Economist Paul Krugman has issued a stark warning against President Donald Trump’s undermining of the Federal Reserve’s independence.
Trump’s ‘Crackpot Economics’
In his newsletter on Thursday, Krugman described events of the past week regarding Trump’s attempted firing of Fed Governor Lisa Cook over “unsubstantiated claims” as being both “shocking and terrifying” for those following economic policy.
Krugman fears that there is now a “substantial chance” that the Federal Reserve’s independence “will soon be gone,” while adding that Trump and his people will ruin the lives of anyone who stands in their way.
This, Krugman says, is a “policy disaster in the making,” given Trump’s demands for aggressive rate cuts in the past, while claiming that the economy was running hot and doing well, which is seen by most economists as a cue for raising interest rates, not cutting them.
He refers to this as Trump’s “crackpot economic doctrines,” which will sooner or later lead to high inflation and eventually an economic catastrophe.
A ‘Wile E. Coyote Moment’ For The Markets
Krugman notes that despite the severity of the situation, the markets continue to remain calm, to which he says, “Markets act as if everything is normal until it's blindingly obvious that it isn't.”
Citing historical episodes like the 2008 subprime crisis and the 2010 eurozone debt meltdown, Krugman argues that “market pricing almost never takes into account the possibility of huge, disruptive events.” Instead, he said, markets behave as “conventional wisdom processors,” echoing a term coined by economist Nathan Tankus.
Krugman warned that this could be a “Wile E. Coyote moment,” where markets run off a cliff and only react once they “look down and realize that there's nothing supporting” them.
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