Houston, we have a problem - a gigantic one!
Talk about spoiling everybody's weekend. Wall Street fell sharply at the close of last week's trading. Was it due to disappointment over US Fed chair Jerome Powell's much-anticipated words at Jackson Hole being just a repetition of the Fed's recent mantra that it "will act as appropriate to sustain the expansion"?
Nah, not according to Trump's tweet on August 23 where @realDonaldTrump joked (or really believed it?): "The Dow is down 573 points perhaps on the news that Representative Seth Moulton, whoever that may be, has dropped out of the 2020 Presidential Race!"
That was high noon. The Dow ended 623.34 points (2.4%) in the red; the S&P 500 index closed 2.6% lower; the Nasdaq and the Russell 2000 tumbled by 3.0% and 3.1%, respectively.
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Trump let loose on Twitter, virtually naming Powell an enemy of the state: "As usual, the Fed did NOTHING! It is incredible that they can "speak" without knowing or asking what I am doing, which will be announced shortly. We have a very strong dollar and a very weak Fed. I will work "brilliantly" with both, and the U.S. will do great..."
"....My only question is, who is our bigger enemy, Jay Powell or Chairman Xi?"
Ordering US companies to move out of China and back into the US: "Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies HOME and making your products in the USA. I will be responding to China's Tariffs this afternoon. This is a GREAT opportunity for the United States."
Upping the ante on his trade war with China: "China should not have put new Tariffs on 75 BILLION DOLLARS of United States product (politically motivated!). Starting on October 1st, the 250 BILLION DOLLARS of goods and products from China, currently being taxed at 25%, will be taxed at 30%."
"Additionally, the remaining 300 BILLION DOLLARS of goods and products from China, that was being taxed from September 1st at 10%, will now be taxed at 15%..."
With these tweets the "uncertainty about trade policy" Powell spoke of in his Jackson Hole speech has just become certain - certain to escalate further that is.
Unless POTUS reverses his "take no prisoners" policy on trade (and even his own central bank), fasten your seatbelts and hang on to your toupees!
Fed chairman Jerome Powell admitted as much at the Hole. "There are, however, no recent precedents to guide any policy response to the current situation. Moreover, while monetary policy is a powerful tool that works to support consumer spending, business investment, and public confidence, it cannot provide a settled rulebook for international trade."
Not to mention central banks' limited firepower given the prevailing low (even negative) target interest rates in most developed nations.
But there's a precedent Jerome, and its name is the Reciprocal Trade Agreements Act (RTAA), enacted by US president Franklin Roosevelt in 1934 (that replaced the protectionist Smoot-Hawley Act of 1930).
This led to tit-for-tat lowering of tariffs around the world and expanded global trade, pulling America and the world out of the Great Depression of the 1930s.
Trump's war cry of "Making America Great Again" by "beggaring his neighbours" would only end in tears ... even for Americans.