To win his trade war, Trump seeks a currency war.

Pump the Money

Donald J. Trump on Twitter

"China will be pumping money into their system and probably reducing interest rates, as always, in order to make up for the business…

twitter.com

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China will be pumping money into their system and probably reducing interest rates, as always, in order to make up for the business they are, and will be, losing. If the Federal Reserve ever did a "match," it would be game over, we win! In any event, China wants a deal!

Lead image from Hedgeye with my anecdote in white.

Another Routine Lie

For starters, note the routine lie in Trump's Tweet. If China wanted a deal we would have one. More accurately, both sides have to want a deal.

But wanting a deal and demanding terms the other side cannot accept is an admission you really don't want a deal.

Currency War

The important point is not the routine lie which we expect daily from Trump, but rather his proposal for a currency war.

Trump explicitly stated he wants the Fed to pump money and cut rates to "match" China. That's a direct call for a currency war to debase the US dollar.

Manipulations - Two Means to an End

China pegs the yuan, allegedly keeping it undervalued.

But interest rate cuts are just another means to the same end. The US dollar is strong because the Fed is the only advanced nation that has been hiking. The ECB is still accumulating assets.