President Trump talking bollocks

24 Jun, 2019 at 18:26 | Posted in Politics & Society | 16 Comments

buff President Trump believes we live in a zero-sum world in which one country’s gain is another’s loss. This is evident in his reaction to Mario Draghi’s comment this week that additional monetary stimulus will be needed if euro zone inflation doesn’t rise. Trump tweeted:

“Mario Draghi just announced more stimulus could come, which immediately dropped the Euro against the Dollar, making it unfairly easier for them to compete against the USA. They have been getting away with this for years, along with China and others.”

Adding that this is “very unfair to the United States!”

This, of course, is bollocks. The US would actually gain from monetary stimulus to the extent that it strengthens the euro zone economy, thus allowing US firms to sell more to it: exports are more sensitive to demand than they are to exchange rates. What’s more, insofar as expectations of low interest rates cause investors to reach for yield and buy shares they are likely to also buy some US equities thereby giving Americans the benefits of a positive wealth effect and lower cost of capital. Sure enough, the S&P did indeed rise after Draghi’s speech. Trump tweeted that the index hit an all-time high this week, but failed to connect this fact and Draghi’s words.

Yes, Draghi deserves criticism. But it is for not responding soon enough to the weak economy and low inflation rather than for belatedly talking of doing so.

This is not the only example of Trump’s zero-sum “thinking”. He also recently tweeted that:

“The United States has been losing, for many years, 600 to 800 Billion Dollars a year on Trade. With China we lose 500 Billion Dollars.”

You don’t need me to tell you that this is also bollocks. It is like me complaining that I lose money by my trading with Lidl. I don’t, of course. I merely exchange goods for money – which is exactly what US citizens with China are doing. Free exchange benefits both buyer and seller. It’s positive sum. In believing otherwise, Trump is expressing the pre-Smithian mercantilist idea, that wealth consists in piling up money by running a trade surplus, rather than in the expansion of consumption opportunities and increased productivity that comes from trade.

Chris Dillow / Stumbling & Mumbling

Confirms — again — what we already knew: Trump is a reckless, untruthful, outrageous, incompetent and undignified buffoon!

16 Comments

  1. Dillow concludes:
    .
    “Another thing: this is not to say that there are no zero-sum processes in economics. It’s quite possible that the increased wealth, power and incomes of the ultra-rich have come at the expense of everybody else.”
    .
    Dillow should read this twitter thread on how financiers can make money by using a series of derivatives, each of which may be zero-sum but which in combination allow both sides of a bet to profit: https://threadreaderapp.com/thread/1142997842803351552.html
    .
    “As an experiment once, we set up a diverse portfolio of rate option trades with the gamma trader (me) getting the long and the Vega desk, which managed long dated options, taking the short leg. Over a six month period, both desks made money on their side of the options portfolio.”
    .
    The only distributional effect here is due to economists’ lack of knowledge on how to hedge perfectly.

  2. Both sides of a bet setup the rules such that everyone scratches everyone else’s back in the food chain (banks, brokers, ratings agencies, lawyers, accountants, etc.) except those on the real end of reality where the food hits the mouths:

    Sadly, though, today’s (monetary) reflation pursued by central banks in the core capitalist countries, especially in the U.S., is considerably different to what Fisher had in mind. Implicit in Fisher’s idea of countering debt deflation through monetary reflation was that asset prices would move in tandem with the prices of goods and services. In other words, he did not foresee a scenario, similar to that prevalent in today’s U.S. economy, where monetary injections would lead (through the influence of powerful financial interests) largely to the financial sector and, therefore, to asset-price reflation without significantly affecting the real sector, or the prices of goods and services.
    .
    Contrary to impressions that Bernanke’s generous supply of cheap money is a liberal stimulus measure, the primary purpose of his easy monetary policy has, in fact, been to reflate asset prices, to make toxic assets whole and to patch up the bubble that was burst in 2008 by creating another asset-price bubble. Through a combination of massive bailout of the “too-big-to-fail” financial institutions and colossal infusion of near-free money into the parasitic financial sector, Mr. Bernanke and his collaborators in the government and Wall Street seem to have, indeed, succeeded in achieving this goal, as evinced by the soaring asset prices of recent years. According to World Bank’s biannual Global Economic Prospects report (January 2013), while real economic growth has stalled or turned negative in much of the world since the bank released its previous report in June 2012, stock prices have soared. Over the past six months, stock markets in the more-developed economies of North America, Europe and Japan have risen by 10.7 percent and in the so-called “developing countries” by 12.6 percent. The MSCI (Morgan Stanley Capital International) All-Country World Index has jumped by 17 percent since the end of 2011.
    .
    As discussed earlier in this chapter, in the aftermath of the collapse of the real estate bubble, giant financial speculators stampeded out of that sector and flocked to the commodities market, especially food and energy markets. Financial moguls such as Goldman Sachs, Morgan Stanley and Barclays are heavily involved in relentlessly betting on the price of food through complex derivative procedures that have gravely contributed to the escalating price of foodstuff in recent years. “Goldman Sachs made up to an estimated £251 million (US$400 million) in 2012 from speculating on food including wheat, maize and soy, prompting campaigners to accuse the bank of contributing to a growing global food crisis” (Ross 2013). There is overwhelming evidence that the derivatives bubble in the food market has been a major contributing factor in the rise of the price of foodstuff:
    .
    Rampant speculation on food prices by the big banks has dramatically increased the global price of food and has caused the suffering of hundreds of millions of poor families around the planet to become much worse. At this point, global food prices are more than twice as high as they were back in 2003. Approximately 2 billion people on the planet spend at least half of their incomes on food, and close to a billion people regularly do not have enough food to eat…. Goldman Sachs and other big banks are treating the global food supply as if it was some kind of a casino game. (Snyder 2013)
    .
    Pointing out how the Fed and/or government policies have helped reflate asset prices and create new bubbles in the stock market, commodities market, bond market and derivatives market, financial commentators at Washington’s Blog argue, “If you really think about it, the largest bubble in history is fraud, because it includes all of the above [bubbles]. . . . Specifically, the housing crisis was caused by fraud. The government encouraged fraud, and helped cover it up.” Likewise, “Huge swaths of the derivatives market are manipulated by fraud. .. . But instead of cracking down on the fraud, the government is backing it. And the bubble in bonds was caused by super-low interest rates,” in turn, “caused by the government’s zero interest rate policy and quantitative easing.” And the fraud bubble continues to expand: the people are told that the zero interest policy, the policy of giving virtually free money to Wall Street banksters, is necessary to stimulate the economy and create jobs. In essence, however, “zero interest rate policy is just another stealth bailout for the big banks. And quantitative easing only helps the super-elite … and hurts the economy and the little guy.” This means that “the government’s low interest rate policies were based upon a fundamental misrepresentation as to their purpose and probable effect” (2013).

    .

    Snyder, M. (2013). The derivative bubble: Speculating on food prices, banking on famine. Global Research, January 24. Retrieved from http://www.globalresearch.ca/the-derivativebubble-speculating-on-food-prices-banking-on-famine/5320379 (accessed February 17, 2013).

    • Cited from Hossein-zadeh, Ismael (2014) Beyond mainstream explanations of the financial crisis : parasitic finance capital.

    • “asset-price reflation without significantly affecting the real sector, or the prices of goods and services.”
      .
      Yes, we should disconnect real provisioning from financial markets. Another way of looking at it is exporting inflation to financial markets.
      .
      “Bernanke’s generous supply of cheap money is a liberal stimulus measure”
      .
      We control the Fed through Congress and the Federal Reserve Act. We can direct the Fed to use its vertical supply curve for reserves to fund basic income, for example. That is the key lesson to take from Bernanke’s actions: the Fed has unlimited liquidity, and the dollar gets stronger the more dollars there are.
      .
      “the rise of the price of foodstuff”
      .
      Raise incomes faster, using the Fed’s vertical supply curve for dollars.
      .
      “the housing crisis was caused by fraud”
      .
      “quantitative easing only helps the super-elite … and hurts the economy and the little guy.”
      .
      You can call it fraud, but a lot of little guys got access to big houses that they otherwise would never have had. Defaults (due to fraudulent income statements or whatever) were insured. But panic took hold, and the fear was ATMs would be shut off. The Fed supplied liquidity without capacity limits, and ATMs kept working and housing prices are back up and macroeconomic measures are enough to re-elect Trump …

      • I see zilch prospect in the US for the Fed fulfilling the role you aspire it to have short of a major political revolution and Trump is only more of the same old business as usual. Politics and power (bankers, etc.) will not let go of power easily. Most of the those “little guys (and gals)” are no longer living in their “big houses” they otherwise would not have had. Legitimizing fraud is part of the problem I think.

        • I see a better chance of changing the Fed’s mandate than of regulating or taxing banks in any way that they won’t be able to get out of. Trump knows the constraints assumed by economists on budgets is false; he is proof that solvency doesn’t matter. We just need to convince ourselves of what Trump already knows: we can print money faster than prices rise, but distribute it equally so everyone’s purchasing power increases not just an arbitrarily-chosen few …
          .
          If you try to regulate derivatives banks will use anger against other government regulations to win elections that will repeal the banking regulations while keeping most of the other regulations on little guys intact. Banks have a great track record of getting away with fraud, money-laundering, etc. while little guys get thrown in jail for petty crimes.
          .
          I see zilch chance in the US for regulating banks or containing derivatives. Instead, we should tell bankers we will deregulate and untax them but in return they admit openly what they know: we can use the Fed’s vertical supply curve for reserves to fund programs like basic income that will help little guys.

          • Time will tell. I think that as a culture and civilization we are at a cross-road, and if we don’t break up the “to big to fail/to big to jail” and reign in corporate abuses of predatory finance then the worst is yet to come. As I understand Lars (in my limited understanding) he is arguing that the state (central bank) can use its unlimited money-creation (if that is the right word) to support social public good policies, such as investing in infrastucture and jobs when economic downturns happen. I don’t think he is arguring to just “tell bankers we will deregulate and untax them” and personally I think that is a terrible idea and send the wrong message. I can see some good the former, but none in the latter idea that we should just turn the banks loose.

            • I read trader comments on twitter; as Fischer Black said in “Noise”, “maybe traders just like to trade”. If you try to take that away through transaction taxes or other regulations you will create a backlash that will get more Reagans and Trumps elected. You will perpetuate endless cycles. The way out of the endless cycles, as I see it, is to give up the desire to control trader behavior and instead use the power of the Fed, which is under a public interest mandate, to supply the rest of us with money whatever traders and bankers do.

  3. And to think I just read a “heterdox” economists arguing the FED and its QE is good and necessary part of predatory finance. Such a sink-hole of imagination.

    • The important lesson from Quantitative Easing is that the Fed has unlimited liquidity. We should use that unlimited liquidity to fund a world-wide, inflation-protected, basic income. Then bankers can play and it won’t affect real purchasing power.

      • We see different meanings in the same set of events. I agree, we should engage in deficiet spending when needed (per Lars analysis), and I don’t know enough about your idea of basic income to feel confident in my own evaluation of its merit, and I still (and most likely never will see eye to eye on this one 😉 don’t think pretending what predatory finance does is “play” (I see this is a twisted amoral view of reality) and hardly think we can pretend what they do doesn’t impact real people’s lives when historical case after case shows it does.

        • Financial play affects real lives because, I think, economists perpetuate a zero-sum mindset where either traders control money or government does. I’m saying money is fundamentally not zero-sum and we can use money creation to help individuals without taking money away from financiers.
          .
          If we try to take money from financiers, they will elect Trumps and Johnsons who will take it back with interest!

  4. In my opinion the article is bollocks. Why? Because as Keynes worried about current account imbalances at Bretton Woods, history has proved him right. Chna, Germany,Japan, the petroleum producers has run very big surpluses and placed it in dollar denominated bonds keeping the US dollar high and their own currencys low. So they export savings to the US, a country that has ho shortage of capital and the result is the movement of industry to Chiana. Germany is the major contributor to the EMU countries current account surpluse.

    It’s all the same story, basching Trump, now from a neoliberal, monetarist perspective. I’m not foond of or beleive in Trump (who is mainly neoliberal) but he has a very good point in attacking the current accoubnt imbalancres and probably as well in the geostrategic policy generally including the middle east and China.

    Has the “left” in the US gone the neoliberal way? It seem so. As in Europé!

  5. http://henryckliu.com/public_html/page3.html worth a read

    “Under principles of Chartalism, foreign capital serves no useful domestic purpose outside of an imperialistic agenda. Dollar hegemony essentially taxes away the ability of the trading partners of the US to finance their own domestic development in their own currencies, and forces them to seek foreign loans and investment denominated in dollars, which the US, and only the US, can print at will with relative immunity. The Mundell-Fleming thesis, for which Robert Mundell won the 1999 Nobel Prize, states that in international finance, a government has the choice among (1) stable exchange rates, (2) international capital mobility and (3) domestic policy autonomy (full employment, interest rate policies, counter-cyclical fiscal spending, etc). With unregulated global financial markets, a government can have only two of the three options. Through dollar hegemony, the United States is the only country that can defy the Mundell-Fleming thesis. For more than a decade since the end of the Cold War, the US has kept the fiat dollar significantly above its real economic value, attracted capital account surpluses and exercised unilateral policy autonomy within a globalized financial system dictated by dollar hegemony. The reasons for this are complex but the single most important reason is that all major commodities, most notably oil, are denominated in dollars, mostly as an extension of superpower geopolitics. This fact is the anchor for dollar hegemony which makes possible US finance hegemony, which makes possible US exceptionalism and unilateralism.”

    https://longhairedmusings.wordpress.com/2019/01/27/more-mmt-memory-hole-post-in-search-of-st-bill-of-mitchell-and-st-richard-of-murphy-steve-keens-guide-for-the-perplexed-mmt-circuittheory-doublepenetrationgatekeeping-neilwilson-neilwilson/

    • “dollars, which the US, and only the US, can print at will with relative immunity.”
      .
      Eurodollars are outside the Fed’s control. International banks can expand their balance sheets by creating dollar-denominated loans, without being subject to US fractional reserve limits. The Basel Liquidity Coverage Ratios might apply but the big banks can hide loans in subsidiaries too small to be captured by the regulations …

  6. This guy i believe earned a master from Harvard,i think? MBA or something?Det dräller av snillen Lars ! 🙂


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