President Trump: The NEW one and only politics thread

If you follow or trade currency markets, the last few weeks have been insane.

In the last 24 hours, though, it has been absolutely nuts. Since what happened in 2015 when the yuan started to tumble, and set off a nasty global equity sell off, China has been supporting its currency.

Then Trump started with the tariffs. At first, China was really restrained, even though it is potentially their most devastating weapon to fight back with. But over the last month, they have been on a stealth campaign to fight back using the currency -- stealth easing in the offshore markets, that has sent the dollar higher relative to many other currencies. It has had all kinds of effects, including some commodities that are priced in dollars globally getting routed over the last several weeks.

Over the past 48 hours, they haven't been very subtle at all. Thy cut their 7-day teasury rate by 103 basis points. They have launched a sort of quasi quantitative easing (buying up bonds, to send yields lower). They have told their banks to flood their system with liquidity. And warned that more easing is coming All of it has sent the yuan tumbling. Last night they lowered their yuan fix reference rate by the most in more than a year.

Mixed in with all of that, and what it has been doing to the dollar, other currencies, and nearly the whole commodity complex, yesterday, Trump gave an interview to CNBC where they released a portion where he criticized the Federal Reserve and said he isn't happy our rates aren't lower. That caused a sharp selloff for several hours in the dollar, which was in way overbought territory because of what is going on and was looking for an excuse to take a breather. Then, this morning, CNBC airs more of the interview and Trump threatens $500 billion in tariffs on China, sending the dollar back up. Then, just now, he tweets about China and the European Union "manipulating" their currencies and it created a sharp sell off in the dollar. It has been chaotic. It's not a joke, though. Currencies are supposed to be stable. When you create instability, you create potential economic instability.

He is playing with fire right now and is way out of his depth. Things are way more unstable than he realizes. EVERYONE has been manipulating their currencies, starting with the U.S. in the wake of the financial crisis. The Federal Reserve ran up a $4.5 trillionbalance sheet and kept their overnight rate pinned at zero for 8 years. Even with a handful of 25 basis point hikes over the last 2 years, because they are afraid of how deep they got themselves in, real rates are so far below nominal rates, that money is still ridiculously easy and keeping all of the bubbles they have created propped up -- but precariously at this point. All of the other central banks, including the EU and PBOC, joined in over that time, and there have been competitive devaluations worldwide for a decade now. Their quantitative easing has added another $6 trillion (in addition to our $4.5 trillion) to the world's central bank balance sheets. It has created casino-like conditions in which there are overleveraged areas all over the world.

Trump, yesterday, with his criticizing the Fed and wanting low rates may have been a somewhat honest moment. But what he wants is bad, not good. When they crap all over the dollar, it makes it so each of us are working all week to earn those dollars, and they are stealing the value of it faster than we can earn them. The idea that anyone (except a politician, because it allows them to spend without any discipline by inflating away their debt) would want to WEAKEN the dollar would have been anathema to people a half century ago or a century ago, or any NORMAL time in history. But this is the world we have created. He's also full of shit (not that this is the first instance). When he was running for president, he criticized the Fed (and Janet Yellen) for suppressing interest rates to help Obama. Now that he's the man, with no shame, he wants the opposite.

In any case, one reason that global central banks were able to do what they have done over the last decade is that they were COOPERATING in a synchronized, competitive currency devaluation scheme. It has created a great deal of instability, but at the first signs of any buckling (including in 2015 when the ECB and BOJ stepped in with more quantitative easing to pick up where the Fed had left off) they have worked in concert to try to keep the bubbles inflated. I honestly don't think Trump gets that it isn't a game, and there are debt levels now that make the "too big to fail" stuff (which was nonsense, but that is another post) look quaint. If the competitive currency devaluation done in "your turn, then ours" that they have done turns into an outright currency war, which is where he is taking it, there are economic consequences most people oblivious to, in the form of a disorderly deleveraging of trillions of dollars of debt and leverage that the last decade has left around the world. It's going to happen anyway, but at best, the monetary mandarins who created it were hoping they could somehow avoid it happening in a chaotic way (i.e. -- in a Donald Trump way).