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Image: © The White House via Flickr

Trump is “very unhappy” with America’s central bank.

The President of the US is annoyed that the central bank keeps raising interest rates, because he thinks they make the economy worse. 

What it means: Trump is having beef with the Fed (which is the nickname for the Federal Reserve, America’s central bank). Figuring out what’s going on here can be pretty confusing, because there’s a lot of jargony economics happening. But let’s try and break it down.

Most countries have their own special bank, called a central bank, whose job is to make sure the country’s finances stay stable and prices don’t move up or down too quickly. That’s pretty important! Think of the last thing you bought and imagine how you would feel if tomorrow it halved or doubled in price. We need to feel relatively confident on how much things cost so we can budget our money and figure out how much we need to earn to maintain a certain standard of living.

One of the big tools central banks have to keep prices stable-ish is interest rates. You’re probably familiar with what these are - it’s the extra money your bank gives you for stashing your savings in their account, or the extra money you pay them back when you take out a loan. (It’s always stated as a percentage). Central banks influence what everybody’s interest rates are by setting a 'base rate' which commercial banks use as a basis for setting their own.

When interest rates are high, people and businesses tend to save more money. When interest rates are low, we usually borrow and spend more money. When people and companies spend lots of money, the economy ‘grows’: the more things people want buy, the more businesses can open, the more companies spend money on things like employees and machines, the more jobs are created the more things they can create. But according to popular economic theory, if too much money is being spent (as opposed to being saved) then prices start rising (technical term: inflation) and the chance of big bad recession increases.

Trump, however, thinks that when it comes to the economy, bigger is better. He doesn’t agree with the Fed that growing it very quickly will send prices up or risk recessions - he thinks it’ll just make Americans richer and America Great Again. Lots of the stuff he’s done, like cutting taxes, is intended to get people spending more, so he sees the Fed as undermining his plans by raising interest rates.

Read our explainers on central banks, monetary policy and economic growth.

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Reader Comments

  • RW

    Your right to a degree. You mentioned “the wandering Jew”.

    I elaborate that the Jewish people, historically have tended to migrate almost exclusively to locations that are economically and culturally vibrant already. I would speculate that Jews have thrived in these places and have often improved the bounds of their economies and knowledge base.

    You can also ask; how many massive entertainment conglomerates, Nobel winners or billionaires has Isreal developed? If Jews are so capable, why isn’t Tel Aviv the Rome of our time?

    Jews are successful because they value education, maintain a strong social cohesive, they actively monitor and have a good sense for Zeitgeist wherever they are and they carefully choose the places they settle and congregate themselves heavily in these choice locations.

    But most importantly (haulocaust increased the importance of this aspect), they actually designed their culture for success. They not only attend Harvard, they use what they learned to better the group as a whole. With as much, they studied intricate networking systems, adapted to it and in many cases improved upon them. (See how Japan acquired Aegis warships and made them better).

    Of course there is nothing wrong with any of this. It’s when you elaborately gain disproportionate power in any society where you would stand out, you must take care when attempting to make a society better (Civil Rights movement) and rewriting that society all together (mass immigration). Ask blacks in China, Mexico, Philippines or India how much opportunity they have? Go to businesses owned by their American diaspora and see how many blacks they hire. Go to Silicon Valley and see how many East or South Asian tech workers wish they could work with more black people. California might work as a state, but as a nation, I think your rolling the nuclear dice here. I hope we can succeed as a tolerant pluralistic superpower but at this stage in human societal development, it’s a pipe dream.

    And if Jews really are the icon for success, they would see that fundamental human successes happen over generations. Just look at the rest of the planet? Are we ready?