By: Terrence Wall
Welcome to the Fed, Mr. Warsh. Warsh is now ‘Chairman’. Now, the title of Chairman really means more than it does in a normal corporation. In this case, Chairman of the Fed means being president of the Fed and managing all the operational details as well as running the board of the Fed itself, as well as managing the FOMC.
Warsh still needs to be elected as chair of the FOMC, the Federal Open Market Committee that votes on setting interest rates. Powell will still be on that committee until 2028 unless he resigns, and Trump does not have a majority on the committee yet.
Powell Set the Fed up for Failure
Besides the $2.7 billion building fiasco that Powell authorized and has mismanaged (honestly, I don’t think he had a clue about what was going on), he has trapped the Fed with his massive bond-buying program, which is what led to the high inflation.
Here’s my advice to Warsh to extract the Fed from this mess.
1. Don’t listen to the media. They’re always wrong. Don’t listen to Wall Street either. You’re not there to please Wall Street.
2. You’re there to provide a level playing field to Main Street, i.e., stable interest rates and a slightly growing money supply (i.e., about 2%), and a stable regulatory environment. Rocketing interest rates up and down and dramatically adding to the money supply is NOT the appropriate path, because the former puts banks and businesses out of business and the latter creates inflation.
3. Don’t forget that the Fed, the Treasury, and Congress combined create inflation, not the private sector. How? By expanding the money supply and spending it, those activities create inflation.
4. Do listen to the president, your boss. Ignore all this ‘the Fed is independent’ b.s. Meet with your boss at least once a month and keep him informed; give him the economic stats, the Fed’s balance sheet, and your current thinking on interest rates. Don’t ever surprise him. Credit him with any good news and take the blame for any bad news. He’ll love you, and you’ll have a free hand. On the other hand, if you play the game of keeping your boss in the dark and surprising him, you’ll learn to regret it.
5. Don’t raise interest rates during a war. A tight monetary policy during a war leads to disaster, or, in the case of FDR, an opportunity to impose socialism and steal the incomes of Americans. The Great Depression was caused by two factors happening simultaneously; first, FDR raised the income tax back up to 90%, yes, 90%, and second, the Fed tightened the money supply and raised interest rates, screwing over the American people. It’s no wonder no one had any money, but a penny actually bought something.
Raising interest rates definitely slows or defaults the economy, but that’s not going to solve the inflation problem, which is generated by the government printing and spending money. Even the Fed contributed its part to inflation by buying government and corporate bonds
6. Get your data from businesses. Continue the round tables with businesses, but separate banks from the businesses into separate round tables so each group can talk openly and freely.
7. Fix the billion-dollar building problem. Investigate the corruption and fraud that has certainly occurred.
8. Get more of Trump’s allies on the FOMC.
9. Restructure the Fed and eliminate thousands of unneeded jobs. I understand that there are over 2,000 economists at the Fed. You don’t need all those. All you need is one person to gather up all the private data out there on economic activities like trucking, shipping, exports, imports, rail shipments, housing, etc. You don’t need and shouldn’t want a bunch of economists who don’t understand the real world or how private businesses make decisions, telling you wrong information. Let’s face it, 100% of the time, 100% of the government-published data is wrong and needs to be corrected and reissued.
10. Eliminate DEI at the Fed, eliminate political bias, eliminate the pronouns on the emails, and get rid of all of it. It’s all a distraction to the Fed’s intended purpose.
Conclusion
This is your one chance, Kevin, to remake the Fed – correctly. Biden’s team had extreme control over the Fed under Powell, making demands, putting pronouns on emails, trying to de-bank conservatives who donate to conservative political candidates, so don’t tell me the Fed was ‘independent’ before Trump. It wasn’t. And it’s still a body created by and serving the needs of the American taxpayer and voter. The idea that the Fed can just do whatever it wants is horse hockey.
You can make it more accountable. You can right the ship.
Mind the gap, and carry on.
