Is This Trump's Mandate to Yellen: "Print More Money Or You’re Fired"

Tyler Durden's picture

Submitted by Michael Pento of the Pento Report

Trump’s Mandate to Yellen: Print More Money or You’re Fired!

What kind of President will Donald Trump be? Will he restore America to its former position of greatness, or end up being feckless like a long list of his predecessors? That is yet to be determined.

However, what is clear now is if Donald Trump wants to avoid starting his tenure with an economic crisis similar to that of Mr. Obama he will need to put a lid on long-term interest rates rather quickly. And in order to do that he will have to convince a supposedly politically-agnostic Fed Chair, Janet Yellen, to not only refrain from further interest rates hikes but also to launch another round of long-term Treasury debt purchases known as Quantitative Easing (QE).

The move higher in Treasury yields since the election of Trump has been nothing short of violent, but borrowing costs were already on the rise prior to November 8th. The Ten-year Note Yield began its ascent after it bottomed at 1.36% back in July. This is because central bankers arrived at a new conclusion: that a steepening yield curve would be best for the banking system and economic growth, rather than to just continually push long rates lower. The Ten-year yield climbed up to 1.83% on the day prior to the vote, then spiked to over 2.30% several days after America made its choice for president.

But why is the election of President Trump so bad for bond prices? The answer is twofold. First, Trump’s pro-growth policies of lower corporate and personal taxes, in addition to reduced regulations, are causing investors to sell fixed income products and to place funds in equities. Growth stocks simply offer the potential for better returns than the current historically-low yields found in bonds. Second, and most importantly, a Trump presidency is highly inflationary because his massive $1 trillion infrastructure refurbishment plan, along with his proposal to rebuild the military, will—at least in the short-term—significantly increase annual deficits. In fact, deficits are already soaring; the fiscal 2016 budget hole jumped to $587 billion, up from $438 in the prior year, for a huge 34% increase.

Enormously growing deficits, which will add to the intractable National debt, tends to force a central bank into an ultra-loose monetary policy. But it’s not just the $20 trillion public debt that will put pressure on the Fed to keep printing money. Total Non-financial Debt has soared from $33.1 trillion at the end of 2007, to a record $45.6 trillion in Q1 2016. That means debt as a percentage of GDP has climbed from where it was prior to the Great Recession (226%), all the way up to 250% of the economy.

A central bank that vastly increases the money supply, one that far transcends the legitimate pool of savings, is the tool used by governments to keep interest rates from skyrocketing. This has been the recipe for runaway inflation since the beginning of economics.

In addition to this, Trump’s protectionist trade policies would implement either a 35% tariff on certain imports or would require these goods to be produced inside the United States at much higher prices. For example, the increase in labor costs from goods made in China would be 190% when compared to the federally mandated minimum wage earner in the United States. Hence, inflation is on the way.

The incredible nearly 50 basis point surge in the Benchmark Treasury yield in the immediate wake of the election is proof of Trump’s fiscal profligacy and his inflationary impact on the nation.

The end of the 35-year-old bond bull market is upon us. Trump’s trade policies, along with his avowed love of debt, is putting significant upward pressure on borrowing costs. The Donald will now try to convince Janet Yellen to reverse her incipient tightening policy and bring rates back to zero—and eventually even to launch QE IV.

If rates continue to rise it won't just be bond prices that will collapse. It will be every asset that has been priced off that so called "risk free rate of return" offered by sovereign debt. The painful lesson will then be learned that having a virtual zero interest rate policy for the past 90 months wasn't at all risk free. All of the asset prices negative interest rates have so massively distorted including; corporate debt, municipal bonds, REITs, CLOs, equities, commodities, luxury cars, art, all fixed income assets and their proxies, and everything in between, will fall concurrently along with the global economy.

For the record, a normalization of bond yields would be very healthy for the economy in the long-run, as it is necessary to reconcile the massive economic imbalances now in existence. However, President Trump will want no part of the depression that would run concurrently with collapsing real estate, equity and bond prices.

But the problem is he will be asking Ms. Yellen to do the exact thing he accused her of doing during the campaign. Namely, being a political puppet of the President. If the Fed is truly apolitical, she will politely refuse. Nevertheless, what Yellen and Trump don’t understand is that our nation is both debt-disabled and asset-bubble addicted, which requires interest rates to be near zero percent or the whole ersatz economy will implode. The devastating bond bubble’s collapse will bring Trump to that reality very soon. And if Ms. Yellen doesn’t agree to pick up the speed on the printing presses she may hear the words “You're Fired”, even before her tenure is up in February 2018.

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Raffie's picture

Can't we just have Yellen beaten and call it good?

Would Trump have a different way to spend QE then others have not?

Maybe use QE to get our companies back to America, something like that?

 

ACP's picture

If a dem is voted in 2024, Trump needs to write an executive order forcing the Fed to reverse all their QE between the election and inauguration.

knukles's picture

This last long bond auction was a classic.  Sloppy, disorganized, mid bear market, so the street starts shorting the piss out of it .... It gets rally really messy, people wonder if they're sane anymore ... and then the Bond Gets Bought by Everybody when Everybody Wakes Up in the Aftermath.

Hohum's picture

Did you mean 2020?

Escrava Isaura's picture

If a dem is voted in 2024, Trump needs to write an executive order forcing the Fed to reverse all their QE between the election and inauguration.

If Trump is not running an increased deficit of about 127% by his third year (2019), not including his tax breaks deficits, Trump won’t get a second term, in 2020.

 

db51's picture

Grab her by the pussy....then wash your hand Donald

1980XLS's picture

That Pussy Healed up, and closed permanently, quite some time ago.

Most of us would much prefer you  not using "Old Yeller" and pussy in the same post.

Like the Donald, I do enjoy Grabbing some Pussy from time to time. Please don't ruin the dream for the rest of us.

Troll Magnet's picture

WHOA WHOA!!

Hang on a minute...Yellen is a woman???  I thought she was a he???

knukles's picture

Here puppy.  Come on, come here and see daddy.

AtATrESICI's picture

Kick yellen's pussy too?

Raffie's picture

NO!

You may not get your boot back.

Nooo thx....

Money Counterfeiter's picture
Money Counterfeiter (not verified) Nov 15, 2016 7:34 PM

OMG these fuckers need to raise the Fed Funds rate to 5% YESTERDAY!

Escrava Isaura's picture

Why not 15%?

18%?

 

bada boom's picture

That will happen in his second term.  Got to keep the dream alive.

Escrava Isaura's picture

Não entendo LFT.

 

hxc's picture

You don't understand. Last guy to hike rates to the moon to squash inflation and clear out malinvestment was the last white person in charge of the Fed.

Pick a libertarian conservative, Donald. World history will thank you. Hell, pick an ancap and END the fucking fraudulent FED.

Escrava Isaura's picture

Ending Central Bank?

Trump’s wealth, pardon me, pretty much all the wealth created in the US wouldn't exist if wasn’t for the a)Central Bank and b)Global Reserve Currency.

How am I so sure?

70% of the US economy is consumption. And consuming products from all over the world.

Ending Central banking will never end; the contrary is happening:  

In 2011, the United States bombed the living daylights out of Libya. Before Muammar Gaddafi was even overthrown, the U.S. helped the rebels establish a new Central Bank of Libya and form a new national oil company.

Central banks are specifically designed to trap nations in debt spirals from which they can never possibly escape. 

http://www.zerohedge.com/news/2015-06-10/guess-how-many-nations-world-do-not-have-central-bank

 

Buckaroo Banzai's picture

Fiat currencies all end the same way. Might as well get on with it.

adr's picture

Handing out money to the real economy might actually do something. 

Handing trillions to Wall St made everything more expensive and 99% of America got nothing for it. 

two hoots's picture

who do you hand it to? 

knukles's picture

Raising had, bouncing up and down off folding chair.

Secret Weapon's picture

No need to hand out money, just do two things.   Suspend the personal income tax for anyone making under 500k.   Eliminate the health insurance mandate that no one can afford.  This puts more more money in the pockets of the people. Business picks up.  Done. 

Hohum's picture

Giving people money or cutting taxes (same things) does not solve the chronic problem of total debt rising faster than total income.

two hoots's picture

Trump will cut taxes and make up the dfference (+) with Fed printing/gov bond buying.   Taxpayers will feel good.....in ignorance.   That is the Obama trick.  Kinda like global warming...people like the nice weather but..........?

BandGap's picture

This is yet another one of those times I just sit and watch this bullshit. Seriously, who the fuck is steering this fucking ship anyway? It isn't me so I'm just going to get the old lifeboat ready for when we hit the iceberg and make sure my tribe has a reasonable chance at survival. Until then I'm watching the show, enjoying the sights.

Disgruntled Goat's picture

" fiscal profligacy"....the guy has not even been sworn in yet... profligacy has come under obama and bush.... nothing to do with Trump.... can't we get  contributers who can talk about something other than how Trumps policies will affect their book?

bruinfan's picture

Wrong on every account.

Except for the fact that Yellen does need to be fired.

I hope Yellen raises interest rates 500 basis points out of spite - ironically, that's exactly the jump start the economy needs.

GoinFawr's picture

haha!  Now THat would be proper fucked!

Escrava Isaura's picture

Wrong!

Credit creation or the government borrowing directly from the Central Bank and buying services and goods from small business.

Spending leads. Interest rate follows, stupid.

You have been here for over two years and still haven’t learned. Why are you doing commenting, if you don’t get the basic facts right.

 

hxc's picture

HAHAHAHAHAHAHAHAHAHAHAHAHAHAHA

The guy spouting third-grade Keynesian nonsense is telling another poster he hasn't learned anything here???

Kabissa's picture

maybe doubling USG debt during 0zamas' tenure wasn't enough of a spending spree to trail-up the stubborn low interests rates...

economessed's picture

Trump has experience with bankruptcy. His organization is just fine today. He recognized the product of a bad decision, took the temporary pain, learned from it, and came through stronger and better than ever.

That's exactly the position the US is in: totally bankrupt. Let's use this moment to recognize the years and years of bad decisions, broken promises, debt-based economy, etc. and start over. We're broke and it is beyond our capability to fix it. We and all future generations are debt slaves to past asset consumption.

Let's get a fresh start in the land of opportunity!

Escrava Isaura's picture

Let's get a fresh start in the land of opportunity!

Really?

Could you describe fresh?

 

Verlorenes Geld's picture

"Fresh" as in any "fresh start" that the law(s) allow one exiting Bankruptcy.  In my mind, it's much more of a "fresh start to the game --- again".  Really, there's nothing dramatically different to try, just variations and moves within "the game".  That is, unless you (you yourself) are hiding some revelatory and unheard of economic concept that'll work out wonderfully in Amerika. 

hxc's picture

You have to understand, this guy knows precisely zero English idioms.

Jayda1850's picture

I know this is all speculation, but fuck me.

http://thehill.com/homenews/campaign/306144-trumps-cabinet-how-it-is-sha...

"Other names being discussed for secretary of State include former Deputy Secretary of State Richard Armitage and former Treasury Secretary Henry Paulson, according to the same source with direct knowledge."

Surging Chaos's picture

I'm going to laugh if HANK FUCKING PAULSON becomes a part of Trump's cabinet.

Fill the swamp!

Able Ape's picture

Go cold turkey, raise rates to 6%, let everything crumble and start over - LOOK, Germany DID IT in 1946...It's time to take the medicine!...

piratepiet2's picture

6 percent...1946... When did Germany adopt a new currency?/When was a new currency imposed on the Germans?   

Able Ape's picture

What i meant was that Germany rose from the ashes; I'm not aware of the specifics nor of the monetary policies that were enabled - I just remember seeing photos of what  Berlin looked like...

piratepiet2's picture
Early military occupation

During the first two years of occupation the occupying powers of France, United Kingdom, United States, and the Soviet Union were not able to successfully negotiate a possible currency reform in Germany. Due to the strains between the Allies each zone was governed independently as regards monetary matters.  Each of the Allies printed its own occupation currency.

Currency reform of June 1948

The Deutsche Mark was officially introduced on Sunday, June 20, 1948 by Ludwig Erhard. The old Reichsmark and Rentenmark were exchanged for the new currency at a rate of DM 1 = RM 1 for the essential currency such as wages, payment of rents etc., and DM 1 = RM 10 for the remainder in private non-bank credit balances, with half frozen.  Large amounts were exchanged for RM 10 to 65 Pfennig. In addition, each person received a per capita allowance of DM 60 in two parts, the first being DM 40 and the second DM 20.

 

 

From https://en.wikipedia.org/wiki/Deutsche_Mark

Hohum's picture

10 year UST won't go over 3%, regardless of policies.  Deflation will continue to take hold.  That is all.

Surging Chaos's picture

Time to make the deficit great again.

Kaeako's picture

Trump promised to do what people here have been bitching about for years, but it's OK because he's Trump and he's an outsider. What's another 20 trillion in debt?

1980XLS's picture

"Comply or Die"

I think I head that before.

bruinfan's picture

It's the name of a horse.