When Federal Reserve Chairman Jay Powell announced this morning that while the Fed is considering additional rate cuts, such measures would not be able to stop a recession sparked by the ongoing trade war with China, President Trump was quick to respond to the bureaucrat on Twitter. In a series a fiery tweets, the President both decried our economic reliance on China and blasted the Federal Reserve for what he [President Trump] considers to be continued inaction on their part to resuscitate an economy that increasingly appears headed towards a recession. The President concluded his rant by positing the following question: “Who is our bigger enemy, Jay Powell or [Chinese] Chairman Xi?”
In my opinion, an argument could be made either way. But Trump’s line of questioning has curiously left absent an additional third party threat – one that I believe might pose as much or even more of an existential danger than either Jay Powell or Xi Jinping. I am speaking, of course, about the vengeful spirit of a forlorn lover who perished whilst waiting for her betrothed to return from yonder western lands and who now haunts my every living moment.
Trump’s assessment that the Federal Reserve needs to be more proactive in managing the economy belies his underlying belief that the executive branch should employ a more hands-on approach to influencing the markets. From his tariffs to his market-moving tweets, it should come as no surprise that the President has become frustrated with the more traditional approach of his Federal Reserve chairman, who has repeatedly signaled a reluctance to drastically cut rates in order to jolt some energy into a sluggish economy. Trump has argued that rate cuts are needed to infuse the markets with cash, which in turn should increase spending and general market activity. Powell, however, is clearly concerned that leveraging rate cuts for short-term gains might leave the Fed without a powerful tool to combat an economic contraction should a recession strike anyway.
But regardless of where you stand on the issue, ask yourself this: What is worse? A recession, or being haunted by a grief-stricken banshee whose cursed spirit has attached itself to you, all because you tossed a penny into the crumbling wishing well where she spent all those years waiting for her prospector fiancé to return from California?
In addition to rate cuts, Trump has also demanded that the Federal Reserve resume the practice of Quantitative Easing, also known as bond buybacks. Similar to rate cuts, which flood the market with “cheap money” by making it less profitable for the banks to hold cash (as opposed to loaning cash out), Quantitative Easing increases the money supply via the Fed buying back some of the government bonds that all the major banks hold, and in massive amounts. This process flushes the banks with cash, which in turn makes them more likely to offer loans to spur economic activity that might not otherwise occur.
The Obama administration executed trillions of dollars in bond buybacks in order to jumpstart the economy after the housing market crashed, and many economists point to this policy as the major driver of growth during the recovery years. However, not only is Quantitative Easing enormously expensive (the Federal Reserve has some $4.5 trillion in debt on its books due to buybacks after the Great Recession), but enacting such a policy during a period of economic uncertainty may exacerbate the severity of a recession if and when one does strike, as QE creates more publicly held debt, which in turn is more likely to default during an economic slump.
Basically, bond buybacks are a double-edged sword, which is why Chairman Powell has so far ignored Trump’s calls to restart the program. But while pundits on both sides of aisle argue about the pros and cons of Quantitative Easing, most everyone is in agreement that the ethereal wailing of a tormented soul echoing through an unnaturally cold summer night is much more terrifying than any market bubble, and that the worldly concerns of the living pale in comparison to the eternal anguish of a once-beautiful maiden whose incomprehensible pain has trapped her in a tortured state of superposition, both living and dead.
Trump’s beef with Xi Jinping is more straightforward. The Chairman of the Chinese Communist Party has retaliated tit-for-tat to every one of Trump’s tariffs, predictably escalating the trade war between the two superpowers. This exchange of economic blows has unsettled the global markets, driving sharp increases in volatility and leaving both investors and analysts unable to accurately predict huge swings in major indices such as the DOW Jones or the Shanghai Composite. Naturally, Trump blames Xi for the ongoing troubles, claiming that there would be no trade war if China hadn’t spent years undermining the United States through currency devaluations and unfair trade. And while it is clear that Trump possesses a fundamental misunderstanding of what a “trade deficit” means, it is less clear as to whether the feminine ghost stalking me realizes that her husband-to-be was murdered by gold bandits in a dusty desert ambush more than two-hundred years ago, or if she believes that I am her lost lover, having at long last returned from my ventures out West.
Economics is far from an exact science, and different economic situations often call for vastly different policy approaches. And while many observers probably find it utterly ridiculous, if not outright insane for the President of the United States to compare his current Chairman of the Federal Reserve to the brutal dictator of a rival and often hostile superpower, I believe the debate ignores more pressing issues that we should be concerned with. Specifically, I am beginning to suspect that the doomed spirit which has latched itself upon my soul is actually a demonic entity masquerading as a heartbroken southern belle as a means to lure my lonesome self into unholy copulation, thus initiating the ritual through which the Prince of Darkness achieves the human form necessary to begin his destruction of all mankind. Which, speaking candidly, is way worse than whatever Jay Powell and Xi Jinping are up to.