President Trump has completely flip-flopped the way he looks at economic data. When he was on the campaign trail, he called the stock market a “big, fat, ugly bubble.” Now that he’s sitting in the Oval Office, he takes credit for the same bubble.
He’s done the same kind of 180 when it comes to employment data. On the campaign trail, he called 5% unemployment “the biggest hoax in American history.” But when the jobs report came out last week, Trump eagerly tweeted, “The unemployment rate remains at a 17-year low of 4.1%. The unemployment rate in manufacturing dropped to 2.6%, the lowest ever recorded. The unemployment rate among Hispanics dropped to 4.7%, the lowest ever recorded…”
Peter Schiff called Trump out on his flip-flop in his most recent podcast.
Last week, Pres. Donald Trump nominated Marvin Goodfriend to fill a vacancy on the Federal Reserve Board of Governors. When we reported the news, we called him “another swamp creature” – a member of the Washington D.C./Wall Street clan Trump promised to drain away.
We’re not alone in our thinking. In an article on the Mises Wire, Tho Bishop called Goodfriend’s nomination “a dangerous act of outright betrayal to Trump’s core constituency of working-class voters.”
It’s true Goodfriend’s views on monetary policy don’t fit in with the current Fed status quo. But that’s not a good thing. Goodfriend isn’t a fan of the conventional radical policy of quantitative easing. He’s actually a proponent of an even more radical policy.
Following is Bishop’s analysis in its entirety.
Pres. Donald Trump has nominated another swamp creature to sit on the Federal Reserve board of governors.
Marvin Goodfriend does not come from the ranks of politicians. He’s an academic – an economics professor at Carnegie Mellon University. But he’s perfectly suited for the role of central planner. He fits right in with the other central bankers running what investment guru Jim Grant once called “the Ph.D. standard” monetary system, as opposed to the gold standard.
Last week, the House passed its version of “tax reform,” along party lines. The final vote came in at 227-205, with the entire Democratic caucus opposing the bill. Thirteen Republicans joined the Democrats in voting no.
The debate now shifts to the Senate where things will likely become more contentious. Wisconsin Republican Sen. Ron Johnson has already announced he opposes the current Senate plan. And the Senate bill differs from the House version – significantly putting off corporate tax cuts for a year. If the Senate can get something passed, the two chambers will have to figure out a compromise plan.
Peter Schiff has been saying the Republicans aren’t even really attempting to reform the tax system. He called the GOP plans “tax cuts masquerading as reform.” Peter is not alone in this thinking.
Jerome Powell will take the reins of the Federal Reserve next year. After all the speculation about big changes at the Fed with Trump in the White House, it appears the new boss is pretty much the same as the old boss.
So much for draining the swamp. Powell is a swamp creature. As Peter Schiff pointed out, “He has pretty much voted in lockstep with Janet Yellen the entire time she has chaired the Fed. The only real difference between the two is party affiliation. Powell is affiliated with the Republican Party, even though he was nominated to be on the Fed by Barack Obama. So, obviously not that strong a Republican if he was acceptable to Barack Obama.”
In an article published on the Mises Institute blog, Ryan McMaken expanded on this theme, echoing Hunter Lewis who said Powell is more like Chuck Schumer than Donald Trump.
During a recent interview with Investing News Network, Peter Schiff reiterated something he’s been saying for the last several months. The stock market is still a big, fat, ugly bubble, and misplaced optimism continues to blow it up.
[Pres Trump has] accomplished blowing more air into a stock market bubble that already existed before he was elected, as he rightly identified the market as a bubble as a candidate. But you know, his policies have not altered that. In fact, he’s now championing the stock market. He’s the biggest booster. He’s actually claiming credit for the market rising. And I do believe that part of the fuel that has caused the bubble to get bigger is the enthusiasm that Trump will reduce taxes and that these taxes will mean more corporate earnings – certainly after-tax earnings because they cut the taxes – a more robust economy, more growth. And so there’s a lot of optimism. But I think the optimism is misplaced because I believe the added deficits that will result from the tax cuts and the increased government spending will do more harm to the economy than whatever benefit we get from paying lower taxes.”
Some mainstream analysts agree with Peter, warning that the Republican tax cut proposal will balloon the deficit, minimizing its positive economic impact.
So what are we to make of the continuing stock market climb?
Peter Schiff summed it up succinctly in a recent interview on Fox Business.
Well look, I think it’s a bubble.”
Trump said he was going to drain the swamp.
Apparently, the drain is clogged.
Trump picked another swamp creature to chair the Federal Reserve. Jerome Powell got the nod to replace Janet Yellen when her term as Fed chair ends in February. As Tho Bishop at the Mises Institute put it, “this means Trump will ensure that, while the stationary at the Eccles Building will change, the monetary policy guiding it likely will not.”
There’s a lot of optimism out there that passage of the Trump tax plan will juice the economy. Many analysts say tax cut optimism is one of the factors that continue to push stocks up, and that has created headwinds for gold and silver. But as we’ve pointed out, there are reasons to question this mainstream narrative.
Now some in the mainstream are even starting to question the mainstream narrative.