Making America Broke Again: Trump & The Inevitable Financial Crisis

Trump can either ‘bite the bullet’ now if he really wants to improve the American economy or he can ‘kick the can down the road’ like his predecessors have, noted financial commentator Peter Schiff tells MintPress.
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    WASHINGTON — Barack Obama insisted throughout his time in office that the financial crisis that began in 2008 and fundamentally altered the U.S. economic landscape was a thing of the past. Despite Obama’s insistence that his economic “recovery” was successful and that critics of his economic policy were “peddling fiction,” many Americans were not convinced.

    Donald Trump recognized this, and was ultimately propelled to the nation’s highest office due to his oft-repeated promise to “Make America Great Again” with a special emphasis on bolstering the American economy.

    In the weeks since Trump took office, media attention has largely focused on the so-called “Muslim ban” as well as other executive actions targeting immigrants, limiting the actions of certain federal agencies, and escalating certain geopolitical tensions.

    The media’s focus on these and other issues has allowed key developments in the implementation of the president’s economic policy to go largely unnoticed. In particular, there’s been relatively scant attention paid to the Trump administration’s decision to order a thorough review of banking regulations with the express intention of loosening them.

    This decision, widely criticized by powerful central banks and proponents of Obama-era financial reform, represents the latest iteration of a growing spat between the financial establishment and the Trump administration. Each side accuses the other of depressing economic growth and increasing the likelihood of a major economic event or “correction” that would dwarf that of 2008.

    Yet, as is often the case in such disputes, the truth of the matter lies somewhere in the middle and ultimately has relatively little to do with Trump.

    Peter Schiff, CEO of Euro Pacific Capital and one of the few financial commentators to accurately predict the 2008 crisis, noted in an interview with MintPress News, “The crisis is going to come regardless of the actions Trump or Congress may take. I think [Trump’s potential loosening of regulations] is going to be irrelevant. It could accelerate the crisis or it could delay it.”

    Regardless of who is to blame, however, there is no denying that a major economic crisis is once again on the horizon, one that will fundamentally change the economic landscape of the nation and trigger a series of wide-reaching consequences.

    “The crisis is inevitable,” Schiff said.

    Watch The Coming Crisis – A MintPress News Explainer:


    Trump vs. the financial establishment

    Trump has long made his disdain for the Dodd-Frank Wall Street Reform and Consumer Protection Act public knowledge, recently announcing his intentions to “do a number” on the bill and promising to loosen a large part of the restrictions it put into place. Immediately, members of the neoliberal political and financial establishment lashed out, arguing that Trump’s potential deregulation will directly cause another financial crisis.

    Reuters reported that Mario Draghi, president of the European Central Bank and former vice chairman and managing director of Goldman Sachs International, argued during a Feb. 6 press conference that easing banking rules and regulations was not just troublesome but dangerous. He warned that doing so threatens the global economy’s “slow but steady recovery” from the 2008 crisis.

    Draghi’s concerns were echoed by other prominent bankers in Europe, including Andreas Dombret, a board member of Germany’s powerful central bank, Bundesbank, who said that weakening or removing regulations would be a “big mistake” that would create a new economic crisis.

    Major media outlets have followed this narrative with headlines like “How Donald Trump could create a financial crisis,” “Is President Trump about to unleash another financial crisis?” and “Why Donald Trump’s financial policy could recreate a 2008 crisis scenario.” These reports similarly point to Trump’s plan to lift or weaken Dodd-Frank regulations as a likely instigator of a coming crisis. Even Barney Frank, one of the bill’s co-authors, has said as much.

    Yet Trump and his advisors hold a starkly different view of the situation, arguing that Dodd-Frank’s regulations are holding the economy back — a fact that Frank admitted last year when he called key elements of the bill “mistakes.”

    While Trump’s plan to loosen regulations has been labeled a catalyst for another financial crisis, the Trump administration has taken to blaming central banks and their manipulation of interest rates and the money supply as major factors leading to economic instability. In addition, Trump’s chief trade advisor, Peter Navarro, recently accused Germany of currency manipulation, arguing that the country uses the euro to “exploit” the United States and European Union. He told the Financial Times that Germany’s trade surplus was due to the nation’s exploitation of the euro being “grossly undervalued.” Draghi, during his most recent press conference, rejected these claims outright, saying, “We are not currency manipulators.”

    Aside from the partisan rhetoric, there remains little doubt on either side that another massive financial crisis is on the horizon. For instance, James Rickards, an economist who advises the Department of Defense and U.S. intelligence community, told MarketWatch: ”[T]he crisis is coming and the time to prepare is now. It could happen in 2018, 2019, or it could happen tomorrow. The conditions for collapse are all in place.”

    Other big names in economics, such as Martin Wolf of the Financial Times, have voiced similar concerns, arguing that another financial crisis is “inevitable.”

    Even Alan Greenspan, the former chairman of the Federal Reserve, warned in 2009 that “the [2008] crisis will happen again but it will be different.” Trump himself expressed these same concerns in an interview with the conservative news site Newsmax in 2011, telling Americans to prepare for “financial ruin” resulting from the massive national debt and overall weak economy.

    With such a massive crisis looming, it’s clear that Dodd-Frank, at the very least, has fallen quite short of its stated mission of preventing another economic calamity. This leads to an important question: What has brought us to this point — the weakness of Dodd-Frank or the policy of central banks?


    The failures of Dodd-Frank

    In the aftermath of the 2008 crisis, public outrage and anger at the country’s financial sector was palpable. In order to temper public sentiment, a massive piece of legislation known as the Dodd-Frank Wall Street Reform and Consumer Protection Act was assembled with the stated goal of minimizing risk in the U.S. financial system chiefly through the creation of new regulatory agencies and the establishment of certain consumer protections. While the current consensus holds that Dodd-Frank made some individual institutions technically safer due to the constraints it imposes, it is still widely regarded as an imperfect piece of legislation.

    Indeed, prior to taking office, Trump joined a host of other conservative politicians in slamming the landmark legislation, which he has recently deemed a “disaster.”

    The evidence regarding the legislation’s ultimate impact paints anything but a rosy picture. Despite Dodd-Frank’s well-stated intentions, things have not gone according to plan. The legislation actually has produced very few — if any — meaningful regulations, as the agencies tasked with drafting new regulations quickly became the focus of massive financial industry lobbying efforts. For example, three years after Dodd-Frank’s passage, commercial banking lobbyists had met with Dodd-Frank regulatory agencies 901 times, compared to just 116 meetings with lobbyists of consumer protection groups.

    Nearly seven years after Dodd-Frank was passed, massive loopholes remain in derivatives trading, banks are still permitted to gamble with FDIC-insured money, and credit-rating agencies have yet to be reformed.

    Further, in the years since the bill’s passage in 2010, the top five “too big to fail” banks continue to control the same share of U.S. banking assets they possessed prior to the crisis, while smaller banks and community banks suffered major losses, with some small banks losing as much as 20 percent of their share of national banking assets.

    These smaller banks, which have great historical economic importance, essentially lost any competitive advantage to the nation’s banking behemoths. This is a concerning development, particularly because the big banks who largely caused the crisis suffered few ill effects while their smaller competition – who were largely uninvolved in derivatives trading and other activities that contributed to the crisis – has taken a major hit. A 2015 study conducted at the Harvard Kennedy School of Government confirmed this, finding that community banks had been absolutely crushed by Dodd-Frank regulations which caused the decrease in their markets shares to double.

    To make matters worse, many of the “too big to fail” banks have ballooned in size since the passage of Dodd-Frank. For instance, in 2013, the country’s six largest banks owned an astounding 67 percent of all assets of the U.S. financial system, a 37 percent increase from 2008.

    Many critics of Dodd-Frank, Trump included, have argued that the legislation was doomed to fail from the beginning. Indeed, the corruption scandals surrounding one of the bill’s co-authors suggest that this could be the case. Barney Frank, a former congressman from Massachusetts and chairman of the House Financial Services Committee, was embroiled in several notable financial scandals during his three decades in office, including some that took place during the 2008 financial crisis.

    Prior to the crash, internal government documents obtained by government watchdog Judicial Watch showed that Frank was well aware that troubled lenders Fannie Mae and Freddie Mac were likely to fail, but did nothing to stop it. In addition, internal Treasury Department documents revealed that Frank sought to steer $12 million in federal bailout funds to OneUnited Bank, a bank located in Frank’s district, during the aftermath of the 2008 crisis. In 2015, Frank further cemented his shady ties to the financial sector by joining the board of Signature, a private bank with assets totalling $28.6 billion.

    However, the true reason for Dodd-Frank’s failure is neither the corruption of one of its authors nor the weak and convoluted nature of the regulations it enforces. Dodd-Frank, whether it is ultimately repealed by the new administration or left largely intact, has failed to produce a recovery or prevent a future crisis because it ignores the true cause of the 2008 meltdown as well as that of the looming financial crisis: over a century of misguided and self-serving central bank policy.

    As Schiff remarked when speaking to MintPress, “The Federal Reserve is the culprit.”


    The real roots of the coming crisis: The Fed

    After the economic crisis in 2008, central bankers made it a point to blame everything but their own policies, largely focusing their critiques on financial deregulation as the primary cause. While deregulation was certainly a factor that allowed the crisis to unfold, it was the monetary policy of the Federal Reserve that formed the underlying structural cause of the crisis.

    In 2001, following the bursting of the “dotcom” bubble, the Fed lowered the federal funds rate a total of 11 times, creating a flood of liquidity in the markets. This liquidity, sometimes referred to as “cheap” money, spurred the flow of capital into high-yielding “subprime” mortgage loans. Soon after, a real estate bubble was born. As the Fed continued to slash interest rates, this bubble swelled to massive proportions and “cheap” loans were then repackaged into collateralized debt obligations. This development allowed major banks, including the now defunct Lehman Brothers and Bear Stearns, to leverage between 30-40 times their initial investment.

    Everything seemed great for a time — that is, until homeownership reached a saturation point and the Fed decided to rapidly raise interest rates from a four-decade low of 1 percent in June of 2003 to 5.25 percent in June of 2006. These higher interest rates drastically changed the amount homeowners were paying on their mortgages, causing many to default — a contagion that would soon spread through financial markets and precipitate the crisis.

    Despite the clear role of the Fed, many were taken by surprise when the economic crisis unfolded. However, some economists saw it coming, particularly those who were critical of central banking policy. As Libertarian organizer and activist Matt Kibbe noted in Forbes in 2011, a handful of well-known investment bankers and financial commentators associated with the Austrian school of Economics, including Jim Rogers, Peter Schiff, and James Grant, were among the few who predicted the crisis.

    The difference between these individuals and those who were caught unaware was a focus on the analysis of the effect of human action on markets instead of Keynesian mathematical models, which focus on total spending in the economy and how that impacts economic output and inflation.

    Central to the approach focusing on human action is the realization that the policies of the Fed create boom and bust cycles, or “bubbles,” by distorting information regarding price signals. Banks may have seemed like they were over-investing, but they were actually just responding to the Fed’s false signals.

    “Private banks take their marching orders from the Fed,” Schiff told MintPress. “If you took the Fed out of the equation, then these banks would not behave in the manner that they do.”

    While the Fed’s role in 2008 is now evident, nothing has been done to prevent central bank manipulation from causing yet another crisis. In the years since the 2008 crisis, the Fed has taken its manipulation of the dollar and interest rates to new extremes. Like it did between 2001 and 2007, the Fed has expanded the money supply and kept interest rates at historic lows since the 2008 crisis, again making “cheap” money to fuel markets. However, as 2008 taught Americans, “cheap” money can only remain so for so long until the bubble bursts. Unlike 2008, however, the stakes are now much, much higher.

    The Fed’s money printing stimulus following the 2008 crisis, known as quantitative easing, or QE, has added an unprecedented $3 trillion to the money supply. While that money was meant to stimulate the American economy, it ultimately has gone to inflating stock markets. Additionally, interest rates are at historic lows, and the Fed is hesitant to hike them despite the necessity of doing so, chiefly because – like 2008 – raising the interest rates will ultimately cause the bubble to burst. Considering the “too big to fail” banks are now much larger than they were in 2008, the conditions are set for a perfect storm.

    And when that inevitable storm hits, Schiff noted that central bankers are likely to respond to the next crisis much as they did in 2008. He explained:

    “[Central bankers] will certainly take the opportunity to blame Trump. They are going to blame it on the deregulation, which is what they did last time. It was an abundance of liquidity that caused that last crisis — that’s what created 2008 crisis. What the Fed has been doing since then has actually laid the foundation for the next crisis.”


    No Easy Way Out: Trump’s role in the impending crash

    With the roots of the next crisis established prior to Trump’s assumption of the presidency, combined with the ineffectiveness of post-2008 regulations, the Trump administration faces an uphill battle — especially if the next crisis takes place during the next four years. All of the news coverage and comments from prominent figures in the financial establishment once again seem to be shifting the blame from central bank policy to Trump’s review of banking regulations, suggesting that the financial elite’s scapegoat for the next crisis has already been selected.

    Schiff said the financial establishment “will try to pretend that everything else was great under Obama and then act like Trump ruined it.”

    This isn’t to say that Trump’s potential removal of banking regulations won’t exacerbate or speed up the onset of the coming crisis. James Rickards told MarketWatch it’s likely that a crisis can only be prevented by reinstating the Glass-Steagall Act, which separated investment and commercial banking, breaking up the big banks, banning most derivatives, and enacting tougher law enforcement of bank wrongdoing. But considering the makeup of his Cabinet and team of economic advisors, Trump is unlikely to push for any of these changes.

    Writing for the Libertarian Institute in November, Eric Schuler noted, “The next recession is likely to commence during Trump’s tenure. But while he may prove to be an unwitting catalyst of the next crisis, his policies will not be the primary cause.”

    Instead, Trump is more likely to focus on loosening existing banking regulations than imposing any new ones. Though they do not account for the root cause of the crisis, the president’s actions in this regard could potentially accelerate the bursting of the bubble. However, this is difficult to gauge due to the fact that this new, looming crisis is long overdue.

    Trump is ultimately faced with no easy choices. He can either allow the Fed to further inflate the bubble or he can try to bring about a market correction by forcing interest rates to increase in order to establish the foundations for positive economic growth. Both possibilities promise to bring unemployment and economic difficulties for the average American – particularly in the short term. Regardless of how Trump proceeds, he is likely to encounter major conflicts in fulfilling his campaign promise to “Make America Great Again,” as any major economic downturn could potentially lead to widespread, popular unrest throughout the nation.

    Trump can either “bite the bullet” now if he really wants to improve the American economy, Schiff said, or he can “kick the can down the road” like his predecessors have.

    Even if Trump chooses to delay the inevitable, the next crisis, already long delayed, is increasingly likely to unfold regardless of any action the president may take. And that crisis is likely to define his presidency.

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    • Hew Matts

      HELLO… I hope everybody knows that when you take a job with the federal government and you have to sell stocks and relinquish your positions… it’s all TAX FREE. Hello. Look at the record. This a-hole left over $100 million off of his asset listing and then stated how “complicated” government paper work is. He’s F-ing loser. They just take these jobs to avoid taxes. We may as well start printing “In Goldman Sachs we trust” on our currency because it would be more accurate.

    • Bob Beal

      Rickards: “breaking up the big banks”

      How about nationalizing them as, for one thing, instruments for financing physical and social infrastructure?

      And, place the Fed back under Congressional control and use it for the same thing — interest-free (thus, half-price) development financing.

    • Bob Beal

      “home ownership reached a saturation point and the Fed decided to rapidly raise interest rates from a four-decade low of 1 percent in June of 2003 to 5.25 percent in June of 2006”

      My understanding is that housing prices peaked in June 2007, perhaps indicating market saturation. The subsequent global credit crisis occurred in early 2008, as I recall.

    • John C Carleton

      Maybe it escaped your notice, but the USA declared bankruptcy in 1933. Been in debt for as long as i have been alive, been underwater before i was born, mid last century. USA went off the silver standard in 1964, off the gold to foreign governments for for (not) Federal (and no) Reserve(s) dollars in 1971. From that time on, the USA has been using paper and ink money, made up out of thin air and backed by nothing. You really think someone is going to fix this mess, someone from Washington? You Do? I have this bridge in Arizona i would like to sell you, it is over a great river, on the other side is the ocean. Sell it cheap, silver and gold only.

      • James Wherry

        John, I’m a fiscal conservative, but have you ever considered the obvious? The USA has convinced foreign nations to “give us stuff” in exchange for little pieces of paper with ink on them.

        Now what do you suppose the down side is? Are you under the impression that foreigners who own dollars or countries who hold Federal securities can show up and “call the note due” or demand payment in gold or silver, or ask for part of Yellowstone National Park in exchange?

        No! All they can do is show up in the ONLY country in which dollars are legal tender – the USA – and BUY STUFF FROM ME AND YOU. Sure, that might create inflation, if it was all done at once, but at the end of the day, the money still has to come back to US as in USA! As to the Federal treasury notes, all China can do is to unload them FOR A LOSS on the open markets. They are not “Payable on Demand.”

        Hey, I support Schiff, but let’s have a sober assessment of the real situation, before we jump off the bridge.

        • John C Carleton

          Have you considered the s##t hole uSA has become, the old and very young, who will die of disease and malnutrition, the utter devastation of the means to be self sufficient as an individual and a country, the intentional chaos forced on our young, the evil now imbedded into American society, due to their actions? Just so they could be blood sucking parasites, a cancer on the rear of humanity! F##k them and the horse they road in on! If they have a dog, that applies to their dog also! Nuff!

          • James Wherry

            Well, they sure aren’t going hungry because of our failure to laden down our social welfare programs, are they? $100 Billion of food stamps? That’s all part of that deficit spending that you seem to decry.

            So which is it? Do we print and spend money to help the poor, or let them starve? I’m afraid I can’t demand that an 8-year old child “pull himself up by his bootstraps” because he’s too young and too poor to buy any boots. I CAN insist that the mother and father participate in Workfare, if they do not already have jobs, and EARN those food stamps, of course.

            For my part, the answer is “We raise taxes for the money, or cut back elsewhere to be able to afford that help, or simply let private charity make that help.”

            • John C Carleton

              Ever see a car slam into a unmovable object. I saw them have to pull at both ends of a 1953 Chevy, to get it unwrapped off this big live oak tree. That had to do that to get what was left of the three bodies inside out. The split second be fore the driver lost control, they were all three drunk, partying, happy, and talking sh#t. fast deceleration is very destructive.

    • tapatio

      It seems that the Kushner family, the uber-rich George Soros’s relatives AND IN-LAWS TO THE pRESIDENT OF THE UNITED STATES, have been trying to buy the Miami Marlins.



    • tapatio


      Below is the Rothschild-Bilderberg Predatory Capitalist Cartel – at the root of the corruption that has taken control of our country, its government, media and commerce. Until that corruption is rooted out and eradicated, America will continue to sicken and, eventually, die.
      These same Rothschilds, that hold controlling interest in the Federal Reserve today, also were patrons of Karl Marx and directed-financed the Bolshevik-Communist “revolution”. That one family name has been connected to more death and horror, over the last 300 years, than ALL other causes combined. The Rothschilds are, of course, Jewish.

      Rothschild Bank
      New Court
      St Swithin’s Lane
      London EC4N 8AL
      United Kingdom

      (note: The list linked above includes only Central Banks in which the Rothschild/Bilderberg Cartel holds controlling interest. They also hold controlling interest in virtually every major
      commercial and investment bank on Earth)

      Rothschild History

      JFK and the Federal Reserve

      The cartoons in this post are not “racist” because they are accurate caricatures of Jacob Rothschild and the star of david is the icon of Zionism – a political movement. It is also a reality that the vast majority of the leaders of this predatory cartel are from that ONE cult that comprises only 2/10ths of one percent of the world’s population, but provides a large double-digit percentage of the world’s criminals and two-legged predators.

    • tapatio


    • James Wherry

      I’m stunned that MintPressNews is quoting Peter Schiff. Congratulations.

      President Trump has talked about putting the screws to the run-away pharmaceutical companies with 35% profit margins. Let’s hope he does so. He can close military bases that make no sense, including those in Kuwait and elsewhere in the middle east, if we are not going to get involved in “military adventurism” or “foreign entanglements.” He can also cut back on aid to states (they can raise taxes, themselves) and aid to foreign nations. He has many options, so the only question is whether he has the will to do so.

      • pjmeli

        So am I. Shiff is a know-nothing moron when it comes to understanding how a monetary system works. By accounting the dreaded National Debt is in reality national savings, by accounting rules…a government ‘debt’ is a private sector asset.

        So eliminating the National Debt would remove all persistent money ($) from the non-government, leaving only $ owed to the banking system. What could go wrong?

        What would a pension fund mean if all of the liquidity in the economy was owed to the banking system? If that’s such a good idea then why don’t we all just go out and borrow our pensions from banks instead of earning income and saving part of it?

        • James Wherry

          Great. So let’s have at it: I propose a 4-year “tax holiday” in which Americans pay ZERO income taxes, corporate taxes or death taxes. Deal?

          The American Left swoons over the national debt because pulling in their belts means cutting back on programs they love. But when it comes to things they do not love – like a wall with Mexico – they start complaining about the “cost” as if they were the tightest wads in the nation. “Tax cuts” are always “fiscally irresponsible” while social welfare spending is a “bargain.”

          I fully support Schiff. There’s nothing wrong with living within your means, whether you raise taxes or cut spending to do so.

          • pjmeli

            …I propose a 4-year “tax holiday”…

            Great, all you guys that obsess over inflation would get what they most fear…high inflation.

            Taxes are the means by which governments control inflation. Governments (sovereigns) can spend without taxation if they so choose, and accept the consequences.

            The government is nothing like a household, so ‘means’ is moot. All of it’s spending is created (money printing) on the fly, at no cost, prior to having any tax revenue on hand. Taxes accrue post income, which means that income is a necessary condition for income tax revenue to even exist, so taxes can’t and don’t fund spending at the Federal level, it’s impossible. In the Federal Budget, a deficit is this years spending minus this years taxes.

            Don’t want to pay taxes?. Eliminate government spending completely, along with well over half of our income (GDP).

            Anyone that swoons over the National Debt (National Savings) is woefully uninformed. There is no reason a nation can’t afford to buy all of it’s own production. Instead, we leave 25% of our capacity un-utilized, leading to massive unemployment.

            Because we ‘can’t afford’ to buy it. Nonsense. Money is the only resource we can’t run out of.

            • James Wherry

              I see: so you’re taking away the money for our own good so it won’t hurt us, yes?

              Do you people even listen to yourselves? I am quite certain that the average taxpayer could take all of that “extra money” and use it to pay down there massive credit card debts, mortgages, car loans, and student loans and have no effect whatsoever on inflation. We could also probably buy a few extra things for the house without it even hurting us.

              It seems the only thing left to do is to remove the earned income credit and the child tax credit and the credits for daycare and student loan interest free payment. After all, that’s just “putting extra money in the hands of taxpayers” and it must be driving inflation!

              No: the purpose of taxation is for the government to acquire money to run the government, not to control inflation. Again, those of you on the left will try and justify anything that justifies your policies, no matter how crazy it is.