The Fed will yield to Trump

[HMS_Irruncible]

@asahi

Maybe the financial system could one day integrate AI and weave it into the economy so that it be even better at predicting risky financial activity and which sectors of the economy its coming from, and how to avoid having smaller amounts of risk snowball into something else.

Nah I feel like the future of AI is an endless fitting of past data sets that doesn’t at all generalize to the future.

First of all, McCain literally had no idea what his plan was - he had no comprehensive plan.

I absolutely agree with your political assessment there. But I feel like he would have figured it out, or at least responded to the electorate. My point is that Obama was in the same process of figuring it out, but for some unfathomable and totally not-racist reason, the Tea Party decided they weren’t buying anything he was selling.

Obama continued to succeed by recognizing the need to implement TARP 2, and thank fuck he had Democrats to work with. If he’d had to get the consent of the Freedom Caucus, we could have well gone from deep recession to possible financial collapse.

Hearty agreement.

John McCain would have been a disaster as president, and he would have been so almost from the beginning. He would under pressure from his increasingly angry base on the right to make very bad decisions, like not supporting the automotive industry.

I feel like the nutty right would have simmered down in the aftermath of a McCain victory. Simmered down all the way to acceding to vigorous economic stimulus, and well on the path to understand that debt-fighting is a thing we do when the economy is strong.

We were very, very lucky that people elected Obama and the Democrats in 2008.

I’m on board.

But I think the real underlying problem we have is wealth inequality, and the only solution that makes sense is fairer taxation and then using the revenue on things that the public can use like low-cost (not necessarily free) education and training programs, affordable housing, access to quality healthcare and food.

This is above my pay grade, but I’ll say I have put some thought into things and concluded that the progressive marginal income tax is the best way to go. The fetish for simpler taxes and fewer tax brackets is stupid, we should have 741 progressive tax brackets like the Eisenhower administration. That can’t possibly be more complicated than all the myriad loopholes we have now.

[Linden_Arden]

*Trump Discusses Firing Fed’s Powell After Latest Rate Hike, Sources Say

It’s unclear how much legal authority the president has to fire Powell. The Federal Reserve Act says governors may be “removed for cause by the President.” Since the chairman is also a governor, that presumably extends to him or her, but the rules around firing the leader are legally ambiguous, as Peter Conti-Brown of the University of Pennsylvania notes in his book on Fed independence *

https://www.bloomberg.com/news/articles/2018-12-22/trump-said-to-discuss-firing-fed-s-powell-after-latest-rate-hike

[Jonathan_Chance]

Yeah, I saw that article this morning.

Dammit, it’s like Trump WANTS the markets to tank incredibly. If not, he’s pursuing a strange, long game.

[Ramira]

@Jonathan_Chance

Yeah, I saw that article this morning.

Dammit, it’s like Trump WANTS the markets to tank incredibly. If not, he’s pursuing a strange, long game.

He is very limited in his thinking and is far far beyond his ability to undrestand what he is supposed to be managing. Since he only ever managed before a non structured family enterprise that by the track record was chaotically unmanaged in its actual non marketing operations…

it is very damaging this to come out at the same time as you have lost your defense minister who was widely respected.

[septimus]

@Linden_Arden

*Trump Discusses Firing Fed’s Powell After Latest Rate Hike, Sources Say

It’s unclear how much legal authority the president has to fire Powell…*

It was only several months ago that Trump appointed Powell — I guess those were happier, saner days.

I wondered at the time why Trump appointed Powell; he’s a scholar, former high-ranking Treasury official, etc. and didn’t wear a MAGA hat. Wasn’t Don, Jr. available? Couldn’t Jared have led the Fed in addition to his other important duties?

[Corry_El]

@HMS_Irruncible

Still not clear on the premise of why you think the fed would have “yielded”, as you phrased it. They are an independent institution who is more usually known to push back when a nervous President gets too demanding about rates.

If anything, the Fed ‘yields’ to the stock market trends. But having said that, I’m surprised they raised rates this week since all the indices are down for the month, week, quarter, and year.

There have been cases where in retrospect at least Fed chairmen have been accused of political accommodation. Arthur Burns is often accused of caving to pressure from Nixon. But it’s just as plausible, probably more likely, any given chairman will ignore pressure from a president, as Powell just did (or even be more likely to if the pressure was public).

Also lots of market participants believe Fed action is a ‘put option’ on the stock market. But it’s again just as likely or more IMO the Fed means it when it says it considers the overall tightness of financial conditions relative to its ‘dual mandate’ for price stability and full employment, rather than making investors happy via stock market gains. Sometimes a stock market retreat is enough to tighten general financial conditions enough for the Fed to take counter action, other times it’s not. The recent retreat from arguably overvalued highs wasn’t likely candidate to change Fed behavior this soon and it’s not a surprise it didn’t, IMO.

[WillFarnaby]

@Corry_El

There have been cases where in retrospect at least Fed chairmen have been accused of political accommodation. Arthur Burns is often accused of caving to pressure from Nixon. But it’s just as plausible, probably more likely, any given chairman will ignore pressure from a president, as Powell just did (or even be more likely to if the pressure was public).

Also lots of market participants believe Fed action is a ‘put option’ on the stock market. But it’s again just as likely or more IMO the Fed means it when it says it considers the overall tightness of financial conditions relative to its ‘dual mandate’ for price stability and full employment, rather than making investors happy via stock market gains. Sometimes a stock market retreat is enough to tighten general financial conditions enough for the Fed to take counter action, other times it’s not. The recent retreat from arguably overvalued highs wasn’t likely candidate to change Fed behavior this soon and it’s not a surprise it didn’t, IMO.

I remember when Yellen caved to a mere market tantrum at least once if not more than that. If she or Bernanke were still in charge, the decision would have been different.

[WillFarnaby]

@asahi

I can’t speak to Japan’s economy, but if I’m interpreting your post correctly, you seem to be misidentifying causation of the Great Depression and Recession.

The Great Depression had several root causes, but it wasn’t caused by cheap credit. As I’ve pointed out on at least one other thread, cycles inevitably bust. That’s just the way economics works. What matters is how financial institutions respond, and the Fed and the United States government simply didn’t respond before 1933 as it has learned to since that time. Money supply actually choked starting in 1928 or 1929, which came before the worst of the Depression. It needs to be pointed out that the Depression wasn’t the market crash of 1929 - for one thing the market actually went lower in 1931-32, but for another there was time for policy makers to intervene and stop the bleeding. Instead they made the problem worse, but it wasn’t by expanding money supply; the exact opposite happened.

The Great Recession was probably caused, at least in some part, by greater money supply, though better legislative and regulatory mechanisms might have prevented the worst of the fallout from that crisis. But just to be clear, inflation was never a major threat before 2007. The Fed wasn’t printing money so quickly that there was an inflation threat; the problem was that it was essentially underwriting speculative investment practices.

What we’ve learned from both crises is that putting more and more money into the hands of fewer and fewer people…is a baaaaad way to run an economy. It’s bad because you give plutocrats more economic power, and by virtue of that, more political power as well. The rest of the economy depends more and more on their decisions on how to spend their money. Actually, I’d argue it’s our money, but in any event, when wealth is concentrated, when policies encourage the concentration of wealth, government tends to move away from sound macroeconomic policy and instead tends to be more concerned with addressing the rich man’s problem: how do people who already have money use that money to make even more than they already have? Since more of the population has less money, the population as a whole tends to borrow more to live the middle class lifestyle, which means lower interest rates. If interest rates are lower, the rich man’s problem is that he can’t make money on lending the way he used to. So he needs to get a little creative. He needs to balance the political optics of giving the bourgeoisie access to capital while getting creative, and thus, taking on more risk to make money from the money he already has. That’s a recipe for a financial disaster.

And here’s the fun part. Wealth inequality is probably as bad as it has been since around 1913. So we know what’s coming next: the mother of all financial meltdowns that even the FDIC and Congress won’t be able to save us from. It’s not a matter of if, but when.

What school of economics holds that income inequality causes downturns? Seems like ideological fluff.

[Bosda_Di_Chi_of_Tricor]

@Jonathan_Chance

Yeah, I saw that article this morning.

Dammit, it’s like Trump WANTS the markets to tank incredibly. If not, he’s pursuing a strange, long game.

Maybe Putin does.
I’m not kidding.

[CarnalK]

Fed raises rates despite Trump opposition

Officials at the US central bank voted to lift the Fed’s key interest rate by 0.25%, to a target range of 2.25%-2.5%.

But they also said future increases could come at a slower pace amid concerns about global growth.

Maybe the yielding will start in 2019.

[WillFarnaby]

How prescient.

Fed Chairman Powell Sees Flexibility on Rates This Year

CarnalK can I subscribe to your newsletter?

[andros]

:rolleyes:

“Fed Chair says what every Fed Chair says, now here’s Bob with sports.”

[WillFarnaby]

@andros

:rolleyes:

“Fed Chair says what every Fed Chair says, now here’s Bob with sports.”

So perhaps he will do what every chair does, I.e. prop up the market in a Greenspan Put. Exactly what his boss wants. Imagine that.

[CarnalK]

@WillFarnaby

So perhaps he will do what every chair does, I.e. prop up the market in a Greenspan Put. Exactly what his boss wants. Imagine that.

So they’re going to yield to Trump by doing exactly what they always do?

[HMS_Irruncible]

@CarnalK

So they’re going to yield to Trump by doing exactly what they always do?

It seems like you’re unacquainted with the praxis known as “owning the libs”.

[JohnT]

Federal Reserve Chair: If Individual-1 asks me to quit, I’ll go ‘lulz, backatcha’.

Not a direct quote, but close enough.

[WillFarnaby]

@CarnalK

So they’re going to yield to Trump by doing exactly what they always do?

Powell was supposed to be the hawk. The course was set. We may never know if he changed course due to Trump or the Put.

[RickJay]

@WillFarnaby

Powell was supposed to be the hawk. The course was set. We may never know if he changed course due to Trump or the Put.

If you have evidence the Fed is bending to Trump’s will, present it.

“We may never know” isn’t convincing.

[Corry_El]

100% certain prediction: whenever the Fed stops raising rates in this cycle, assuming Trump is still president, some people are going to say ‘the Fed yielded to Trump’, no matter what the actual reasons.

But probably not important people, in terms of influence on the market.

[WillFarnaby]

@Corry_El

100% certain prediction: whenever the Fed stops raising rates in this cycle, assuming Trump is still president, some people are going to say ‘the Fed yielded to Trump’, no matter what the actual reasons.

But probably not important people, in terms of influence on the market.

Of course nobody will come out and say Trump is responsible for the Fed changing course. That would give up the whole game.