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20 February, 2017

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.

by Whitney Webb

Part 2 - 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?

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