I have pointed out several times that Trump is going to regret taking ownership over the U.S. economy.  By taking ownership, I mean that he has been touting the supposed booming economy on his watch.

Every time he takes credit for the booming economy, he further inherits responsibility when things go down.  If he is going to take credit on the way up, then he will take the blame on the way down.

I think Trump’s one hedge is the Federal Reserve.  He has been relentlessly attacking Jerome Powell, the man Trump appointed, for not pushing interest rates low enough.  If stocks crash and an economic recession begins, I expect Trump to blame Powell and the Fed.

The Fed will actually be largely to blame when the economy turns south, but not in the sense that Trump will point out.  The Fed had an easy monetary policy that was unprecedented from 2008 to 2014. It nearly quintupled the adjusted monetary base and held its target rate near zero for about a decade.  This all served to misallocate resources, and the next recession will be a correction of this malinvestment.

The problem isn’t that the Fed has been too tight with its monetary policy, as Trump indicates. The problem is that the Fed was too loose for too long since the financial crisis of 2008.

If we want to go hardcore libertarian, the true root of the problem is that we should not have an entity that has a legal monopoly over the money supply and that can control certain interest rates for hundreds of millions of people.

To make things worse for Trump, he has been continually pushing these tariffs on China. There is no question – or there shouldn’t be – that the tariffs are harmful to Americans consumers. They reduce trade and make things more expensive than they otherwise would have been.

But I don’t think the tariffs will actually cause a recession.  They will cause our living standards to be slightly lower than they would have been, but the tariffs are not going to turn a boom to bust.  That is the artificial business cycle, which is primarily driven by Fed policy.

The problem for Trump is that the next recession will likely coincide with his tariffs.  It will be easy for the media to blame Trump for the recession.  And Trump will not have a good response because he has been touting the economy under his presidency.  He was warning about bubbles during his presidential campaign, but all that talk stopped as soon as he became president.  Now we have a bigger bubble than 3 years ago when he was saying it was a bubble.

Republicans Will Look Foolish

While my comments in the past have focused on Trump, I have somewhat overlooked the impact this will have on Republicans who have been promoting the Trump economy.  They are going to be embarrassed greatly, assuming the recession hits by the end of 2020.

Given the current inversion of the yield curve, I don’t think we are going to avoid a recession until 2021.  But if this does happen, then the only way Trump avoids major blame is if he loses the presidency and is already out of office.

I don’t care about Trump and all of the Republicans who are going to look completely foolish when this economy implodes.  They actually deserve to be ridiculed for the ridiculous remarks they are making now.  The one thing I fear is that some people will see the next recession as a failure of the free market.

Of course, Trump is not an advocate of the free market.  He isn’t a socialist either, but he should not be the face of free market capitalism.  He has done a few decent things such as reducing federal regulations and cutting some taxes, particularly the corporate income tax.  But other than that, Trump has been a disaster.  The annual deficit is near $1 trillion in his “booming” economy.  Spending is out of control, while he imposes tariffs that American consumers pay for.  And when it comes to the Fed, Trump just pushes looser money and lower interest rates.

This is why it is important for libertarians to speak out loud and clear that Trump is not a free market guy.  The supposed booming economy is propped up by the Fed’s previous easy money and its willingness to go even easier in the future.

I saw a segment on the Fox News morning show recently, and they had on Stuart Varney as a guest. He was boasting about the great Trump economy while the Dow futures were massively down.  At the end, he touted gold and Bitcoin, and he even touted the fact that interest rates are low and that people will be able to refinance.  It was one giant contradiction in an attempt to make Trump look good.

Varney is supposed to be a financial guy, yet he is contradicting himself from sentence to sentence.  He apparently doesn’t understand that the low long-term interest rates are not a good sign of things to come, especially when some of these longer-term rates are lower than short-term rates.

He also apparently doesn’t understand that we live in a world with YouTube.  There are going to be montages of these Republican talking heads a couple of years from now saying how wonderful the Trump economy is.

While they will deserve to look like fools, we cannot allow the left to cease the moment. Libertarians must be relentless in pointing out that big government and the Fed has caused the economic problems that we face.  People will be looking for answers, and we need to provide them.