on Feb 10, 2018 by Ifi Reporter
Two "good" things can be said about former US President Barack Obama: The first - that he was no worse than Bush, the president who reacted to the 2008 crisis by stealing taxpayers' money in order to bail out financial institutions close to his plate: luck.
His presidency began four months after the financial bubble burst. It allowed him, with the US Federal Reserve, to blow up a new bubble, spend eight years accusing Bush of absolving himself of any responsibility for the state of the US economy, Obama was twice lucky - he managed to finish his term before the bubble he himself blew It exploded.
Indeed, Trump argued during his successful presidential campaign in 2016 that US prosperity is largely false, its source is the zero rate set by the US Federal Reserve, that it is a "big ugly bubble" and that "when the Fed raises interest rates, we will see very bad things happening in the economy." Artificially creates bubbles by encouraging investments that would not have occurred under normal, higher interest rates.The low interest rate also avoids savings from conservative deposits in banks and encourages more risky investments in stocks, real estate, and other channels. When a low interest rate returns to a normal, higher level, some of these investments are erased, thus creating the crisis.
How severe could the crisis Trump be warned? It is hard to say, but it should be remembered that at the peak of the Bush and Greenspan monetary expansion the interest rate was 1% to 2%, and remained at that level for only three years. If this policy helped create the 2008 crisis, how would the crisis look like the result of interest held at zero level for eight years and accompanied by unprecedented financial printing?
This question is intriguing in light of the sharp volatility in stocks in recent days. It is premature to say whether this is a sign of the beginning of the Obama bubble, or whether it is only a temporary amendment, one that happens every year and a half or two and passes almost without a trace.
But remember Trump's warning that the Fed is slowly raising interest rates and is no longer buying US government debt, and whether the US economy - government, consumer, and business - can withstand it. Another big question is how Trump will react to the crisis that will occur if the bubble collapses during his tenure. Trump can react as the two previous administrations have responded - press the Fed to cut interest again and print more money.
At best, it will be a short-term painkiller, but it will further complicate the US The second option for Trump is to take advantage of the crisis to erase the legacy of Bush-Obama and reform the US economy, To a normal level (Alan Greenspan claims that 5% is normal) and let all asset bubbles explode once and for all.
It is hard to believe that Trump would have the courage to do something so unusual, but if he wants to be remembered as a great president, even if it is only one term - that's the way. To be an Obama 2, we could have settled for Hillary Clinton