Trump Prepares to Take Over the Fed

Trump Prepares to Take Over the Fed

In Donald Trump’s first four years as president, he will not only choose three judges for the Supreme Court, he’ll also pick five of the seven members on the Fed Board of Governors. It would be impossible to overstate the effect this is going to have on the nation’s economic future. With both houses of Congress firmly in the GOP’s grip, we could see the most powerful central bank in the world transformed into a purely political institution that follows the diktats of one man.

Critics may think that is a vast improvement over the present situation in which the Fed conceals its allegiance to the giant Wall Street investment banks behind a public relations cloud of “independence”, but the idea of one man controlling the price of the world’s reserve currency and, thus, the price of financial assets and commodities across the globe, is equally disturbing. Already we have seen how the Fed’s determination to enrich its constituents has resulted in one titanic asset-price bubble after the other. Imagine if that power was entrusted to just one individual who could be tempted to use that authority to shape economic events in a way that enhanced and perpetuated his own political power. Even so, after seven years of a policy-induced Depression that has increased inequality to levels not seen since the Gilded Age, we think it is high-time that the president use his power to choose the members who will bring the bank back under government control. Here’s more background from the LA Times:

“Donald Trump leveled unprecedented criticism at the Federal Reserve during the campaign. As president, he could get to quickly reshape it … Trump will have the opportunity to appoint as many as five new members to the seven-person Fed Board of Governors during his first year and a half in office. That includes a new chairperson to replace Janet L. Yellen, whose term expires in early 2018…

Trump hammered Yellen in the final months of the (presidential) campaign, accusing her of keeping the benchmark rate “artificially low” to help fellow Democrats President Obama and Hillary Clinton.

“I think she is very political and to a certain extent, I think she should be ashamed of herself.” Trump told CNBC in mid-September. At the first presidential debate two weeks later, he declared that “the Fed is being more political than Hillary Clinton.”

And Trump’s final campaign video included images of the Fed and Yellen, casting her has part of the “political establishment” that has “bled our country dry.”…

“Never before have we had an incoming president not just criticize how Fed policy has been executed … but accuse the Fed chair of undermining the institution by being in political cahoots with his opponent and the White House,” (James) Pethokoukis said. “We’re off the grid into uncharted territory.”… (Trump hammered the Federal Reserve as a candidate. As president, he could quickly reshape it, LA Times)

We can safely assume that the Supreme Court is going to reflect Trump’s corporate-friendly laissez-faire attitude towards big business, the question is: What can we expect from the Central Bank once it becomes the White House’s flunky?

That’s hard to say, mainly because Trump frequently espouses two seemingly contradictory views at the same time.

What do I mean by that?

I mean, that on the one hand, Trump is a big cheerleader for non-interventionist, free market capitalism, but on the other, he is a committed rightwing populist who seems to thrive on the support of the masses, which is clear when he things like this:

“You know who gets hurt the most (by Yellen’s easy money policies)? The people that went through 40 years of their life and saved a hundred dollars every week (in the bank)…..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.”

So, how will Trump’s populism shape his views on who should or should not be a member of the Fed?

We don’t know, but we do know that monetary policy is going to change dramatically from the last eight years of unproductive experimentation because Trump has surrounded himself with industry leaders who ascribe to an entirely different philosophy than the one currently in practice. Check this out from monetary analyst Tommy Behnke:

“Some of today’s most reasonable mainstream economic voices are included in (Trump’s) inner circle. These names include David Malpass of Encima Global, who co-signed a letter with Jim Grant opposing the Fed’s “inflationary” and “distortive” quantitative easing program; John Paulson of Paulson & Co., who made billions from shorting the housing market before the Great Recession; Andy Beal, a self-described “libertarian kind of guy” who blames the Fed for the credit crisis; and the Heritage Foundation’s Stephen Moore, who told CSIN in 2012 that he is a “very severe critic” of the Fed’s “incredibly easy-money policies of the past decade.”

While none of Trump’s economic advisers are by any means Austrians, they are far more hawkish than most of Presidents Bush and Obama’s past economic advisers.” (Why President Trump Will Fumigate the Fed, Mises Institute)

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Unz Review

For decades I have spent a couple of hours every morning carefully reading The New York Times, The Wall Street Journal, and several other major newspapers. But although such a detailed study of the American mainstream media is a necessary condition for remaining informed about our world, it is not sufficient. With the rise of the Internet and the alternative media, every thinking individual has increasingly recognized that there exist enormous lacunae in what our media tells us and disturbing patterns in what is regularly ignored or concealed. In April 2013 I published “Our American Pravda,” a major article highlighting some of the most disturbing omissions of our national media in issues of the greatest national importance. The considerable attention it attracted from The Atlantic, Forbes, and a New York Times economics columnist demonstrated that the mainstream journalists themselves were often all too aware of these problems, but perhaps found them too difficult to address within the confining structure of large media organizations. This reinforced my belief in the reality of the serious condition I had diagnosed.