What Will Trump Do About The Fed, The Debt Ceiling, And Trade: His Key Economic Advisor Explains

Tyler Durden's picture

One of the biggest open questions troubling Wall Street traders (and everyone else) in addition to which of his close allies (and in the case of Mitt Romney, not so close) will the president-elect pick to staff the most important political posts in the new administration, is what are the details of Donald Trump's economic plan, especially as it involves the Fed, Trade, and the future of US national debt.

An answer came courtesy of one of Trump's key economic advisors, David Malpass, who has been tasked with overseeing the transition for the Treasury Department and economic policy. Last month, Malpass addressed a group of economists and reporters in Washington, laying out the core Trump vision ahead of his election. 

While some of the core tenets may have changed, the focus remains the same (as confirmed by Steve Bannon's interview from Friday). Courtesy of the WSJ, here are excerpts of his remarks on a range of economic policy subjects facing the incoming Trump administration:

On renegotiating the North American Free Trade Agreement:

I was there at the beginning of Nafta. The idea of Nafta was, it was supposed to be…a very clear, free-market orientation that would allow both sides of the border to do what they do best in the classical sense of more commerce.

But as it was negotiated, year after year, special interests descended upon it. And it got thicker and thicker and thicker. This was 1989, 1990 and into 1991. It’s up to 1,200 pages and then [President George H.W.] Bush left, [President Bill] Clinton came in and added the environmental chapter and the labor chapter.

It became this monstrously large, managed trade process that doesn’t work at all for small businesses in the U.S….

There are too many parts of it that are not working. There is supposed to be regular annual review between the parties of Nafta to see where it’s not working well and to have kind of a constant process of renewal. That’s been dropped away. And so that’s something that needs to be looked at.

On the federal debt limit:

Think how odd it is to the public that here, Washington, D.C., keeps suspending the debt limit. We have a $20 trillion debt and Washington’s response to that is to suspend [the debt limit] because they can’t meet it, because it keeps going up. So it will, remember, be reinstated in March.

There will be a temptation in Washington to simply suspend it again, which is a nonworkable solution for the American public, because in the end, they’re going to have to pay that national debt.

Instead, what I would like to see everyone agree [is] that the current debt-limit law is simply a failure. It doesn’t limit debt. It doesn’t even limit spending, because the spending occurs and then the debt has been accumulated. And then members of Congress are asked whether they approve debt that has already been spent.

So we have to recognize that this has been a complete failure of a law. We ought to have a way to rewrite the law so that it at least attempts to control spending before it becomes debt, rather than after it becomes debt.

On the Federal Reserve:

Trump has talked about the politicization of the Fed. A way for people to think about this is the Fed is an independent agency within the U.S. government. That we want.

But the results of the Fed’s policies have been highly disappointing. For years, in 2010, 2011, 2012, the Fed would start the year with an optimistic forecast that, due to the stimulus it was providing, the economy was going to grow 4%. Then as the year went on, they’d be lowering their forecast to 3%, and then to 2%….We’re now at 1.4% despite the Fed thinking that it has pedal to the metal in terms of stimulus.

That’s a grievance that needs to be brought from the American people to Washington to say, ‘This system that you’re running simply does not work.’

And so that was the context of wondering about the political inclination of the Fed….Governors are approved by the Senate. They have political leanings. So there’s a problem in thinking about, Are we getting the best policy?

We need monetary integrity. We need to have a situation where the U.S. dollar is a trustworthy currency. I would like to see the world’s most trustworthy currency. We don’t have that in the current system.

On infrastructure spending:

We all agree we need more infrastructure. We have to find a system where the private sector wants to finance a lot more infrastructure.

There was an article in The Wall Street Journal showing around the world $50 trillion in cash. Most of the cash is now either negative—I don’t know the numbers anymore because they keep going up—but $12 trillion in negative-interest-rate yielding bonds.

All I have to do is show you an infrastructure project that returns zero, meaning—so for 30 years, you’re going to have a bridge. And it’s going to break even. And that’s good enough to beat the hurdle rate that the market is choosing right now.

So it seems clear to me that what’s broken in the system is not the sources of financing for infrastructure, but the obstacles to actually getting it built. So that means property rights. That means permits. That means the choice of project. That means the interstate cooperation.

In New York state, we have this giant problem where the infrastructure is jointly owned between the state, New Jersey and the city of New York. So imagine trying to get those three actors to agree on a tunnel under the Hudson River or whatever project you want to do.

On debt management by the U.S. Treasury:

Right now, the U.S. issues a certain amount of longer-maturity debt. So every treasurer in the country in the corporate sector is trying to lengthen the maturity of their debt given the low yields that are available. So we just saw Saudi Arabia do a gigantic bond deal at a 3.5% interest rate for a 10-year security. And it was presented, rightly, that that will help stabilize their finances.

So a lot of developed countries are issuing huge amounts of long-term debt right now because the market wants the debt and because that will benefit the taxpayer for the long run. Remember the trade-off.  That means in the very short run your interest costs go up a little bit because you’re lengthening the maturity. Now every corporate treasurer makes that trade-off and says, ‘I’d rather have the stability of the long-term debt.’

So here’s the problem: The Fed has been buying up a large percentage of the long-duration debt. So every time a bond comes due at the Fed, they roll it into a long-maturity purchase-back. So they’re buying back the debt that should be in the private sector.

So one thing Treasury should be doing, to Trump’s point, we should be refinancing the debt into longer maturity. That means as debt comes due, issue longer maturity. And that would protect the taxpayer and be the logical thing to do.…

So shouldn’t the U.S. government be doing that and why aren’t we? Well, because it makes our budget deficit look good for one year, but the cost of that is for 30 years you’re missing the opportunity to lock in these low rates.

On the Dodd-Frank financial-regulatory law:

So Dodd-Frank hasn’t worked. Lots of luminaries including Alan Greenspan have pointed out that it’s just an unworkable concept of a law, and so how do you begin to get back to a system that works for average Americans….[House Financial Services Committee Chairman] Jeb Hensarling has a comprehensive bill on various segments of that problem and those are well-received in the campaign.

On carbon pricing to address climate change:

That is not a market-based way to have more energy benefits for the nation from the huge resources that are here.

On a housing-finance overhaul:

The current housing-finance system is very government-centered. Fannie and Freddie are doing a giant percentage of the conventional mortgages. There hasn’t been much ability to regrow private-label mortgages, and so that’s a system that’s much too Washington-centric.

Now whether that gives you a path in Washington—there’s how many plans on what to do with Fannie and Freddie, probably two dozen, right? I think the direction of the administration would be to change housing finance and improve it so that it works better for average Americans.

If you look at the skewing of the average mortgages that are being given now, rich people are doing a lot better on their mortgages than average people within the current regulatory structure.

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Il Dottore's picture
Il Dottore (not verified) Nov 21, 2016 10:46 AM

GLaSs steagall or death. Fucking Israel would help too. AMERICA First!

flaminratzazz's picture

bill clitwoman shitcanned g/s and 10 years later.. crackup boom.. wodathunk?

NoDebt's picture

"A way for people to think about this is the Fed is an independent agency within the U.S. government. That we want."

But... it's NOT.  It's a privately owned..... oh, who gives a fuck at this point?  Go spend your assess off, do whatever you want for all I care.  I'll survive the currency implosion.  You won't.


Holy hand grenade of Antioch's picture
Holy hand grenade of Antioch (not verified) NoDebt Nov 21, 2016 10:53 AM



Now there's a knee slapper!

rccalhoun's picture

the entire world is awash in debt.  unfortunately, this debt will keep growing until it is no longer servicable. 

once large portions of debt are not honored...war will follow and a complete system reset of which no human life is

a possible outcome.  hows that for a bright forecast on a Monday morning? 

Pairadimes's picture

These issues are where the Trump administration succeeds or fails for the American people, and this crap is not reassuring. Congress needs to take back responsibility for the currency from the Fed. A path back to sound money needs to be laid out in policy and passed as legislation. There will be no better time to address these issues than the next two years. If not now, when?

crossroaddemon's picture

Honestly... never. The chance to actually take on the central bankers and win was lost over a century ago. Hitler tried and look where it got him. It's way too late now.

wildbad's picture

there is no easy way out. this thing is coming down. a reset is inevitable so the real discussion is "what comes next"

us congress needs to end the fed and do their jobs.

crossroaddemon's picture

Not a chance. They know on which side their bread is buttered.

rccalhoun's picture

and on the day of the big reset of all the cancelled debt.....stocks will be up

spastic_colon's picture

FAS 157 comes to mind........ya know........mark-to-market

The Wizard's picture

Hell, the number of spineless morons in Congress greatly outweigh those with fiscal responsibility. They might very well be worse than the FED.

Trying to explain this to an ignorant elecorate is next to impossible since they are clueless on the topic. We can than the educational system for its promotion of Keynesian theory.

joeyman9's picture

They are on the ropes right now, time to hit them with a jubilee or even a default.

Sick Underbelly's picture

Who do I pay, if I want to pay off this "debt"?

Yukon Cornholius's picture

Trill (that's Ebonics for true&real)

auricle's picture

Genious! Refinance the debt into longer dated treasuries. Trump is a genious! /s 


No mention of rate normalization means that the bubble ponzi game continues. Full stop...That means housing bubble continues until it doesn't. And this jag off is wondering why private-label mortgages aren't growing. The only reason why private-label entities will give a loan today is because they can sell it to Fannie and Freddie. Without socializing the risks and losses there would be no housing market.


Very unimpressed by this economic advisor. 

Rabbi Chaim Cohen's picture

David Malpass looks to be another business as usual, slightly right leaning globalist-yes-man. He worked George W. Bush and for Bear Stearns which should disqualify him to advise an "independent" POTUS on anything. NO FORMER BANK EXECS, TRUMP!!!! PERIOD!!!

PavlovPup's picture

His policy sounds alot like Trudeau's game plan, co financing of infrastructure debt by public and private sources. Trump and the socialists who knew?

flaminratzazz's picture

the creature from jekyll island is alive and well. central banking will not be stopped until humans return to the cave and probably not then either. ALL other financial problems seems to be a symptom of central banking. The parasite is attached to the world's spinal cord.

Paul E. Math's picture

If you could somehow reform campaign finance to make elected representative independant from large monied interests then there might be a chance of something meaningful being passed.

But if all campaigns require large amounts of this thing (money) THEN whoever controls the production of this thing (money) will effectively decide who is elected and what they do when in office.

11b40's picture

There is a simple way, just not a simple way to pass it.

If you can't cast a vote, you can't make a contribution.

That eliminates all corporate money, foreign money, PAC money, Union money, etc.  Only living, breathing human voters allowed to provide campaign funds for the offices to be filled and people to govern over the voters.  No big corporate sponsored conventions or any donations of any kind.  No "Party" money, either.

Corporations are NOT people.  

adanata's picture


Well, Trump has had his visit with Kissinger so the Baron's message/terms/threats have been delivered... as we all knew would happen. What I had said is the Baron's will make Trump look really good to the average person; or the majority of them anyway, providing some manufacturing/jobs and so on. The Deep State System will only go down by blood. In order for that to happen the People would have to know it existed. I don't think they do.

X_in_Sweden's picture
X_in_Sweden (not verified) Il Dottore Nov 21, 2016 10:56 AM

David Malpass.....tribe?

His wife is  (((Adele))).

I've noticed Wikipedia is conviently removing the religion/race/ehtnicity/heritage, or whatever it is, for tribe members.

"...Malpass and his wife, Adele, daughter of Herman Obermayer and grand daughter of Neville Levy, live in New York City. Adele Malpass is the Chairwoman of the Manhattan Republican Party.[17] Malpass is a native of northern Michigan.[18] ...(This page was last modified on 20 November 2016, at 15:48.)"

Herodotus's picture

Mal means bad. 

On the face of it, this is not a good sign.

X_in_Sweden's picture
X_in_Sweden (not verified) Herodotus Nov 21, 2016 11:16 AM


C'est vrai Herodotus

J'ai etudié francais six année.

Whereas, malström in Swedish, maelstrom has its roots in the sw. - mala/malen.

Sometimes it's all greek to me Herodotus. ;)

Azannoth's picture

(((They))) are starting to get the jitters every day more and more are starting to see the "invisibles" who controll pretty much anything you can name.. 

Alternatively (((they))) know about or(more likely) are actively preparing a blood-letting of epic proportions and don't want to be fingered for it.

You can run but you can't hide *uckers!

PS. I was recently blown away when my mechanic started to rave about "the Rothchilds", I kid you not!

Holy hand grenade of Antioch's picture
Holy hand grenade of Antioch (not verified) X_in_Sweden Nov 21, 2016 11:11 AM

I caught that too...


It used to be kind of an 'in your face' pride kind of thing, but recently, since the spotlight has been shined squarely on the rats in the attic, suddenly they're all scurrying for darkness again.



Sick Underbelly's picture

Yes...been seeing the tribe references disappearing more and more.   Used to be very easy, as Wiki made it clear...not so much anymore.

ZH Snob's picture

wow, longer term debt, that's the answer!

neither trump nor any other politician will change the fundamentals of credit, debt or money until it all blows up in their faces.  and that is nothing they will ever speak of in advance of its occurence, or approach proactively.

JLee2027's picture

People who hate Israel reject the Lord and his plans.  

flaminratzazz's picture

sell the fed bankers the Higgs Boson for 50 trillion

Archive_file's picture

No mention of student debt (1 trillion).

Herodotus's picture

The student loan program needs to be ended.

This would dramatically reduce the cost of college tuition.

It would dramatically reduce the number of people employed in academia; freeing them up to do something productive.

It would dramatically reduce the number of students, particularly those who don't have the aptitude for college in the first place.


Azannoth's picture

"..freeing them up to do something productive" - I think we have enough burger-flippers and gas station attendants as is cuz I doubt they would be qualified for anything other than the most menial of jobs.

Sick Underbelly's picture

Maybe these azzhat "academics" could go out in the real world and apply some of their "brains" to problems that everyone sees, and maybe creative solutions would emerge, instead of sitting in hallowed halls, sipping $50/lb tea, mostly-unaware of what toils and troubles the average folk experience on a day-to-day basis.

Or, you could just try pissing in one hand, and see which which happens first.

Mass_hysteria's picture
Mass_hysteria (not verified) Nov 21, 2016 10:45 AM

Not one straight answer.

crossroaddemon's picture

Yeah, that's kind of what I thought too. But I do glean two things out of it: The fed isn't going anywhere, and probably neither is nafta.

Herodotus's picture

He is just proposing a bunch of nibbling around the edges of the problem.

No talk of dramatic cuts in federal spending.


Sick Underbelly's picture

Same old shit. 

If we compiled a comprehensive list of "Just About Everything that Needs to be Done, Pronto!", and we tracked it, my guess is we'd see less than 5% done in 4 years.

I'm pretty sure there is a decent consensus around here of some major, needs-done points across the economic and legal landscapes.

It would make a very good point in showing nay-sayers and Trump-optimists alike:  a) how far/close Trump is aligned to affecting real change, and b) how futile/useful it was to have hope in Trump-change, after 4 years.

To compromise, we could use the "76 campaign promises" site and track that shit; I still anticipate less than 10% (no more than 7) accomplished in 4 years.

Joe Cool's picture

Ya...It's all a mess...The Fed, infrastructure this, debt management that, DoddFrank...What will change...



When the solutions are worse than the problems themselves, you keep the game going I guess. 100 year treasury bonds here we come!

crossroaddemon's picture

I remember when Obama started backpedaling on stuff right after his meetings with Bush. A friend of mine threw out the notion that the truth is so horrible, once an incoming president learns it he falls into line because he realizes that to do anything else would be catastrophic. Maybe there's something to that...

PGR88's picture

Break up Wall Street Banks

No FED guaranties or bailouts for non-deposit taking entities

Reinstate double-liablity for financial firms with shares held publicly

Ban the FED from buying US government securities

ejmoosa's picture

And we need to bring 90% of the Treasury sales back into the US to US residents.

Having others buy our debt because we don't want to mus mean that whatever we are spending it on is not really that much of priority.


THis is the way the American Public can get spending back under control.  We do not like what is happening, we quit buying the paper.

MEFOBILLS's picture

When a foreign country buys U.S. public debt, they are NOT BUYING GOODS.  If mainstreet is not making goods as prices, then they are not making a living.

When there is a trade deficit with U.S., that means foreign countries are accumulating DOLLARS.  These dollars can then recycle to U.S. to either buy debt instruments or buy goods.

All foreign trade is only barter.

All foreign trade is only barter.

All foreign trade is only barter.

All foreign trade is only barter.  

There should be a third circulating medium relating to international goods exchange.  Trading money for money, and buying foreign debt instruments in this way is fu**ing insanity of the highest order.

The best device ever invented for INTERNATIONAL GOODS EXCHANGE is the Bancor.  (A bancor is an accounting device relating to goods, not money.)

We need another Bretton Woods to reset the international trading system.   Exporting dollars so that foreigners can put future American's in debt... really.  Humans are that dumb? 

Maybe we should all just put a bone through our nose, paint ourselves, and go jumping around like a monkey. 


flaminratzazz's picture

When CERN punches the hole into the bottomless pit, how much will that be worth?

Holy hand grenade of Antioch's picture
Holy hand grenade of Antioch (not verified) flaminratzazz Nov 21, 2016 10:55 AM

infinity joobux (& beyond)!

shovelhead's picture

Room for more debt?


small axe's picture

Ron Paul for Fed chairman