#RIPUSA Paul Krugman’s Latest Conspiracy: Trump Is A Gold Bug

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 Paul Krugman’s decay from Nobel Prize winning economist to partisan hack has only escalated since taking control of his Twitter account (it was previously used to simply link to his New York Times columns.) Some notable 2016 lowlights include Krugman accusing the FBI of working with Russia, one of the more impressive election night meltdowns, and his suggestion last week that Trump losing the popular vote gives him extra incentive to have his own 9/11.

This morning however, Krugman took to the President-elect’s favorite medium to make the case that Donald Trump was actually a secret “gold bug.”

As I noted last week, Trump himself has taken a number of various position on money, the Fed, and gold (giving the gold standard a literal thumbs up last year during an interview with GQ), so it was interesting to see Krugman’s case. Did he manage to confirm the fears of Tim Duoy at Bloomberg, that Trump may put Austrians in the Fed?

Krugman’s first point is essentially as simple as pointing out that Treasury nominee Steve Mnuchin knows John Paulson, who invested heavily in gold, therefore Mnuchin must share Paulson’s world view.

Of course Mnuchin is also friends (and former business partners) with George Soros, so the logic is a bit weak. Further, John Paulson’s notoriety stems less from owning gold and more from making billions of dollars correctly shorting the housing market the Fed inflated - as Krugman advocated.  (For any fans of The Big Short, Paulson is one of the big players left out.)

While it’s true that Paulson had some of the same inflationary concerns that many Austrians had, he also saw Bernanke’s quantitative easing having some value. So instead of being some ideologically driven investor or passionate “gold bug” – Paulson was simply making a move to protect himself against what he viewed as a threat from inflation. In fact, Paulson has decreased his exposure to gold over the years. So while it’s good that Trump and Mnuchin have a personal relationship with a man who seems to read some of the same signs Austrians do, Krugman’s analysis has more to do with petty insults than anything substantive.

Krugman then set his sights on Rep. Mick Mulvaney, who Trump announced as his choice for Director of the Office of Budget and Management.

Mulvaney’s selection was widely praised by libertarians due to a record of being a rare Republican who was willing to take on defense spending. As a member of the House Financial Services Committee, Mulaveny has shown to be a Fed critic. On multiple occasions he has criticized Janet Yellen for speaking on matters outside of monetary policy and what business the Fed has in regulating commodities. Mulvaney is also a co-sponsor of the FORM Act, an ambitious if flawed attempt at Fed reform championed by Rep. Jeb Hensarling that would limit the discretion of the Fed by forcing it to adopt a monetary policy rule.

In spite of Mulvaney’s apparent embrace of rules-based monetary policy, he has embraced some issues which are praise worthy. He has been one of the most supportive Congressmen in DC on Bitcoin, praising it as a currency “not manipulated by government.”  Last year, Mulvaney submitted questions to Yellen pressing her on what regulations the Fed may place on cryptocurrencies, as well as when the last time the Fed audited its gold holdings.

Of course instead of highlighting the pro’s and con’s of having a Fed critic at the position of Budget Director, Krugman instead opted to ridicule Mulvaeny for speaking at an event hosted by the John Birch Society.

It is not a surprise that Krugman found Larry Kudlow to be the “most reasonable” “gold bug” around Trump. After all, Kudlow has supported increasing the money supply to combat deflation, was a fan of Obama’s disastrous “cash for clunkers,” and in general has fairly conventional views on the Fed.

Though it’s not a shock to see Krugman’s Twitter tirade consist mainly of insults masquerading as analysis, it is surprising the Krugman forget to mention Trump’s flirtation was another gold standard advocate – former BB&T chief John Allison who discussed the Treasury role at Trump Tower. In fact, for Austrians looking for any reasons for optimism, there are few better than the fact Allison name continues to be connected with the administration – possibly at the Fed.

Meanwhile, it is promising to see Trump surrounded by at least some people who seem to view the Fed as something less than a heroic force for good. Whether this leads to the new president fulfilling his promise to “drain the swamp” is yet to be seen. But as we wait to see what 2017 has in store for us, at least we can enjoy watching Krugman continue to destroy his reputation 140 characters at a time. 

#RIPUSA Have Trump Tweets Replaced Fed Speak? The DOD? The State Department? The Surgeon General? NASDAC? NYSE?

Another day, another Tweet from President-elect Trump has moved the market.


Lockheed Martin shares have taken a tumble following Trump highlighting the obvious on Twitter — the F-35 is an expensive boondoggle. This follows shares of Boeing dropping last week following a social media outburst criticizing the costs of a new Air Force One (the stock bounced back following the Obama Administration’s assurance there was nothing to see here), as well as a number of pharmaceutical companies seeing their stock impacted following criticism of drug prices in America. Meanwhile shares of Sprint benefited after Trump held an impromptu press conference with Masayoshi Son, CEO of SoftBank which owns the US-based cellular provider.

Last week Kellyanne Conway appeared on CNBC’s Squawk Box and was asked about the power of the soon-to-be POTUS’s social media. Her response signaled that the Trump team understands the influence he wields on the market and plans to continue using it:

President-elect Trump sees that he has this massive online platform, he says about 35 million on Twitter and Facebook combined. ... And he sees an opportunity to communicate right to people by cutting through the noise or the silence, whatever the case may be, through social media platforms. But you see that through tweets now he can affect industry, he affected the stock market yesterday, frankly, and he did it twice.
While some are rightfully horrified at the idea of bulls and bears being unleashed via Twitter, this is essentially a blunter version of the “forward guidance” policy of Ben Bernanke. While a tweet from @RealDonaldTrump is far more entertaining than an John Hilsenrath article explaining what a Fed press release REALLY means, the end result is the same: the market being steered purely based on the words of a prominent government official (or a soon to be one.)

It will be interesting to see to what extent Trump’s actions match his tweets. After all, Janet Yellen was forced to recently admit to Congress that the Fed’s forward guidance had lost its potency after they continued to signal rate increases that never happened. Even Yellen’s attempt to move away from Bernanke’s preference of steering via vague wording to a more data-driven approach couldn’t revive trust in the Fed that cried wolf.

Whether it be via tweet or press release, the idea of having our economy guided via messaging is inherently absurd. This is the unfortunate product of an economy totally detached from real market prices, one where even the most cautious investors are forced out of traditional safe investments and into frothy markets, desperately following momentum to get real returns on their savings.

If President Trump is the conclusion of decades of botched economic policy enriching the financial elite at the expense of the rest of society, then financial managers investing based on exclamation point-saturated Trump tweets is the perfect illustration of just how absurd the whole game has become.

Though it will offend the sensibilities of those in the financial media that have enjoyed casting central bankers as heroic figures following the financial crisis, their track record has shown that a building full of PhD’s is no better equipped to pick winners and losers in the economy than a former reality star sitting in his luxurious Trump Tower suite.

Of course Trump has more weapons at his disposal than those at the Fed, a reason why his tweets carry so much weight.

Next month he will inherit the most powerful executive branch in history, thanks to decades of consolidating power in the executive branch. His army of regulators and bureaucrats can ruin the lives of any business owner, or have his favor be their greatest asset. And this is precisely the problem.

We need to end the era of personality-driven policy, and return to an economy based on rewarding real production and the creation of value. This can only come by decoupling the economy from politics, which requires: massive deregulation, the abolishment of programs designed to subsidize both markets and individual businesses (such as the housing GSEs or the Ex-Im Bank), and a return to sound money beyond the manipulation of policy makers — such as the gold standard.

This may sound like a broken record for anyone who listened to Ron Paul over the years, but that’s because these principles are timeless. Markets know better than anyone in New York City, regardless of their address.

The fact American policymakers still think otherwise is, as Trump may Tweet, “Sad!”