Trump Asks the Fed Start a Currency War With China

-edited

To win his trade war, Trump seeks a currency war.

Pump the Money

China will be pumping money into their system and probably reducing interest rates, as always, in order to make up for the business they are, and will be, losing. If the Federal Reserve ever did a “match,” it would be game over, we win! In any event, China wants a deal!

Lead image from Hedgeye with my anecdote in white.

Another Routine Lie

For starters, note the routine lie in Trump's Tweet. If China wanted a deal we would have one. More accurately, both sides have to want a deal.

But wanting a deal and demanding terms the other side cannot accept is an admission you really don't want a deal.

Currency War

The important point is not the routine lie which we expect daily from Trump, but rather his proposal for a currency war.

Trump explicitly stated he wants the Fed to pump money and cut rates to "match" China. That's a direct call for a currency war to debase the US dollar.

Manipulations - Two Means to an End

China pegs the yuan, allegedly keeping it undervalued.

But interest rate cuts are just another means to the same end. The US dollar is strong because the Fed is the only advanced nation that has been hiking. The ECB is still accumulating assets.

Interest rate and QE wars serve the same end as pegs, ceilings, and floors: competitive currency devaluation. Meanwhile, the manipulators (every nation) point the finger at China.

Why Now?

The key to Today's Tweet stems from today's import/export price report.

Agricultural Imports and Exports Synopsis

  • Agricultural Exports: The price index for agricultural exports decreased 1.5 percent in April following a 1.0-percent advance in March. The April decline was driven by a 17.2-percent decrease in vegetable prices and a 6.8-percent decline in fruit prices. A 2.6-percent drop in corn prices also contributed to the overall decline in April. Prices for agricultural exports fell 2.8 percent over the past year. The 12-month decrease was led by a 14.1-percent drop in soybean prices. Lower prices for fruit, cotton, nuts, meat, and corn also contributed to the over-the-year decline in agricultural export prices.
  • Foods, Feeds, and Beverages Imports: The price index for foods, feeds, and beverages rose 2.8 percent in April, the largest monthly advance since the index increased 3.1 percent in July 2016. The April advance was driven by higher prices for fruit, vegetables, and meat.

For details, please see Forecasters Miss Inflation Targets By a Mile: Steep Decline in Ag Export Prices.

Message Not Heard

Things got so serious in April that Iowa Senator Chuck Grassley warned "Trump’s Tariffs End or His Trade Deal Dies".

Trump did not heed Grassley's message.

Instead, Trump wants a currency war and a weak dollar to boost exports and reduce imports.

Soybeans at 2008 Lows

Soybean prices have been falling since 2012. Don't blame Trump for that. But his tariff tactics and China's retaliatory agriculture tariffs put the screws to the US.

See-Through Bluster

That Tweet is so preposterous, everyone admits it, even Trump's own advisers. Note that Kudlow Admits the Obvious: Trump is Wrong.

Much like a playground bully coward, Trump's preposterous see-though bluster unmasks his fears.

And today's import export report pinpoints the weakness Trump wants to hide: agricultural states in the upcoming election.

Stop the Lies

On May 10, I asked Dear President Trump: Stop the Damn Trade Lies.

But Trump is doubling and tripling down.

Where Does It stop?

With Trump it hasn't and perhaps won't.

Trump's scorecard is a big zero on: USMCA, TPP, China, and the EU.

Meanwhile we have threats of escalating trade wars with a new threat of currency wars on top of it.

Good luck with that.

Mike "Mish" Shedlock

Comments
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Winn
Winn

Next: Pentagon

magoomba
magoomba

Inflation causes depression.

AWC
AWC

What the hell,,,money’s free, therefore, a currency war doesn’t cost anything. That means, we win,,,er,,,sump’n like that? China wins, too. Wow, everyone wins!

Must be something in the water, maybe?

lol
lol

DT will never surrender,Barak surrendered,DT watched 8 years of BO getting humiliated,bitch slapped,made a worldwide joke by the Chicoms and well....everybody,DT is determined to not let that be him.

Menaquinone
Menaquinone

President Trump is an accomplished military scholar. He knows well that in war you never play fair. You use every available advantage relentlessly. Never give a sucker an even break. A currency advantage would help.

It's fun to watch the pathetically mediocre brainpower of Emperor Xi and his bureaucrats match wits with the towering intellect of President Donald Trump. Like a pool shark he lets them think they are still in the game until the last three balls. He could have cleared the table on his first turn.

China is in the midst of a meat shortage. Without soybean imports from USA and pork imports from USA it gets worse. Massive layoffs are coming to China. Flight of capital is in stampede. Banks are failing. Dollar reserves are inadequate to finance imports. This is only the second inning. There is no upper limit to tariffs. Could go to 100%, 200%....

The end game is a Chinese revolution of two hundred million hungry penniless peasants. Likewise in Russia as in Venezuela.

wootendw
wootendw

"Trump explicitly stated he wants the Fed to pump money and cut rates to "match" China. That's a direct call for a currency war to debase the US dollar."

If Trump wants the Fed to debase the currency, they could do it with another round of QE but, instead of purchasing more debt, just print money and buy gold. This would drive up the POG while driving down (debasing) the dollar.

Eventually, as gold reserves accumulate and the POG rises, we might come to a situation where the

POG = total gold reserves divided by money supply

Then we can declare a gold standard with 100% backing.

Sechel
Sechel

Trying to find out what Trump wants. If we buy less from China then we're borrowing less from china and consuming less and saving more? Either way doesn't our standard of living go down?

Snow_Dog
Snow_Dog

“Trump's scorecard is a big zero on: USMCA, TPP, China, and the EU.”

All I know is 1998 is the last time a year has started off this well for the stock market. Keep on buying, folks.

MaxBnb
MaxBnb

Trump want another Plaza Accord. Trump and everyone else believe in Mercantilism. Mercantilism was refuted by Adam Smith and David Hume 200 years ago.

Solution is Commodity money like gold and silver

bayleaf
bayleaf

This is only started to get interesting. It would be unfortunate if it is not allowed to play out because of false narratives and the upcoming election.

BigGringo
BigGringo

weak dollar will do wonders for oil prices....

Casual_Observer
Casual_Observer

"You can't con people, at least not for long," Trump writes. "You can create excitement, you can do wonderful promotion and get all kinds of press, and you can throw in a little hyperbole. But if you can't deliver the goods, people will eventually catch on."

Aaaal
Aaaal

The TWIT-ter-in-chief at it again.

KidHorn
KidHorn

I would prefer that every country drops all tariffs and not intervene in Forex, but since China has been doing this for decades (and the Japanese before them), someone has to stand up to them.

Trump is right on one thing. A trade war will hurt China far more than it will hurt us. Their economy is far more dependent on US exports than ours is on Chinese exports.

TheGreatMiginty
TheGreatMiginty

Once tariff reality hits businesses will just move out of China to Cambodia, Vietnam, Philippines, Thailand and many back to USA to more automated production lines. Items like steel will ship to Canada and Mexico first and relabel origin then ship to USA.

frozeninthenorth
frozeninthenorth

I've got a suggestion for the White House, make all economic information secrete that way he can say whatever he wants. he should fire all economist and then make sure that all the data is hidden.

Advancingtime
Advancingtime

It is possible that Fed Chairman Powell is trying to navigate a course that doesn't cause the dollar to strengthen to where it devastates emerging markets creating massive instability. The dollar holds a special place in the world currency market. Following the recent strong job report it is surprising we are not hearing anyone talking about raising interest rates or how this may be inflationary. Instead, the focus has been steered in the direction of how we have obtained a "Goldilocks" situation and if anything Fed Chairman Powell may have room to cut rates even more. The article below explores the Feds stand.