Asia has three trillion reasons to worry about Donald Trump’s bizarre brawl with the Federal Reserve.
That’s how much, in US dollar terms, the region’s nine-biggest holders of Treasuries are on the hook for as the White House trolls markets. Asia’s central bankers have every reason to fear the worst as President Trump adds Fed chief Jerome Powell to his enemies list.
Bizarre, because Powell is Trump’s guy. Earlier this year, Trump chose the investment banker to replace Janet Yellen, a widely respected Fed chair. Yellen’s only sin, it seemed, was being hired by Trump predecessor and nemesis Barack Obama.
With Powell, Trump assumed (wrongly) that he’d found a compliant, easy-money ally to be his own personal ATM.
President assaults own appointee
After taking over the Fed’s reins in February, Powell has presided over two tightening moves – 25 basis points each. The minutes of the Fed’s July 31-Aug. 1 policy meeting signal more hikes are coming. “Many participants,” the Fed says, “suggested that if incoming data continued to support their current economic outlook, it would likely soon be appropriate to take another step in removing policy accommodation.”
Since then, unemployment has fallen to 3.9%, pointing to a robust economic trajectory at odds with a benchmark target interest rate of between 1.75% and 2%. Today’s 4.1% growth rate is double US borrowing costs, even as a $1.5 trillion tax cut adds fresh fuel.
Powell will be detailing his latest thoughts beginning tomorrow at the Fed’s annual retreat in the mountains of Jackson Hole, Wyoming. Expect a commitment to stay the gradual tightening course on which the Yellen Fed embarked in December 2015.
Trump, though, is already creating an alternative reality. In an August 20 Reuters interview, he said of Powell: “I’m not thrilled with his raising of interest rates, no.” Instead, Trump said, “I should be given some help by the Fed. The other countries are accommodated.”
It’s hard to know where to start in fact-checking that one. The Fed has been in excessive “help” mode for a decade now, ever since Lehman Brothers crashed in September 2008. Now, as the US experiences a rare late-cycle growth spurt, the Fed frets about excesses. And that is what central bankers do.
What’s more, Trump’s escalating assault on the Fed is as unprecedented as it is dangerous.
The only time in living memory a US leader meddled with Fed policy was in the early 1990s, when then-President George H.W. Bush dropped some cryptic hints that the Alan Greenspan Fed should go easy on rate hikes. After he lost the 1992 election, Bush would later blame the central bank. In trying to avoid a similar fate, Trump has already gone too far.
In mid-July, Trump told CNBC: “I’m not happy about” the Powell Fed yanking away the monetary punchbowl. He added: “I don’t like all of this work that goes into doing what we’re doing … and then I see rates going up.”
This interventionism is a feature of Trumponomics. A month earlier, in June, White House economist Larry Kudlow urged Powell’s team to only raise rates “very slowly.” Yet Trump’s recent comments suggest the Fed is in harm’s way going into the November mid-term elections – and beyond.
What it means for Asia
All this poses multiple risks for the region.
Extreme uncertainty is one risk, particularly with Trump intensifying attacks on China’s currency policies. Japan’s, too, as Trump ups accusations of “manipulation.”
A dollar plunge is a second that would put Asia’s export-reliant economies at risk. A third risk is potential paper losses on the above-mentioned $3 trillion-plus of US public debt holdings.
There’s a certain sadism inherent in Trump’s trade wars against China, Turkey and other economies at this point. He seems willing to do just about anything to inject pain into rivals or change news cycles dominated by scandals.
And on the campaign trail, remember, Trump even raised the specter of defaulting on US debt. “I would borrow,” Trump said in May 2016, “knowing that if the economy crashed, you could make a deal.” That’s hardly what Washington’s prudent Asian bankers want to hear from a former real-estate mogul with a history of bankruptcy filings.
Now, add Trump’s surreal clash with his own hand-picked Fed leader. Overseas investors don’t pay much attention to Trump’s attacks on, say, US Attorney General Jeff Sessions. But Trump giving Powell the Sessions treatment on Twitter is a clear and present danger to Asia’s growth outlook – trillions of dollars of state funds.
good let the sucker banks lose all.who cares??they are holding us treasuries because the u,s forces them to. so get a pair and sell it off, now!!!!!!
China is changing the global economic system and know the US is collapsing. Why does it still buys US debt? China don’t need to use the dollar if it doesn’t want to. They’ve already have established the platforms for a new economic system.
Replying to Barbara Col’s comment: "collapsing?" I don’t know about that, but it’s a sure sign of declinding. We see it around us infrasturcture and institution are all dilapidating across the United States, while nation like China is on the rise. I am certain the Chinese government know exactly what they are doing… "still" investing and buying US bonds and treasures. There is lots things that the common people like you and I don’t know about.
LoL, by defending the obvious-for-all-to-see parasite fed, pesek get caught with his pants down exposing his own dubious credibility of being not only anti-China but also anti-american public. Anyone with a working brain and common sense intact knows that fed is one of the source of misery in us.
As always, it has been proven countless times that sooner or later fake pretenders like pesek claiming to be more knowledgeable than others will blow their own cover accidentaly. Liars cannot keep lying forever. LoL
Exactly. This is a solid fact that pesek is but another fake "expert" working on behalf of the vested interest. LoL
What’s the matter pesek? Getting panic and worrying of not being paid by your masters? LoL
Yes, quick with action but nothing in between the ears when it comes to brains
You can take a man out of the West, but you can not take the West out of a man. Mr. Pesek. Spare us your wisdom.
The Westerners, having had sway over the globe for a good 200 years 1750-1950, have begun to consider themselves a bit wiser than us rest.
Little they realize that the source of their wealth was not their knowledge. Says so factually the West’s Prophet of Doom Samuel Huntington:
” .. The West won the world not by the superiority of its ideas or values or religion, but rather by its superiority in applying organized violence. Westerners often forget this fact, non-Westerners never do ”
—— The Clash of Civilizations and the Remaking of World Order, p. 51…
After 1914-45 suicide where the West killed 120,000,000 of its own (1 in 4), Westerners still reserve the right to pontificate on Human Rights, Economy, Polity. Did you wonder why they do not apply their knowledge to their own below replenishment societies that are on a banana peel?
Do Westerners realize that we Asians simply laugh at them? Even when they say something valuable we have come to suspect their motives.
By ignoring your model Asia has done well, and will keep on doing so. Only those who still listen to you (like your ex-colonials India, Pakistan, et al) are biting dust. Sooner or later they will too abandon your ways and join ther rest of Asia and prosper.
https://www.corbettreport.com/federalreserve/
Orange Mussolini may be a buffoon but he is right about the Federal Reserve.
https://www.corbettreport.com/federalreserve/
Why is the Fed held so sacred? I think it can be abolished. The US put it into existance. The US can end it. Constituionally, the government was given the power to mint money…debt free. Stop the wars, End the Fed, pay China back..whatever. We are drowning in debt and yet spend on wars that are devastating countries that never attacked us. How did the US get so insane, militaristic and immoral?