[ExI] Trump Wants Regime Change at the Fed

[John Clark]

*Nobel Prize winning economist Paul Krugman made the following video today
and this is it: *

*==*

*Transcript*

When Donald Trump took us to war with Iran, he dismissed warnings from the
experts, from the military, from the intelligence community, saying that
this was a highly risky proposition. Now he wants to bring that same level
of clarity and judgment to monetary policy, and we should all be very
afraid.

Hi, Paul Krugman here. Today, I’m going to do a video rather than a proper
post because I just have too much stuff going on. I’ve been too busy to
actually do the charts and quantitative analysis that would be involved in
actually writing a post about this stuff. I’m recording this on Wednesday
afternoon.

The news to which I’m reacting is that in the midst of everything else
that’s going on, Trump is doubling down on his attempt to turn the Federal
Reserve into a personalized institution that will do what he wants, and
never mind the fact that it’s set up to have substantial independence,
never mind the fact that there’s a long tradition of respecting the Fed’s
independence. Trump thinks that he should be, as George Bush would say, the
decider on monetary policy.

This would be a bad thing even if Trump was somebody who generally had good
judgment. Monetary policy, what the Fed does — control of short-term
interest rates, control of the money supply— monetary policy is technical.
Doing it right does require that you know quite a lot about what’s going
on. It’s something that you really do want, technocrats at least having a
strong role in the decision-making process. And in fact we generally leave
it up to technocrats.

Part of the reason for doing that is it’s too easy. It doesn’t require
legislation to change interest rates. It just requires a phone call to the
open market desk in New York City. So it’s really easy for a president who
wants to rev up the economy, wants to juice things up before an election or
just plain has crackpot economic ideas, it’s just too easy for a president
to do a lot of damage.

So we put layers of insulation. Members of the Federal Reserve Board are
appointed for long terms. The whole setup is one that is designed to at
least take some time. It doesn’t allow a madman in the Oval Office to muck
with monetary policy.

It’s especially bad if the guy in the Oval Office is somebody like Trump,
who is impulsive, very much short-term reward-centered, and, of course,
doesn’t read, doesn’t study, doesn’t listen to experts. And we know that
Trump has a bee in his bonnet, that interest rates should be drastically
lower than they are now, which is simply not supported by any of the facts
about what’s happening to the economy.

Inflation is running hotter than it should be. The Fed has a target of 2
percent inflation on the PCE price index. It’s actually running at around 3.

That’s not good conditions for a rate cut. The economy doesn’t need a rate
cut, at least it doesn’t appear to right now. We’re not in a recession. So
technocrats at the Federal Reserve will not actually deliver the rate cuts
Trump wants unless he’s able to exert personal control.

Now, the way he’s been trying to do that is itself outrageous. His minions
at the Justice Department have tried to force Lisa Cook off the Federal
Reserve Board based on totally spurious charges about her mortgage
applications long before she was at the Fed. And they’re trying to force
Powell out over allegations of cost overruns in Federal Reserve
construction projects. This is crazy stuff, and nobody takes it seriously.
Nobody thinks those are genuine charges. This is all about trying to use
the mechanisms of the Justice Department to intimidate monetary policy
makers and turn them into instruments of the presidential will.

The presidential will here, aside from being utterly self-centered, is also
deeply uninformed. If you read what Trump has had to say about monetary
policy, it’s clear that he doesn’t think of interest rates as a tool to
manage the economy, as a tool to control inflation, and so on. He thinks of
low interest rates as a gold star that you get if we have a great economy.
So he keeps on saying that it’s a wonderful golden age, the economy is
terrific, none of which is actually true. It’s not a golden age. Inflation
is running high.

None of that is true, but in any case, that’s not how it works. Monetary
policy is not a reward for good behavior. It’s not a reward for
achievement. It’s something that is a tool for keeping the economy on an
even keel. If he does get his way, this will be bad.

The Federal Reserve has credibility, the fact that people making decisions,
particularly decisions about pricing, believe that the Fed will keep the
economy on an even keel, that it will not allow inflation to remain
stubbornly too high. It did allow some inflation for 21-22, which was
arguably the right thing to do to allow some, but it quickly took the steps
needed to bring it back down again. And that credibility, the fact that
people believed that the Fed would do the right thing actually helped it to
do the right thing, allowed us to have “immaculate disinflation,” a big
fall in the inflation rate without a big rise in the unemployment rate.

If Trump gets his way, that will all be gone. The credibility of the
Federal Reserve will be shot. Now, I don’t think he’ll get his way there. I
don’t think he will get his way on monetary policy. But he might.

And more than that, what the fight over the Fed is telling us is that Trump
has learned nothing. You would think that the debacle in Iran would lead to
some loss of self-confidence, some dent in the arrogant ignorance, the
belief that just because the intelligence agencies and the generals and the
admirals say that this is very risky and what about the Strait of Hormuz,
never mind, I know this will be a quick, easy war.

And apparently the fact that it hasn’t turned out that way hasn’t led to
any questioning of his own impeccable, perfect judgment. So the attack on
the Fed is a bad thing in itself, and it’s also a symptom of “this is not a
guy who should be in the White House.”

And the fact that he still commands so much deference from his own party
and so much timidity on the part of people who should be standing up to him
really makes me worried about the future of America and the world.

*Trump Wants Regime Change at the Fed*
<https://www.youtube.com/watch?v=gWrLTsa9EyA>

==

* John K Clark*
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