‘Loose cannon’ Trump may take aim at Wall Street
WASHINGTON — Let’s face it — Donald Trump is smarter than he looks.
For all the personality flaws the press loves to dwell on, the presumptive Republican nominee understands more about real world finance than all the deficit hawk politicians in both parties put together.
As he clarified his remarks about consolidating U.S. debt by buying back bonds at a discount when interest rates rise, he was setting the record straight on those who thought he meant to renege on the debt and effectively default.
Not at all, Trump said last week. And then he dropped another bombshell in explaining why that’s not even possible.
“This is the United States government,” Trump said on CNN. “First of all, you never have to default because you print the money, I hate to tell you, OK?”
Bingo. With a stroke, Trump demolished decades of homage by many economists and virtually all politicians to the straitjacket of a monetarist dogma that ignores the realities of present-day finance.
In fact, intentionally or not, Trump embraced a radical view of money and debt advanced by economists like James Galbraith, professor at the University of Texas and son of the legendary economist and presidential adviser John Kenneth Galbraith.
That view, known as modern monetary theory (MMT), holds that governments that control their own currency can print money without risk of inflation unless full employment creates excess demand because it is no longer tied to gold or some other measure of value.
“This is a Nixon-goes-to-China moment,” Randy Wray, a leading MMT exponent at Bard College in New York, told Bloomberg, hailing Trump as “a Republican far to the left of the Democratic party apparatus who wants to promote rising living standards of Americans.” (President Nixon’s 1972 trip to China represented a major breakthrough in relations because of his past as a fervent anti-Communist crusader.)
Along with all his controversial views on immigration, terrorism, and trade, Trump is bringing a new perspective to public finance and to financial regulation based on his first-hand experience of dealing with real financial issues around the world.
Economic blogger Mike Norman, another advocate of MMT, said “in one comment he has done more to advance the discussion and expose the truth than what any of us have done in over a decade.”
Trump’s idiosyncratic views on debt are of a piece with his remarks that hedge fund managers are “getting away with murder” by paying a lower tax rate on income than anyone else and his mocking both his Republican rivals and Democratic frontrunner Hillary Clinton for being beholden to Wall Street because of their donations. (He may change his tune now that he is also soliciting money from megadonors.)
Trump wants to abolish the Dodd-Frank financial reform act and in general eliminate a slew of regulations on financial services and other industries. In this respect, he is more in line with Republican orthodoxy.
Trump adviser Roger Stone, however, suggested in the New York Times this week that his candidate would get even tougher on banks as the campaign progresses and win over supporters of Democratic hopeful Bernie Sanders, a fierce critic of Wall Street.
“Who’s been tougher on bankers than Donald Trump?” Stone is quoted as saying. “He’s taken them to the cleaners. I think he has a healthy skepticism and deep knowledge of bankers and how they operate. He’s going to be tough on Wall Street.”
The American Banker, a reliable mouthpiece for the industry, earlier this month reported how the lack of any policy specifics from Trump has Wall Street on edge.
“Just six months out from the general election, Trump’s positions on banking issues remain a complete mystery aside from a general pledge to roll back the Dodd-Frank Act,” the publication said.
Many of those quoted just assume Trump hasn’t given these questions much thought, and they suggested that the devil they know — Hillary Clinton and all the Dodd-Frank regulations — might be a better choice.
Clinton, for her part, has rejected Sanders’ radical proposals to break up the banks and solve the “too big to fail” (TBTF) problem once and for all.
She sidesteps the TBTF issue and instead uses the smokescreen of getting tougher on “shadow banking” to distract from the absence of any real alternative to bailing out megabanks if they get in trouble again.
Clinton effectively would keep the countless rules in the thousands of pages of the Dodd-Frank Act and add even more to them.
Sanders would solve TBTF by downsizing the banks and reducing the need for complex regulations for all banks, including the community banks currently hamstrung by Dodd-Frank.
Trump has not adopted a position on TBTF, but the self-proclaimed “king of debt” would no doubt welcome an environment where banks were simply allowed to go bankrupt and not require a government bailout because of their systemic importance to the economy.
Clinton has called Trump a “loose cannon,” and that may be what Wall Street is most afraid of. For all they know, there may be other Nixon-to-China moves lurking in the back of his mind.
In the meantime, it’s becoming clear that after decades of dealing with them, Trump’s got their number.
Columnist Darrell Delamaide — @ddelamaide on Twitter — has reported on business and economics from New York, Paris, Berlin and Washington for Dow Jones news service, Barron's, Institutional Investor and Bloomberg News service, among others.