Author: haroldblackphd

American socialism, where Bernie meets Trump

I am sometimes asked by my good friend Hallerin Hilton Hill to appear on his afternoon radio talk show. On more than one occasion he said “You are a republican?” And I answer yes because it is the only one of the two major parties that pays lip service to free markets. But that day may be past. Maybe it should now be that only one party used to pay lip service to the markets. I guess I have always been a conservative. My parents, my college and graduate school education all embraced conservative values. I used to be a fan of the Heritage Foundation under the leadership of Ed Feulner and Edwin Meese. Their mantra dovetailed nicely with my own values: “free enterprise, limited government, individual freedom, traditional American values, and a strong national defense.” No more.

Those values are the same that I learned from my parents who steadfastly loved America even though living in the south under Jim Crow and the starkest racial discrimination. But my folks talked of how far we had come as a people, were optimistic about the journey we had taken and realistic about how far we had to go. Both Mom and Dad’s grandparents were slaves giving credence to that journey. Both would tell us of the progress made from one generation to the next and only in America could that journey be made. They were republicans because they could not be in the same party and the racist democrats. Southern republicans were probably racist too but they kept a low profile and were mostly invisible in those days.

So when I went to the University of Georgia and had my first economics course, the text was Alchian and Allen’s University Economics. I still have that book today. In contrast to Paul Samuelson’s text, Alchian and Allen was one of market economics and taught the virtues of free markets, limited government and individual freedom. I knew immediately that I would major in economics. Georgia it seems only had market economists. I went to Ohio State to write under the great Karl Brunner who was an even stronger market economist and was good friends with Milton Friedman. No wonder I am who I am.

But today conservatism has been co-opted by something alien. Most congressional republicans have seemingly gone over to the dark side. The Heritage Foundation has abandoned basic principles and is losing many of its scholars, some going to Mike Pence’s think tank. Heritage is now aligning itself with the principles of Donald Trump. It flew the American flag upside down when Trump was convicted in New York. What Heritage has become is what many who call themselves “republicans” have become and that is a Trump “republican”. This is a new conservative and it is too bad that the term “neocon” is already taken.

Mind you, there is much to like about this president. But this is a president that has abandoned traditional conservatism and has dragged the republican party along with him. This is no leader espousing free enterprise and limited government like Ronald Reagan. This is a president (with Bernie Sanders) who wants to impose a 10% cap on credit card interest rates, have his own version of quantitative easing by buying $200 billion in mortgage bonds (Janet Yellen), buy shares in private firms and dictate their actions (Sanders again), let chipmakers sell to the Chinese but take part of their profits, set pharmaceutical prices (any democrat), confiscate Venezuelan oil and dictate who gets the spoils for its sale, stop investors from buying single family homes (Elizabeth Warren) and stop stock buybacks (again any democrat). 

What bothers me is that Trump in many ways is emulating left wing socialists in feathering his own nest. While in office Forbes says that his personal wealth has increased by an estimated $3 billion. In the rare earth deals where the government has taken a position in private firms, Trump’s son Don, Jr.’s 1789 Capital venture fund invested in one of the companies months before the administration announced its funding and equity stake. Commerce secretary Lutnick said “This investment ensures our supply chains are resilient and no longer reliant on foreign nations.” What Lutnick didn’t say was that Cantor Fitzgerald, which is chaired by his son Brandon was hired to raise private financing. Trump himself bought stock in Paramount/ Netflix while they were engaged in takeover talks. Some call this crony capitalism. I have other names in mind.

All the while most republicans have kept their mouths shut (with the exception of Rand Paul). Bernie Sanders has voiced his approval. Yet the same silent bunch would be up in arms had Joe Biden or Barack Obama done the same things. Republicans have abandoned their principles in the maelstrom that is Donald Trump. Some call this “populism”. I call it American socialism which is embraced by members of both parties and forebodes that future presidents both democrat and republican will likely expand socialism to the determent of limited government and market economics. Ronald Reagan said “The scariest words you can ever hear are ‘I’m from the government and I’m here to help you.’” Trump actually believes this. I am hugely disappointed in the republicans for not standing up for their principles but I will never go over to the dark side. I am a Reagan republican will continue to support “republican” candidates because the alternative is much much worse. 

Are sanctuary cities legal?

I’m confused – I know many say that that is nothing new. I was wondering if sanctuary cities (or states) were legal and how can they refuse to assist federal law enforcement. For example, Minneapolis mayor Frey said “Minneapolis does not, and will not, enforce federal immigration law.” Isn’t there the supremacy clause? Article VI, Clause 2 of the Constitution states that federal laws constitute the “supreme Law of the Land” and thus take priority over any conflicting state laws. Not being trained in legalese that seems pretty clear to me. So why hasn’t Trump sued all the states and cities that have declared themselves “sanctuary cities” to impede the actions of ICE? There are over 200 sanctuary jurisdictions in the country including New York, Los Angeles, Chicago and Minneapolis. I asked AI about how can they be legal and was told that local entities have some discretion over law enforcement priorities. But why is it that that discretion trumps the Federal authorities? One must therefore conclude that the supremacy clause doesn’t establish supremacy after all.

The federal case that is relevant here is Printz which was on a provision of the 1993 Brady Handgun Act that required state and local police to enforce federal gun control laws. One of my legal heroes Antonin Scala opined that such “federal commandeering of state governments violated the constitutional principles of federalism that were safeguarded by the 10th Amendment.” Scalia ruled that “The Federal Government may neither issue directives requiring the States to address particular problems nor command the States’ officers, or those of their political subdivisions, to administer or enforce a federal regulatory program.” So apparently the anti-commandeering doctrine of the 10th Amendment trumps the supremacy clause of Article VI.

I asked AI about the 10^th Amendment. It said “The Tenth Amendment is part of the U.S. Constitution, and it basically says that any powers that the Constitution doesn’t specifically give to the federal government are reserved to the states or to the people. So, it’s kind of a foundational piece for balancing power between the federal government and the states.”

I then asked AI if there were federal statutes banning sanctuary cities. Here is the response. “There’s no overarching federal law that outright bans sanctuary cities. The concept is mostly governed by state and local policies. The federal government has tried, at times, to cut off funding to sanctuary cities, but those efforts have faced legal challenges. Courts have generally ruled that the federal government can’t force localities to enforce immigration law, so it’s a bit of a gray area.”

So why not pass a federal law outlawing sanctuary cities? Of course there is no way such a law would get 60 votes in the senate.

The Westminster Dog Show and a few random thoughts 

Penny, a Doberman pinscher, won the Westminster Dog Show — the first of her breed to receive the best in show honor since 1989. Well it is about time a real dog won best of show! Apologies to all those poodle owners but that poodle cut is awful and must be embarrassing to the dog. I favor the German Shorthaired pointers first and Scottish Terriers second. There is no better looking dog than a GSP.

The American Society of Plastic Surgeons just broke ranks with other US medical groups by recommending that gender altering surgeries be delayed until a patient is at least 19 years old. Hallelujah! The statement applies to facial, chest, and genital procedures performed for “transgender” and “nonbinary” patients. The ASPS report says that 23,000 people aged 19 and under received some sort of plastic surgery in 2024 while between 2016 and 2020 only about 4,000 people total received any gender altering surgery. Something to ponder.

Another one of Trump’s tariff deals was just announced with India. Trump says that India will stop buying Russian oil and its tariffs will be magnanimously reduced from 50% to “only” 18 percent. But the Indian government has not confirmed that and the details have not been released. With Russian oil being embargoed India rushed in to fill the void buying Russian oil at a significant discount from world prices. If they really stop buying it, they will be forced to pay about $7 a barrel more for oil. They currently import 1.1 million barrels a day from Russia. Trump says they will buy US oil but not so fast my friends. India’s refineries process Russian heavy crude not American light and would have to be retooled. Moreover, it takes twice as long to transport American oil than Russian oil. Trump issued the customary ransom note saying that India will “‘BUY AMERICAN’, at a much higher level, in addition to over $500 BILLION DOLLARS of U.S. Energy, Technology, Agricultural, Coal, and many other products”. I wonder how much of that $500 billion will go into his businesses or businesses headed by his buddies? Meanwhile, we await the fine print. But I guess that China could step up and buy the Russian oil instead.

Remember when the president was demanding a $200 million ransom from Harvard? Well since that haven’t forked over the money, Trump is now demanding $1 billion and is going to sic his “Justice” Department on them tweeting “This should be a Criminal, not Civil, event, and Harvard will have to live with the consequences of their wrongdoings.”  I guess the $1 billion would go into his personal account. Of course, Harvard will eventually have to cut a deal since Trump is threatening to cut off federal funding and ban foreign students, both of which are vital parts of the university. Apparently, Harvard is willing to spend more on certain programs and projects but does not want to make a direct payment to the president, er government, which is what Trump is demanding.

While Trump has threatened to have the Census Bureau count only citizens, the state of Missouri has sued to make it so. The state has filed suit against the Commerce Department and the Census Bureau to end the counting of illegal aliens. Interestingly, the state is also seeking a recount of the 2020 Census and 2021 apportionment. Recall that the census count is used to dole out federal handouts to the states and importantly to determine congressional seats. Missouri has 6 republicans and 2 democrats in its congressional delegation. Maybe they are trying to get rid of the two dems. Since democrat states may lose up to 10 seats in the 2030 census due to outmigration of illegals from the US and legal residents to republican run states, this would mean an additional decrease in the number of seats in democrat-controlled states.

Finally, I had earlier reported on Trump ending several wind projects in democrat states. Well federal judges have overturned his edit for all five projects. Of course the president who hates windmills (as do I) used the justification that the windmills were a threat to national security. The courts are not convinced and have allowed the projects to continue while the cases are being appealed.

A Laffer curve for tariffs

There a Laffer curve for tariffs. You may recall that the Laffer curve shows that at some point, raising taxes results in less tax revenue. This is also true for tariffs. If you raised tariffs to 100 percent you would get less tariff revenue than at 10 percent because of less trade. That is why the logic of punitive taxes escapes me. When Trump lashes out at a country and increases tariffs that means only fewer and higher priced goods to Americans. Why is dramatically raising taxes punishing those that dare incur Trump’s wrath especially if they are just motivated to find trading partners elsewhere? Instead the tariffs are punishing Americans.

Trump wants us to import less. Well he is succeeding. But will importing less goods make us better off? That is virtually impossible as consumer prices go up and real incomes go down. Prices go up because there are fewer less costly goods available – that is what comparative advantage is all about. Domestic producers of competing goods find demand (and prices) rise for their goods. They have less competition and hence have less incentive to innovate and economize.  The tariffs have a disproportionate impact on small businesses and on low and moderate income households. Let them eat cake!

Tariffs will not bring in the revenue that Trump trumpets. To do so would assume that as prices increase due to the tariffs that demand stays unchanged. Instead as prices increase – and we pay 96% of the increase – imports fall decreasing tariff revenues. Raising tariffs even more would decrease – not increase – revenues. So if raising revenues is a motive for tariffs, it is a failed one. So tariffs will not make us rich as hell. It cannot replace the income tax. There is not enough to give everyone $2,000. It won’t get rid of trade deficits – if he wanted to do that then he should simply ban all imports. It was never “reciprocal” because it was levied on countries with tariffs lower than our and on countries with which we had a surplus. Foreigners do not pay the tariffs, we do – whether at the consumer level or the importer level. Trump’s tariffs have had the equivalency of a 16 percent tax hike. Foreign central banks have been replacing dollar and Treasury holdings with gold. Foreigners have been restructuring their supply chains and making other trade agreements. Trump has brought the world closer together and has made China’s trade surplus bigger than ever, having topped $1 trillion as the Chinese have broadened their trading worldwide. Why would Trump want to help the Chinese and hurt Americans is beyond me.

If tariffs were to rebuild American manufacturing then why has manufacturing fallen over the past year? Trump seems to forget that half of our imports are intermediate goods. Thanks to the president we are now facing record high prices on aluminum. Industries such as automotive, aerospace, packaging and construction have seen dramatic increases in their costs, lower margins, profit squeeze and a struggle to survive. Small businesses have been particularly affected. Trump doubled tariffs on U.S. aluminum imports to 50% and aluminum costs for U.S. consumers have risen by 40% to above $5,200 a metric ton. The tariffs resulting in a drop in imports which reduced aluminum stocks, increasing prices even more. Foreign producers sent their aluminum elsewhere. Also the high tariff meant that importers were actually losing money on importing aluminum and ratcheted down their purchases further reducing US stocks and increasing US prices. In the national security argument why impose tariffs on aluminum (or steel) if it is vital to national security? Wouldn’t it more sense to impose no tariffs on imported aluminum while subsidizing the domestic aluminum industry?

Isn’t it ironic that Trump wants to rebuild American manufacturing while he has actually instituted policies that have done the opposite? Don Boudreaux points out that US manufacturing has declined under Trump’s protectionist policies. I cannot think of hardly any circumstance where I would support tariffs because almost without fail they increase the prices to American consumers and make us worse off. US manufacturers facing less competition become less efficient. 

What about the argument that the Chinese heavily subsidize their export industries so that they can price in local markets at below cost leading to unfair prices competition? This means that the Chinese government bears the cost of below market pricing and causes the Chinese to be worse off while making the rest of the world better off. It is no wonder that the Chinese economy is actually in trouble with heavily subsidized export industries producing at excess capacity. Huge trade surpluses are symptomatic of declining investments – especially foreign investment. Business investment in China’s private economy fell 6.9 percent last year. Retail sales depend on subsidies as well also leading to overproduction and more losses. Then there is the property bubble. High levels of debt exist at the national and local levels. Overcapacity is leading to price deflation at home and in the export sector. China may be exporting more but at losses that are not sustainable. And Trump wants us to be an export economy?

There a Laffer curve for tariffs. As Trump’s tariffs increase, we become worse off. Also his threats are running into diminishing returns. Not only will tariff revenue fall as imports drop, countries will find other trading partners if it is rational to do so. I know that the president frets about slow economic growth and blames the Fed. But what would happen if suddenly he completely lifted all of his tariffs? Can you imagine the impact on growth if all of a sudden there was a universal tariff of zero?

February is Black History Month

On MLK, Jr Day a close friend said “Happy MLK Day.” Well February is Black History Month and although the president issued a proclamation for MLK, Jr Day, I don’t think he has issued a proclamation for Black History Month this year, as he did last year. I don’t really care but I am certain that all the legions of Trump haters will make a note of it.

I wrote these words last year.

When I was young we observed Black History Week. In 1926 the eminent historian Carter Woodson proclaimed the second week in February “Black History Week.” This was chosen because Abraham Lincoln’s birthday is February 12 and Frederick Douglass was born on February 14. Being me, I asked my sainted mother “Why is there a Black History Week?” She said “Because they have the other 51.” In 1976, the week was extended to the entire month. Gerald Ford proclaimed it and every subsequent president, including Donald Trump observed it. So in 1976, I asked my sainted mother why was February chosen as Black History Month? She answered “Because it has the fewest days.” Love you Mom.

Black history still is not fully integrated into our US history and I don’t know how to address that issue. The history books are far from being unbiased. Growing up in the segregated south, the history books in our schools made little mention of the achievement against the odds of black scholars, inventors, soldiers and industrialists. Much the same can be said today. While the revisionist history of the 1619 Project has gotten much press and is even included in some school curricula, the Woodson Center’s 1776 Unites (1776unites.com) project has received scant attention. Yet this website fully explores all those pioneers that have been forgotten by the writers of (mostly white) history. But 1776 Unites does not wallow in blaming racism and slavery for racial disparities because pointing fingers will not close those disparities. Disclosure: I am one of the contributors to 1776 Unites.

I know that many on the right, and some readers of this blog, do not care for Dr. King. I urge them to read Taylor Branch’s “Parting the Waters.” I fully credit King for there not being a shooting race war in the 1960s. People tend to forget that we black southerners had guns too – despite gun control laws written to deny blacks the right to bear arms. My Dad and Dr. King were denied handgun permits. But Dad had a handgun anyway. King preaching that nonviolent resistance was the best way to achieve civil rights, kept a lid on a volatile environment. Those were truly scary days. There is even a lynching in my family history. My Dad once said that he would not live to see the day when the schools were integrated because whites would start shooting black kids first. It was somewhat fitting that he and Mom were among the first blacks to integrate public school faculties in Atlanta. 

At Georgia, I was cautioned not to walk past two fraternity houses for fear of being cursed, having things thrown at me or worse. I was warned not to carry my books when walking on the perimeter of the campus for fear of being shot. These were days where white politicians race baited. I remember when Atlanta got their first black policemen – who couldn’t arrest whites. There were no black legislators, no black judges, all white juries and all white boards of education. That was the American deep south and Dr. King in his famous “I have a dream” speech said

“I have a dream that one day in Alabama, with its vicious racists, with its governor having his lips dripping with the words of interposition and nullification, one day right here in Alabama little black boys and black girls will be able to join hands with little white boys and white girls as sisters and brothers.

This will be the day when all of God’s children will be able  to sing with new meaning: ‘My country, ’tis of thee, sweet land of liberty, of thee I sing. Land where my fathers died, and of the pilgrim’s pride, from every mountain side, let freedom ring.’”

There were two silos, one white and one black. As long as blacks stayed in their silo, we were basically left alone. But going outside of it was often met with violence. The Freedom Rides, the lunch counter sit-ins, the voter registration drives, the boycotts and marches and pictures of little black children going to school being spit on by screaming whites filled the news as the blacks were trying to move from one silo into the other. One of the most poignant pictures of the day was of a little black girl (Ruby Bridges) having to be escorted by marshals to school in New Orleans. Also on the news was the violent response of some whites – beatings, lynchings and murders. Once more recall the civils rights anthem “We shall overcome.” We used to say that white folks didn’t mind us overcoming so long as we didn’t come over.

Again, I never talked to a white person before I went to the University of Georgia in 1962. I recall a university administrator was perplexed saying to me that we (blacks) had perfectly good schools (my mother graduated from Fort Valley State and my father from Savannah State) so why did we want to come to the University of Georgia? Well we did crossing over from one silo to the other. But Dr. King set an example that gave us all strength and hope.

Some call King a leftist or even worse a communist. But those labels were put on anyone in those days who defied the status quo of segregation. Yes King favored affirmative action. But he saw it as temporary. More importantly, King loved America. Today, that love would not brand him as “communist”. Would it? Can you say that anyone on the far left loves America? I have yet to hear any of them say it.

Here is part of the president’s proclamation on MLK, Jr Day.

Today, we honor the noble work of the Reverend Dr. Martin Luther King, Jr., whose commitment to justice paved the way to the full realization of the American promise.  Inspired by the tenets enshrined in our Declaration of Independence, we proudly renew our pledge to uphold our Nation’s long-cherished principles of liberty, equal justice under the law, and the God‑given dignity of the human person.

Again here are words from Dr. King’s “I have a dream” speech. Words that we should all heed.

“In a sense we’ve come to our nation’s capital to cash a check. When the architects of our Republic wrote the magnificent words of the Constitution and the Declaration of Independence, they were signing a promissory note to which every American was to fall heir. This note was a promise that all men — yes, black men as well as white men — would be guaranteed the unalienable rights of life, libertyand the pursuit of happiness. 

I say to you today, my friends, though, even though we face the difficulties of today and tomorrow, I still have a dream. It is a dream deeply rooted in the American dream. I have a dream that one day this nation will rise up, live out the true meaning of its creed: ‘We hold these truths to be self- evident, that all men are created equal.’”

Amen.

Trump versus Carney: Redux

The president seemed to be taken by surprise that Canada is acting like an independent country rather than the 51^st state. Is he really surprised that his tariffs have driven the Canadians to cozy up to the Chinese rather than bend to his will? Canada and China resolved a trade dispute and pledged more economic cooperation, causing the president to go bonkers.  Trump said “Carney thinks he is going to make Canada a ‘Drop Off Port’ for China to send goods and products into the United States, he is sorely mistaken. China will eat Canada alive, completely devour it, including the destruction of their businesses, social fabric, and general way of life.” He then threatened to impose a 100 percent tariff on all Canadian goods and services if Canada secures a trade deal with China. He has also threatened to ground all Canadian made jets over a dispute with Gulfstream whose jets are manufactured in Savannah, Georgia.

Canada also declined to join Trump’s so-called “Board of Peace” – saving the Canadians the $1 billion buy in – the president then rescinded the invitation writing “Dear Prime Minister Carney,” Trump wrote on his Truth Social platform late Thursday. “Please let this Letter serve to represent that the Board of Peace is withdrawing it’s invitation to you regarding Canada’s joining, what will be, the most prestigious Board of Leaders ever assembled, at any time.””

I wonder if Trump will rescind the tariffs on the countries that come bearing him the gift of $1 billion? 

Canada’s prime minister Carney had delivered a speech at the World Economic Forum in Davos, Switzerland urging smaller powers to unite against economic coercion from the world’s great powers. Carney the said that China was now a more reliable trading partner than the US. Again the president was furious saying “Canada lives because of the United States” and “Remember that Mark, the next time you make your statements.” 

Apparently the president and his team did not like Carney’s use of the term “economic coercion.” Commerce Secretary Howard Lutnick accused Carney of “an arrogant kind of thought,” and said that Carney was whining and complaining. Lutnick, ever the deep thinker, intimated that the US might even end the U.S.-Mexico-Canada free-trade pact. Huh? Wouldn’t a 100 percent tariff on all Canadian goods and services end that agreement? 

Treasury Secretary Bessent who has emerged as the president’s major interpreter called Carney’s speech “value-signaling.”  Carney realizes that China cannot replace the US as Canada’s major trading partner and later said that Canada had no intention of proceeding with a trade deal with China or “any other nonmarket economy.” So it might seem that Carney was all bluster and folded in the face of Trump’s threat of 100 percent tariffs. However, the EU and India have reached a free trade agreement so watch for Carney to pivot in that direction also.

Bessent also said that the president’s attempt to seize Greenland had nothing to do with his not receiving the Nobel Peace Prize despite Trump’s letter to Norway’s prime minister. He said that Trump’s threat to increase the tariffs on the NATO allies supporting Greenland was to avoid a future national emergency saying “It is a strategic decision by the president. This is a geopolitical decision, and he is able to use the economic might of the U.S. to avoid a hot war.” Go figure out that one. When the president said that he had reached an agreement on Greenland (we have not seen the details) and had withdrawn the tariff threat, Bessent said that was the president’s objective all along and that the president didn’t really back down as all the media had reported. Sure. Obviously, Bessent is trying to couch the tariff use as a national emergency but the threat to Canada hurts Trump’s argument that his tariffs come under the International Emergency Economic Powers Act.

But speaking of Canada, Alberta may vote on independence from Canada – much like Quebec once did. Alberta is resource oil rich and conservative, unlike the Canadian government. It has been at odds with the government about the utilization of its resources and the building of pipelines. A delegation from Alberta actually recently met with US officials. What was discussed? Perhaps Alberta as the 51^st state? Well Carney has told the US to not meddle in Canadian business and to stay out of aiding Alberta’s independence movement saying “We expect the U.S. administration to respect Canadian sovereignty,” 

Where does spat end? Is there any doubt that the president is using the US’s economic might to force Canada to do his bidding? Is there any doubt that most Canadians want to remain Canadians? Will it take a Supreme Court ruling on tariffs to bring back our trading relationships – the American distilling industry certainly hopes so.

I hope so too.

Frank L. Stanton Elementary School is still standing!

From the mouth of babes.

What’s in a name? On a visit to my son’s home in north Atlanta, his grandson (my great grandson) and I had a pleasant talk. He (my great grandson) is living in my old home house and I was shocked to find out that he was going to my old elementary school. My son said “Yes Dad it is still standing. But they have renovated it a couple of times since you left.” I certainly hope so. When we moved to Atlanta our newly built neighborhood bordered on all-white neighborhoods and the nearest elementary school, Frank L. Stanton, was white only. So I had to go five miles away to E.R. Carter, an all-black school which was adjacent to the Morris Brown college campus. I spent two years there before Atlanta made Stanton all-black. So in 1953, my third grade year, I went to Stanton which was less than a mile away. I have no idea where the white students and teachers were sent because in those days the schools were totally segregated. 

One bit of silliness was the debate over whether the school should be re-named. Frank L. Stanton had been a columnist for the Atlanta Constitution and was designated in 1925 as the first poet laureate of the state of Georgia. Some blacks insisted that the school be named after a black – like all the other black schools in the city (I later went to Booker T. Washington High School). Whites were also in favor of a name change as well, being aghast that black kids could go to a school named after a white person. However, because the Stanton family wanted the name to remain on the school, the school board – which was all white – opted to keep the name. 

I told my great grandson that story and his reply was “That was stupid.” So it was.

The new Fed chairman and Trump sues the IRS

The president says that he will nominate former Fed governor Kevin Warsh to be the next Fed chairman. First, however, he will have to nominate Warsh to be a governor to the fourteen year term just coming open. I wonder about the logistics of this. Warsh will face senate hearings on the governor position but I presume he can’t face hearings on the chairmanship until Powell’s term as chairman expires in May. That actually allows for some mischief in that if Powell also resigns as a governor, then Trump could then nominate someone else to fill both vacancies and nominate someone else as chairman. That possibility exists if Marsh has to have two hearings, one for the governor and one for the chairman.

Although Warsh was the early betting favorite, I was skeptical of the president’s appointing him. Warsh has an independent streak and is only in sync with the president in thinking that interest rates can be a bit lower than they are presently. However, Warsh left the Fed supposedly in disagreement with Bernanke who started using the Fed as a tool of fiscal policy instead of concentrating on monetary policy. It was Bernanke who conducted quantitative easing transforming the purchasing of assets from an emergency tool to one of everyday policy. The Fed’s balance sheet was $800 billion when Warsh first got there and ballooned up to over $8 trillion. It has been run down to $6.58 trillion which has been halted due to its impact on bank reserves. If Warsh is consistent he will favor decreasing it further and likely will face resistance from the other governors and some of the reserve bank presidents.

The president had tweeted “Anybody that disagrees with me will never be the Fed Chairman!” So look for Warsh to vote for lowering the Fed funds rate while he serves only as a governor prior to Powell’s exit as chair. The question is what will he do about the Fed’s balance sheet after he becomes chairman? Warsh has been saying for the last 15 years that the Fed has lost its way and gone astray. He has accused the Fed of institutional drift saying “In my view, forays far afield—for all seasons and all reasons—have led to systemic errors in macroeconomic policy. The Fed has acted more as a general-purpose agency of government than a narrow central bank.” Warsh is known as an inflation hawk which may conflict with his endorsing of lower interest rates to please the president. He has said the Fed has lost sight of its main goal which is price stability (on that I completely agree). The Fed has gone off the rails into fiscal policy with its bond buying that has underwritten the excessive federal spending and asset purchases (see the Inflation Reduction Act) that contributed to inflation and the misallocation of capital. He is also critical of the Fed paying lip service to climate change and DEI with workshops at various Federal Reserve banks rather than concentrating on monetary policy. Warsh contends that these have led the Fed to compromise its own independence.

I like this pick. This reversion to the old Fed will cause a conflict with the president. He probably would expect the Fed to continue to be an agent of fiscal policy (see the One Big Beautiful Bill). So he must have worked out something with Warsh or else he will soon be blasting him like he has Powell.

Yes the Fed has a history of making mistakes but I would contend that the major mistakes are all a product of the Fed necessarily being influenced by the politics of Washington. It is difficult to maintain independence when being hammered all day by the president, the congress, the lobbyists, the media and the public. The Fed is being assaulted all day by the slings and arrows of the toxic DC environment. I have long suggested moving the Fed to Kansas City if you want more Fed independence. In Washington, when a Fed governor walks his dog, his next door neighbor says “what’s happening to rates?” When the president of the Atlanta Fed walks his dog, his neighbor says “How bout them dawgs?”

Trump sues the IRS?

Finally, did you see where the president has sued his own Internal Revenue Service and Treasury Department? It is true. Trump along with his two eldest sons have sued the IRS for $10 million alleging that the agency didn’t do enough to stop his tax returns from being leaked to the press in 2019. The IRS employee who leaked the returns was convicted and sentenced to five years in prison. Trump’s suit claims that the leak was done to “improperly influence the results of the 2020 presidential election.” OK. Since the president is the boss of all the officials at the IRS and that Treasury secretary Bessent is acting IRS commissioner there is an obvious conflict of interest for every party. This is just bizarre. Trump never ceases to amaze but then again he loves to sue being the plaintiff in over 1,600 cases.

Trump’s forces invade the ATL

Trump has never gotten over his loss to Joe Biden. I can’t blame him. I would also be embarrassed losing to Joe Biden. He talks about it over and over and is obsessed with it. I guess this means that he will endorse the “Pillow Man” in his race to be governor of Minnesota. You do remember that MyPillow CEO Mike Lindell was all over Fox claiming that there was widespread fraud and accused a Dominion Voting Systems employee as personally involved. That employee sued Lindell and was awarded a $2.3 million verdict when no evidence of fraud was found. One of Trump’s lawyers, Rudy Giuliani, also claimed that Dominion manipulated its results in favor of Biden. Dominion sued Giuliani for defamation. Giuliani reached a settlement in 2025. Giuliani was disbarred in New York and Washington, D.C. for repeating false statements regarding the 2020 elections. Meanwhile, nationwide Trump and his allies filed over 60 legal cases to overturn the 2020 election results.  All failed, even those before Trump-appointed judges.

None of any of this matters to Trump who still is obsessed with his loss. In his speech in Davos at the World Economic Forum – of all places – the president again asserted that the war in Ukraine “wouldn’t have started” if the 2020 U.S. presidential election “weren’t rigged.” “It’s a war that should have never started and it wouldn’t have started if the 2020 US presidential election weren’t rigged. It was a rigged election. Everybody now knows that. They found out. People will soon be prosecuted for what they did.” Although there was circumstantial evidence pointing to election irregularities there leading to multiple investigations no voter fraud was found. 

Well still furious at Georgia where he lost to Biden by 12,000 votes, Trump had his forces invade the ATL. Here there were valid questions raised about voter fraud occurring in Fulton County (Atlanta) where the voter count was suspended for several hours and then restarted. Trump had demanded that both the governor and secretary of state – both republicans – investigate the case. Trump also famously called the secretary of state asking that he “find” him enough votes to win. Trump subsequently railed at both the governor and the secretary of state and is credited with dissuading his supporters from voting in a runoff election that resulted in the defeat of two incumbent republican senators. Trump was also indicted in Fulton County, arrested and booked in the Fulton County jail on thirteen charges relating to his efforts to overturn Georgia’s election results – remember that famous mug shot? Trump had to have been humiliated. This might explain, in a part, his actions. I wonder why he didn’t try to indict Fani Willis, the Fulton County DA who prosecuted the case. Maybe that comes next.

Trump had his “Justice” Department sue the Fulton County clerk over the election records. Trump’s attorney general Pam (Blondie) sent letters to Fulton County demanding records and citing “anomalies” in counting the votes. Fulton County Clerk Ché Alexander didn’t respond to the letters but said in a court filing that the federal government had no right to the ballots and documents, which were under seal because of ongoing cases related to the election. Alexander said that if Bondi could “identify a legitimate basis” for accessing the election materials, then she should seek an order from a Fulton County Superior Court judge to unseal them. So the FBI executed a warrant to obtain the election records in Fulton County. FBI agents then descended on the warehouse containing the documents and seized them. Remember I had been wondering “where’s Tulsi”? Well she – the director of National Intelligence – was with the FBI agents who served the warrant. Go figure.

I think this is an unprecedented action. The warrant was for ballots, tabulator tapes, digital data and voter rolls which the warrant alleges provide “evidence of the commission of a criminal offense.” Was there evidence of a criminal offense? Well Fulton County Commission Chair Robb Pitts (one of my many cousins) said that the ballots had been “safe” in the county’s custody and that the election results were “fair and accurate”. But then he cautioned that now that the ballots had been seized and are in the hands of the Feds that the county “can no longer satisfy that those ballots are still secure.” Ouch! Pitts also said “Every audit, every recount, every court ruling has confirmed what we the people of Fulton County already knew: Our elections were fair and accurate and every legal vote was counted. These ongoing efforts are about intimidation and distraction, not facts.”

Just like all the economic data paints a rosy picture now that Trump’s people are in place, will the ballots now show that Trump “won” Georgia now that his “Justice” department has the ballots? Stay tuned.

The Fed holds

In spite of Trump or maybe because of Trump, the Fed’s Open Market Committee just finished meeting and left its Fed funds target range unchanged. Two members voted to lower the rate. Not surprisingly they were Trump’s man at the Fed, Stephen Miran who for the first time didn’t vote for a 50 basis point drop. He voted for a fall of 25 basis points. The other was Christopher Waller who is still being discussed as the new Fed chairman who likely voted for the 25 basis point decrease knowing that if he didn’t, Trump would never nominate him. Of course, I think that Trump is only stringing Waller along to get him to vote his way and even though Waller is the best choice for chairman for reasons I have previously stated, Trump will likely pick someone else. It is interesting that Bowman voted to hold. When she was being interviewed for the chairmanship, she voted to lower the rate and when she was out of contention, she voted to hold. Just a coincidence I’m sure.

Right now there are supposed to be four finalists for the job, Kevin Warsh, Kevin Hassett, Waller and BlackRock’s Rick Rieder. Although somehow the media wants you to know that Trump’s pick will do his bidding much like Miran, I would not bet on it. Miran wants his cozy job at the Council of Economic Advisors back. So he would do anything that Trump wanted. However, once confirmed, look for whoever gets the job to assert his independence from the president. A lackey chairman would roil world markets and drive Treasury yields through the roof. A Supreme Court ruling that the president cannot fire willy nilly a Fed governor will give the new chairman even more resolve than the outgoing one. Trump of course knows this. At Davos he said that the candidates “say everything I want to hear” during interviews, only to assert their independence once they have been confirmed. It’s amazing how people change once they have the job. It’s too bad, sort of disloyalty, but they got to do what they think is right.” Also keep in mind that Trump is only around for another three years and the new chairman will have a 14 year term as governor and four as chairman.

Miran’s term ends at the end of January so he can return to his other day job – chair of Trump’s Council of Economic Advisors. His short tenure at the Fed likely meant that no one at the Fed took him seriously with his constant whining about lowering the Fed funds rate by 50 basis points or more. All the headlines about the January meeting were that the Fed is resisting the pressure from Trump to lower rates. Why is that news? If anything Trump’s bellicosity, name calling, attempts to fire a governor, conducting a farcical investigation of the chairman and badgering caused the Open Market Committee to be less receptive to rushing to lower rates. Powell said as much when he released a video statement that the president was pursuing the investigation as a pretext to get him to lower rates at January’s meeting. Instead, the Fed held steady. It had lowered rates in three steps of 25 basis points and given the stubborn inflation rates and weakening dollar, paused at this meeting.

I actually think that if the president could have shut up for once and toned down the threats (highly unlikely) the members of the Board who are more focused on employment than on inflation – Jefferson and Cook – might have voted to lower. Job growth has slowed and most likely is negative. However, the Fed takes its independence seriously and a lowering of the rates would have been perceived as the Fed bending to Trump’s will and would have shaken markets worldwide. Again, the Fed is more effective at fighting inflation than joblessness where in essence it can only lead a horse to water.