Trump wants to copy Venezuela's biggest economic mistake

Trump wants to copy Venezuela's biggest economic mistake

If you can not remember why the United States made the Federal Reserve independent, take a look at Venezuela. If you can not remember and you happen to be the president of the United States, look twice.

Since the start of 2012, you see, Venezuela's government has forced its central bank to print its 99.9999 percent of its value. In the meantime, the regime's response has been reduced to zero. Which, of course, does not solve anything. It's trying to lose weight by changing your clothes. It might make you feel better about yourself for a little while, but it's no substitute for the real solution: not printing any more money.

This, as you can probably tell, is pretty much the worst-case scenario for what happens when politicians are allowed to make monetary policy decisions. Venezuela's inflation will go. Indeed, Venezuela's inflation will go. That's what's increasing your estimate of 12,000 percent to 1 million percent is really saying. Zimbabwe was reduced to 100 million dollar bills a decade ago.

You can not reach wheelbarrows-full-of-cash levels of inflation, though, for political meddling in central bank. Double-digit inflation is more than bad enough, and it can only take a little bit of interference to get there. That's something we've learned firsthand. The stagflation of the 1970s, after all, said Richard Nixon, President of the Fed, into the interest rate inappropriately low during his reelection campaign.

The simple story, then, is better for central banks, because easier money is always in a politician's short-term interest, but is not always in the economy's long-term one

This brings us to President Trump's latest commentary on monetary policy. He actually has a pretty strong argument when he says that the Fed should not even start raising inflation. The reason is that it's too fast to get it done with an economy that's not growing quickly enough. He's just making that argument in the worst way possible, making it not-so-veiled threats about how he's "very unhappy with the Fed," thinks it's the only independent in theory, "and that hey should be given some help" by it.

Now, in this case, you see, this is a quasi-academic disagreement about the proper pace of rate increases, so Trump has reportedly asked the Fed to print money to cover the United States' now-expanding deficit. Which, as we said before, is exactly what Venezuela did to destroy its currency. It's as though Trump were pouring water on the metaphorical slope of criticizing the Fed to make sure we did not just slippery it really.

This story would not be complete, though, this final bit of irony: Trump has spent a few weeks on the campaign trail trying Democrats of wanting to "turn America into Venezuela." At least we can say he has some familiarity with the subject.

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