Responding to Donald Trump’s latest attack on members of the Federal Reserve for not lowering interest rates to zero or below — Nobel Prize-winning economist Paul Krugman said the president’s latest actions show he has hit the ‘panic button’ because of he has no idea what he is doing.
In his New York Times column, Krugman ridiculed Trump by bluntly stating, “He’s clueless about why his policies aren’t working, or about anything else involving economic policy.”
“It’s now clear that he’s in full-blown panic over the failure of his economic policies to deliver the promised results,” Krugman began, before getting to his point and writing, “In addition to demanding that the Fed cut interest rates below zero, Trump declared that ‘we should then start to refinance our debt,’ because ‘the USA should always be paying the lowest rate.’ Observers were left scratching their heads, wondering what he was talking about.”
As the economist notes, those observers should be confused because the president has no idea how government bonds that finance the debt work.
“It’s fairly obvious,” the columnist explained.”Trump thinks that federal debt is like a business loan, which you can pay down early to take advantage of lower interest rates. He’s clearly unaware that federal debt actually consists of bonds, which can’t be prepaid (which is one reason interest rates on federal debt are always lower than, say, rates on home mortgages). That is, he imagines that the government’s finances can be managed as if the U.S. were a casino or a golf course, and it never occurred to him to ask anyone at Treasury whether that’s how it works.”
As to why Trump is in panic mode, Krugman suggests, ” While there’s no economic emergency, Trump apparently feels that he’s facing a political emergency. He expected a booming economy to be his big winning issue next year. If, as now seems likely, economic performance is mediocre at best, he’s in deep trouble.”
“Voters have noticed: Trump’s approval rating on the economy, while still higher than his overall approval, has started to decline,” Krugman wrote. “Hence the panicky demands that the Fed pull out all the stops. But while Trump realizes that he’s in trouble, there’s no indication that he understands why. He’s not the kind of person who ever admits, even to himself, that he made mistakes; his instinct is always to blame someone else while doubling down on his failed policies.”
As the economist sees it, Trump has put himself in a corner with his trade war and may have to do the one thing he never does: Admit he was wrong.
“Trump could reverse course, and do what most people expected a year ago, reaching a deal with China that more or less restores the status quo,” he speculated. “But that would be a de facto admission of defeat — and at this point it’s not clear why the Chinese would trust him to honor any such deal past Election Day.”
“The fact is that when it comes to economic policy, Trump has trapped himself in a bad place,” he concluded.
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