Bold Presidential Fed Action (piece below email)

 

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Firing Federal Reserve Board of Governors member Lisa Cook was a horrible way for President Trump to attempt to create a legal predicate for having the power to remove Federal Reserve Board of Governors members.

Put aside the “Trumped-up” allegations against the brilliant and, as the BOG’s first Black member, trailblazing, Cook—and the fact she wasn’t even a member of the Fed BOG when it launched its moronic, malevolent rate-hiking spree in 2021. If a President is only able to remove BOG members and other Fed officials under the pretense of malfeasance, that will give him/her very few, if any, opportunities to make additional Fed appointments and do nothing to allow a President to alter Fed policy.

Worst of all, it won’t accomplish what’s essential: SCOTUS completely vitiating the unconstitutional 1935 Humphrey’s Executor decision, which would make clear that Fed BOG members and its other top officials exercise executive authority encompassed in Article II and, thus, serve at the pleasure of POTUS.

As with Executive Branch departments, any President must have the ability to purge the Fed hierarchy and install his or her own appointees. Otherwise, a President can’t possibly carry out, next to national defense, a President’s most important duties: implementing the economic policies he or she was elected by the people to enact.

Powell and his toothless BOG lackeys have held our economy way below potential since 2022—after a long-belated burst during the pandemic, middle class wages have stagnated; job growth has stalled. Many believe we’re at the brink of a recession. This is totally contrary to the goals of our elected President’s economic efforts.

In 1982, Fed Chair Paul Volcker did the same to Reagan and the Republicans. His not only unnecessary but utterly unhinged, scorched-earth monetary policy inflicted what remains, in unemployment rate, the most horrific recession in our history between the Great Depression and the pandemic.

By mid-1984, Fed rates had been reduced—though still sky high—and the economy was climbing back. According to Volcker’s autobiography, before the 1984 Republican convention, Reagan Chief of Staff Jim Baker summoned him to the President’s hideaway office adjacent to The Oval, and, with Reagan sitting quietly at his side, firmly told Volcker, “The President is ordering you not to raise interest rates before the election.” The normally imperious Volcker acceded and didn’t go public.

That meeting very likely prevented a retreat in the recovery and ensured Reagan’s reelection. It’s no wonder Reagan stymied Volcker rate hikes when he did: the powerful 1984 Reagan convention film extolled the lower interest rates and the country’s economic turnaround, as did his campaign’s iconic “Morning in America” TV ads, which dropped after the GOP convention. 

Despite a continued plunge in Fed rates—and Reagan tripling our national debt in a mere eight years—inflation remained tame for more than three decades. 

And, while it’s largely forgotten, from the Federal Reserve’s 1913 inception, it was unquestioned that the Department of the Treasury oversaw Fed policy. It’s headed, of course, by the Presidentially-appointed Secretary of the Treasury, who serves at the pleasure of POTUS. Notably, during World War II, Treasury directed the Fed to keep its interest rates low to enable financing of the war with low interest rate Treasury debt.

If it wasn’t understood that the Fed was under Treasury’s heel, there would have been no need for the 1951 “Fed-Treasury Accord”—a backroom deal between those two entities, not a law—which invented what’s now fallaciously extolled as “Fed independence.” Neither the Congress nor the courts have ever limited the previously long-established Treasury power over the Fed.

These two momentous examples demonstrate that the presidential Fed oversight Trump believes is called for in our Constitution isn’t new, unprecedented or destabilizing. Quite the contrary. Our World War II victory was due in no small part to our ability, by dent of the Treasury Department’s dictates to the Fed, to feasibly finance what today would be tens-of-trillions in debt. And how many millions of Americans benefitted from Reagan’s economic policies once they were no longer being sabotaged by the totally politically unaccountable Fed? 

More fundamentally, contrary to pernicious economic “conventional wisdom,” problematic inflation in our economy is, for the most part, a myth. It has only occurred:

• Amid major wars (which Vietnam certainly was by 1968) and their immediate aftermath
• Post-pandemic—war-like in its inflationary impact
• During the mid-1970s through early 1980s perfect storm:
• OPEC boosted oil prices to, when they peaked in 1981, more than 10-times what they were in 1972—as U.S. oil production was imploding.
• Nixon allowed the USSR to virtually corner the global grain market after it suffered a bad harvest
• Nixon imposed insane, cynically politically motivated wage-price controls. When they were first eased, wage and price rises were amplified as workers and businesses offset forgone increases, and padded them for a margin of safety in case the controls were reimposed. Indeed, after that self-inflicted wage and price jolt, Nixon effectuated an even more restrictive regime. When controls were later permanently lifted, wages and prices again shot-up more than they otherwise would have.

Our post-pandemic inflation spike took hold just a few months after President Biden took office. Very little of the increased spending he enacted had made its way into our economy. However, due entirely to the pandemic, we were beset with a dire shortage of workers and crucial Taiwan computer chips; our entire supply chain was in shambles; oil production in the U.S. and Mideast had been drastically curtailed.

In the midst of this inflationary economic calamity, Putin’s evil Ukraine invasion took much of Russia’s oil off the market and “Breadbasket of Europe” Ukraine’s grain exports were cut sharply, further ratcheting-up global oil and food prices. As in the late 1970s and early 1980s, it’s actually amazing inflation wasn’t far worse!

Obviously, it was this confluence of black swan events, not low Fed interest rates, that set-off the ’21-’22 elevated inflation (which has collapsed to less than 3%—this as more and more Biden-enacted spending has coursed through our economy!). Powell incomprehensibly responded to that heightened inflation—though it was 100% due to the pandemic—by pushing Fed rates to unconscionably high levels. Gross monetary malpractice.

Outside the aforementioned periods, elevated inflation has been the oft-prophesied apocalypse that has never come.

But there have been numerous ruinous recessions which destabilized or wrecked millions of lives and impaired or destroyed countless businesses. All but the pandemic recession were impelled by outrageous Fed interest rate increases to “fight inflation”—when there is zero empirical evidence Fed monetary tightening stems price spirals, other than by inducing economic cardiac arrest.

The 1929 stock market crash and resulting Great Depression were caused by stunningly maladroit Fed policies. It had initiated severe monetary tightening—despite almost nonexistent inflation—to pierce what it believed to be a stock market bubble (piercing perceived asset bubbles is not part of the Fed’s legally laid-out mission!). The Fed refused to expand the money supply despite tragic economic carnage. 

Fed Chair Alan Greenspan incited the 2000 Dot-Com stock market crash and subsequent recession by more than doubling the Fed funds rate from its 1994 trough. In a wretched reprise of the 1929 Fed’s absurd mindset, though inflation was below three-percent, Greenspan launched this Fed tightening rampage to temper what he called the stock market’s “irrational exuberance.” (Again, not the Fed’s job!)

The underbelly of the early-2000s housing bubble was rampant reckless, in many cases, fraudulent, subprime mortgages—fostered by quasi-governmental mortgage underwriting behemoths Fannie Mae and Freddie Mac—coupled with the proliferation of Wall Street mortgage securitization and appallingly unregulated Credit Default Swaps (CDS).

But the housing collapse, and resulting financial crash, were precipitated by an explosion in mortgage rates caused by Greenspan more than quadrupling the Fed Funds rate from 2004 through 2006. As was the case a decade earlier, Greenspan commenced this egregious hiking cycle with inflation below three-percent! Absent that Fed-caused catastrophe, which led to the Great Recession, there might well have been time for the government to rein in Fannie and Freddie and begin strictly regulating CDS, without an economic cataclysm.

The 2020 COVID recession was deepened by the Fed’s series of rate hikes leading up to it. What made that severe downturn the shortest recession with the most dramatic snap-back in our history was, along with massive government spending, the Fed drastically cutting rates and launching QE4!

And few people are aware that there's ample evidence sustained high Fed rates not only trigger recessions but, instead  of attenuating inflation, actually exacerbate it!

The cost of money is a huge expense, among the biggest borne by businesses and individuals. Increases in Fed rates are reflected in higher mortgage rates, rents (pressured because, unable to afford to buy houses amid oppressive mortgage rates, people flock to the rental market), car loan and credit card rates. This leads to higher wage demands—which are passed-on by businesses (along with their own Fed-fueled higher borrowing costs) in price increases! Simultaneously, excessive Fed rates choke-off investment, hampering our economy’s ability to expand productive capacity—which diminishes the supply of goods and thus raises prices.

The Federal Reserve Reform Act of 1977 doesn't include the word inflation. It says the Fed shall seek to "maintain price stability"—the first time since the Fed's creation it was given any legally stated role in that area, and vaguely worded at that. What level of annual inflation constitutes price stability isn't even specified in the law. Is it the Fed’s sacrosanct 2% benchmark, which arose from an offhand remark to the media by New Zealand's finance minister decades ago? Or the 3%+ U.S. average over the past century? Or the 5% average over the entire George HW Bush presidency, which aroused little if any alarm?

"Love the Lord your God with all your heart and with all your soul and with all your mind.” This is the first and greatest commandment. And the second is like it: “Love your neighbor as yourself.” All the Law and the Prophets hang on these two commandments.

According to the New Testament, Jesus articulated these two equal, paramount commandments. Likewise, along with the amorphous “maintain price stability” commandment, the 1977 Fed reform law also decrees an equal second commandment to the Fed: it must seek to maximize employment (taken together, its “Dual Mandate”). Are the five recessions the Fed visited upon us since 1977, in specious attempts to adhere to the first commandment, in alignment with this equal and essential second commandment?

Politicians, most visibly, President Trump, rhapsodize about the importance of jobs. Yet, the essential second half of the Fed’s dual mandate—maximizing employment—receives scant attention. And the Fed is almost never blamed when its draconian actions kill jobs. This despite what I’ve documented to be our history: low Fed rates don’t spur inflation, but excessive Fed rates tank our economy and inflame unemployment. 

While I'm invoking religion: the Torah, Bible and Koran all state that any interest charge is sinful. Ok, let's defer to the pragmatic Jewish rabbis and monarch-pressured Christian priests who later rationalized that only onerous interest is sinful usury. Even by those loosened strictures, the Fed has repeatedly imposed usurious rates. 

The recessions it's wantonly wreaked have wrecked countless lives by evaporating millions of jobs and gut-punching business. The Fed worships the God of price stability, ruthlessly seeking to attain its arbitrary two-percent inflation target by raising rates—strangling crucial investment and innovation, further overvaluing the dollar, which distends our bulbous, dangerous trade deficit and, worst of all, inflicting widespread misery.

Why are we allowing our central bank to recurrently engage in the sin of  usury?

The Fed cannot be granted absolution on the basis of ignorance. It’s readily apparent that our periods of greatest prosperity were amid low Fed rates, yet accompanied by low inflation:

• The Roaring '20s (when we actually experienced deflation)
• 1934-Q1 1937 (10%+ annual GDP growth)
• Post-Korea 1952 through pre-Vietnam-peak 1967 (more than 15 years straight)
• The 1990s (lowest inflation since early 1960s)

So history not only belies—but is the inverse of—the Fed’s dangerous dogma. “The data” inarguably shows that accommodative Fed policy which fosters economic expansion leads to low inflation!

Yet it’s the addled inflation alarmists who abound on TV and the internet—including an inordinate number of economists (better described as economythists). Much to the disservice of our country, ingratiating and intellectually indolent news organizations and journalists lap-up their detestable drivel and, worse, provide them a platform. 

Given the precarious state of our economy, and the recent piddling Fed rate reduction (the Fed Funds rate should be at a truly neutral 2%, not near 4%!), President Trump must create the correct antecedent to the upcoming SCOTUS hearing on the Cook firing: he should reinstate her and immediately remove Jerome Powell and all other BOG members who aligned with him on his post-pandemic rate-hiking binge, which was unprecedented in magnitude and, as I’ve shown, utterly unfounded.

Incompetence, causing severe damage to our economy and stratosphere government interest expense for our debt (higher than our Defense budget!) is more than sufficient “cause” for these presidential Fed terminations, even under the Fed’s current, contrary to Article II, rubric!

The unelected, heretofore deemed unfireable, seven-member BOG—a group smaller than a jury, adhering to discredited orthodoxy, meeting in secret—blithely wields a wand setting rates that dramatically impact our economy and deeply affect every American—too often, disastrously.

Clearly, our Founders most certainly didn’t intend for a body not serving at the pleasure of our elected President, to have, arguably, more influence over our economy than the President and Congress. It should be remembered that as our Republic was being birthed, Secretary of the Treasury Alexander Hamilton went through hell getting his fellow Founding Fathers to agree to the establishment of the First Bank of the U.S.—and it had nothing approaching the overweening power of our Fed.

The Breakthrough Israel-Palestinian Sinai Solution

More than anything else, the immutable underlying obstacle to a long term solution to the vexing Israeli-Palestinian conundrum is a real estate problem.

The solution: reimagine and build a new Palestinian homeland on the Sinai Peninsula, a massive, sparsely populated land with climate similar to the UAE, rich in mineral resources, ocean access and some of the most beautiful beaches in the region.

With collaboration between Arab states, the U.S. and the other NATO nations, and Israel, this Sinai Palestinian Homeland (SPH) can be transformed into a new Dubai.

• The SPHwould be secured—and neighboring Egypt's and Israel's security ensured—by an Egypt-led pan-Arab security force (PASF). An "MFO on steroids" patterned after NATO. The PASF would be funded primarily by Saudi Arabia, Kuwait, UAE, Qatar and other wealthy Arab states, with supplement from and military coordination with the U.S.

• Centcom (whose U.S. Mideast presence and budget could be greatly scaled back) and NATO. In addition to the SPH, the PAS would have a strong presence in Gaza, Lebanon and the West Bank, which is far preferable to untenable Israeli occupation.

• A new de-terroristed government for the SPH would be constituted. All Hamas elements would be barred. The SPH government would be led by the remaining and new viable Palestinian leaders, under the auspices of Arab states, the U.S. and NATO.

• The SPH would be constructed with massive Saudi Arabia and rich Arab state investment (the Saudi PIF has $1 Trillion in assets; Aramco ~$100B annual Free Cash Flow) and Israeli cooperation.

• Egypt would be paid a portion of SPH income derived from exploitation of Sinai mineral resources, tourism and industry.

• Populating the SPH would not entail forced Palestinian migration from Gaza and the West Bank. Arab states and Israel would incentivize voluntary relocation by Palestinians to the SPH with free flights on state airlines and per capita cash payments to aid relocation and settlement. Because the SPH would be a safe, soundly governed showplace, with vastly larger land area and economic opportunities, it would be a magnet for Palestinians now crammed into corrupt tinderboxes of grinding poverty.

• Formation of the PASF and SPH would be a key element of the long-sought Israel-Saudi peace accord.