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Can Trump Stay the Course?
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Steve Forbes once joked that if you ever find yourself in a middle seat on a plane and want to create some elbow room, try starting a conversation about U.S. monetary policy. It is a subject whose power to bore the pants off fellow passengers may diminish in coming years.

Of dozens of potentially explosive problems the new Washington administration faces, not the least is monetary policy. A key dilemma is how to keep interest rates low while pursuing a tough trade policy. As we will see, the two objectives seem mutually incompatible.

Of course, all this presupposes that Trump will get a chance to reshape the economy in the first place. That is far from certain. He runs the gauntlet of open hostility not only from almost every rival centre of power in Washington, but from many of his own nominal allies and supporters in the Republican Party.

Thus although the Republicans enjoy majorities in both House and Senate, this will count for little in pursuing his more controversial policies. Indeed, as the author and policy analyst Pat Choate points out, Trump has little sense of how treacherous the Washington waters truly are.

One big concern is a possible impeachment. “Any issue will do for his opponents, so long as it can be sold to a solid majority of the populace,” Choate says. “Most Republicans in Washington would prefer Pence. Thus, there will not be a hard defence of Trump by the party.”
Choate, who ran for Vice President on Ross Perot’s ticket in 1996, adds: “Obama had solid control of the government when he took office in 2009. But within two years, he had lost the House and had only a thin majority in the Senate. He lost both in the 2012 elections. The Republicans know the same can happen to them with Trump at the helm. So they would be willing to allow Democrats to take the point of spear in the battle and then, if the public is willing, they would ‘reluctantly’ replace Trump with Pence. Trump has no idea what hardball politics is like at this level, but will soon learn.”

In common with many observers, Choate believes Trump’s greatest vulnerability is the so-called emoluments provision of the U.S. Constitution. This prohibits Presidents from taking anything whatever from foreign sources. The Brookings Institute did a study in December and provided what is considered a definitive case that Trump’s overseas businesses have put him on the wrong side of the Constitution from Day One.

What we know for sure is that bookmakers are already horning in on the emerging crisis. The Irish gambling chain Paddy Power, for instance, is offering odds of six to one against an impeachment in Trump’s first six months.


Even if Trump manages to duck the impeachment bullet, he seems extraordinarily tightly boxed in on economic policy. A fundamental concern is a Gordian Knot involving major exporting nations. For more than forty years it had been precisely these nations that Washington has relied on to buy vast tranches of U.S. Treasury bonds. Their purchases have not only financed both the fiscal and trade deficits but maintained both interest rates and the dollar’s foreign exchange value on an even keel.

Japan and China now rank broadly equal as the world’s largest foreign holders, and Germany is not far behind. Trump’s problem is that to deliver on his promise to rein in America’s huge trade deficits, he must prevail on these nations massively to increase their purchases of America’s manufactured exports. By a variety of stratagems they have successfully resisted doing so for decades. If Trump now tries to paint them into a corner, he will discover they don’t lack for ways to fight back. By selling just a fraction of its Treasury bond holdings, any one of these nations can cause a painful blip in U.S. interest rates. The knock-on effect on American stock markets could be disproportionate (it doesn’t help the Trump White House that U.S. price/earnings ratios are at an all-time high). The American tendency to think short term and a collective inability to bear pain should clinch the matter. Suddenly both the Wall Street and Washington establishments would be on Trump’s case like never before.

Although a cheap dollar would in the long run pay dividends by helping restore U.S. industrial competitiveness (and this seems understood not only by Trump himself but by some of his key people), the most visible immediate effect would be to raise U.S. consumer prices. Thus any dollar setback could greatly exacerbate a sudden sense of malaise caused by falling stocks.

For now let’s note a few numbers. The Standard & Poor’s 500 index (the benchmark for all serious discussions of American stock market trends) closed at 2,294.69 on Friday (January 27). That was a sliver below an all-time high reached the previous day and means U.S. stocks now stand more than 60 percent higher than their already seemingly overvalued level of late 2013.

As for the dollar, it reached more than 96 Euro cents in the last week of 2016. That was its highest showing since before the invasion of Iraq in 2003. Although it has dropped back a little since, it seems remarkably overvalued given that the U.S. current account deficit at last count totalled $469 billion (and Germany’s current account surplus hit $301 billion).

That said, both U.S. stocks and the U.S. dollar could well continue to edge higher in the short term. It is the longer term that matters. Assuming the Trump administration possesses the intestinal fortitude to stand by its vitally needed tough stance on trade in the years ahead, we should brace ourselves for a big setback in stock prices, a much lower dollar and a big hike in interest rates.

Eamonn Fingleton is the proud owner of a saluki named Cassandra.

• Category: Economics • Tags: Donald Trump, Free Trade 
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  1. Sean says:

    Japan would not do anything to loosen its extremely cost effective alliance with the US, especially as China will be dealt with by pushing it into a technological arms race, with the resulting military build up by China placing its economy under unbearable pressure and terrifying all its neighbors.

    What we know for sure is that bookmakers are already horning in on the emerging crisis. The Irish gambling chain Paddy Power, for instance, is offering odds of six to one against an impeachment in Trump’s first six months.

    Before the election British bookmakers actually paid out to those who had bet on Hillary Clinton winning the Presidency. They were that confident Trump would lose and they were that wrong. The courts will be chary of the president set by ruling on the merits of a president, which is what any successful impeachment would be seen as and indeed amount to. But the media/business/government establishment nexus are totally against him and he needs to do something outre for Israel to stand a chance of achieving much beyond survival.

    • Replies: @Anonymous Nephew
  2. Dan Hayes says:

    Brookings may not be that objective in its emoluments evaluation since it has a leftish pedigree, although not outlandishly so. But I suppose that emoluments are just one of the many things that the media will trot out in its efforts to overthrow the Trump presidency.

    Trump certainly has problems in his own party. To me the most egregious one being Paul Ryan, a long time devotee/disciple of Ayn Rand. It seems that Ryan just can’t resist the temptation of monkeying around with the Sacred Cow of American politics, Social Security. We all know it’s a Ponzi Scheme but tinkering with it is pure political suicide. But Ryan and his Republican stalwarts can’t resist, like moths to the blazing fire.

    The only two people in Trump’s coterie I look up to are Steve Bannon and Stephen Miller. Their losing power or being ditched would signal the end of the Trump presidency. Pence has no political backbone, witness his abject surrender to Big Business political correctness in his Indiana governorship. I agree with you that most of the Republican establishment salivates with the thought of replacing Trump with Pence.

    Now that you’re ensconced back in Ireland I would have thought you would be the proud owner of an Irish Wolfhound.

  3. While this is a good, interesting article, I should remind the readers and the author that there were reports that Irish bookmakers, that company in particular, I believe, had decided some days before the election to quit taking bets on Clinton and pay them off. They must have been embarrassed by the result.

  4. @Sean

    It was actually Paddy Power who paid out on Hillary !!/paddy-power-took-a-5m-bath-for-paying-out-early-on-hillary-clinton-win-20170123

    “In a publicity stunt, the company paid out early on a Hillary Clinton election win in mid-October only to have to pay out to Trump betters three weeks later.”

    I see the united news media, which cares not a whit for thousands of dead and maimed Yemenis who are actually in Yemen, are appalled that even one Iranian lady scientist should be held up at JFK. Trump is certainly going to have his work cut out.

    I agree that Japan is probably not going to declare economic war on the US. But what of Mrs Merkel’s Germany? I rather hope that she’ll also have more sense, in that such a move would be unwise without first establishing a pact with Russia, and the historical precedents aren’t good. But Trump has many, many more domestic enemies than FDR did. The US didn’t have much of a fifth column in 1940, and what fifth column there was kept its head down and worked in secret. Not so today.

    • Replies: @Sean
  5. Sean says:
    @Anonymous Nephew

    Reagan showed the way with star wars. Germany will ally with China and supply them with technology /capital goods, which is already happening. The counter to this economic war for the rape of the West by China is to exert unbearable stress on the Chinese economy via military-industrial pressure. The US could start a massive military build up in the advanced military technology it reigns supreme in, and China will be forced to try and match it and terrify their neighbours like Japan while overheating China economy in the attempt. Germany hasn’t got that kind of tech, so their help will be useless to China. It’s going to be risky, but Trump cannot play safe and attain his objectives.

    • Replies: @attonn
    , @5371
  6. MarkinLA says:

    The FED saved a lot of European banks in 2008 and from what I have read there are still some left who have one foot in the grave. High interest rates probably bring everybody down once the assets underlying those loans collapse. I thought Deutsche Bank was already technically insolvent.

    Everybody is screwed. That is the only reason interest rates are at lows not seen since the Great Depression. I don’t see anybody doing anything to rock the boat. Manufacturing jobs may not be coming back (as in foreign factories closing and production moving back home) but don’t expect US companies to open many more factories in the third world.

  7. attonn says:

    Reagan’s Star Wars was a hoax that would only work with senile Soviets. It basically consisted of a sci-fi propaganda (mostly cartoons and outlandish predictions) and not much else.
    Chinese won’t fall for it.
    America’s vaunted “advanced military technology” doesn’t scare anyone anymore. Newest Russian gizmos are not worse, and, in fact, are often better on a cost/benefit basis.

  8. 5371 says:

    You are always good for missives from a parallel universe, although I was disappointed to find that some of your most bizarre flights of fancy are simply pilfered lock, stock and barrel from Adam Curtis “documentaries”.

    • Replies: @Sean
    , @Anonymous
  9. Trump has already done all I needed of him in exchange for my vote: destroy the Bush dynasty and the Clinton crime family, i.e., both party establishments. And he has kick-started a movement of my people that won’t end with him. Anything else he gets done is just gravy. Hell, if I were him, I’d resign and head back to my home and enjoy the last 10-20 years of my life in tranquil repose.

  10. Sean says:

    Good to know you’re following my links, even if not my line of reasoning. But if you met me, one thought would flash through your mind: can I take him? Nations are like that too.


    Anyone who wants to know what prominent political circles in Germany are thinking should read the newspaper columns by ex-Green Party leader Joschka Fischer. The former anarchist and street fighter, who made a political career with the Greens, and then as foreign minister oversaw the first Bundeswehr (armed forces) missions abroad, never distinguished himself with an independent opinion. He provides, however, a sensitive measure of political trends. He sets his course according to the prevailing wind, before others even perceive this.
    On Monday, in the Süddeutsche Zeitung, he published an “Outsider’s view” headlined, “Europe’s Agenda 2017: Squeezed between Presidents Putin and Trump, the EU cannot remain a ‘soft power.’” He calls the coming to power of Trump on January 20 a “watershed moment” for Europe, which will deeply shake the EU. He sketches out a scenario in which Russian President Vladimir Putin and Trump attempt “to destabilise the EU by supporting nationalist forces and movements within its member states.”

    There are, roughly speaking, four possible patterns, or classes of pattern (V (1) EEC including reunited Germany v the Warsaw powers.

    (2) EEC v Warsaw powers including reunited Germany.

    (3) Reunited Germany v an entente between the EEC (less West Germany) and the Warsaw powers.

    (4) United Europe including reunited Germany v one or more extra-European blocs. There are two variants of this, where ‘ Europe’ (a) does, or (b) does not, include Soviet Russia (from its border with Poland to the Pacific).

    Of these alternatives, no. 2 is not open to serious discussion: quite apart from any reaction on the part of West Germany’s allies, her own vested interest in the retention of the capitalist system, as well as the economic and physical preponderance of West over East Germany, rule it out. The mirror-image no. 1 looks equally intolerable, viewed from the East: a political unit extending from the North Cape to Sicily and from Ireland to East Germany’s eastern frontiers would appear from the East to be a monster, threatening both in itself and in the magnetic attraction it would exercise over the Danubian countries. […]

    A logical contradiction can be lived with, long and sometimes happily, in real life, and that is what Germany is doing with the objectives of a political integration of Western Europe and a reunification of Germany; but it cannot be rationalised, and that is what Helmut Schmidt, as a working politician writing a book, attempted to do and failed. In the end, however, the contradiction has to get itself resolved in real life: one imperative drives out the other. My bet is that German reunification will drive out Western Political unification and the EEC: some day, I don’t know how, or when, I think we are going to get pattern no. 3.

  11. Anonymous • Disclaimer says:

    Sean’s comments can be pretty interesting, although they tend to be fanciful and wrong. And a lot of them do seem to be pilfered as you say from the kind of “analysis” you see in documentaries by hacks like Adam Curtis.

    Before The Unz Review, Sean would breathlessly comment at Steve Sailer’s blog about how Obama would bomb Iran by 2012..

    • Replies: @Sean
  12. Sean says:

    If Obama had toppled Iran i would not have helped Israel very much because Israel West bank Arabs are the problem, and I always said it was Iran’s support for the Palestinians that made Iran a threat to Israel . Obama could have forced Israel to the table for a final settelment, if he had smashed Iran

    As for military pressure on China nemisis had not long to wait;-
    Donald Trump’s closest advisor Steve Bannon thinks there will be war with China in the next few years

    It begins.

    • Replies: @Anonymous
  13. Anonymous • Disclaimer says:

    So you were wrong about your prediction regarding Iran, as you are with most things.

    “War with China” is one of those general predictions that everyone and their mother has been making. It’s not some unique position.

  14. Sean says:

    I said economic destablisation of China through military pressure, and talking about war is military pressure not war . The United States is the most powerful economy in the world and if it amps up the tension and starts an arms race China will no more be able to cope than the Soviet Union could. China is developing too fast for it to work a generation hence, and this is the right time.

    Israel has been using the excuse of insecurity in the face of an possible Iranian nuke missile for not continuing to meaningfully put land on the table for peace as Ehud Barak tried to do. Iran wasn’t smashed by Obama, so he didn’t remove Israel’s threat-of-Iranian-attack excuse for not giving the West Bank back, and he got nowhere with his peace deal . I don’t know why he did not act so as to further his aim of settling the middle east problem. But remember his aim was an equitable solution. Obama would have toppled Iran to make Israel helpless, while Trump would be doing it to make the West Bank Arabs helpless.

    Trump doesn’t see the middle east as a problem with a solution, but as a conflict, and as Conner Cruise O’Brian said, conflict does not have a solutions, it has an outcome. Trumps objectives ar domestic and to achieve them he must make the opposition to him in the US weaker by removing the strongest part of it: Liberal Jews. When push comes to shove the left wing of the Israel Lobby is going to balk at thwarting the US President who’ll allow what no Israeli leader dares contemplate . Trump will make all my predictions come true including the one about Iran

    There might be a need for an actual attack or (less likely) Iran will submit and totally disarm, in either case destroying Iran as a threat to Israel frees Israel for an initiative. Trump needs to save Israel from the fate that Barak and van Creveld predict in order to to nullify the US opposition to his domestic policies.

    • Replies: @MarkinLA
  15. MarkinLA says:

    The United States is the most powerful economy in the world and if it amps up the tension and starts an arms race China will no more be able to cope than the Soviet Union could.

    Kind of stupid for the Chinese to enter an arms race with the US unless the US intends to attack them. Kind of stupid for us to start an arms race unless we intend to attack China.

    Maybe we should just acknowledge the stupidity of attacking China and save both our and China’s money.

    • Replies: @Anonymous
    , @Sean
  16. Anonymous • Disclaimer says:

    Exactly. The “military pressure” and threats are meaningless without the intent to actually wage war. If China refrained from entering the arms race, then the US would have to provoke China or move closer to initiating war in order for military pressure to have any purchase.

    It seems less like the US is trying to start an arms race with China, and more like the US may try to apply its North Korea strategy on China: threaten China militarily and try to provoke it into some sort of military retaliation which can then be used as an excuse for economic sanctions and isolation.

    • Replies: @Sean
  17. Sean says:

    You must have led a sheltered life. If we leave them alone they will leave us alone–until they are strong enough to not have to leave us alone, and then they will come for us. At which time we will not be strong enough to win.

  18. Sean says:

    The US has the power to cause trouble in China’s backyard. China could do like Russia, which refrained and then it lost the Ukraine. This is with nuclear weapons.What would it have lost next? A nuclear missile defence capability being developed by the US would strike at the heart of China’s credibility, they cannot afford to stay out of any arms race.

    • Replies: @Anonymous
  19. Anonymous • Disclaimer says:

    The US has been doing that since the PRC’s inception:

    Why would China have to keep up with the arms race? China has always been behind the US militarily and technologically. The PRC’s credibility isn’t based on military or technological superiority. Unlike the Soviet Union, which was. China intervened in the Korean War against the US when it was much more backward and had basically no industrial capacity, and the military and technological gap between the US and PRC was enormous. That gulf had no impact on China’s credibility then, and the gap today won’t either. Military pressure will have to be backed by the intent to wage war.

  20. Sean says:

    Strategic foolishness such as you suggest would make China helpless to stop Taiwan declaring independence by threatening war and a nuclear strike on America, as they did not so long ago, and they would probably lose North Korea and Tibet, like Russia lost Georgia and Ukraine.

    • Replies: @Anonymous
  21. Anonymous • Disclaimer says:

    No it wouldn’t, just as it wasn’t helpless during the Korean War when China was even weaker.

    • Replies: @Sean
  22. Sean says:

    But no one in the US believed that the Chinese meant business, until they sent all the elite divisions of the Chinese army into Korea , just as no one believe Putin would annex part of Ukraine until it happened. Experience has taught China that its threats must have credibility, and for that there has to be a powerful military.

    • Agree: Dan Hayes
    • Replies: @Anonymous
  23. Anonymous • Disclaimer says:

    It has a powerful military now. It’s just not as powerful as America’s. It doesn’t need to be as powerful as America’s and compete with America in an arms race.

    • Replies: @Sean
    , @Ivy
  24. Sean says:

    It has a powerful military now. It’s just not as powerful as America’s

    Yes they don’t need more than they have, which not going to overheat their economy and stop it growing. China does not want an an arms race now, because it cannot win an arms race now, but if the Chinese economy is left alone to expand it certainly will be able to achieve military supremacy in a generation or two, and then they will start encroaching on us in every way. So we must not waste the opportunity we currently have by leaving China alone.

    • Replies: @Anonymous
  25. Anonymous • Disclaimer says:

    The arms race isn’t sufficient since China has no reason to enter one. Its credibility isn’t based on being a militarily and technologically dominant. An arms race initiated by the US would have to be backed up with provocations and intentions to initiate war with China.

    • Replies: @Sean
  26. Sean says:

    The US will act through surrogates, and claim to be concerned about the Tibetans or Taiwan’s right to a unilateral declaration of independence.

  27. Ivy says:

    China has historically taken the long view and has kept its own counsel. Short-term thinking in Washington and elsewhere fails to grasp that element of Chinese culture. 1.4 billion+ Chinese represent a long-term challenge and opportunity. Who has patience in Washington these days?

  28. Hans Olo says:

    “To get back into the game Trump needs to win broad support for a muscular industrial policy, in which government would lead the nation in reaching agreed industrial objectives.”

    One way to get the Republican party on board with this: Frame it as a national defense thing. Say the US must be self sufficient in all technologies the US military uses, and that govt must step in to remedy any deficiencies in that regard.

    In the meantime , aggressively block any technology transfers relevant to defense.

  29. Sam J. says:

    Some of the ideas here are crazy. Arms race with China??? Our defense industry has so much rot we can’t make a decent jet fighter for a reasonable price. Even if we could the Chinese get the plans from I assume the Jews as they steal all our other tech data and sell it to China.

    Star Wars?? I admit I’m for this kind of spending but I’m also rational enough to see that we’ve gotten very little for the vast amounts of money we spent. Israel has an anti-missile defense, the US, not so much and of course Israel will sell it to the Chinese.

    Besides where are we going to get the money to build all this stuff? As long as the FED, not owned by the US but by Jews, then we have no control over our interest rates, quantity of money or much of anything monetarily wise.

    The Jews own the US and are driving into the ground with glee. They don’t give a damn about us. My only consolation is they will be screwed by the Chinese in the end but that won’t help me much in a apocalyptic race mixed third world US permanently about to have a Super-Balkan race war.

    And who says the Japanese will stick with us? They’ve screwed us on trade for decades. If we change trade relations then they could just ally with China. China might be willing to do so to not have them on our side. Even if they are on our side just exactly how will the Japanese help us?

    It seems to me we must get control of our money supply as the Japanese and Chinese have done. They don’t allow Jews to scrape off of the National budget for every penny of money created. When they make money it’s theirs. In the same way debt is not the near the problem for them as they own the banking system and the money supply. We take over the FED and then start channeling money into industry instead of take overs and financial engineering. Without doing this the rest is pointless. The Jews who run things want us to to fail.

    “…Even if Trump manages to duck the impeachment bullet…”

    The only way to do this is break open 9-11 and the the various scandals around Congress having sex with children. Trump and most everyone doesn’t want to do this because it would show what a rotten piece of shit our leaders are and it would undermine faith in the country but I say it needs done. Where we are now all the Chinese and Japanese need to do to roll Trump is pay off the Congress. We’re in a terrible fix.

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