QUESTION: You have said you disagree with Trump about lower interest rates because he has been a borrower and not a lender. There was dissent at the Fed about Powell’s third cut. You have also said that the ECB has been trying to support the euro because of the pending war and that interest rates rise in times of war. This is getting very confusing. Can you shed any light on this chaos? The rate cut come with the market at a record high. This is all starting to appear reckless.
PK
REPLY: Look, Trump is following what he was taught in school and what the talking heads have been saying for decades about interest rates and the economy. Neither Trump not anyone on Capital Hill understands economic history and mainstream media would NEVER put me on the air because I would contradict every talking head that they rely on. Nobody correlates interest rates with the economy. It is always clinging to Marxist theories employed by Keynes from the Great Depression era. The Fed raised rates throughout Trump’s first term and the market rallied.
There is no EMPIRICAL EVIDENCE whatsoever that rates down the and you get a bull market. Rates ALWAYS fall during depressions and recessions. This is always the same BS when the answer is simply confidence. You will pay 20% if you believe that market will rally 100% but you will not borrow at 1% if you do not expect the market to rally 1%.
In 1927, there was the first G4 where the European Central Banks pleaded with the Fed to cut rates convinced that the money was flowing to the US simply because of higher interest rates when the smart money was smelling sovereign default which did come in 1931.
The Fed cut rates under pressure from Europe and that confirmed that there were problems in Europe. The capital flows then intensified into the US buying the auto-stocks which was the hot sector (bubble) back then. The market began to take off and the Fed abandoned that policy and began to raise rates chasing the market to its all time high in September 1929. Will history repeat but this time the coercion is coming from Trump?
I’m sorry, but the press keeps putting out this BS that lower rates are bullish when they are indicative of depression or recession – not bull markets. This is what they teach in school that lower interest rates will smooth out the economy according to Keynesian Economics – a total lie! I do not know of one school that teaches the truth. This stupid theory has NEVER worked and there isn’t a school or any of the media willing to ever tell the truth. This is why you have people like Trump who scream at Powell without just cause because he has been taught the classic propaganda.
Even Paul Volcker had the courage to warn that the Keynesian economics failed. He even told me that the Economic Confidence Model was correct that the business cycle was about 8 year. We do not stand a chance that society will ever get this right because the media insists on reporting fake news to keep these stupid theories in play.
Back in 2009 when I said the low was in place and the market would rally to new highs, Barron’s report that as a joke. They thought that was really funny.
