It’s been quite a week. The big news is:
The Fed has cut its target rate by 25 basis points.
Oh yeah, and Trump has won the presidency.
Which matters more to the economy?
The president tends to get too much blame or too much credit for the economy. There is a certain irony that the massive spending and monetary inflation that happened in 2020 under Trump led to the higher price inflation during the Biden administration, which was a factor in Harris losing to Trump.
The president can have an impact on the economy with radical changes one way or the other. The unconstitutional and immoral vaccine mandates in 2021 caused economic damage along with other damages. In terms of spending though, it seems that federal spending is almost always increasing, so it is hard to just blame the president when Congress controls the purse strings and the people elect them.
To be sure, the president can have a positive economic impact by trying to drastically cut spending and repealing regulations. There is little reason for optimism when hearing about a Department of Government Efficiency headed by Elon Musk. We actually don’t want efficiency from government. We just want less of it.
Still, the fact that it is even being discussed is a positive sign. Maybe nothing much will happen in the next four years, but at least it is a topic of conversation now. That is a start. For lasting positive change, we need public opinion on our side.
Recession Fears
Even though I was cheering for Trump against the puppet and her evil puppet masters, I do see a major downside to a Trump presidency.
The yield curve was inverted for 2023 and most of 2024. It is now close to flat. It means that a recession is on the horizon. I thought a year ago that it would have started by now. One can only hope that it will start in the next two months under Biden, but that is unlikely at this point.
So, when the recession hits, the establishment media will blame Trump. Of course, they already call him a Nazi, so I guess being a bad economic manager doesn’t sound so bad in comparison.
Unfortunately, Trump is not that great on economics. He thinks higher tariffs will bring us more prosperity. They will only bring us higher prices and higher tensions.
If we are going through a recession, that would be a good time to make massive cuts in government spending. You could call it anti-Keynesianism. It is a painful time anyway, so that might be a good time to make painful cuts.
If it is handled right, we might actually see some genuine prosperity by 2028. But that is a big “if”. Trump hasn’t always been that great at surrounding himself with good people. We can only hope that libertarian leaning people like Vivek Ramaswamy and Nicole Shanahan will be influential on him.
Powell Says He’ll Stay
Jerome Powell said that he plans to stay on the job even if Trump asks him to resign. Powell assumed the job of Fed chair in February 2018 after Trump’s nomination. Biden actually kept Powell on the job, which kind of gives you a hint about the man and the position.
Powell will likely stay on the job until 2026, and then Trump can nominate someone else. He should nominate Judy Shelton for Fed chair. He previously tried to get her in as a Fed member, but the Senate would not confirm her nomination. Now the Republicans will have a majority in the Senate, and Trump obviously has a lot of influence. Shelton is an advocate for returning to a gold standard.
The economy will probably be a mess no matter what, as we have to deal with all of the previous malinvestment and the massive debt. And everybody except for Trump’s supporters are going to blame him for everything anyway. So, he might as well try to make some lasting and positive change.
The Easy Cuts to Spending
The hardest thing to cut in defying the establishment is war spending and foreign aid. With the American people, it is probably the easiest thing to cut.
Sure, these cuts would impact some people like those who work for weapons manufacturers. But most of this spending does not go directly to the American people. Sending hundreds of billions of dollars to Ukraine benefit very few people in the United States except for the ruling elite. If this spending gets cut, it is an instant win for the American people. It could help offset some of the economic pain that is to come.
I hope that Elon Musk and Ron Paul get an opportunity to drastically cut spending everywhere, but I know that will be a lot more difficult politically. I can already hear the stories about starving and homeless teachers because of cuts to (or the elimination of) the Department of Education.
In conclusion, the economy is going to fall hard. The stock market soared to new all-time highs when Trump was announced the winner. This just means it will fall that much farther in the years ahead.
With a bad economy, let’s hope that the good people who have endorsed Trump continue to have influence and continue to advocate policies of greater liberty. On the economic front, we need drastic cuts in government spending. We don’t need a new Fed chair to make that happen.