From the period of early 2001 to 2009, the incredibly awful economic policies of President George W. Bush drove the U.S. economy into the Great Recession. During the eight years following Bush’s Presidency, President Barack Obama largely repaired the damage done during GWB’s administration so that the median annual income in the U.S. matched what it was before the crash by early 2017. Since then, Donald Trump has done a lot of the same stupid things that George W. Bush did. In addition, Trump’s tax cuts are much bigger than Bush’s tax cuts were, and his trade policies are much worse.
For months now, we have heard that the U.S. may be headed for a recession. So, why hasn’t the U.S. economy tanked yet? The U.S. economy has not sunk yet because the U.S. Federal Reserve Board (the Fed) is doing some of the same things it did during Obama’s recovery at this very moment. In other words, the Fed is currently doing Great Recession recovery methods right now in a valiant effort to prevent our economy from ending up in the crapper.
When Trump’s really dumb tax cuts took effect starting in 2018, the Fed increased the Prime Interest Rate to prevent the extra cash influx from the tax cuts that were flowing into the U.S. economy from creating inflation. This tightening of the U.S. money supply, along with Trump’s clueless tariffs meant that the U.S. Dow Jones Industrial Average was barely higher at the end of 2018 than it was at the beginning of 2018. During this time, Donald Trump moaned about how the higher interest rates were hurting the economy. Any economist worth his or her salt could have told Trump that interest rates would have risen when his tax cuts were implemented, but instead, someone apparently told Trump that his tax cuts would magically make the stock market go crazy. You see, Donald Trump isn’t just ignorant. He’s apparently also surrounded by ignorant advisors.
Trump’s equally clueless combination of tax cuts and tariffs eventually slowed down the U.S. economy in 2018 to such a point that the Fed ended up having to lower the Prime Interest Rate again in 2019. However, just lowering interest rates has not been enough to counteract the damage that Trump’s policies have done to the U.S economy. In addition to lowering the Prime Interest rate, the Fed has also had to start a program that many would call Quantitative Easing (QE) but which the Fed has been insisting is not actually Quantitative Easing. We can read about what is actually happening in articles such as the following:
So, what is Quantitative Easing? Well, according to Investopedia.com, it is the following:
Quantitative easing is an unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to increase the money supply and encourage lending and investment.
Basically, during quantitative easing, the Fed buys a lot of assets, like bonds, and. in turn, it also acquires an equal amount of debt at the same time.
Here’s a picture to show how Quantitative Easing worked during the Obama Administration:
The blue sections at the top represent the assets that the Fed acquired, and the red and orange sections at the bottom show the debt that the Fed acquired when it purchased these securities. As one can see, the Fed ends up with a whole lot of assets...and also a whole lot of debt.
Now, take a look at the picture below and you will notice that during the Obama administration, as the economy started to recover, the Fed eventually stopped buying more assets and acquiring more debt and left things relatively constant.
Please keep in mind that the debt the Fed acquired when purchasing these assets during the Obama administration exactly matched the value of assets that it acquired. During the Obama recovery, the Fed acquired roughly $4 trillion in both assets and debt. It really does not need any more of either.
If the Fed starts buying billions of dollars in securities, such as bonds, in order to inject money into U.S. markets, that is Quantitative Easing—no matter how many times the Fed says it is not. Currently, the Fed is buying bonds at the rate of about $60 billion a month. That’s about 720 billion dollars a year, or almost three-quarters of a trillion dollars. If that sounds like a lot of money, it is.
The problem with this is that it means that the U.S. Government, through the Fed, is acquiring massive amounts of debt, and it is acquiring it on top of the massive amounts of debt that the U.S. Government is already acquiring due to Trump’s too-low taxes on rich people and big corporation. In other words, the economy may look OK to many people because the stock market is OK and people are still working. However, it is only OK because the U.S. economy is currently being run on massive amounts of debt that will come back and bite us, and our children in the butt in the future.
In the first few months of 2017, as the U.S. economy reached the point that it was before the Great Recession, the Fed should have eventually been able to start reducing its debt by selling off its acquired assets. Since, instead, Trump screwed up the economy, not only can the Fed not sell its assets—it has to buy more of them—just like it had to buy them when the U.S. was recovering from the Great Recession.
Running the U.S. economy on debt, as Trump currently is, is like someone living the high life by using credit cards to buy lots of stuff and not worrying about the debt problems that this will create down the road. Donald Trump has so screwed up the economy that the Fed is having to do Great Recession recovery policies *now* in order to try and prevent the economy from tanking. So, the next time Donald Trump brags about how great the economy is, feel free to laugh at what a liar he is. You see, President Obama was always honest about the state the economy was in, and he was always honest about what he was doing to repair it. Donald Trump always says the economy is fantastic, no matter how much he screws it up, and no matter how much the Fed has to do to prevent the U.S. economy from sinking.
The Great Trump Economy is all an illusion, financed by debt from insufficient taxes, and now, from quantitative easing. Sooner or later, the chickens will come home to roost. Unfortunately for us, that means that when the economy finally does crash, Republicans will insist that Democrats must not spend the money needed to fix the economy because “The debt is already too high!”—and in this case, they will be referring to all of the debt that their tax cut policies and brain-dead tariffs created in the first place. What we currently have is not the Trump Administration. What we have now is the Trump Idiocracy.