Yes, it’s true the Federal Reserve Bank of the United States was politicized, along with every other government institution during the Obama administration. Yes, it’s true Janet Yellen kept rates at zero for Obama, to enable him to run up debt and suffer no accountability. Yes, it’s true Jerome Powell drove up rates as fast as he could in order to stop the Trump economic force of nature from getting too hot and ensuring his re-election.
However, that being said, strong monetary and fiscal policy are key to the restoration of the republic as the Founders intended it. This cannot be denied.
We have a huge bill to pay for our financial irresponsibility and disastrous monetary policy. The balance sheet of the Federal Reserve remains in the trillions. Interest rates are still well below historical norms. If we just return to the historical average rates of the U.S. 10 year bond, which is around 5%, we will add hundreds of billions of dollars in debt service cost annually to the Federal budget, something we cannot afford.
We have one chance left to fix this, as at some point the bond market will figure out we don’t have the ability, nor the will, to pay it all back.
President Trump knows this. It is not his fault we are in the position we are in. It is the Bush’s, Clinton’s, and mostly Obama’s fault, who ran up more debt than all other presidents combined. It is the fault of the Federal Reserve who exploded its balance sheet and ran QE till the cows came home to help a Democrat administration. (In Venezuela and other banana republics we call this practice printing money).
I understand the Trump strategy — to grow our way out of this hole. His whole policy is to juice the economy as much as possible, create more economic transactions, and therefore create more tax revenue. I’ve written before I hope the second term, post re-election, will allow for paying down the debt.
We have to make sure our currency remains a store of value. If demand for the USD as a trade and reserve falls dramatically, it could seriously impact our economic future.
Like I said, I understand Trump’s push to keep rates low to allow the economy to grow and solve many of our problems; however, at some point, we have to get back to rational monetary policy.