Donald Trump and the Federal Reserve Board

[Judy]

http://www.huffingtonpost.com/dean-b...b_8248378.html

Co-director, CEPR; author, 'The End of Loser Liberalism: Making Markets Progressive'

Donald Trump and the Federal Reserve Board

Last week, Republican presidential candidate Donald Trump released his plan for changing the tax code. Trump wants big across the board tax cuts, with the largest tax cuts going to the wealthy. He claimed that his tax cut won't lead to a loss of revenue since it would lead to a huge spurt of economic growth. His number was 6.0 percent annual growth over the next decade, topping Jeb Bush's 4.0 percent growth rate by two full percentage points.

Many of the reports on the plan commented on the growth assumption and pointed out that few, if any, economists took it seriously. As a practical matter, we have seen this story before. Ronald Reagan put in place a large tax cut in the 1980s and George W. Bush did the same in the last decade. You have to try very hard to find a positive growth effect from either. Certainly no one could make the case with a straight face that these sorts of tax cut proposals could even get us to Bush's 4.0 percent number, much less Trump's 6.0 percent.

But apart from what the tax cuts may or may not be able to do in terms of growth, there is also the matter of how the Federal Reserve Board would react. If that sounds strange, you should be very angry at the reporters at your favorite news outlet, because they should have been talking about this part of the picture.

Suppose that Donald Trump's tax cut really is the magic elixir that would get the economy to grow 6.0 percent a year. But what if the people at the Fed's Open Market Committee (FOMC) don't recognize this fact? After all, many on the FOMC want to raise interest rates now because they think the economy's current 2.0 percent growth rate is too fast.

If the FOMC thinks the economy is still bound by the pre-Trump tax cut rules then it will believe that inflation will start to accelerate out of control if the unemployment rate falls much below its current 5.1 percent level. In this case, the Fed would raise interest rates when they saw the Trump tax cuts boosting growth and lowering unemployment.

Higher interest rates would slow house buying and new construction, discourage car sales, and put a crimp in both public and private investment. If the Fed raises interest rates high enough, it could fully offset the boost that Trump's tax cut is giving to the economy. That would mean that even though the Trump tax cuts might be the best thing for the economy since the Internet (okay, better than the Internet), we wouldn't see any growth dividend because the Fed would not allow it.

For this reason, reporters should be asking questions about the Fed's response to a tax cut. If the Fed is likely to simply slam on the brakes to offset any possible stimulus, then a tax plan will have little prospect of boosting growth.

Of course, this logic applies across the board to any economic proposal the candidates put forward. Senator Sanders wants to boost the economy by spending on infrastructure. Both Senator Sanders and Secretary Clinton are proposing measures to promote paid family leave and increase the availability of child care. In both cases, the candidates argue their proposals will be good for growth, in addition to making it easier for people to balance the demands of work and family.

In each of these cases, it is important to ask about the reaction of the Federal Reserve Board. If additional spending creates more jobs, or a reduction in the length of the average workweek or work year allows more people to be employed, then the Fed will factor this job growth into its decisions on interest rates. If the FOMC holds the view that more jobs and lower unemployment increase the risk of inflation, then it can raise interest rates enough to reverse the boost to employment.

The Fed is a central player in determining the rate of growth and the level of employment. The public should understand this fact. It means that the when a candidate puts forward an economic plan, the question is not just what it will do for the economy, but also what the Fed thinks it will do. This second part of the equation needs to get into the coverage of the presidential campaigns.

[Judy]

Finally! Trump's plan and the hatred these thieves and traitors have for Americans has been outed. Read the secrets, right there in bold.

For those who don't know, in 1913, the Year of the DemoQuacks, who controlled Congress and the White House, Woodrow Wilson called a special session of Congress, a virtual unheard of event, to pass a bill that would lower tariffs, starting the early days of free trade treason, to sell out our businesses and workers in favor of lower tariffs that would allow more foreign goods to enter the US at a lower cost to the foreign suppliers. Well, this was going to reduce revenue, so the income tax was created to make up the difference, so they aren't only putting our businesses out of business, and our workers out of work, they're taxing those with jobs to underwrite the revenue losses from their evil deeds. Not only was 1913 the year of free trade and the income tax, it was the year the Federal Reserve was created, another reason they needed a mandatory income tax and the 16th Amendment. Why? Because to have a Central Banking System organized the way the Federal Reserve was organized so it could loan money to the government, the Federal Reserve Banks needed a mandated guaranteed income stream, they couldn't rely on "tariffs", they needed a domestic mandated guaranteed income stream controlled by Congress, not foreigners they didn't control.

It was the Trifecta of the Perform Storm to ensure winners and losers, to control who made money when and from what, and was the great Marxist Year of DemoQuackery.

The reason we never actually reach full employment or zero poverty is because the Federal Reserve uses interest rates to ensure we don't.

[southBronx]

judy

trump know what he is doing & they all should listen . to save our country obama
did not do one thing good luck
trump

[Linski]

I'm so frustrated with the media because all they want is to get the candidates to put each other down. Either this or maybe they are not smart enough to really drill down on the plans that each candidate talks about. I for one am tired of the media trying to decide who the next President will be. LET the people make that decision!!!

[kevinssdad]

I agree with the writer. Reagan's trickle down policy was complete failure as was Bush's tax cuts. Bush's tax cuts lead us to the great recession that we cannot forget this soon. IMO, responsible ta .x policy for future generations would be one directed at retiring much of the national debt. I am not sure in any form that I will vote for anyone who does not address both national debt retirement and deportation of aliens. We have to stop borrowing and raise payments made on debt! We began this ridiculous borrowing pattern thirty years ago under Reagan, for economic building the experiment is an utter and complete failure.

[Judy]

I agree with the writer. Reagan's trickle down policy was complete failure as was Bush's tax cuts. Bush's tax cuts lead us to the great recession that we cannot forget this soon. IMO, responsible ta .x policy for future generations would be one directed at retiring much of the national debt. I am not sure in any form that I will vote for anyone who does not address both national debt retirement and deportation of aliens. We have to stop borrowing and raise payments made on debt! We began this ridiculous borrowing pattern thirty years ago under Reagan, for economic building the experiment is an utter and complete failure.

There's no way we can retire the debt with an income tax system. To retire the debt will require the FairTax system.