The Golden Age
President Trump announced that America was entering a golden age during his Inaugural Address as the 47th President of the USA. Indeed, he wants to lower interest rates, which is done by printing dollars. Printing money makes it worth less until it is worthless. Then, gold will replace the dollar as money.
On January the 20th, Trump addressed the country, saying,[1]
“Vice President Vance, Speaker Johnson, Senator Thune, Chief Justice Roberts, justices of the Supreme Court of the United States, President Clinton, President Bush, President Obama, President Biden, Vice President Harris, and my fellow citizens, the golden age of America begins right now.” (Applause.)
Later in his address, he states that he will fight inflation,
“Next, I will direct all members of my cabinet to marshal the vast powers at their disposal to defeat what was record inflation and rapidly bring down costs and prices. (Applause.)
The inflation crisis was caused by massive overspending and escalating energy prices, and that is why today I will also declare a national energy emergency. We will drill, baby, drill.” (Applause.)
However, today he announced that he wants to cut interest rates when speaking at the World Economic Forum.
Per Reuters,[2]
“Jan 23 (Reuters) - U.S. President Donald Trump on Thursday said he would demand that interest rates drop immediately, and that other countries should follow suit - marking his first broadside at Federal Reserve monetary policymaking since taking office just three days ago.
‘With oil prices going down, I'll demand that interest rates drop immediately, and likewise they should be dropping all over the world,’ Trump told the World Economic Forum on Thursday in Davos, Switzerland.”
The problem is that the legal/technical way that the Federal Reserve lowers interest rates is by printing money (inflation) to buy US government debt. It is called the Federal Funds Rate and it sets all other interest rates in the world. Trump can’t have lower interest rates and lower inflation.[3]
Per the Federal Reserve,[4]
Similarly, the Federal Reserve can increase liquidity by buying government bonds, decreasing the federal funds rate because banks have excess liquidity for trade. Whether the Federal Reserve wants to buy or sell bonds depends on the state of the economy. If the FOMC believes the economy is growing too fast and inflation pressures are inconsistent with the dual mandate of the Federal Reserve, the Committee may set a higher federal funds rate target to temper economic activity. In the opposing scenario, the FOMC may set a lower federal funds rate target to spur greater economic activity.
So, if Trump wants to bring down inflation, then the USA need to stop going into debt so that interest rates can rise. That won’t happen if Trump wants to pay for things like Social Security, Medicare, Medicaid, the military, or even interest on the debt. Something important needs to be cut.
“The U.S. has always paid its bills on time, but the overwhelming consensus among economists and Treasury officials of both parties is that failing to raise the debt limit would produce widespread economic catastrophe. In a matter of days, millions of Americans could be strapped for cash. We could see indefinite delays in critical payments. Nearly 50 million seniors could stop receiving Social Security checks for a time. Troops could go unpaid. Millions of families who rely on the monthly child tax credit could see delays. America, in short, would default on its obligations.” -US Treasury Secretary Janet Yellen, former chairman of the Fed (2014-2018), in opinion piece written for the Wall Street Journal, Sept 19, 2021
Trump is stuck between a rock and a hard place. Either the Federal Reserve acts as the lender of last resort for the government and the dollar becomes worth less and worthless, or it stops printing money, raises interest rates, dries up the supply of affordable loans, and causes defaults on a record scale.
However, and most importantly, even if the Federal Reserve keeps printing money to act as the lender of last resort, interest rates will eventually rise to account for inflation. For example, if you loan out $100, get back $110, but the things that cost $100 now cost $150 because the government is printing money, then you are poorer even though you have more money.
This is already happening. The Federal Reserve began lowering the Federal Funds Rate in September, November, and December, but the interest rate on the 10 year US Treasury went up instead. This is historic.
Interestingly, interest rates for loaning the US government money for 2 years or less have gone down, while the interest rates on all longer time spans have gone up. It seems that the Fed has been buying mostly short term debt lately, while regular investors buy long term debt.
Even if the Fed lends the US government money with low interest rates for 3 years or longer, eventually, they’ll be the only lender, and all other interest rates will be high.
“The wavelike movement affecting the economic system, the recurrence of periods of boom which are followed by periods of depression, is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion. There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” -Ludwig von Mises, Human Action, pg. 570.
So, most Americans either won’t have money in their pocket, or it will be worthless. Both result in the dollar losing purchasing power to gold, because even if the government stops printing money, the unpayable debt will still need to be paid with something while the economy crashes.
In conclusion, the Fed will keep printing dollars to act as the lender of last resort until interest rates rise and break the system. The alternative is to explain why grandma isn’t getting paid her Social Security money, and that you have to pay her bills now.
They can’t print gold.
“Gold is a currency. It is still by all evidence the premier currency where no fiat currency, including the dollar, can match it.”
-Alan Greenspan (Federal Reserve Chairman 1987-2006), in an interview for the Council on Foreign Relations, Nov 2014
President Trump announced that America was entering a golden age during his Inaugural Address as the 47th President of the USA. Indeed, he wants to lower interest rates, which is done by printing dollars. Printing money makes it worth less until it is worthless. Then, gold will replace the dollar as money.
[1]The Inaugural Address – The White House
[2]Trump targets Fed and calls for lower interest rates | Reuters
[3]Printing Money Lowers Interest Rates — Hamilton Mobley
[4]Federal Funds Effective Rate (FEDFUNDS) | FRED | St. Louis Fed
