Out: President Bannon. In: Prime Minister Cohn.

 

Donald Trump’s first act was as real-estate developer who loved leverage. Big time. Recall his CNBC interview last spring where he called himself “the king of debt” and gushed about how he “loved playing” with debt. Right about the same time, Trump weighed in on monetary policy: “Right now I am for low interest rates, and I think we keep them low.” Call that the prime-the-pump, Keynesian Trump.

But there’s another version of Trump. It’s one more in tune with the modern GOP; certainly its hard-money, supply-side wing. As he told GQ in 2015: “Bringing back the gold standard would be very hard to do, but boy would it be wonderful. We’d have a standard on which to base our money.” When Trump was president, the dollar would be king. Oh, and  the “highly political” Fed boss Janet Yellen probably would no longer be at the Fed, inflating the “false economy.”

Not surprisingly, gold bugs were very excited by that riff, much like they were when Reagan was elected and hopes for a return to a gold standard surged. So, too, the Ron/Rand Paul libertarian wing of the GOP. Not only are there plenty of gold groupies in that clique, but also lots of debt worriers. And they probably really loved it when Trump promised to eliminate the US national debt in just eight years.

So which Trump is sitting in the Oval Office? This one:

President Donald Trump said Wednesday the U.S. dollar “is getting too strong” and he would prefer the Federal Reserve keep interest rates low. Mr. Trump, in an interview with The Wall Street Journal, also said his administration won’t label China a currency manipulator in a report due this week. He left open the possibility of renominating Federal Reserve Chairwoman Janet Yellen once her tenure is up next year, a shift from his position during the campaign that he would “most likely” not appoint her to another term. “I do like a low-interest rate policy, I must be honest with you,” Mr. Trump said at the White House, when asked about Ms. Yellen.

Oh, and White House budget director Mick Mulvaney now says Trump’s promise to pay off the national debt was “hyperbole.” One more thing; Trump is now for the Ex-Im bank.

What to make of all of this? What instincts and ideas are really driving Trumponomics? Perhaps a combo of the influence of Trump’s formative professional years (blasé about debt, love of low rates) and the educating influence of experts, specifically the CEOs whose company he’s comfortable with. It’s big business, after all, that really supports the Ex-Im and is worried about a China trade war. It’s especially notable that Trump was educable on the China currency issue. Maybe we’ve gone from “President Bannon” to “Prime Minister Cohn,” as this Politico piece suggests:

In private conversations, a number of Trump’s friends have told him he could be more popular — and accomplish more — if he embraced a moderate streak and listened to his business friends. Jared Kushner, the president’s son-in-law, is trying to orchestrate more power for New York business types, particularly National Economic Council Director Gary Cohn, while diminishing the power of chief strategist Steve Bannon, who drives the populist wing of the White House.

Some big questions remain: How does this moderate pro-business pragmatism play out on issues such as trade, financial reform (both Dodd Frank and Glass Steagall), tax reform, and Obamacare — especially when dealing with Congress? Conservative Republicans may have very different views on these issues than banking and private equity CEOs. For instance: The latter might think a VAT or carbon tax is a great way to pay for a big corporate tax cut, the former not so much. One can also imagine CEOism having a very different take on entitlement reform (the suits would be for it) vs. Trump’s populism (he promised to leave Medicare and Social Security alone.)

Published in Economics
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  1. Wiley Inactive
    Wiley
    @Wiley

    A finer point on what is debt.

    The OP, the linked article, and the discourse one generally finds, does not differential between different types of debt. The simplest classification is 1) debt to purchase an income producing asset versus or good debt; and 2) debt to purchase a depreciating asset with no return or bad debt. When Trump speaks of leverage, he is speaking of borrowing money to buy an income property that can cover the cost of borrowing and additionally produce an income. That is smart. That is completely different than borrowing to buy a car or pay one’s rent. That is dumb. So I am sure he sees national infrastructure debt as the former and the national debt due to operating expenses / entitlements as the latter. Perhaps the perception of “Trump versions” is a byproduct of conflating the two types of debt.

    By the way, only economists and entrepreneurs are consciously aware of this debt distinction.

    • #1
  2. Unsk Member
    Unsk
    @Unsk

    Whether or not Trump is liberal or conservative,  Trump’s sudden flip flop into being a big business crony capitalist with a “moderate” agenda is very troubling because  it means Trump really has no idea how to turn around the economy.

    The main difference between a “liberal” ( actually leftist managed economy) Obama economy and a “liberal”  Trump economy would be that Trump will no longer have the  24-7 media cheerleaders telling us how great the economy is, and will instead have that same media telling his how bad things are.

    That cheerleading kept consumer confidence and much of the economy afloat in the face of some seriously disturbing  fundamentals. Now that cheerleading is  going to go away. So the expect the economy to sink, and sink badly  with those bad fundamentals coming to the fore if we don’t get any better ideas than we have been given so far  from Trump.

     

     

    • #2
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