Page 135 - TrumpsEconEra_Flat

Trump’s Economic Era

Quantitative easing has trapped central banks in
Japan and Europe in the same loop as the United States.
Central banks believe that zero interest rates stimulate
the economy and combat deflationary pressures.
Despite their efforts of QE, however, median incomes
along with prices and growth remain sluggish.

After years of sitting on the sidelines, the
European Central Bank (ECB) has joined the fray and
has engaged in its QE policy. These expansionary
monetary policies usually weaken a country’s exchange
rate, which boosts exports. Quantitative easing is a
problem if it gives Europe an excuse to avoid reforms.

FED POLICIES BASED ON RULES
The economic pie will continue to shrink unless
there is an increase in after-tax profits of small
businesses and new businesses. Presently, the Fed
decides what policies to implement on an ad-hoc basis;
it makes decisions based on whatever feels good at the
time. Austrians favor a rule-based policy. For example,
if the economy grows by 2 percent, the Fed should
increase the money supply by 2 percent. If the economy
shrinks by 2 percent, the Fed should decrease the
money supply by 2 percent.
Milton Friedman, a famous economist, wanted to
replace the Fed chairman with a computer. His “k-
percent rule” called for the money supply to increase at
a fixed rate each year, regardless of politics. This policy
would be similar to the passive monetary policies of

-134-