Control at the Fed and other thoughts

 Control at the Fed and other thoughts

Is Powell losing control of the Fed?

Breaking news: Trump says that he has fired Fed governor Lisa Cook. However, Cook says that she is not going anywhere. “President Trump purported to fire me ‘for cause’ when no cause exists under the law, and he has no authority to do so,” said Cook in a statement late Monday. “I will not resign.”If she continues to resist, it will make an interesting case in finding out what constitutes “for cause.” Her attorney says that the president’s action “is flawed and his demands lack any proper process, basis or legal authority. We will take whatever actions are needed to prevent his attempted illegal action.” We will see if Trump tries to prevent her from physically staying at the Fed by sending in the FBI to evict her from her office. That would be messy to say the least. I suspect that Cook will get an injunction to prevent her removal until adjudicated by the courts. Of course, Trump wants to replace Cook. With a term becoming vacant in January and with the possible departure of Powell after his term as chairman expires, the president would have nominated four of the seven governors. He has rather loudly said that he will only nominate those who will vote to lower rates (a rather dumb thing to say). I guess he means under the economic environment of the past few months – ignoring the uptick in inflation.

Regardless of what happens with Dr Cook, I think that Powell is losing control of the Fed. Previously only the Fed chairman served as spokesman. Alan Greenspan ran a very tight ship. When interviewed the governors talked a lot but said nothing. Seldom if ever was a reserve bank president quoted. Things loosened up a bit under other subsequent chairmen but not like this. All of a sudden, Governors Waller and Bowman have been vocal about wanting to lower rates. Mind you there voted to hold the Fed funds rate steady until Trump kept browbeating and threatening Powell. Both would like to be named chairman replacing Powell when his term expires in May so they are now kowtowing to please Trump. The reserve bank presidents are all of a sudden chiming in. I saw an article where four of the ones on the Open market Committee were interviewed about rates. Only the New York Fed president – who ironically is the most important one – was not quoted. One said that rising prices would cause her to keep rates the same while the other said that the slowing labor market might cause her to consider a lowering of rates. But it is still significant that more and more members of the Fed’s hierarchy are feeling free to talk to the press. Once that would have signaled a loss of control by the Fed chairman but lately it seems that I am the only one who sees it. Is it because today’s reporters are too lazy to research history?

Gone under the radar are the reserve bank presidents. Trump has just been yelling and screaming at the Board of Governors but the reserve bank presidents play an important role also. The presidents are selected by the board of directors of the reserve banks and approved by the Fed Board for a five year term. All the terms for all the presidents expire at the end of February in years ending with a 1 or a 6 making 2026 very important. I don’t know of a president who did not have his term renewed by the governors but it might be possible if Trump or his successor could control the governors. For instance, the presidents of Atlanta and San Francisco are both liberals and likely would not have their terms renewed by a Trump-leaning Board of Governors. Mind you, the Atlanta Fed president is a friend and a co-author of mine that I have known for 20+ years but his political views run counter to those in the MAGAverse.

The Feds raid John Bolton’s home

The FBI raided John Bolton’s home ostensively looking for classified documents. FBI director Patel tweeted “No one is above the law.” Well they got practice raiding Mar-a-Lago when Biden’s FBI raided Trump’s home for classified documents while Biden kept his safely secured in his garage in Delaware. Maybe Trump can get the garage raided now that he is president, just for a little payback. Recall that once Bolton and Trump were buds. Bolton was Trump’s national security advisor during reign number one. Bolton is a loud and forceful hawk often branded as a neocon. But I think that term is too mild for him. He is ab advocate of regime change and military action if not intervention in a slew of countries that are hostile to US interests.

Bolton and Trump had a major falling out and parting of the ways. Bolton wrote a book that was called “scathing.” The book, “The Room Where It Happened,” portrayed Trump as grossly ill-informed about foreign policy and said he “saw conspiracies behind rocks, and remained stunningly uninformed on how to run the White House, let alone the huge federal government. Naturally, Trump then called Bolton a crazy war-monger who would have led the country into World War Six. Bolton was one of the former officials who had his security clearance revoked and was on FBI director’s Patel’s list of members of the executive branch deep state. No wonder he was raided as a signal to all those who vocally object to Trump and this administration. Patel tweeted “No one is above the law.” To paraphrase Bill Clinton, “I guess that depends on how you define ‘law’”.

Send the Chinese students home?

Did you see Mike Gallagher’s piece “Send Harvard’s Chinese Students Home”? https://www.wsj.com/opinion/send-harvards-chinese-students-home-national-security-risk-research-2e43313d

In it Gallagher states that it makes little sense for Harvard to be educating the next generation of our Chinese enemies. He wants Chinese students not to be educated at Harvard and other universities. Gallagher is afraid that the Chinese students will steal our secrets and use them against us. It is probably with no sense of irony that he then quotes Meta’s chief of AI, Alexandr Wang, who “has argued that the rate of AI progress may be such that you need to prevent all of our secrets from going over to our adversaries and you need to lock down the labs.” Doesn’t Gallagher know that Wang’s parents are Chinese immigrants who were physicists at the National Labs in Los Alamos? In fact, Gallagher even says “Expand the Biden-era law banning Chinese citizens from national labs like Los Alamos.” Oops.

Of course we have to be careful and suspicious. But such a ban is a bit much. I have always wondered how Chinese students can come here and study and then return to the oppression that is China. I know some will point to the relative freedom and luxury living of the Chinese elite but there is always the image of Jack Ma to show the limits of that freedom. Yet could having that million or so students from China lead to an undermining of communist party control and eventually make China free? Let’s hope.

Gallagher says “Blindly embracing academic cooperation with a geopolitical rival is absurd. Nobody suggests we should train Iranian nuclear physicists or Russian ballistics engineers.” I don’t know about Russian ballistics engineers but once Iranian students were a fixture on our college campuses. I bet that we did train some of their nuclear physicists. Anyway, if they don’t come here, the Chinese will go elsewhere. To me this is an indictment of higher education in China. It is a statement that although US primary and secondary education suck, our research universities remain the best in the world. Ironically, in large part it is due to the foreign (dare I say Chinese) graduate students who aid in research. Again the number of American born students in STEM graduate programs is woefully low. Gallagher should realize that if we close our borders we will lose our edge in scientific research. Of course, Trump is accomplishing that already with the cutting off of research funds to higher education. Granted some of the projects approved under Biden were ridiculous but Trump is literally throwing the baby out with the bathwater.