By CCN: President Donald Trump doubled down on his longstanding claim that the stock market would be 10,000 points higher if the Federal Reserve hadn’t raised interest rates during his first term.
In an interview with Fox News’ Laura Ingraham on the 75th Anniversary of D-Day, Trump assured viewers the economy is doing just swell, and would be doing even better with lower interest rates:
“I built an economy that’s incredible. We’re up $14 trillion in value. Look at what’s going on with the stock market. And this is despite a Federal Reserve that frankly should have had lower interest rates and everything else.”
The president’s choice of words, “I built an economy,” is ironic because Republicans made a lot of noise to criticize President Obama when he said of the economy:
“If you’ve got a business, you didn’t build that. Somebody else made that happen.”
The president went on to make a bold claim about the stock market:
“Now there’s a safety net that’s good – and it’s more conservative. But if we didn’t have all these interest rate – you know I – who thought he was going to raise interests all the – but if we didn’t have that, we’d be at 5.2 and the stock market would be up 10,000 points now.”
The Dow surged by triple digits on Friday. The overall stock market seemed to shrug off a worrisome jobs report and raced toward its best week since last November.
That’s because equities markets got a shot in the arm from this week’s news that the Federal Reserve Open Market Committee (FOMC) is considering a rate cut to boost the economy amid trade war fears. It appears the markets are painting the Fed into a corner.
If the stock market was 10,000 points higher as Trump seems to think it would be, that means the Dow today would be pushing 36,000.
The president obviously thinks this would be a good thing, but the real value of the Dow lies in the ability of the companies that comprise it to deliver profits via growth or dividends.
The president is essentially saying such a dramatically higher valuation (38.8 percent higher) would be justified solely on the basis of more liquidity for stock market investors and day traders.
Speaking to reporters last April, Donald Trump said:
“I personally think the Fed should drop rates; I think they really slowed us down… There is no inflation. In terms of quantitative tightening, it should actually now be quantitative easing.”
But if the Dow were 10,000 points higher because of lower interest rates, that would be your inflation. Lower rates say nothing about the ability of the companies to deliver profits.
It’s merely an increase in the money supply driving price inflation. The inflation shows up in stocks first because the new liquidity pours through equities markets first.
That is good for people upstream in the lending food chain, who get to scoop the profits before the money circulates through the rest of the economy. But it’s not so great for the blue collar workers who got Trump elected in Wisconsin, Pennsylvania, and Ohio.
Last modified: September 23, 2020 12:46 PM