It’s no secret Trump is profiting from his office. In the latest corrupt gyration of this absurdly corrupt presidency, Trump floated the idea on Monday that the next G7 meeting — of leaders from the most powerful democracies the world — should be held at his very own Doral resort in Florida.
But what if Trump is doing something much bigger than just (“just”) sending lucrative government business to his private luxury properties. What if he’s contorting the global economy to boost the bottom line of his business? In little noticed remarks earlier this month, Trump let slip that he has a profit motive in pushing the Fed — and his “enemy” Jerome Powell — to lower interest rates.
The Washington Post made clear over the weekend that Trump’s highly leveraged businesses could save millions in interest if the Fed continues to cut interest rates. Citing financial disclosures from before Trump took office, the paper reports Trump owed more than $360 million to Deutsche Bank for loans on four properties (including the Doral golf resort) on which he was paying a variable interest rate, pegged to the Fed’s.
In short, when the Fed raises rates it costs Trump millions, and when it cuts rates it puts money in his pockets.
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Context here is important: For much of the past decade — as the U.S. economy clawed its way out of a near-Depression — the Fed kept rates at unprecedented lows. Cutting interest rates is like hitting the gas pedal for the economy. Keeping the cost of borrowing low, the Fed encourages investment and risk taking, creating an economic updraft. But as the economy heated up and unemployment dropped to 50-year lows, the Fed embarked on a path of “normalization” — seeking to raise rates to more usual historical levels. Raising rates is like tapping the brakes on the economy. “Normalized” interest rates discourage the kind of risky investments that can lead to economic bubbles. And they give the Fed room to cut rates in the future — creating insurance against an unanticipated slowdown.
But higher interest rates pinch big borrowers — including those with millions in real-estate debt, like one Donald J. Trump. Just let him tell you: In a rambling speech to hard-hat petrochemical workers at a Shell facility outside Pittsburgh on August 13th, Trump detoured into a riff on monetary policy. Trump played up his beef with his hand-picked Fed chair Jerome Powell — before revealing his own financial predicament, including how a rate cut could save him money:
“Even now, you know, you see the interest rates,” Trump said. “I’m paying a normalized interest rate. We should be paying less, frankly,” the president said, before turning his ire on Powell. “This guy has made a big mistake. He’s made a big mistake — the head of the Fed. That was another beauty that I chose,” the president added, flashing buyer’s remorse for his pick to set U.S. monetary policy. (Nominating Powell in 2017, Trump praised his “integrity and good judgment.”)
Presidents have traditionally played a hands-off role with the Federal Reserve, which operates almost as an independent fourth branch of government. But Trump, ever on brand, has flouted these norms, using his Twitter bully pulpit to browbeat Powell and try to shape monetary policy:
…..The Fed Rate, over a fairly short period of time, should be reduced by at least 100 basis points, with perhaps some quantitative easing as well. If that happened, our Economy would be even better, and the World Economy would be greatly and quickly enhanced-good for everyone!
— Donald J. Trump (@realDonaldTrump) August 19, 2019
Most alarming, Trump has discovered that his trade war with China gives him leverage over Powell — a state of affairs that Powell recognized last week at the Fed meeting in Jackson Hole, Wyoming.
Trump is waging his trade war for other reasons of course. He’s been convinced for decades, against all evidence, that an imbalance of trade with China literally means the Chinese are stealing from us. Bashing China for our industrial pains, moreover, resonates with the president’s nativist base, and provides a convenient scapegoat for the failure of Trump’s promised renaissance in manufacturing jobs.
But in a maco-economic sense, the trade war has also allowed Trump to usurp powers traditionally wielded by the Fed. By raising trade taxes, paid by American consumers, Trump has been cooling off the economy all by himself. The more he ratchets up the costs of the trade battle with China, the less cause there is for the Fed to raise rates. Raise these costs high enough, and it forces the reserve bank to weigh the benefits of “normalization” against the risk of recession.
Trump already won the first round. At the end of July, the Fed lowered rates by 25 basis points (a quarter percent), and cited the trade war— in its extremely oblique way — as a reason for the cut, referring to the negative “implications of global developments for the economic outlook.”
Now Trump is now pushing for the Fed for an even deeper cut — while simultaneously escalating the trade war. The Fed announced its rate cut decision on July 31st. The very next day, on August 1st, Trump announced he would be imposing a 10 percent tariff on an additional $300 billion worth of Chinese products.
These Trump taxes are kicking the rest of us in the teeth. An analysis by JP Morgan last week revealed that when the new tariffs kick in, the cost of the trade war to American families will reach $1,000 a year. But the tariff escalation has put Powell in a pickle. Instead of the growth the Fed had anticipated when it began raising rates, the risk of a recession is growing. In a speech last Friday from Jackson Hole, Powell said there’s no “recent precedent” for the Fed to achieve its dual aims of low unemployment and low inflation in the middle of a trade war, adding that “fitting trade policy uncertainty into [the existing] framework is a new challenge.”
Powell all but blamed Trump for stalling out the economy: “The global growth outlook has been deteriorating since the middle of last year,” he said. “Trade policy uncertainty seems to be playing a role in the global slowdown and in weak manufacturing and capital spending in the United States.” Powell made no promises to reduce rates further, noting good inflation and employment numbers, but added: “We will act as appropriate to sustain the expansion.”
Powell’s speech only infuriated Trump, who was seeking a “BIG CUT” from the Fed. On Twitter, Trump blasted Powell for doing “NOTHING” and then mused that the Fed chair could be a “bigger enemy” than the president of China.
….My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?
— Donald J. Trump (@realDonaldTrump) August 23, 2019
A few tweets later, Trump announced that he was raising taxes on Americans again, increasing one set of Chinese import tariffs from 25 to 30 percent, and another set from 10 to 15 percent. The new trade taxes threaten an already ailing economy — and create new impetus for the Fed to cut interest rates.
Is the president really using his trade war to save himself money — by forcing a “clueless,” “horrendous,” “no touch,” “enemy” Fed Chair to cut interest rates? It seems absurd. Utterly beyond the pale. And yet here we are, unable to rule out the president’s personal profit motive in moves that wiped out half a trillion in stock market wealth on Friday.
The notion that Trump may not act squarely in the public interest is not new — it’s the reason journalists and others have fought for the disclosure of the president’s tax returns. But the question of Trump profiting from federal policymaking is now squarely part of the 2020 debate.
“Donald Trump is a walking, talking conflict of interest,” Democratic presidential contender Elizabeth Warren tweeted over the weekend. “No president should be allowed to push the rules of our government to benefit their personal bottom line.”