Capital flows to where it’s treated well. Remember this amid President Trump’s endless jawboning of Jerome Powell. According to Trump, along with his various cheerleaders inside and outside his administration, the Fed’s failure to lower its funds rate is what is holding back an even bigger boom. If you deduce from this that it’s Republicans cheering on market intervention on the naïve assumption that they’ll lift the economy, you’re on the right track.
Forget for a moment that the very drivers of economic and stock market vitality at the moment (think Nvidia, Meta, Amazon, Apple, Tesla, etc.) were all too risky by many exponents to rate interest rate-informed finance on their way up, and just think about the broader illogic of all the jawboning, cheerleading, and insults: it all presumes that the Fed’s rate fiddling can overcome the global market for capital itself, and the powerful need of those with title to capital to place it where it will be treated best.
Which is just a comment that if the allegedly booming Trump economy isn’t growing like it should, the Fed isn’t the culprit. The only closed economy is the world economy, and to the extent that the Fed acts as a credit provider (it’s not) as some naively believe, global markets overcome lack within seconds. Conversely, assuming the economy isn’t booming, capital outflows will quickly overwhelm any falsely perceived central bank ability to make vibrant what isn’t.
It brings us to a question: how on earth did it become accepted wisdom that the Fed’s market interventions can alter the truth on the proverbial scoreboard? Ironically enough, the origins of Trump and his cheerleaders’ unrelenting fatuity can be traced to libertarian free-market hero Milton Friedman.
For much of his storied career as an academic and pundit, Friedman promoted the fiction that the Fed caused the Great Depression. Even though so-called “money supply” is always and everywhere an effect of production, Friedman turned the latter upside down on the wildly anti-market assumption that a dynamic, market-driven economy relied on a central bank to “supply” money so that it could grow.
Taking it further, and as discussed up above, capital flows are powerful and global. Assuming the Fed had been capable of siphoning precious “money” from the U.S. economy (it wasn’t), doing so would have created the mother of all opportunities for global capital sources to achieve substantial returns by providing the capital that the Fed was allegedly rendering scarce.
It’s a long way of saying that there’s never been any reasonable basis for the Friedman theory of the 1930s. He got it backwards. Limited capital and allegedly insufficient growth of so-called “money supply” were effects of bad economic policy, not instigators.
One senses more than a few free-market types know the Friedman theories of the 30s to be completely bogus, but the right’s free market Amen Corner doesn’t take well to critiques of Friedman. To name a few who had the courage to do it, the late Wall Street Journal editorial page editor Robert Bartley took on Friedman’s Depression theories in a 2003 book review of Jim Powell’s “FDR’s Folly,” Jude Wanniski countless times including a 1981 New York Times op-ed, along with Steve Forbes and George Gilder more modernly. Would it that more might do the same.
If so, we might be spared the Trump administration’s embarrassing mysticism about the Fed and its ability to grow the economy with central bank interventions. Too bad this has been the consensus on the free market right for much longer than Donald Trump was a political figure. It seems he learned at least a few things from them.
Source: https://www.forbes.com/sites/johntamny/2025/08/24/if-the-trump-economy-is-booming-then-it-doesnt-need-the-fed/
