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.
