This deafening silence on Tuesday was the Republicans and the business leaders reacting to the last authoritarian power of Donald Trump: his efforts to dismiss Lisa Cook, a governor of the federal reserve, on the basis of unrealized allegations of mortgage fraud of one of his lacans, Bill Pulte, director of the Federal Housing Finance. On Monday evening, Cook said that she would not resign and on Tuesday, his lawyer, Abbe Lowell, said that she would take legal action contesting Trump’s authority to force her to go out, adding that the attempted eviction “lack of factual or legal basis”. The confrontation will go through the lower courts and may well be found before the Supreme Court, which previously published mixed signals on the limits of the President’s power. In recent months, the conservative majority has judged that Trump probably has the power to dismiss senior officials in almost independent federal agencies, but he has also said that the Fed is a special case because of its historic role in the American economy.
Over the years, of course, we have learned to expect an abject submission to Trump’s Gop Quislings on Capitol Hill. In this case, the only murmur of protest came from the representative Don Bacon, the Nebraska, who does not present himself to reinstatement. Bacon said that Cook was entitled to regular procedure and, referring to the president, said the evidence: “This is his way of taking control of the Fed.”
The failure of Wall Street and business leaders to record any immediate protest requires more comments. Whether Trump is described as an alleged dictator, a mafia boss or an imprudent player is largely a question of semantics from an economic point of view. In practical terms, its modus operandi is to push things as far as possible, whatever the existing laws or standards, until it receives a powerful decline. When there is no perspective, it continues to push. In recent weeks, he has threatened to avoid Jerome Powell, the president of the Fed; pulled the head of the labor statistics office, who published a job report that he did not like; And now tried to pull Cook. Together, these steps constitute an unprecedented effort to tear down the personal control of the American economic policy machinery, but which is entirely consistent with the wider effort of Trump to accumulate as much power as possible and dismantle all the remaining constraints on its actions.
A few weeks ago, I wrote a chronicle pointing to the lack of resistance from America to Trump’s efforts to intimidate and exercise control over BLS, which provides economic statistics on which companies count every day. The independent Fed, as a guardian of monetary policy and the most important player in financial regulation, plays an even more central role in the American economy.
Business leaders know very well what is going on and, in private, many of them are surely alarmed by the possible consequences. Some of them even said so publicly. “Playing with the Fed can often have negative consequences,” said Jamie Dimon, Chairman and CEO of JPMorgan Chase last month. But business leaders also know that Trump is a revengeful man with the power to target anyone who denounces him, or any business that moves him. The leaders, rather than risking their future, and the future of their business, keep Schtum. In doing so, they repeal their duties not only as eminent citizens, but also as the main beneficiaries of the legal and institutional foundations of American capitalism, which Trump is busy taking a Jack hammer, just like his workers, decades, razed the Bonwit building, and its Art Deco-Fiezes, on the fifth avenue.
By targeting the Fed, its immediate motivation is to put it pressure to reduce interest rates to stimulate the economy. Despite all his role on the way in which his protectionist policies inaugurate a new golden age, he and his economic advisers are perfectly aware that, during the first half of this year, economic growth has slowed considerably, and that cracks now appear on the labor market. They also know that this is a predictable response to its prices, which have increased taxes and generated a lot of uncertainty. Earlier this year, in a rare moment of honesty, Trump said that the goal of restoring American manufacturing justified short -term pain. But, even if his prices are starting to feed higher prices, he wants an inflation to have bail out the cost of the cost of the loan.
Cook, in his role of one of the seven governors of the Fed, supported Powell’s waiting policy, who made Trump furious. Obviously, that Fury was not salbed by a speech that Powell delivered last week in which he hinted that the Fed would reduce the short -term interest rate that it controls next month. Many people at Wall Street are waiting for a quarter -point reduction during the September political meeting, with the possibility of a second cup of the same magnitude later in the year. These movements would lead to the rate of federal funds less than 4% – its current range is 4.25 to 4.5%. Trump said he would like the rate to be reduced to one percent.
If he succeeds in dismissing Cook and replacing her with one of her loyalists, four of the seven Fed governors would be people appointed by Trump. Given that the Central Bank policies development committee also includes five presidents of regional banks of the Federal Reserve, the names Trump would not necessarily have a majority. But with Powell’s mandate as president of the Fed next May, and Trump is already preparing to appoint his replacement, the president could soon be able to exercise his control over the central bank, which would surely include an effort to install loyalists in the regional reserve banks. (The presidents of regional bank emerge from an opaque process of appointment, in which the members of the board of directors of these institutions, who are often local business leaders, play a key role, but the governors of the Washington Fed can exercise a veto.)
What would an America look like in which Trump effectively controlled the country’s policy rates and, indirectly, the Fed capacity to create money? Paul Krugman underlined Turkey and Venezuela as examples of the place where we can head. Larry Summers underlined Argentina. Investors can record their disapproval of harmful economic policy developments by selling financial assets from a country. Monday evening, immediately after Trump announced, via social media, that he intended to dismiss Cook, the value of the dollar soaked in Asian trade. “All this, the prices included, is only another reason why the United States cannot trust,” Reuters Bart Wakabayashi, a banker from State Street in Tokyo. “This is what has an impact on the dollar.”
Admittedly, the drop in American currency, which was maintained on Tuesday negotiated, was modest – nothing like wholesale sales that many other countries have seen when international investors have lost confidence in their economic governments and their economic policies. But for the United States, which is partly based on huge foreign capital entries to finance its gaping budget deficit, it is not necessarily reassuring. History shows that the loss of confidence on the market follows the personal bankruptcy model that one of the characters of Hemingway described in “The sun also rises”: “gradually, then sudden”. When the sudden scene arrives, it is too late to stop it and the consequences are invariably serious. For a country that has long been the issuer of the global reserve currency and has served as a refuge for global investors, they could be incalculable. ♦
