During his tenure, Trump blamed the Fed for a tightening of monetary policy. Now, members of Trump's team are apparently considering giving re-elected Trump more power over the Fed, triggering panic among mainstream economists about a politicized Fed. Our guest commentator explains why the real risk, from the establishment's perspective, is not that Trump turns the Fed into a political organization but that he reveals that it is already one.
THE next article was originally published by the Mises Institute. The opinions expressed do not necessarily reflect those of Peter Schiff or SchiffGold.
Discourse about the Federal Reserve is often filled with myths, dishonest wording, and outright lies. Listen to a news conference by Chairman Jerome Powell or read an article by the Fed's chief correspondent from a major news outlet and you're sure to hear at least a few of them. For example, it is common for the financial press to characterize the Fed's current conundrum as “walking a tightrope.”
The Fed is said to be working to guide the economy without tipping it toward high inflation on one side or recession on the other. Over the past two years, we were told, the economy has teetered too far on the inflation side, with the Fed now trying to steer the economy back toward the thin line of stability without tipping too far and plunging into a recession.
But whoever really understands what causes recessions I can say that this framing is, at best, incredibly misleading. The Fed does not prevent recessions, it directly causes them. Today, the tightrope analogy contributes to the myth that, although difficult, a recession can be avoided. This is not the case. All the Fed can do is delay and amplify the painful correction that previous monetary policy had made inevitable.
Another myth that has gained more attention in recent weeks is that the Fed as an organization is separate, superior, or independent from politics.
Attention follows a Wall Street Journal report alleging that members of former President Donald Trump's team are developing plans to give the president more power over the Fed if Trump wins the election in November. Reporters cite a ten-page internal document that argues the president should be consulted on interest rate decisions and have the power to fire Fed chairs before their terms end. These plans triggered panic over a politicized Fed and provoked reactions from investors. several concerned economists.
So, a group of politicians created an organization and consolidated their power in Washington, D.C., where a committee of government officials appointed and confirmed by the politicians directs monetary policy for the entire country according to policy goals previously set by d other politicians. And we are supposed to view this organization as apolitical.
Furthermore, the idea that the changes Trump's team might be considering would represent a categorical change in the structure of the Federal Reserve is crazy. Fed chairs already consult with current presidential administrations through the Treasury Secretary. It's not as if the Fed is insulated from the ambitions of the executive branch.
The real risk, from the establishment's perspective, is not that Trump turns the Fed into a political organization, but that he reveals that it already is one.
From the beginning, the Federal Reserve has represented the politicization of money and banking in the United States. It allows the government to finance its preferred programs with newly printed money and manipulate the entire structure of the economy with centrally planned interest rates. This is a great thing for politicians, government bureaucrats, and politically connected businesses who get new money sooner. But it traps us in a recurring nightmare of unnecessary economy-wide booms and busts and devastating consequences, destroyer of culture permanent price inflation.
The illusion of an independent, apolitical Fed is essential to maintaining this scam.
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