What does the Federal Reserve have in common with Venezuela and Greenland? It has been targeted by President Trump for regime change.
The Justice Department recently launched a criminal investigation into whether Federal Reserve Chairman Jerome Powell lied to Congress about the costs of renovating the Federal Reserve’s offices.
Many believe this investigation was launched in order to support President Trump’s effort to replace Powell, who he nominated to be Fed chairman in 2017, with a Fed chairman who will accommodate President Trump’s demands for lower interest rates.
Almost all observers believe that President Trump’s desire to stack the Federal Reserve board with loyalists who will tailor monetary policy to his liking motivated the investigation of Federal Reserve Board Member Lisa Cook. President Trump is using allegations that Cook lied on a mortgage application as a justification to fire her.
At a Supreme Court hearing on Lisa Cook’s case, the majority of justices — including some who have been supportive of President Trump’s attempt to exercise greater authority over federal agencies — seemed to oppose his firing of Cook. One reason for this would be viewing the Fed as different from federal agencies like the Federal Trade Commission because private banks play a role in the Fed’s governance. This indicates the Fed is a public-private hybrid.
The criminal investigation into Chairman Powell and the attempt to fire Lisa Cook have caused investors, stock traders, and others to fear Trump is endangering the economy by compromising the Fed’s independence. This supposed threat to Fed autonomy has also caused some Republicans who are usually defenders of President Trump to criticize him.
There is a long history of presidential attempts to influence monetary policy. President Richard Nixon, for example, pressured Fed Chairman Arthur Burns to lower rates. Nixon and Burns were even recorded joking about Fed independence.
Fed Chairman William Martin may not have liked Ike, but he caved to President Eisenhower’s demands that the Fed increase the money supply. President Bill Clinton persuaded Fed Chairman Alan Greenspan to support Clinton’s economic plans. The most extreme case of presidential pressure (at least until the Justice Department launched its criminal probe into Powell) was when President Lyndon Johnson shoved the Fed chairman against a wall because the Fed raised interest rates, causing trouble for Johnson’s Great Society at home and Vietnam War abroad. President Trump is thus not different from his predecessors; he is just more transparent.
Opponents of Federal Reserve “independence” have a point. Allowing a secretive central bank to control interest rates and the money supply is the reason the purchasing power of the dollar has vastly declined since 1971, when President Nixon severed the last link between the dollar and gold. Fed-produced fiat currency is also the cause of rising economic inequality and instability. The beneficiaries of this system are the politicians and the corporatist interests living off the welfare-warfare state. On the other hand, President Trump’s critics are correct that giving politicians power to set interest rates would be a recipe for disaster. Instead of arguing over who should control the money supply and set rates, President Trump and Congress should work to audit and end the Fed.
from Ron Paul Institute Featured Articles
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