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Trump's War on the Fed

By   Follow Me on Twitter     Message Ellen Brown       (Page 1 of 2 pages)     Permalink    (# of views)   14 comments

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The Marriner S. Eccles Building, the Federal Reserve's headquarters in Washington, D.C.
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October was a brutal month for the stock market. After the Federal Reserve's eighth interest rate hike, on Sept. 26, the Dow Jones Industrial Average dropped more than 2,000 points, and the NASDAQ had its worst month in nearly 10 years. After the Dow lost more than 800 points on Oct. 10 and the S&P 500 suffered its first weeklong losing streak since Trump's election, the president said, "I think the Fed is making a mistake. They are so tight. I think the Fed has gone crazy." In a later interview on Fox News, he called the Fed's rate hikes "loco." And in a Wall Street Journal interview published on Oct. 24, Trump said he thought the biggest risk to the economy was the Federal Reserve, because "interest rates are being raised too quickly." He also criticized the Fed and its chairman in July and August.

Trump's criticisms are worrisome to some commentators, who fear he is attempting to manipulate the Fed and its chairman for political gain. Ever since the 1970s, the Fed has declared its independence from government, and presidents are supposed to avoid influencing its decisions. But other Fed watchers think politicians should be allowed to criticize the market manipulations of an apparently out-of-control central bank.

Why the Frontal Attack?

Even if the president's challenges are a needed check on the Fed, some question whether he is going about it in the right way. Challenging the central bank in public forces it to stick to its guns, because it must maintain its credibility with the markets by showing that its decisions are based on sound economic principles rather than on political influence. If the president really wants the Fed to back off on interest rates, it has been argued, he should do it with a nod and a nudge, not a frontal attack on the Fed's sanity.

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True, but perhaps the president's goal is not to subtly affect Fed behavior so much as to make it patently obvious who is to blame when the next Great Recession hits. And recession is fairly certain to hit, because higher interest rates almost always trigger recessions. The Fed's current policy of "quantitative tightening" -- tightening or contracting the money supply -- is the very definition of recession, a term Wikipedia defines as "a business cycle contraction which results in a general slowdown in economic activity."

This "business cycle" is not something inevitable, like the weather. It is triggered by the central bank. When the Fed drops interest rates, banks flood the market with "easy money," allowing speculators to snatch up homes and other assets. When the central bank then raises interest rates, it contracts the amount of money available to spend and to pay down debt. Borrowers go into default and foreclosed homes go on the market at fire-sale prices, again to be snatched up by the monied class.

But it is a game of Monopoly that cannot go on forever. According to Elga Bartsch, chief European economist at Morgan Stanley, one more financial cataclysm could be all that it takes for central bank independence to end. "Having been overburdened for a long time, many central banks might just be one more economic downturn or financial crisis away from a full-on political backlash," she wrote in a note to clients in 2017. "Such a political backlash could call into question one of the long-standing tenets of modern monetary policy making -- central bank independence."

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And that may be the president's endgame. When higher rates trigger another recession, Trump can point an accusing finger at the central bank, absolving his own policies of liability and underscoring the need for a major overhaul of the Fed.

End the Fed?

Trump has not overtly joined the End the Fed campaign, but he has had the ear of several advocates of that approach. One is John Allison, whom the president evidently considered for both Fed chairman and treasury secretary. Allison has proposed ending the Fed altogether and returning to the gold standard, and Trump suggested on the campaign trail that he approved of a gold-backed currency.

But a gold standard is the ultimate in tight money -- keeping money in limited supply tied to gold -- and today Trump seems to want to return to the low-interest policies of former Fed Chair Janet Yellen. Jerome Powell, Trump's replacement pick, has been called "Yellen without Yellen," a dovish alternative in acceptable Republican dress. That's what the president evidently thought he was getting, but in his Oct. 24 Wall Street Journal interview, Trump said of Powell, "[H]e was supposed to be a low-interest-rate guy. It's turned out that he's not." The president complained:

"[E]very time we do something great, he raises the interest rates. ... That means we pay more on debt and we slow down the economy, both bad things. ... I mean, we had a case where he raised interest rates right before we have a bond offering. So you have a bond offering and you have somebody raising interest rates, so you end up paying more on the bonds. ... To me it doesn't make sense."

Trump acknowledged the independence of the Fed and its chairman but said, "I'm allowed to say what I think. ... I think he's making a mistake."

Presidential Impropriety or a Needed Debate?

In a November 2016 article in Politico titled "Donald Trump Isn't Crazy to Attack the Fed," Danny Vinik agreed with that contention. Trump, who is not a stickler for consistency, was then criticizing Yellen for keeping interest rates too low. Vinik said that while he disagreed with Trump's interpretation of events, he agreed that the president should be allowed to talk about Fed policy. Vinik observed:

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"The Federal Reserve is, by definition, not independent. Unlike the Supreme Court, the central bank is a creation of Congress and is accountable to lawmakers on Capitol Hill. It can be changed -- or abolished -- by Congress as well. And to pretend it's not -- to treat the Fed as an entity totally removed from American politics -- also leaves us powerless to talk about the ways it might be improved. ...

"The long tradition of deference to the Fed's policy independence can even pose a risk: It creates an environment in which any critique of the Fed is seen as out of line, including the idea of reforming how it works."

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Ellen Brown is an attorney, founder of the Public Banking Institute, and author of twelve books including the best-selling WEB OF DEBT. In THE PUBLIC BANK SOLUTION, her latest book, she explores successful public banking models historically and (more...)
 

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9 people are discussing this page, with 14 comments  Post Comment


shad williams

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You appear to be well schooled in the workings of the Fed.

I think the Fed is a tool of the western global elites. It can be weaponized to hurt economies that are in political hot water with the elites and generally cooperate with the centers of finance and intelligence and covert action to maintain its global hegemony.

The fed is the ruling elites piggy bank. The fiat currency it has created has been kept out of the hands of the little people because they would create wealth which is in opposition to what the elites want.

We can return to a review of the 2008 Great Recession to see how the fed treated main street compared to wall street. To see how their proxies responded with the thin bandaid they called the TARP...some covering indeed! The senate suggested rescinding $50 billion of the Tarp because it was not allocated late into the scheme's operation. One of the most telling actions of the fed, other than paying those gambled and lost was to reimburse the wife of one of the wall street houses $200,000,000 for loses sustained in her student loan scam.

No we do not need a fed nor any central bank that behaves like the fed. It is anti democratic, but that is merely a convenient statement. They are worse than that. They are thieves.

Submitted on Saturday, Nov 3, 2018 at 3:10:12 PM

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Ellen Brown

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Agreed, but I actually think we need a central bank. We just need one that is a public utility, mandated to serve the people and the economy.

Submitted on Saturday, Nov 3, 2018 at 9:15:13 PM

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Peter Duveen

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We need a currency that is regulated by the marketplace, and not by a board of individuals. Only bank notes guaranteed redeemable at face value in a commodity should be used as currency. Such a currency does away with the need for a central bank, as Jackson and his supporters understood.

Submitted on Sunday, Nov 4, 2018 at 3:00:13 AM

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Jack Flanders

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"...a currency that is regulated by the marketplace"

Can you explain why this Libertarian-sounding solution would be beneficial? Most free market solutions simply seem to benefit investors at the expense of labor.

Submitted on Tuesday, Nov 6, 2018 at 6:28:30 PM

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Lance Ciepiela

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Of course, #theFed is not at all "independent" of private influences and private interests at all - "The Rothschild Bank of London" et.al. are the primary owners of the "central bank" and these established "for profit" banking families "operate a monopoly charging interest and making profit on the public debt of the United States" - the American people do not own even one share of stock in the Federal Reserve System.


James Corbett 2014 .Century of Enslavement. PART 1 Century of Enslavement: The History of The Federal Reserve. What is the Federal Reserve system? How did it come into existence? Is it part of the federal ...
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Yes, "if Donald Trump truly wants to fix the economy, he must shut down the Federal Reserve 'and start issuing debt-free money'.

If he just tries to patch up our current system he will fail because it has been fundamentally flawed from the very beginning".

Submitted on Saturday, Nov 3, 2018 at 3:13:33 PM

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Ellen Brown

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Agreed we need some debt free money, but it could be issued as a form of quantitative easing through a central bank operated as a public utility.

Submitted on Saturday, Nov 3, 2018 at 9:16:33 PM

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Lance Ciepiela

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Yes, "demand that your representative act, not to give greater powers to the banking elite, but to audit the owners and seek to return the "Federal" Reserve stock and powers to We, The People"..

Submitted on Sunday, Nov 4, 2018 at 12:36:30 AM

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Lance Ciepiela

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Indeed, "audit the owners" - yes, Trump was so "very much in favor" of an "audit" back in 2016 when he "tweeted", "it's so important to audit the Federal Reserve"- after taking office, however, he didn't/doesn't push for an "audit".

"I rise today" in opposition to "secrecy"- Rand Paul.


Rand Paul's Speech on Audit the Fed | Senate Floor Check out Rand Paul's BRAND NEW WEBSITE here ? randpaul.com/ Like Rand Paul on Facebook ? facebook.com/RandPa ul Follow ...
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Apparently, Trump has quickly become another Republican (practically "mimicking" #Reaganomics - "killed America's middle class") "borrow & spend" President ("King of Debt"), cutting the "corporate taxes" from 35 percent to 21 percent as his signatory achievement in his first two years - Trump's "tax cuts" unpaid for by #EconomicGrowth and #Jobs and his projected budget deficit exceeding one trillion so far.

Submitted on Monday, Nov 5, 2018 at 2:30:03 PM

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Mrs. Fuxit

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BIG GOVERNMENT is incorporated. It's addicted to winning at all cost.

BIG GOVERNMENT is in a state of perpetual emergency with an enemy.

BIG GOVERNMENT requires your (mis)informed consent to control you.

Spending time working for government results in additional debt creation.

Spending time with family and friends is not taxing, it's rewarding. Try it!

Submitted on Saturday, Nov 3, 2018 at 7:05:24 PM

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John Lawrence RĂ©

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For years, liberals mocked the working stiff in the pickup truck with the Bush sticker for voting against his own interest. Let's see how it goes now as the shoe is being fitted for the other foot.

Submitted on Saturday, Nov 3, 2018 at 8:01:13 PM

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Peter Duveen

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'...a gold standard is the ultimate in tight money -- keeping money in limited supply tied to gold..."

Actually, a fiat money system is ultimately more tight, because it can only grow supply that will eventually collapse through inflation, where as the gold supply of a monetary system can really increase, thus ensuring that the money supply increases in real, and not just nominal terms.

Submitted on Sunday, Nov 4, 2018 at 12:21:50 AM

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William H Warrick III MD

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Your money is backed by your work, not by gold. The value of your work is based on what you do. There isn't enough gold in the world to back the dollar or any other system. If people try to cash in their paper for the gold it would run out before everyone could be accommodated.

Submitted on Sunday, Nov 4, 2018 at 2:01:01 PM

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Peter Duveen

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For over a hundred years, the US money was defined a a unit of a commodity. It was only when the government couldn't make good on its promises that a new economic system took root that was not based on gold. The entire bank note credit scam in currency came about to cover for a massive default.

Submitted on Sunday, Nov 4, 2018 at 10:48:16 PM

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John Peebles

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Credit can be created independent of the Central Bank but not by us. The system of money creation represents trickle down dynamics. These rules we know don't work for the majority of the population but rather accelerate inequity.

Those closest to the spigot of money creation get it for less. When the value of their assets declines, the moneyed elite turn to the Fed and the Exchange Stabilization Fund (ESF) that it finances to prevent a plunge in the markets. This plunge is the inevitable consequence of cheap money financing speculation and the bubble it creates. To prop up the inflated markets--and prevent a correction through true price equilibrium (quantity of debt vis-a-vis the demand for it) the Fed must intervene continuously. The higher the market, the more easily panicked the Fed's constituents in the financial world get, and the correction is avoided by Central Bank interventions (ECB, BoJ) who buy each other's debt and, covertly, equities.

Market stabilization drives Fed policies. As for the utility function, the Fed has lost any hope of preserving the value of the currency, which has depreciated 97% since the Fed's creation in 1913. This means sweat equity has to be earned in vastly higher amounts, taxed at a rate exponentially higher than the unearned income of the moneyed class. Meanwhile we borrow at rates twenty times higher and then there's this big mystery about why we have to borrow and so we go ever deeper in debt as inflation grows, which goes unrecognized in COLA. The only reason we pay interest at all is the Fed and profits for the bankers they serve.

Submitted on Sunday, Nov 4, 2018 at 3:47:49 PM

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