Fed Up
Donald Trump thinks he has a plan. First, get rid of enough members of the Federal Reserve Board and replace them with his own minions, and then they'll do his bidding and drastically lower interest rates. Once he's appointed a majority of them, they'll do precisely what he wants without question. In the meantime, his appointee to run the Bureau of Labor Statistics will be firing high-level bean-counters and replacing them with apparatchiks, so that they can then make the official inflation number anything Trump wants it to be. This way, even if real inflation goes through the roof (as a result of lowering interest rates too fast), nobody will know about it because inflation will "officially" be at some ridiculously-unbelievable low figure. The economy "booms" (as measured by Trump's numbers), interest rates go down, and everyone's happy!
The one big problem with all of this is that average people still will notice high inflation, even if the official numbers never actually show it (for political reasons). The B.L.S. will be ridiculed, and independent (non-governmental) measures of inflation will become a lot more trusted. And America will become a lot less trusted by the rest of the world. Political influence on central-bank economic policy and fudging economic metrics will cause confidence in the American economy to fall (perhaps drastically).
But that's all big-picture stuff. In the here-and-now, Trump's move to fire a member of the Fed is (at the very least) ridiculously premature. Even if you accept Trump's version of events (which I for one do not, at this point), Lisa Cook has not yet been charged or indicted over anything. Much less convicted.
Cook has only been accused of "mortgage fraud." That's in scare quotes because it's a pretty thin case even from the accusation. But whatever. Cook has not been charged with any crime whatsoever. An allegation has been made against her.
Everyone in America is supposed to be considered innocent until a court of law finds them guilty of something. So even getting charged isn't enough (which, again, has not even happened yet).
To Trump, however, any accusation equals "cause" to fire her. This is so laughably wrong in a legal sense that I would dismiss it out of hand -- except for the Supreme Court we now have. So far, the Supreme Court has stated that while Trump can fire other previously-independent agency heads, the Fed is different. And the laws plainly state that the president can only fire a Fed member for "cause."
To Trump, all he has to say to that is: "I fired her 'cause I wanted to," in essence. In the letter he wrote (and posted on social media) where he attempts to fire Cook, he tries to spin the text of the law into being merely what a president determines is 'cause' for firing. This will be what they base their legal position on. This is not actually what the law says, but that's never mattered to Trump before (or occasionally to the Supreme Court, for that matter). That will become the heart of the legal case that Cook is now bringing against Trump.
Cook maintains that her firing was illegal and is therefore null and void. She has announced her intent to stay on the job (which she is supposed to have until 2038, by the way) and continue doing her work. And her lawyer announced she's suing Trump.
With one other absence on the Fed board, Trump could be within sight of being able to appoint his own majority, which is why he has been so strongly against the chairman and has now turned his attention to Cook. And this is why he moved so prematurely -- before any conviction, before any charges had been filed, instead merely on suspicion and accusation.
What happens next -- and how fast it happens -- remains to be seen. The Fed is scheduled to meet in a couple of weeks, and they had already indicated they were much more open to a very small decrease in interest rates. So a 0.25 percent drop is what Wall Street is already betting on.
Will Cook still be in her seat at this meeting? That remains to be seen. But even if she still is, Trump shows no signs of ending his crusade of intimidation against the Fed, which is bad enough even without him being able to fire board members willy-nilly. We'll see how both investors and the rest of the world take all of this in stride, but the very fact that a U.S. president is trying to dictate the Fed's monetary policy should be more than a little worrisome to all.
-- Chris Weigant
Follow Chris on Twitter: @ChrisWeigant
the same scheme is being used against Cook as against Tish James and Adam Schiff, claim they took out mortgages on multiple properties as primary residences, and thereby committed fraud.
even if the substance of the allegations were true, which I'm highly skeptical of, I've never heard of anyone anywhere ever being punished for it, not even having to pay a fine. it's pretty transparent that Donald is coming after political opponents this way specifically because a jury found him guilty of something he thinks everyone does and therefore he deserves to get away with.
speaking of which, i wonder how many properties Jeffrey Epstein claimed as his primary residence, in the decade while Donald was visiting, and how many human trafficking victims donald saw there...
This is good - Cook has done nothing wrong, as far as the law is concerned, and the president is blowing smoke once again. (Others have noted the irony that, if fudging ones financials to get better credit terms is a crime, the number one criminal to have done so is, of course, this president himself - convicted for it in court, no less.)
Regarding his attempt to hijack and subdue the independent Federal Reserve, I read an interesting comment on the E-V dot com blog. They note that the nation's banks follow the Fed's lead on the prime interest rate because it's in their interest to do so. But they are not required by law to do so. And they are not stupid: if the Fed reduces its prime rate to an unwise and ill-advised inflation-causing number, the banks do not have to do the same if their own economists advise them not to.
So if the president acquires the power, via putting flunky nominees on the board, to make the Fed do his bidding on interest rates -- no matter the economic realities of the nation's money flows -- all he will do is incapacitate and emasculate the Fed. Interest rates in the banking sector will remain roughly what the market demands, although less coordinated without the Fed's credible guidance and power as a reserve depository.
It sounds horrible. Wait, 'horrible' is the standard outcome for this administration's and this president's whimsical and vindictive policy-making.