A 'madman' penalty: Are Trump's actions eroding U.S. economic power?

Here's some candid, non-academic language to describe an unusual pattern in American markets, brought to you by a monetary-policy historian.

Stocks? Down. The U.S. dollar? Same. Demand for U.S. bonds? Also sinking. This isn't supposed to happen — not all three at once.

But Barry Eichengreen sees a historic reaction where there's really one common theme: a collapse in faith in the United States.

"Global investors have concluded that there is a madman in the White House, and that the lunatics have gained control of the asylum," said Eichengreen, a historian at the University of California at Berkeley who studies currencies and central banks.

"The damage is clearly beyond repair."

Washington is trying to glue back the pieces of a humpty-dumpty month — when U.S. President Donald Trump introduced the highest tariffs in over a century, then walked some back, then, unhappy with interest rates, threatened to fire the head of the U.S. Federal Reserve, before ruling it out, even as White House staff were reportedly studying replacement options.

Recent history has shown that political interference in the central bank, and interest rates, can have a catastrophic effect on inflation. 

It's just not supposed to happen in the United States of America — the world's largest economy; holder of the world's most important currency, a currency that supports the safest investment on Earth: U.S. debt bonds.

In recent weeks, investors fleeing the stock market did not do what they normally do: Leap into the safe embrace of the U.S. dollar and U.S. government debt. 

Some analysts compared the combination of events to what you'd normally see in a developing economy. Risky assets, safe assets and the currency, all struggling at the same time.

"The United States was more than just a nation. It's a brand. It's a universal brand — whether it's our culture, our financial strength, our military strength," said Ken Griffin, a Republican mega-donor and the CEO of Citadel, to the World Economy Summit in Washington on Wednesday.

"And we're eroding that brand right now.… We put that brand at risk," he said. 

"It can take a very long time to remove the tarnish on a brand.… It can be a lifetime to repair the damage."

Here, there are differences of opinion. Clearly, the Trump administration is trying to repair that damage.