Trump’s antics are now causing economic chaos
The increasingly erratic US president’s reliance on a booming stock market is inviting financial ruin
From Saudi Arabia’s Mohammed Bin Salman to the Elysée’s vainglorious mini Napoleon, Emmanuel Macron, Russia’s tyrannical Vladimir Putin, and even our own rudderless Government here in the UK, we live in a world led by megalomaniacs, political pygmies, chancers, liars and ignoramuses. But topping the lot in recent weeks with his unhinged antics has been one Donald Trump.
As a US president who seemed to talk some common sense and had a halfway decent tax reform agenda to promote, it was initially possible to give Mr Trump the benefit of the doubt, despite his less than statesmanlike demeanour.
Yes, his style was unconventional and iconoclastic, but wasn’t that what people voted for? And anyway, the upper echelons of the administration were to be filled with more stable, middle-of-the-road conservatives who would ensure that whatever the new president might tweet, wiser counsel would eventually prevail.
Virtually all of those restraining voices have now fallen by the wayside, culminating in the departure of James Mattis as defence secretary just before Christmas. As time has worn on, the administration’s underlying characteristics – chaos, stupidity and recklessness – have become ever more apparent.
Investors are only just beginning to wake up to this grim and unsettling reality. Stock markets have admittedly recovered a little since the prechristmas sell-off, but if ever there was a dead cat bounce – market parlance for a less than convincing rally – this looks like one of them.
The final straw was a reportedly classic Trump temper tantrum in which he apparently threatened to fire his own appointee as chairman of the Federal Reserve, Jay Powell, for daring to raise interest rates.
As someone who ill-advisedly asks to be judged by the performance of the stock market, Mr Trump should be aware that few things are more likely to send investors into a blind panic than the US president challenging the independence of the world’s most powerful central bank.
When the treasury secretary, Steven Mnuchin, then attempted a phoneround of Wall Street’s major banks to assure them that everything remained fine with the economy, it only poured petrol on the flames, eliciting the reaction: “We didn’t actually think there was anything wrong with the economy, so why are you phoning? What do you know that we don’t?”
Mnuchin, too, is now rumoured to be for the chop, like one of the hopefuls on Trump’s Apprentice, reality TV terrifyingly transported to the Oval Office. If this is how the Trump administration attempts to manage the stock market, what does it say about its management of the wider economy?
As it happens, this doesn’t for the time being look so bad. Growth is slowing, but it is not yet obviously about to fall off a cliff. Unfortunately for Mr Trump, he promised more – sustained above-trend growth and a booming stock market. Both now seem to be in jeopardy, thanks in part to the president’s propensity to shoot himself in the foot.
Yet there is plainly more to it than that. Stock markets never proceed in a straight line upwards, which is why it is foolish for Mr Trump to pin his fortunes on them. Nevertheless, with one or two hiccups along the way, they have been going up pretty much uninterrupted ever since the nadir of the financial crisis nearly 10 years ago, making this the longest US bull market in history.
A major reason for this is ultra-easy monetary policy, including central bank money printing on a scale never before practised. This has put a rocket under asset prices, such that it now seems to be virtually impossible for the Fed to tighten policy without prompting some kind of market sell-off.
That the Fed should want to return policy to a more normal setting is entirely understandable in an economy as buoyant as that of the US. The curiosity is that Mr Trump should regard keeping the stock market puffed up as the be-all and end-all of his political legitimacy.
The Fed has already given investors the ride of their lives. They have got used to the easy gains, and in crazed greed, now scream blue murder when these look threatened. In the grand scheme of things, it is neither here nor there if markets now correct somewhat.
Buoyant stock markets may or may not help Mr Trump get re-elected, but in themselves are unlikely to do much to enhance the real economy. It is not the Fed’s job to sustain a permanent bubble in asset prices. To do so is only to invite an economically destructive endgame.
I don’t want to exaggerate the parallels, because we are not yet visibly heading towards the abyss, but if he is not careful, Mr Trump will end up remembered like Calvin Coolidge, US president in the run-up to the Great Crash of 1929, not for his successes in promoting low taxes and small government, but for his active encouragement of wild speculation culminating in economic ruin.