You can't say you weren't warned.
During a recent interview with The Washington Post, Republican front-runner Donald TrumpDonald TrumpMcCabe wins back full FBI pension after being fired under Trump Biden's Supreme Court reform study panel notes 'considerable' risks to court expansion Bennie Thompson not ruling out subpoenaing Trump MORE gave his assessment of the economy. "Well, I think we're sitting on an economic bubble. A financial bubble." He elaborated that it was the kind of bubble that could lead to "a very massive recession."
Following the interview, veteran reporter Bob Woodward expressed surprise that a top presidential candidate would risk alienating Wall Street by commenting about the perilous state of the economy — even going so far as to advise people not to invest in the stock market. But this wasn't the first time Trump had aired concerns about a potential financial meltdown. During a live CNBC interview with Larry Kudlow several weeks earlier, the Republican presidential contender had likewise sounded the alarm: "I hope I'm wrong, but I think we're in a big, fat, juicy bubble."
It's tempting to discount Trump's warning as an attention-grabbing tactic by an aspiring candidate who would look downright prescient in the event such a scenario began to play out. But what if he's right? The global financial crisis that actually did start unraveling in 2008 had an outsized effect on the U.S. presidential election that year — perhaps even altering its outcome. So maybe the possibility that yet another financial bubble may be looming on the horizon is exactly what candidates should be discussing. After all, the next occupant of the White House would be confronted with the devastating economic repercussions of such a calamity.
Just to remind: In late-September 2008, less than six weeks before Election Day, Republican presidential candidate Sen. John McCainJohn Sidney McCainThe Biden-Harris train wreck may have its savior: 2024 GOP nominee Donald Trump Kelly raises million in third quarter Legislative limbo — how low can they go? MORE (R-Ariz.) suspended his campaign and asked to postpone a scheduled television debate with Democratic nominee Barack ObamaBarack Hussein ObamaMcAuliffe holds slim lead over Youngkin in Fox News poll Biden's Supreme Court reform study panel notes 'considerable' risks to court expansion Congress is hell-bent on a spooky spending spree MORE. Citing the need to return to Washington to deal with the historic crisis in our financial system, McCain announced: "I cannot carry on a campaign as though this dangerous situation had not occurred, or as though a solution were at hand, which it clearly is not. ... With so much on the line, for America and the world, the debate that matters most right now is taking place in the United States Capitol."
Obama resisted the move to delay the debate, declaring: "It's my belief that this is exactly the time that the American people need to hear from the person who in approximately 40 days will be responsible for dealing with this mess." He had earlier suggested to McCain that the two candidates issue a joint statement of principles and conditions for the financial rescue package. "Presidents are going to have to deal with more than one thing at a time. It's not necessary for us to think that we can only do one thing and suspend everything else."
However, both candidates did indeed go back to Washington. McCain huddled with congressional Republicans, while Obama huddled with congressional Democrats; neither side was eager to support a controversial bailout proposal even as the financial situation was growing more precarious by the day. Both candidates participated in a key meeting at the White House with President George W. Bush, along with members of the House and Senate leadership, to discuss the stark ramifications of a potential collapse of the global financial system. In a televised address to the nation, Bush described the agonizing choice he faced: "To step in with dramatic government action or to stand back and allow the irresponsible actions of some to undermine the financial security of all."
Ultimately, McCain and Obama would both vote to approve the $700 billion Troubled Asset Relief Program crafted by then-Federal Reserve Chairman Ben Bernanke and then-Treasury Secretary Henry Paulson. In a joint statement, the two opposing candidates asserted that "the effort to protect the American economy must not fail." The whirlwind trip to Washington did not prevent the debate from taking place as scheduled. Although McCain had been expected to win it, polls showed voters felt Obama won.
You know the rest of the story.
Now here we are, eight years later, with most economic commentators obsessing over the minutiae of monetary policy while basic questions about how to prevent another financial crash have yet to be addressed.
Given the political upheaval and social tensions spawned by broad public dissatisfaction with Washington's efforts to ameliorate the damage inflicted by that earlier financial bubble — which the Federal Reserve itself failed to recognize — it's actually gratifying, and wholly appropriate, that a presidential candidate would candidly express an opinion on the prospects for a recurrence.
According to Trump, the ominous signs of a bubble include the fact that money can be borrowed at absurdly low rates. "[Y]ou're paying one and a half percent interest, it's crazy," he observes, with the caveat that the borrower must already be rich in order to have access to such cheap money. "If somebody is a great, wonderful person, going to employ lots of people, a really talented businessperson, wants to borrow money but they're not rich? They have no chance."
Lamenting the lack of bank funding available to would-be entrepreneurs, Trump also pointed out to The Hill that next-to-nothing returns on ordinary savings accounts are punishing the very people responsible enough to put aside funds for retirement. "They worked all their lives to save and now what happens is they're being forced into an inflated stock market and at some point they'll get wiped out."
The diagnosis has merit. The Federal Reserve's monetary and regulatory policies in the aftermath of the 2008 crisis have indeed produced an economic stasis of sorts, with bizarre financial conditions that are a contradiction in terms: We have loose money, but tight credit. Artificially low interest rates continue to fuel a stock market rise that mostly serves to channel big gains to wealthy investors. Meanwhile, the owners of small businesses find themselves stiff-armed when they seek new loans, in large part because community banks have been browbeaten through overzealous government regulation.
Of course, it's not enough to simply point out that a financial bubble may be brewing once more. Real leadership demands real answers: How do we reconnect the availability of money and credit to the productive needs of the real economy? How do we restore the integrity of the dollar as a reliable standard of value, a dependable measuring tool for evaluating investment opportunities and making rational economic decisions, rather than a plastic chip for placing speculative bets?
If Fed policies are indeed hindering economic growth instead of helping our nation to recover, presidential candidates should be prepared to offer bold proposals for fundamental monetary reform. As Trump noted during a "Conversation with the Candidate" interview with New Hampshire station WMUR-TV in March 2015, some three months before he officially began his campaign: "We used to have a very, very solid country because it was based on a gold standard. We don't have that anymore."
True. But maybe it's a good place to start if we're ever going to make America's money great again.
Shelton, an economist, is co-director of the Sound Money Project for the Atlas Network and author of "Money Meltdown: Restoring Order to the Global Currency System." Follow her on Twitter @judyshel.