Trump Is Right, Sorta; This Issue Could Be “Yuge”!

Donald Trump (photo credit: Gage Skidmore)
Donald Trump (photo credit: Gage Skidmore)

During the past two weeks, Donald Trump has made claims that Janet Yellen is keeping interest levels low to help Obama and the Democrats:

“This is a political thing, keeping these interest rates at this level,” Trump, the billionaire Republican presidential candidate, said in a Wednesday interview with Bloomberg Television’s Stephanie Ruhle.

“Janet Yellen for political reasons is keeping interest rates so low that the next guy or person who takes over as president could have a real problem.”

That problem spurred by raising rates, Trump argued, could be “a recession or worse.”

You’ve got to give credit where it’s due — Donald Trump is the first presidential candidate to tackle this problem with the Federal Reserve at this level. And it’s great. And I mean really, really great. It’s “yuge” to have the front runner go after arguably the biggest problem facing the American economy — the Fed.

However, there is a major problem with how he’s going about this — attacking the political motivations of the Federal Reserve and its chairman obscures the very real, harmful effects of the Fed.

While Janet Yellen could be keeping interest rates low to help Obama and hurt Republicans, there’s nothing new to having a politically motivated Fed. Does anyone remember Reagan appointee Alan Greenspan sitting next to Hillary Clinton at the State of the Union and later endorsing Clinton’s tax hike? Trump’s on good footing to suggest that actions of the Fed have a profound impact on the presidency — as Matt O’Brien pointed out at WaPo:

The arc of the political universe is long, but it bends towards monetary policy.

That’s the boring truth that nobody wants to hear. Forget about the gaffes, the horserace, and even the personalities. Elections are about the economy, stupid, and the economy is mostly controlled by monetary policy.

That’s why every big ideological turning point—1896, 1920, 1932, 1980, and maybe 2008—has come after a big monetary shock.

Think about it this way: Bad monetary policy means a bad economy, which gives power back to the party that didn’t have it before. And so long as the monetary problem gets fixed, the economy will too, and the new government’s policies will, whatever their merits, get the credit. That’s how ideology changes.

Why should our political fate lie in the decisions of a small group of elite central bankers in D.C.? Intentions aside, why should Janet Yellen — good or bad — decide, albeit indirectly, our elections for us? That’s a far cry from a free market/democratic republic.

Further, talking about the Fed in this way is sure to fire up conspiracy theorists, but he’s missing the bigger group: everyone that’s adversely affected by Fed policy!

In the brave new world of the Fed economy, the middle class can’t catch a break. Their wages are stagnant and they can’t save money. Young people are saddled with enormous amounts of debt — student loans and otherwise — and still can’t find jobs when they graduate. Small business owners can’t get access to small business loans to expand their businesses, while major corporations are taking out record amounts in low interest loans to buy back stocks and complete mergers. And the poor? They have less and less opportunities as fewer small businesses are starting and more major companies are cutting back and outsourcing, and they get written off by an elite liberal class who is happy to simply hand them a new government program to get them out of their line of sight.

All of these distortions and pain are caused by artificially low interest rates. The politically connected and powerful have access to money and capital, while the rest of us are left behind. Don’t even get me started on how the U.S. government takes advantage of these artificially low interest rates to fund more and more government.

The Donald would be wise to treat the Fed as the “yuge” issue that it is. The Fed is not some loser, lightweight, moron, low-energy, dummy organization. It’s YUGE, and it’s harming our economy greatly.

Terry Schilling is the executive director of American Principles in Action.