The first thing we need to do is get rid of inflation targeting and try to become more competitive by allowing the market to automatically do it. If the Fed wasn’t in the way, we would have high interest rates and a deflating price system as the economy attempted to adjust to the massive new competition in China.
…What do you think of Trump’s trade policies and tariffs?
David Stockman: The trade policies are idiotic. They haven’t improved the trade deficit. And have caused other problems.
We got the numbers in now for 2018 and we had the largest trade deficit in history!…
International Man: If Trump was serious about making the US industry competitive, what could he do?
David Stockman: The best thing he could do is a housecleaning of the Fed.
The Fed’s policies are the number-one enemy of real sustainable growth, job creation, and the American economy.
First, the 2% target inflation is absurd.
We’re in a world where we’re competing with $5-an-hour labor in China and $15 or $18 in South Korea. We should be deflating our economy, not inflating it, because when we inflate a price level, wages go up with it, and we become just that much more uncompetitive in global trade either as an exporter or in competition with the imports coming in.
The American worker isn’t any better off because he got an extra 2% in his wage. He’s paying 2%—if not far more actually—at the grocery store, at the doctor’s office, for education costs, and for transportation.
The first thing we need to do is get rid of inflation targeting and try to become more competitive by allowing the market to automatically do it. If the Fed wasn’t in the way, we would have high interest rates and a deflating price system as the economy attempted to adjust to the massive new competition in China.
The second thing is to get the Fed out of the business of propping up the stock market in fear that if the stock market is allowed to correct, we’ll have a short run of recession—which is true.
Stock crashes lead to recession, owing to this crazy financial engineering that has become the total preoccupation of the corporate C-suites of America…
To summarize, if we started deflating, rather than inflating our economy, if we get the C-suites back into the business of running companies and investing for the long haul rather than financial engineering on Wall Street, it would eventually and slowly heal our competitive situation.
It would lead to more jobs, higher incomes, more sustainable prosperity for the American economy.
But that requires a massive change at the Fed—a housecleaning, of both the people and the models and policies that they use.
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MCViewPoint 