Come January, President-elect Donald Trump — the self-described “king of builders” — will be faced with a unique re-modeling opportunity that’s nearly exclusive to him — completely reshaping the Federal Reserve.
There are currently two vacant positions on the Federal Reserve Board of Governors, the main governing body of the central bank. Chairwoman Janet Yellen and Vice-Chair Stanley Fischer’s terms will expire by 2018. This means that should Yellen and Fischer follow custom and concede their board seats, Trump will have the opportunity to replace four of the Fed’s seven leading officials with conservative figures during his presidency.
And that’s a big deal.
Board members serve 14-year terms, and there have been very few times in history where more than two board vacancies have come in a single presidential term. In truth, Trump has a nearly unprecedented opportunity to shift the direction of monetary policy towards a more conservative direction.
Although Trump has occasionally appeared to embrace the status quo with respect to monetary policy, he has also been rather candid in his views of the current Fed.
According to CNBC, Trump has little fondness for low-interest rate queen Janet Yellen, and he accused her of depressing interest rates for political purposes multiple times on the campaign trail. At the same time, Trump has rightly questioned the Fed’s current approach to manipulating the stock market.
Trump’s Problem with low-interest rates
Donald Trump knows from experience that the Federal Reserve’s low-interest rate policies have wreaked havoc on the economy.
Everyone that had the displeasure of living through the Great Recession of 2008 understands that the Fed’s artificially low-interest rates misled and lured individuals and industries into allocating too much capital into the housing market. In fact, it was these low-interest rates that facilitated a false sense of demand for real estate, a consequence of the Fed’s easy-money policy that allowed home prices to greatly inflate. As a result, the entire system crashed, leaving to over four million foreclosed homes and the killing of over nine million US jobs.
Donald Trump felt the whiplash of the Federal Reserve’s lack of foresight directly on the business end. The central bank’s misleading market signs tricked him, like millions of others, into building too much, causing him to miss a $53.1 million bond interest payment in December 2008. And everyone knows that when it comes to bad actors in the business community, The Donald forgives, but he never forgets.
As a result, bashing the “false economy” that the Federal Reserve has created became a regular talking point for Trump on the campaign trail. Over the course of the past year, Trump has castigated everything from the “big, fat, ugly [economic] bubble[s]” that the Fed has created, to the political influence that runs rampant throughout the central bank (in fact, he accused the “independent” Fed as being more political than Hillary Clinton in the first presidential debate).
Although he still occasionally refers to himself as a “low-interest rate person,” it would be hard to imagine that a guy as smart as Trump would allow the Fed to continue taking advantage of investors by repeating the same mistakes of the past several decades.
Trump goes g(b)old
Donald Trump is fully aware that the Federal Reserve’s inflationary policies have eroded the purchasing power of the dollar, and he believes that tying our currency back to gold might be the best way to stop the Fed’s unchecked printing press.
“Sadly, we all know what’s happening to the dollar,” Trump told The Street in 2011. “The dollar is going down, and it’s not a pretty picture, and it’s not being sustained by proper policy and proper thinking.”
Last year, Trump finally told The Scene how he plans to salvage our currency from complete depreciation: “Bringing back the gold standard would be very hard to do, but boy would it be wonderful. We’d have a standard on which to base our money.”
One can only hope that the business mogul will follow through with his convictions and work with the Republican-controlled Congress to make his vision a reality.
Talk about a politician with some big cojones! Sorry Little Marco, but your insinuation was just proven untrue.
And this isn’t just mere campaign rhetoric from the business mogul — it’s consistent with his own investment portfolio. In Trump’s campaign financial disclosure, the president-elect said that he had an “investment in gold” of as much as $250,000, likely to fight the “volatility in the stock market.” In 2011, he even accepted three 32-ounce gold bars as a security deposit on one of his properties due to his belief that gold is a “viable currency and an accepted universal monetary standard.”
Trump knows in his heart that bringing back the gold standard would greatly benefit the blue collar individuals who “worked all their lives to save,” yet are currently getting “wiped out” from the Fed’s “inflated stock market.”
One can only hope that the business mogul will follow through with his convictions and work with the Republican-controlled Congress to make his vision a reality. After all, studying the feasibility of a return to the gold standard is a part of the official 2016 Republican Party Platform.
Trump’s conservative economic advisers
Perhaps the best indication of Trump’s future monetary policy is the people that he surrounds himself with. And they’re good.
They include John Paulson of Paulson & Co., who saw the housing bubble miles ahead of most economists; Andy Beal, a self-described “libertarian kind of guy” who has attacked the Fed’s inflationary policies; David Malpass of Encima Global, who once signed high-profile protest letter opposing the Fed’s “inflationary” and “distortive” quantitative easing programs; 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.”
Trump even has a number of economic advisers that have publicly advocated for a return to the gold standard — among them: Larry Kudlow, a proponent since the 1970s, and Dr. Judy Shelton, who sees the gold standard as a “sophisticated, forward-looking approach.”
But the sharpest economic mind behind Trump’s team is undoubtedly Vice President-elect Mike Pence. While in Congress, Pence expressed regular concern that the Fed was deteriorating the value of the dollar. He introduced legislation to end the central bank’s dual mandate, and even talked up a return to the gold standard due to his belief that “a pro-growth agenda begins with sound monetary policy.”
The ball lies in The Donald’s court
For far too long, the Federal Reserve has been packed with irresponsible, easy-money officials, who may be singlehandedly responsible for causing the worst financial crisis since the Great Depression.
The Fed has been shamelessly obedient in its willingness to subsidize government deficits by simply printing money to pay for them (monetizing the debt) — leading to an ever larger growth in government.
This, perhaps, may lead to the even larger catastrophe of high inflation in the years to come. As Peter Bernholz wrote in his book, Monetary Regimes, and Inflation, “…We draw the conclusion that the creation of money to finance a public budget deficit has been the reason for hyperinflations.”
Trump’s appointments can help us win this civil war, shifting the Fed to a conservative majority for the first time in decades (or maybe ever?).
More importantly, he concludes, high inflation is caused simply by both irresponsible legislatures that spend beyond their means as well as by accommodative central banks that all too willingly to offer a helping hand.
Looks familiar, huh?
Thankfully, reports now indicate that as a result of the “Great Stagnation” of President Obama’s past 8 years, a “civil war” over future policy has developed, with many liberal economists in the Federal Reserve now expressing concern that the Fed’s easy-money policies may cause “excessive borrowing and increased leverage.”
Trump’s appointments can help us win this civil war, shifting the Fed to a conservative majority for the first time in decades (or maybe ever?). The stakes couldn’t be higher. Here’s to hoping that the business mogul listens to his heart, as well as his capable economic advisers, and does the right thing. The fiscal stability of our nation depends on it.