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Has the Federal Reserve Really Gone Crazy?

Trump told a reporter, “I think the Fed is uh … making a mistake. They’re so tight. I think the Fed has gone crazy.”

I know left-leaning ego-maniacs like CNBC’s Steve Liesman are rushing to the defense of the Federal Reserve and are accusing the President of attacking the credibility of the Fed. But the reality is that President Trump is not a doctor and does not have the training to evaluate the mental status of FOMC members. If you think that’s the point the President was making, you probably watch too much CNN, NBC and MSNBC.

President Trump is more speaking to the raw power of the Federal Reserve and the fact that, when interest rates go up, the cost of borrowing money goes up for both businesses and consumers, making more expensive purchases less likely, thus slowing down the economy. In other words, the Fed has the power to make someone a one or two term President. It may even influence what party is more likely to win an election because people primarily vote their wallet.

The Federal Reserve has a private monopoly over interest rates. President Trump’s comments against the Fed call into question whether the Fed should have this kind of monopoly power over interest rates in the first place. Keep in mind that the U.S. Constitution does not mention any protections for a central bank like the Federal Reserve.

Young man with surprise look. The sudden realization that the Presidents on our currency opposed the Federal Reserve.

Poking fun at how the education system in America keeps people ignorant about how our founding fathers felt about the Federal Reserve.

Thomas Jefferson didn’t like the idea of a central bank (called the Bank of the United States at the time) because he didn’t like the idea of going into debt and saw high-finance as a potential source of bribery and corruption. Jefferson wrote:

If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them, will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered.

Jefferson said in a letter to John Taylor in 1816:

And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.

George Washington, in a letter to J. Bowen of Rhode Island, said on January 9, 1787:

Paper money has had the effect in your state that it will ever have, to ruin commerce, oppress the honest, and open the door to every species of fraud and injustice.

Much later, in 1919, John Maynard Keynes wrote in his book The Economic Consequences of Peace:

Lenin is to have declared that the best way to destroy the capitalist system was to debauch the currency … By a continuing process of inflation, governments can confiscate secretly and unobserved, an important part of the wealth of their citizens … As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless…

Even Russia’s Vladimir Lenin understood the importance of central banks in politics:

Without big banks, socialism would be impossible.

I have heard some traders suggest that the Federal Reserve’s power is held in check by the President because he can hire and fire the Fed Chair. I researched the topic and discover that legally, President Trump can not fire Jerome Powell. The President can only fire Powell if there is “just cause”. So the only time Trump or any other president can realistically remove a Fed chair is at the end of the chairman’s term of office.

Is President Trump right to suspect that the Federal Reserve can be used as a political weapon to assure he is a one-term President? You bet but the larger question is should any private corporation like the Federal Reserve have so much power to control interest rates?

Anytime the Federal Reserve wants, it can crash the U.S. economy by increasing interest rates.

Powell recently said:

We don’t pay attention to politics… This is just who we are and I think who we will always be, which is, we’re a group who — we’re quite removed from the political process. And we just try to do the right thing for the medium and longer term for the country.

Oh but us stupid people, you know, we the deplorables, are supposed to believe that the Federal Reserve operates on some heavenly cloud that floats above the lower political mountains. I know that’s what the Fed’s Powell wants us to think but history proves otherwise.

Jerome Powell says that the Federal Reserve is independent of political considerations. Barney Frank to Fed before November 2016 election, do not raise rates before election. Federal Reserve halts rate increases before election, then after Trump is elected hikes rates 6 times. Bitch please. Knock, knock, you are fired!

Making fun of the idea that the Fake News mainstream media wants us common folks to believe that the Federal Reserve is not political.

Remember this? Democrats urge Yellen to wait on rate hikes. Yellen complied with Democrats requests and did not hike rates again until Trump won the presidential election.

Hillary Clinton joined many Democrats in criticizing the lack of diversity in the Fed’s leadership and called for bankers to be banned from serving on the boards of the 12 regional Fed banks. Democrats used diversity to influence who served on the boards of the Fed’s 12 regional Fed banks! Once they stacked the board with Democrat leaning governors under the altruistic guise of “diversity”, they then can influence the FOMC’s votes on interest rate policy.

Why was CNBC’s Steve Liesman silent on criticizing Democrats for threatening the Fed’s independence? Of course we know the answer. CNBC is owned by Comcast which gives mostly to the Democrat party. Comcast also owns the left-leaning NBC and MSNBC. In the 2016 presidential election, Comcast gave $9,364,102 to Democrats, and only $3,342,129 to Republicans. In other words, Democrats got 72% and Republicans got 26%. Comcast itself operates as a cable monopoly in many areas of the country. Steve Liesman is quick to criticize President Trump for messing with the Fed’s so called “independence”, but is silent when Democrats do it.

Do We Really Need a Federal Reserve To Manipulate Interest Rates?

That’s a question that has been debated for more than 100 years. Many think that in a free market system, interest rates would self-adjust if it were not for the Federal Reserve. In this scenario, there would be more demand for loans at lower interest rates and so under the law of supply and demand, rates would rise on their own. When rates got high enough, there would be a drop in demand for loans and this would cause more saving to take place which would put more money in the bank and thus this increased supply of money would then lead to a drop in interest rates. In a true free market economy, the law of supply and demand would set interest rates and there would be no need for a private central bank to artificially manipulate interest rates.

Most people believe that the Federal Reserve is needed to avoid inflation and depression. However, the greatest economic collapse in U.S. history took place in August of 1929, nearly 16 years after the Fed was created by an act of Congress on December 23, 1913. There is nothing in the Constitution authorizing Congress to create a money monopoly, yet since its inception we have seen severe economic downturns in 1920, 1929, and 2008, along with 11 more recessions.

Another fact that runs counter to the idea that we need a Fed supports Jefferson’s and Washington’s thinking. The value of America’s money has been greatly diminished since the creation of the Fed. Since 1914, when the Fed began operations, the value of the dollar has declined to the point that it is worth less today than what nickel was worth back then. In fact, the dollar has lost more than 98% of its purchasing power since the creation of the Federal Reserve.

Another indisputable fact that runs counter to the idea that we need a Federal Reserve that artificially sets interest rates is the redistribution of wealth. The constant inflation and then deflation cycles that the Fed creates slowly robs people of their wealth and redistributes that wealth at the top.

This is why the super rich and powerful ruling class in America support the Federal Reserve system. The Fed builds a mote around the top 1% and keeps these people protected from the hungry lower economic classes. Again, as Jefferson said:

If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them, will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered.

Do we need a Federal Reserve that sets interest rates? I have no idea. I’m just a retail trader like you, but the existence of a Federal Reserve that sets interest rates seems 180 degrees out of phase with a free-market economy. No one can overturn the policy of the Federal Reserve, not an elected President and not Congress. The Fed’s power is so absolute that if they desire, they can bring down the U.S. economy, or prop it up, via the manipulation of interest rates. To believe that any group with so much power is not influenced by politics and corruption requires an absurd level of craziness. The bigger question IMO is are WE crazy for allowing any single entity in a free-market economy to have that much power?

Mainstream Fake News On the Federal Reserve

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