President Trump: The NEW one and only politics thread

The treasury doesn't control the money supply. The Federal Reserve does. Steve Mnuchin has as much as ability to create credit (or expand the money supply) as you or I do. Now if you wanted to tell me that Mnuchin somehow has Jay Powell and his merry band of monetary mandarins in his back pocket, maybe you'd be onto some hidden conspiracy. But Mnuchin is getting chewed out daily by an orange moron precisely because Jay Powell has been decreasing the money supply (after 9 years in which they created a massive and reckless amount of credit with their actions) by slowly continuing to raise the Fed Funds rate and continuing with letting $50 billion of expiring maturities a month roll off the massive balance sheet the Fed spent 9 years building. In the scheme of things, they are moving at a snail's pace. But our markets got so addicted to their crack cocaine that even a small withdrawal is causing a freak out.

The Fed actually is the problem. But the problem was how much mispriced credit they flooded the economy with for 9 years, and how that money was misallocated because they destroyed all price discovery in our markets. Everyone loved the phoniness while they were creating the fantasy. Guess what, it came with a price to pay. Even with the Fed Funds rate where it is, it is still hundreds of basis points below whatever the neutral rate would be. Money is still free in real terms. But that isn't good enough anymore, because they, in all of their wisdom, created distortions across our economy.

One result of what they did was that they blew bubbles in all kinds of risk assets, including US equities. What you have seen in the last few weeks is nothing. Our equity markets are still way overvalued. This is what happens when you price fix the cost of money for nearly a decade to encourage excessive debt levels. But concentrating on just the stock market right now is missing the point. Credit spreads are blowing out, and the end of the road is a credit crisis. That is where the real damage to our economy is lying. And it is an inevitability. People begging the Fed to step back in and distort the credit markets more by reversing course are asking for more of the same. It means an even BIGGER credit crisis when it ends. It's stupid beyond belief. They should have never kept rates in nominal terms pinned at zero for 8 years and done trillions of dollars worth of quantitative easing (bond buying). With every day, month, year they kept our markets distorted, and people were blindly happy because Netflix stock (as the company was borrowing insane amounts of money) was making new highs on the back of it, they were creating an even bigger economic catastrophe at the end of it. We should never have been sitting where we are today. But since we are, the smartest thing to do is swallow the medicine of the deleveraging that is coming sooner rather than later. Because trying to prop it up with even more debt, if they can even manage to get away with it at this point, means an even nastier deleveraging when the house of cards collapses on its own. What you are seeing right now is nothing. This is going to have severe global economic consequences.