This article is a continuation of the previous two articles

Won’t you pay taxes when the King of Sichuan comes?

Using tariffs to "bloodbath" the world?

As we all know, there are many economics named after people in the world, but not many are famous around the world, such as Mugabe Economics, Chavez Economics, and Erdogan Economics.

Relatively speaking, Mugabe economics and Chavez economics are very low-end, and their essence is simple and crude, that is -

If you encounter any economic trouble, then Print money;

If printing money doesn't solve the problem, it's because you don't print enough!

However, what can really sum up a set of bluffing theories is Erdogan’s economics. This Turkish president, who is similar to Trump in many aspects, is also known as Erdogan in Turkey. He "knows everything" and is very popular among the people at the bottom.

The famous saying of Ethiopian economics is:

"Interest rate is the cause, inflation is the result. The lower the interest rate, the lower the inflation rate."

You see, since Egypt’s Sudan came to power (he became prime minister in 2002), low interest rates have corresponded to low inflation, and high interest rates have corresponded to high inflation. The data has clearly shown that Erdogan An Economics The "correctness"...

There is no relationship between money printing and inflation. From 2002 to 2024, even though Turkey's broad money supply surged from 45.8 billion lire to 16.55 trillion lire , Inflation has nothing to do with money printing. As long as the Turkish Central Bank can maintain low interest rates, Turkey's inflation will go down... Even if it prints 1,000 trillion lira banknotes, it will be no problem.

During the presidential campaign, in addition to proposing to lower income taxes and raise tariffs, Trump also consistently boasted that after he takes office, U.S. interest rates will be significantly reduced and U.S. inflation will also be significantly reduced. ...

I suddenly felt that Trump transformed into Egypt, and the two "understanding kings" instantly merged into one.

So, we have to ask, after Trump takes office in 2025, will it be possible to achieve low interest rates and low inflation?

We must first define the standards, what is low inflation and what is low interest rate?

Low inflation is easy to say. Central banks around the world recognize that a CPI growth rate of less than 2% can usually be called low inflation. Therefore, this standard is relatively easy to define.

What is the standard for low interest rates?

In Turkey under Erdogan, the interest rate has been below 5% in less than 1 year in 23 years. It has been above 10% most of the time, and above 20% in 1/3 of the time. Now It is as high as 47%. In Erdogan’s view, 5% should be an extremely low interest rate.

In the United States, the highest federal funds rate in the past 20 years was only 5.5%, and it remained at an extremely low level of 0.25% for most of the time, so it is particularlyThe low interest rates in Trump’s eyes are definitely not the current interest rates of around 5%. During Trump’s first term as president in 2018, when the Federal Reserve only raised the benchmark interest rate to 2.5%, Trump yelled, If you want to fire Powell, you must clearly ask him to lower interest rates.

Based on this, we can believe that an interest rate below 2.5% is the low interest rate Trump desires. Therefore, we might as well set the low interest rate standard at 2.5% %.

With these two criteria, I can conduct an in-depth analysis of the relationship between low interest rates and low inflation in U.S. history.

The chart below compares the daily U.S. federal funds rate with the monthly CPI inflation rate over the past 70 years.

Data source: choice

Does not consider the federal government during World War II Absolute control over interest rates, regardless of individual circumstances. There were seven periods in which the interest rate in the United States was lower than 2.5% and the inflation rate was lower than 2%:

(1) 1949 1 July-July 1950, lasting 1 and a half years ;

(2) October 1952 to April 1956, lasting 3 and a half years;

(3 ) October 1960-April 1962, lasting one and a half years ;

(4) October 2001 to April 2004, lasting 2 and a half years;

(5 ) November 2008-February 2011, lasting 2 and a half years ;

(6) May 2012 to November 2016, lasting 4 and a half years;

(7 ) December 2018-February 2021, lasting 2 years.

Period (1) is the end of World War II, the slowdown of the Marshall Plan to aid Europe, the economic recession caused by overcapacity in the United States, the inflation rate is significantly lower than during the war, and the federal Mandated low interest rates - The end of this period came from the outbreak of the Korean War, which caused inflation to rise again.

Period (2) is the economic recession caused by overcapacity in the United States after the Korean War. The inflation rate is significantly lower than during the war, coupled with the low interest rates stipulated by the federal government - the source of the end of this period. Since the federal government delegated the power to determine interest rates to the Federal Reserve and the market, giving up absolute control over currency and interest rates, this incident also established the Federal Reserve's "independent status" from other departments.

Period (3) is a normal economic recession in the United States, resulting in a low inflation rate. Then the Federal Reserve lowered interest rates to stimulate the economy, resulting in a period of low interest rates and low inflation. This period ended with the Vietnam War. break out.

Period (4) is the U.S. economy after the 9/11 incident.The economic recession caused a low inflation rate, and then the Federal Reserve lowered interest rates to stimulate the economy, resulting in a longer period of low interest rates and low inflation, which ended with the boom in the U.S. real estate market.

Period (5) is the deep economic recession after the outbreak of the global financial crisis, which resulted in low inflation. Then the Federal Reserve lowered the interest rate to 0 and superimposed large-scale QE to stimulate the economy. A period of low interest rates and low inflation ended with the implementation of QE2.

Period (6) is very special. It is in the process of economic recovery in the United States. There is no economic recession, but it is at a moment when urbanization and manufacturing production capacity are advancing by leaps and bounds. It is also the peak of globalization after the outbreak of the Cold War. The influx of cheap and high-quality goods into the United States pushed down inflation, and the Federal Reserve was happy to keep interest rates low—a period that ended when Trump came to power, lowered income taxes to stimulate the U.S. economy, and launched a trade war, causing inflation to rise.

Period (7) is during the Trump administration. The last round of interest rate hikes in the United States reached its peak, inflation has not yet risen, and corporate debt has peaked. In the later period, the epidemic outbreak was superimposed, and the inflation rate plummeted. Coupled with the Federal Reserve cutting interest rates to 0 again and starting to implement unlimited QE, this period ended with the rise in inflation caused by unlimited QE. Coupled with the interruption of the supply chain due to the Russia-Ukraine war, inflation accelerated.

To summarize these 7 low interest rates and low inflation, if nothing else, the biggest common feature is that the economy is in recession, among which,

(1) (2) (3 ) (4) During the period, the United States was still the world's largest producer. Once the war ended, or the economy prospered for a period of time, there would be overcapacity, leading to low inflation, and then controlling and lowering interest rates, or the Federal Reserve would stimulate the economy and reduce interest rates, resulting in a period of low interest rates and low inflation.

Due to the hollowing out of the manufacturing industry, the conditions (1) (2) (3) (4) no longer exist in the United States.

(5) In this situation, due to the outbreak of the financial crisis, the U.S. economy will be in deep recession, low interest rates and low inflation. This should be a result that Trump particularly does not want, so we might as well not talk about it.

(6) In this case, due to the globalization of thousands of years of human beings reaching its peak stage, and the U.S. economic recovery at that time was not stable enough, the Federal Reserve deliberately maintained 0 interest rates, which led to a period of low interest rates and low inflation. . In other words, with the current hollowing out of the U.S. manufacturing industry, only the largest globalization can bring about low inflation and allow the Federal Reserve to calmly lower interest rates.

(7) In this situation, the U.S. economy was close to recession in the early stage, but in the later period due to the epidemic crisis, the U.S. economy actually fell into recession, unless Trump wants to experience another U.S. economic recession or a global epidemic. Crisis, otherwise, this situation cannot be replicated.

So, the low interest rates and low inflation promised by Trump will either cause the U.S. economy to fall into recession or be at the peak of globalization - and according to the current correct policy in the United States, it is to decouple and increase Tariffs, anti-globalization, and TrumpLow interest rates + low inflation are completely contradictory.

What’s more, Trump also announced that he would increase tariffs on a large scale and deport illegal immigrants.

Unfortunately, the vast majority of daily necessities in the United States now come from imports. A large-scale increase in tariffs will inevitably lead to an increase in the prices of daily consumer goods, which will make Trump’s low inflation Take a dip.

It is precisely because of the large number of illegal immigrants that the inflationary price of U.S. services has been reduced. If, as Trump said, he will use the military to expel illegal immigrants as soon as he takes office, it will mean that countless people working in U.S. services will The cheap labor in the industry will disappear, which will lead to a surge in service inflation prices, making it impossible to reduce inflation.

The most terrible thing is that the decline in inflation in the United States is probably coming to an end...

Trump should think about his "example" Although Esultan put forward the theory of "low interest rates lead to low inflation" that refreshed the common sense of economics, his , has been working hard to control Turkey's ultra-high inflation of more than 50% in the past three years. At this time, Egypt has not come out to say that lowering interest rates can curb inflation. Instead, it acquiesces to the central bank governor he appointed. Turkey's lending rate has risen to the highest level in the world at 47% (without decimal points).

Even so, Egypt has not achieved the low inflation it wants.

Not to mention that low inflation will be difficult to achieve after Trump takes office, low interest rates are actually difficult to achieve - because although the power of the US president is great, and in this election, the Republican Party won 5 There are 4 major power institutions (President, Senate, House of Representatives, Supreme Court), but unfortunately, the Federal Reserve cannot be won by Trump if he wants to.

Because the Federal Reserve does have a certain degree of "independence" and the President of the United States cannot fully control the Federal Reserve.

Although Trump is always clamoring for Powell to step down, in fact, as long as Powell insists on not resigning (he has stated several times that he will not resign), Trump will be unable to do anything about this. Put down an article to talk about.