Author: Alex Pearce
Though he originally touted his opposition for Fed Chairwoman, Janet Yellen, in the past weeks, President Trump has voiced his support of extending her role within the Federal Reserve. This comes as quite the surprise because during his campaign, Trump stated more than once that he saw the Chairwoman as being too involved in politics, contributing to the bubble economy, and ruining the financial security for those who have paid into Social Security and other similar retirement programs. The worry here is that the bubble economy, which President Trump called “big, fat, and ugly” during his campaign, is only going to become further inflated if his long promised “Drain the Swamp” policies do not soon come to fruition.
So, what exactly are the problems with the Federal Reserve? To start, they are largely responsible for the bubble economy that is facing the United States. The stock market has become increasingly dependent on Fed data, therefore giving the Fed the power to manipulate the market through the data that they provide. This wouldn’t be a problem if the Fed provided consistent, accurate data, but they seem incapable of doing so. For example, in February the Fed released its first quarter GDP growth estimates of 3.4%, encouraging consumers and investors that the economy is strong. Since then, they have revised those estimates to a mere 0.6%, while adding that the growth might be negative. Despite these revisions, they have not abandoned their “strong-economy” position calling for the possibility of a continued increase in interests rates. This is something that is only done when the economy is perceived as being on the right path. Even though rates have risen once this year, they still remain at artificially low levels, suggesting the economy isn’t so strong. During a recent appearance on CNBC’s Futures Now show, Peter Schiff, the CEO of Euro Pacific Capital and long-time opponent of the Fed, reminded viewers that, “Even Alan Greenspan is forecasting stagflation. And he ought to know because he wrote the playbook that Ben Bernanke and Janet Yellen are following”. Greenspan, a former Fed Chairman, is now abolishing the policies he once called for. This should be a huge red-flag for the Fed, yet their policies remain unchanged. This type of negligence will not help everyday Americans.
In addition to their flawed data and useless policies, the Fed has also been known to play a role in politics, despite the notion that they are supposed to be insulated from such things. Ron Paul, writing on the Fed in a recent article titled, The Federal Reserve Is, and Always Has Been Politicized, wrote the following: “The most notorious example of Fed chairmen tailoring monetary policy to fit the demands of a president is Nixon-era Federal Reserve Chair Arthur Burns.” Burns and Nixon may be an extreme example — after all, no other president was caught on tape joking with the Fed chair about Fed independence, but every president has tried to influence the Fed with varying degrees of success. For instance, Lyndon Johnson summoned the Fed chair to the White House to berate him for not tailoring monetary policy to support Johnson’s guns and butter policies. This should make it no surprise that Trump is not looking to change the leadership of the Fed. He has inherited the bubble economy and is now going to use it for his own advantage, as calling for change would only leave him immune to the repercussions of Auditing the Fed, repercussions that are already bound to happen if things remain unchanged.
In my opinion, one of the most frustrating aspects of this issue is the ignorance presented by the American public. Many Americans are extremely undereducated in the fields of economics and finance. Moreover, only 24% of the American public can correctly identify who Janet Yellen is and more than 25% are unaware that the Fed is in control of monetary policy in the United States. While this means 3/4 of the public knows the Fed’s basic role, this knowledge is extremely limited and allows for the Fed to operate in a manner that is beyond the scope of knowledge for many. If Americans were educated on the issue, maybe they would wake up to the problems that are occurring. Most people spend at least 40 hours per week in the pursuit of money, and a large portion of the average person’s life is centered around things such as bills, savings, retirement, etc. We work so hard for our money and yet this group of individuals (the Federal Reserve) have complete control over where our money goes, what it is worth, and the amount of it in circulation. These are powerful possessions. No sensible individual would agree to their money being devalued, over-printed, or used in the wrong way. So why is the Fed allowed to operate the way it does? The Federal Government works hard to keep a veil of secrecy around the Fed and those who are in charge of it love to give vague, unsure answers when questioned about what they do.
The first step to solving this issue is to educate the general public. In my experience, during my public school days, economics classes were few and far between and I struggle to recall any lesson plans centered around the Fed. If the government is in charge of public school curriculum, why are they more concerned with us reading Shakespeare than learning about the monetary institutions that are at the heart of this country? In addition to improving our education, transparency needs to be part of the operating procedures of the Federal Reserve. Their books need to be opened, their meeting minutes publicized, and their leaders subject to more scrutinized evaluations. Politics need to stay out of the Fed. Sensible principles need to be followed. This country thrived for many years without the Fed and, if it must continue, we must be aware of what is happening behind closed doors. Just as your financial advisor must report to you where your money is going and how it is being spent, the Fed must do the same with OUR money. Let us not forget that without the taxpayers, without our consumption, without the products we produce, the Fed has no reason to exist. They work for US, the American people, not the other way around.
The light at the end of the tunnel lies in the fact that The House Committee on Oversight and Government reform is entertaining a bill to Audit the Fed. This brings reform one step closer to becoming law. Though in the short-run, an audit could reflect poorly on the American economy — as foreign investors would see the move as America not having confidence in its own central bank. The move will shed transparency on the largely secretive institution, hopefully curbing the years of negligence the economy has fallen victim to at the hands of the Fed. If Trump truly wants to “Drain the Swamp,” an audit will hopefully occur during his term as President.