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Random thoughts #61

Remember when some universities and businesses offered counselling, safe rooms and Legos to those poor souls traumatized by Trump’s election? Are the rooms still there for Jewish students to use?

The right is chuckling over Jasmine Crockett’s ending her bid to be the head democrat on the House Oversight Committee saying that even her own party doesn’t want her as a leader. Crockett said “It was clear by the numbers that my style of leadership is not exactly what they were looking for, and so I didn’t think that it was fair for me to then push forward and try to rebuke that.” Her “leadership style” was called a “clown” by Fox’s Greg Gutfield. Actually “clown” may be a term befitting more members of congress than Crockett. Consider that James Comer is the ranking republican and that Majorie Taylor Greene also sits on the committee. High entertainment has been provided by the interchange in the committee. Remember when Crockett called Greene “bleach blonde, bad-built butch body”?

Speaking of clown, Texas’ Al Green who seems to introduce an article of impeachment weekly just introduced another one. Did anyone say “clown”? AOC joined the impeach Trump crowd. Trump called her “stupid” calling her “one of the ‘dumbest’ people in Congress.” Wow. You would think he would have tried to insult her. I wonder what he thinks about Arizona’s Paul Gosar or Florida’s Maxwell Frost? Or how about New Mexico’s Melanie Stansbury who is not the brightest bulb displaying the results of a poll whose numbers totaled 110 percent?

And of course we have been witnessing the clown show called the annual debate over which penny on dead men’s eyes are we going to move to the other eye. Seriously, congress is debating Trump’s “Big, Beautiful Bill” which only shifts goodies from one group to another while smothering all of us in more debt. The only red in Washington is the national debt.

I just saw an ad saying Trump’s BBB will cut taxes by 15 percent. Of course that is a lie. The BBB only makes permanent the Trump tax cuts from the first term. It is maintaining the status quo and does not cut income taxes.

JD Vance again showed how classless he is by calling Sen Alex Padilla “Jose”.

Iran fired missiles at a US base in Qatar. There were no casualties – mainly because the ones that were not shot down missed their target. Seems that the most dangerous place to be is somewhere not targeted by Irani missiles.

Where’s Hezbollah? Why aren’t the Houthis shutting down the Red Sea in support of Iran? Didn’t they say that they would start attacking shipping if Trump bombed Iran?

One of the pilots of the B-2s that bombed Iran was a woman. Maybe DEI will now become diversity, equality and inclusion rather than diversity, equity and inclusion.

ICE arrested 16 Iranians, three with terrorist ties. Will the left stage protests to free them too? It is estimated that over 1,500 Iranis came across the border illegally during the Biden years.

Trump wants US oil to drill, baby drill. Maybe that’s why he started bombing Iran. If the Iranis retaliate by trying to shut down the Strait of Hormuz, then oil prices will skyrocket enticing oil companies to start drilling more oil. As it now stands the price per barrel is not enough to spur drilling. Darn profit seekers! Why doesn’t Trump simply issue an executive order mandating drilling?

For all those folk who think that term limits lead to better government be reminded that the California legislature is term limited.

The Supreme Court decided that Trump could deport illegals to a country not their own. It is sending a group to South Sudan. Of course the vote was 6-3 with Sotomayor doing her usual bemoaning. She was joined by Kagan and Jackson. Actually the threat of being deported to South Sudan may cause an explosion in self deporting. Would you rather go back to Nicaragua and Daniel Ortega or be shipped off to South Sudan?

A socialist won the democrat primary for mayor of New York. Most people thought Cuomo was a shoe-in but Zohran Mamdani a state assemblyman mounted a credible challenge. He is a socialist so naturally AOC and Bernie Sanders endorsed him. Mamdani wants to put in a city owned grocery store in every borough, free public transportation, he is antisemitic accusing Israel of genocide and using the slogan “globalize the intifada”, free healthcare, freeze rents in already rent-stabilized housing, raise taxes on the rich among other things. Radical yes but he virtually everything he is for you can find some “mainstream” democrat that agrees with him. Consider his statement on Trump’s bombing of Iran. “While Donald Trump bears immediate responsibility for this illegal escalation, these actions are the result of a political establishment that would rather spend trillions of dollars on weapons than lift millions out of poverty, launch endless wars while silencing calls for peace, and fearmonger about outsiders while billionaires hollow out our democracy from within.” Find me one democrat in Washington who disagrees with that statement.

I hope he gets elected. Seems like the best way to educate voters on socialism is to elect one. Chicago anyone?

Speaking of elected, would you believe that there is all this talk now about a political comeback for Kamala Harris? Seems she is contemplating emulating Richard Nixon and running for governor of California. Didn’t Nixon lose that race too?

Federal Reserve Groupthink?

When I was in graduate school in the 1960s the sainted Milton Friedman once said that a poll was conducted asking “What is the Federal Reserve?” One-third answered an Indian reservation. One-third answered a bourbon and one-third didn’t know. Those days are gone although the Fed probably pines for its return. Today Trump has thrust the Fed into the spotlight with his almost daily bellicose badgering of Fed chairman Jerome Powell. But even Trump knows that Powell only has one vote on the Fed’s Open Market Committee where the other 6 governors, five reserve bank presidents and the president of the New York Fed sit. Trump actually mused on firing the members of the Committee in addition to Powell. What is interesting is that he has not publicly berated the two other members of the board that he appointed, Christopher Waller and Michelle Bowman.

However, some Trump apologists have criticized Waller and Bowman. Larry Kudlow has accused the Open Market Committee of “groupthink” because the recent votes in the committee have been unanimous. Kudlow asks “Where is some diversity of thought and why aren’t these board members questioning Powell’s slippery and uninformed anecdotes of his new tariff war on inflation?” Kudlow show know better. The unanimous votes are not unique to this Fed. In recent memory I can only think of two others and they were single votes by two different reserve bank presidents. In reality, Open Market Committees are often characterized by diversity of opinions rather than groupthink and even though the announced vote may be unanimous, it is only to show a unified face to the world. Can you imagine the reaction of the press and markets if the votes were 7-5 or heavens forbid 5-7? The Committee would be characterized as being in disarray with Powell having lost control. Markets would be shaken. The Fed knows this and presents a united front even though there could be dissention. Note that despite unanimous votes to keep the fed funds rate unchanged that Governor Waller has hinted that the committee might vote to lower the rate when it meets in July. Waller would not have made that statement without the blessing of Powell. So look for a 25 basis point lowering unless there is an uptick in inflation. Also look for that vote to also be unanimous.

The Fed is a different place from that which existed when Friedman made his joke. Although the board was still comprised of political appointments, most of whom know little about monetary economics, such was not the case in the Federal Reserve district banks. St. Louis was known as a bastion of monetarism. Its research department was made up PhDs, many from Chicago, who were disciples of Friedman. It produced a stream of academic papers with a monetarist bent and whose president espoused it as well. The Minneapolis Fed was one heavily influenced by the rational expectations theory of Robert Lucas. The Cleveland Fed had its own theoretical bent as did Richmond and Atlanta. My friend from the University of Georgia, Bob McTeer became president of the Dallas Fed and instituted strong regional studies. The Boston Fed took my research developed at the Comptroller of the Currency on lending discrimination and developed the strongest group of economists in that area. So many of the Fed banks had their own view of monetary theory and its impact on the economy. Not surprisingly, there were many more dissenting votes on the Open Market Committee with most of the dissentions coming from the reserve bank presidents. No groupthink then. But of course, with the Fed not being prominently in the public’s eye, there could be dissention without creating seismic turbulences in financial markets. 

However, although I discount groupthink with today’s Fed, there is less intellectual diversity among the reserve banks. Clearly Atlanta (whose president is a co-author of mine), Minneapolis and San Francisco are headed by progressives who do more social outreach than other banks. There are no intellectual outposts of monetarism or rational expectations in today’s Fed system. Only the New York Fed seems to be producing academic quality research. Outside of Washington most reserve bank research departments now concentrate on regional economic issues.

I wish that the Fed would return to where once was populated by different types of thinkers throughout the system. It is understandable that even independent thinkers can get captured by working at the Fed Board in Washington. One example was a member of my dissertation committee at Ohio State who was a student of Milton Friedman. When that member left academics and went to the Fed in Washington, he was slowly transformed from a monetarist to an interest rate targeting advocate being completely transformed into a Fed-type. At least he still loved basketball and jazz. 

The legions of economists at the Fed in Washington are the ones who predominately have the same mindset. They are the ones who build the econometric models that generate the results that the Committee uses (along with those if each reserve bank’s research department) in its deliberations. What is now missing is more diversity of economic thought among the reserve banks where the concentration on regional issues has led the reserve bank presidents less able to see monetary issues from a wider perspective. Then there should be no surprise that the Committee meetings result in (mostly) unanimous votes.

Is AI making us dumber?

When I returned to the classroom for a one off last spring semester I was told by a newly retired professor that I could no longer require written assignments. Why I asked. He said “Because they never do their own work. It’s all AI.” Previously, I had required a news report critique due every other week in which the student analyzed a current event that we discussed in class and critically reviewed it. Students were also required to submit a term paper that counted for one fifth of the final grade on a subject that I approved. I encouraged them to find an issue, analyze it and then make a critical recommendation. I also encouraged them to prepare an outline and let me comment on it as well. That this exercise had value was confirmed one day when at lunch a person came up to me and said that he had been in my class ten ears before and the written reports were proving to be the one of the most valuable tool he acquired in his four years in college. He also said how he hated doing them at the time and regretted all the bad things he said about me on the teacher evaluations.

Fast forward to today. I tested using short answers, problems and essays. One student said that this was the first class in four years that was not multiple choice/true false. Most students complained and wanted to take the tests on their computers rather than write out the answers. When I got back the first exam I was shocked. All 53 were printed! No cursive at all. The one problem could be solved my computing 5% of $10,000. Fully one half of the class missed the problem. That ended my having them do computations. They were simply incapable of doing simple math. 

Don’t get me wrong. There were seven students in the class (of 53) who were very smart, who could do basic math but still could only print. I used to say that there were three types of people in the world, the 3 percent who make things happen, the 7 percent who know whats happening and the 90 percent who don’t have a clue what’s happening. I thought that the advent of readily available information at zero cost would change those percentages and there would be more in the know what’s happening category and less in the haven’t a clue category. Now I am not so sure. My casual observation is that those percentages may be the natural order of things, except that AI has made the 90 percent less capable and maybe dumber than previous generations.

Also I noted that not a single student was taking notes by hand. All were plinking away on their computers. In my case, taking notes by hand actually helped me remember and made learning easier. I wondered if this was just me or just my imagination. But lo and behold, in an article in the Wall Street Journal by Allysia Finley, “AI’s biggest threat: Young people who can’t think” the author state, “Growing research shows that handwriting engages parts of your brain that play a crucial role in learning and helps children with word and letter recognition. Taking notes by hand also promotes memory development by forcing you to synthesize and prioritize information. When you plunk away on a keyboard, on the other hand, information can go, as it were, in one ear and out the other. A study last year analyzed brain electrical activity of university students during the activities of handwriting and typing. Those who were handwriting showed higher levels of neural activation across more brain regions: “Whenever handwriting movements are included as a learning strategy, more of the brain gets stimulated, resulting in the formation of more complex neural network connectivity,” the researchers noted.”

What about printing instead of cursive? Frank Glassner in his blog, Compensation in Context tells us in “Dumb and Dumber: How America Graduated with Honors in the Death of Excellence (and became a Nation of Participation Trophies, Scrantons and Unparallel Parking) says “Cursive was more than pretty loops. It taught rhythm, form, and thoughtfulness. Each letter demanded patience. It was tactile, artistic, and dare we say—human. But we traded all that for a keyboard and autocorrect. And what do we lose when handwriting dies? Memory. Cognition. Creativity. Studies show that writing by hand strengthens brain development, improves focus, and helps encode knowledge. Typing is efficient. Writing is personal. One produces output. The other produces understanding.”

Another casualty from my old course was the reading list in the library. I don’t know if today’s students even know where the library is on campus. But no reading of real books. Instead they were given links to readings on the class internet site. It turned out that I could see who was accessing the site and who didn’t. Some did not look at it at all, most rarely and only a few read it daily,

It is no secret that by any metric our kids today are dumber. Test scores are falling so the education industrial complex simply eliminates the standards for grading in the name of “equity.” But that doesn’t help the kids learn and lowers the bar for all kids. Reading proficiency continues to fall resulting in a generation of kids who don’t read. Ask a young person what was the last novel that they read. You may hear the response “What’s a novel?” In the days of reading lists, students had to read real books. Now they seldom read a book in school and read books even less out of school. In 1984, 35 percent of 13-year-olds reported reading for fun almost every day.  In 2023, that figure was 14 percent with 31 saying that they never read for fun at all. 

So if not learning to read, write or critically think what are they being taught? Its global warming, gender diversity, critical race theory, racial/gender identity, socialism, anti-capitalism, America is evil, America is racist, white fragility, gender neutral words like “hxrstories” and “cisheteropatriarchy”, DEI and other items of critical pedagogy. 

Does all this necessarily mean that we as a nation are in trouble because the education industrial complex has given us a generation of kids who cannot write, don’t read and cannot think? That college students are like this should be alarming. Glassner reports that employers are finding that their new hires lack critical thinking skills, can’t write and cannot perform basic tasks that previous hires could do. Now the employers have to train new hires in remedial skills. If AI is cheaper and more efficient than hiring college graduates then the question is whether AI will replace this generation in the workplace. 

Lastly, my conclusion is that the ratios of those that make things happen, those who know what’s happening and those who haven’t a clue as to what’s happening won’t change. The only change is that they all, in particular the last group will be dumber than their predecessors. I am reminded of a joke in which a person was told that he was D-U-M-B. He said “dum bah?”

Weapon of mass destruction? 

Where have we heard this before? President Trump’s Director of National Intelligence testified before congress in March that Iran was not building a nuclear weapon and even though the country was enriching uranium it was not being enriched to weapons grade levels. One would think that our spies might be telling the truth or at least the truth as they see it. Here is what Gabbard said to congress: “The intelligence community continues to assess that Iran is not building a nuclear weapon and Supreme Leader Khamenei has not authorized the nuclear weapons program he suspended in 2003.” She said that we were closely monitoring Iran’s nuclear program. She also noted that the country’s “enriched uranium stockpile is at its highest levels and is unprecedented for a state without nuclear weapons.”

The president sharply disagreed. He left the G-7 conference in Canada (the 51^ststate where he chided the group for expelling Russia) and said “I don’t care what she thinks”. Given this put down one would guess that Gabbard would resign. Instead she said “President Trump was saying the same thing that I said.” “We are on the same page.” Since she didn’t resign, if I were Trump I would fire her. One for speaking on a sensitive issue without being vetted by me and two, knowing now that the congress, the press and the American people will not believe another word she says.

We know that Trump was suspicious of the intelligence agencies during his first term. He thought that they were part of the entrenched “deep state” that worked against him those first four years. The agency personnel and its leaders were “neocons” who advocated unilaterally spreading democracy throughout the globe using the military to project “peace through strength.” People like John Bolton, Robert O’Brien, Mike Pompeo and Nikki Haley were in the last administration. None are in this current administration which instead is full of Trump loyalists. So Gabbard telling the congress one thing and then immediately contradicting herself with a straight face now devalues anything that the agencies say publicly. It is clear that Trump does not listen to them. What value are they if the president ignores them and no one believes them?

Yet the question remains as to whether Gabbard was actually telling the truth. Who knows? Is Trump? Who knows? What did you think about that “weapons of mass destruction” thing that got us into the war in Iraq? Trump has committed the US to bomb Iran. But what will be Iran’s response? Although the congress is doing their usual whining thing about not being consulted and the president conducting a war without their permission. They are essentially toothless. Iran has been conducting a shadow war against the US since 1979. From the bombing of the Marine barracks in Beirut in 1979 to the drone attack that killed three servicemen in Jordan in 2023, Iran has financed attacks on Americans through it proxies in Lebanon, Syria and throughout the Middle East. We would occasionally bomb somebody or something but never conducted a serious campaign against the regime. 

This time the American bombing was not in direct response to a terror act by Irani but to aid Israel in its effort to destroy Iran’s nuclear and military capabilities by assassinating its nuclear scientists and generals. Donald Trump, itching to bomb somebody, decided to help the Israelis do this. Will this degenerate into another Iraq with US ground troops? Trump says no but what happens if Khomenei orders the Irani military to attack American installations in the Middle East? What will Trump do then?

But back to the question about those weapons of mass destruction. Lt Col Robert Maginnis who is described as “an experienced and internationally known expert on national security” has written that Iran is not days away from building a nuclear bomb. Of course White House Press Secretary Karoline Leavitt who like all press secretaries is paid to lie says “Iran has all that it needs to achieve a nuclear weapon … and it would take a couple weeks to complete the production of that weapon.” Maginnis disagrees and says “This is not just a misstatement. It is misinformation—and it risks pushing the United States into a hasty and unjustified war.” Maginnis says that even if Iran had enriched uranium to weapons grade levels the country would still be a long way from producing a bomb. Here us what Maginnis says is required to have the bomb. https://www.foxnews.com/opinion/robert-maginnis-dont-misled-iran-isnt-days-away-from-nuclear-bomb

1. Highly Enriched Uranium (HEU): Iran would need U-235 enriched to 90%, but that alone is insufficient.
2. Precision Shaping: The uranium must be machined into a flawless sphere, requiring high-end metallurgy and computing.
3. Explosive Lenses: Carefully placed charges must detonate simultaneously to compress the core—a method called implosion.
4. Trigger Mechanisms: These detonators must be precisely synchronized; even a microsecond delay renders the weapon ineffective.
5. Reflectors and Tampers: Elements like beryllium are required to maintain compression and sustain the chain reaction.
6. Weaponization: The bomb must be ruggedized into a functional assembly, including casing and electronics that can survive delivery.
7. Delivery Systems: The weapon must be fitted onto a missile, aircraft, or another platform capable of reaching its target.

Maginnis says that Iran does not have these capabilities or others that are necessary to produce the bomb. He also says that the feared Fordow facility is not a weapons lab but an enrichment lab.  He asks the question “Why strike now?” Why indeed?

Well it is June. Never mind.

I read where Trump bombed Frodo in Iran and I was wondering what he had against Hobbits. Then I found out it was Fordo – never mind.

I was at a restaurant and the white waiter took my beer to the wrong person. He is obviously a racist and thinks all black people look alike. Oh, you mean that’s not my waiter? Never mind.

My neighbor said his wife was leaving him because he was possessive and paranoid. Then he found out she was just going to get the mail. Never mind.

I went into a restaurant and ordered everything in Chinese. Then I found out it was an Italian restaurant. Never mind.

I started to get upset when I found out that Amazon was going to have a Pride Week sale in July. I thought June was Pride Month so why July? What were they going to sell– lip gross? Plus sized gowns? Platinum blonde wigs? Then I found out it was Prime Week not Pride Week – never mind.

Speaking of which:

Have you ever asked what does LGBTQ means?

         You never get a straight answer.

My 101 year old mother once thought LGBTQ was a sandwich.

What happens when a lot of LGBT people get in a line?

         You get LGBTQ

Fed Ex and UPS have mail planes. What do LGBTQs have?

         A biplane.

Do gay people ride bi-cycles?

What do you call a clandestine operation conducted by an LGBTQ agent?

         A trans-mission.

What is a LGBTQ cruise ship called?

         A trans-port

What is the LGBTQs favorite wine?

         Trans-port

Why did the trans person change her diet?

         She was a herbafore.

What is the movie about mutant Amazon trans superheroes called?

         Ex-Men

Why does Trump refuse to patronize a certain chocolate company?

         He thinks it uses Hershey pronouns.

What do you call a father who identifies as invisible?

         Trans-parent

Can a trans person be a mail man?

What do you call an LGBTQ-type Optimus Prime when he retires?

         A trans-former

What do you call an LGBTQ person who grows crops?

         A trans-farmer

Why can’t hackers decrypt LGBTQ code?

         It is non-binary

What do you call the sibling of an LGBTQ person?

         A trans-sister

What is the favorite vegetable in the LGBTQ community?

         A transplant

What do you call the writing of a non-binary person?

         Transcript.

What is the academic record of an LGBTQ student called?

         A transcript.

What do you call an LGBTQ cruise from New York to London?

         Transatlantic.

What do you call an adventure movie made for the LGBTQ community?

         Transaction.

What do you call the glove worn by an LGBTQ baseball catcher?

         A trans-mitt.

What do you get when you merge western and Asian LGBTQ communities?

         Transfusion.

What command do you give an LGBTQ dog?

         Transit.

What is the pelt of a non-binary animal called?

         Trans-fur.

What do you call the LGBTQ interpreter who is tardy arriving at a meeting?

         Translate.

What do you call a group of LGBTQ lions?

         A pride.

The NCUA: A Quorum of one?

The Supeme Court decided that Trump did have the authority to fire two presidential appointees. One was a member of the Labor Relations Board while the other was on the Merit Systems Protection Board. But the Fed was explicitly excluded from the order. The court said “The Federal Reserve is a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States.” The president then said “The press runs away with things. No, I have no intention of firing him.” I guess he forgot all the threats he was making. But remember “Powell’s termination cannot come quick enough”? Then why doesn’t Trump just fire Powell and see what happens next?

There is another suit now being heard that may have implications for the Fed. It was brought by the two democrat board members of my old agency the National Credit Union Administration, Todd Harper and Tanya Otsuka. Trump fired them although Harper was appointed by Trump during his first term. The NCUA board is appointed by the president and confirmed by the senate to fill expiring terms or to a new six-year term. The board was created by the Financial Institutions Act of 1978. The Act replaced the agency’s sole administrator who served at the pleasure of the president and created a three person bipartisan board. It was intended that two board members be of the same party as the president. One person is designated by the president as chairman. The board then names one other board member as vice chair. When the board was created, Jimmy Carter appointed me as the minority (no pun intended) member along with two democrats.

It is noteworthy that when the president fired the two democrat members he did not name their replacements. Since NCUA regulations require a quorum to act, the question is whether one constitutes a quorum. Harper and Otsuka do not think so but NCUAs lawyers opine differently. Mind you, the remaining board member is a republican and likely told the lawyers to issue an opinion stating that he can constitute a quorum of one. Not surprisingly, they have done so. They cited the act creating the board which said “A majority of the Board shall constitute a quorum.” Thus, with only one board member, the chairman contends that he constitutes a majority. He is operating on that assumption and is conducting the agency’s business as a quorum of one. His lawyers also said “The departure of two of our three NCUA Board Members has led to speculation within the credit union industry and trade press about the NCUA Board’s ability to exercise authority with the presence of only a single Board Member. Please be assured that the NCUA has precedent and standing delegations of authority in place to continue performing all operational and statutory requirements under the authority of a single Board Member.” Mind you if Harper and Otsuka were still on the board, the opinion would have been different.

It is apparent that the old board was not particularly one of comity. When I and other former board members were invited to attend the celebration of the 90^th anniversary of the signing of the Federal Credit Union Act, the republican member Kyle Hauptman was not in attendance. As such he is not in the above photo taken commemorating the occasion – I am on the far right. Hauptman clearly did not agree with some of the initiatives taken when Harper was chairman particularly with respect to DEI. Although those were removed to conform to Trump’s dictates, it is clear that Hauptman would have removed them anyway. He has also ordered a review of certain regulations that he opposed and now being a quorum of one, is likely to succeed in having them changed.

Harper and Otsuka are arguing in court that the intent of the congress was explicitly to remove the administration of NCUA from serving at the pleasure of the president by creating its three person board. Moreover they contend that the 1958 case Wiener v. United States demonstrates that agencies like NCUA with a nonpartisan, multi-member expert board enjoy removal protections. This makes NCUA special in their eyes and similar to the Fed Board (and the FDIC). “Congress structured all three agencies to operate independently for good reason: a stable financial system depends on independent regulators who act free from political interference, guided by expert judgment in line with statutory mandate,” Whether the Supreme Court agrees would give NCUA the protections that some are now giving the Fed. If the court orders Harper and Otsuka reinstated then that will settle the issue regarding firing Powell – unless the administration appeals to the Supreme Copurt. Then the Supreme Court would settle the matter once and for all. 

Random Thoughts #60

Is it just me but don’t you think that Linda McMahon looks a bit like the Joker?

Kristi Noem was hospitalized for an allergic reaction. She couldn’t possibly be allergic to false eyelashes or hair extenders could she?

The Fed’s Open Market Committee met and as I expected shot Donald Trump the bird. I thought that all the name calling and bellicosity by the president would force the Fed to tell him to go pound sand. Believe me, if the Fed had lowered rates the market would have lost faith in this Fed labeling it Trump’s puppet. Just goes to show you that if you can’t be fired by this president you can assert your independence and still keep your job.

The next Open Market Committee meets July 29-30. I bet they will lower rates (the Fed Funds target rate) then.

Trump said it again. He wants the Fed to lower interest rates to reduce the cost of the national debt. So its not about stimulating growth, is it? Here is his rant: “‘Too Late’ Jerome Powell is costing our Country Hundreds of Billions of Dollars,” Trump wrote on Truth Social. “He is truly one of the dumbest, and most destructive, people in Government, and the Fed Board is complicit. Europe has had 10 cuts, we have had none. We should be 2.5 Points lower, and save $BILLIONS on all of Biden’s Short Term Debt. We have LOW inflation! TOO LATE’s an American Disgrace!” Again, Europe is cutting rates to cope with Trump’s higher tariffs and the slowing down in their export economies. Just the opposite of the situation created by Trump here. The rise in the cost of refinancing the debt was caused by Trump’s actions which have driven up Treasury bond rates. If Trump wants the cost of the debt, which will soon be over $1 trillion, to fall then he needs to eliminate his tariffs and more importantly cut federal spending. The Fed funds rate is not the reason why $11 trillion in debt is going to have to be refinancing this year at very high rates.

Tucker Carlson certainly beclowned himself for berating Ted Cruz for not knowing the population of Iran. Why is this a relevant question? Would Cruz’ position change if they had less (or more) people? What does this have to do with Khomenei getting the bomb? I am reminded of one time when I was an expert witness that the other side tried to discredit me. The attorney asked me “What is Regulation M?” Mind you the Fed has regulations from Reg A to ZZ. When I replied that I did not know, he said “Then how can you be an expert on the Fed?” That would be similar to questioning his legal expertise if he could not cite every line of Tennessee code.

The Fed reported a loss of $224 billion for 2024. The Fed pays interest on bank reserves and on its massive holdings of government securities. Prior to the runup in its balance sheet, the Fed made a profit and returned it to the Treasury. Its losses bring up an interesting question. Since the Consumer Financial Protection Board is funded out of the Fed’s earnings, shouldn’t it be shut down if the Fed makes losses? Trump ordered the agency shut down but the courts have temporarily sustained that action.

The Supreme Court just ruled that Tennessee’s ban on gender mutilation surgery for minors is constitutional. I guess “gender affirming care” sounds more sanguine but the reality is different. The left wing press called the ruling “divisive”. CNN called the ruling “a significant blow to transgender Americans” and said that ”Transgender advocates framed the ruling as a “devastating loss,” Mind you, we are talking about minors. If an adult wants to have transgender surgery, then nothing prohibits that. My guess is that the Tennessee law was the result of disclosures that Vanderbilt Hospital was performing such surgeries on children. Recall the study in the UK showed most children with gender confusion grew out of it. The study also indicated that many children with autistic spectrum disorder had gender dysphoria. Inflicting nonreversible surgery on these children is inhumane. Of course, all the court’s liberals voted against it with Justice Sotomayor saying “The court “abandons transgender children and their families to political whims. In sadness, I dissent.” Political whims? However, the question is whether the ruling is constitutional not whimsical.

Speaking of whimsical, the president just told ICE to chill on raiding agriculture, meatpacking, hotels and restaurants. Is construction next? Regardless, look for a flood of illegals to line up for jobs in agriculture, meatpacking, hotels and restaurants. The news reports that republican representatives from Trump’s farming states pressured the White House to ease off. Trump himself tweeted “FOCUS on our crime ridden and deadly Inner Cities, and those places where Sanctuary Cities play such a big role. You don’t hear about Sanctuary Cities in our Heartland!”  He also said “Biden allowed 21 million people to come into our country. Of that, vast numbers of those people were murderers, killers, people from gangs, people from jails — they emptied their jails out into the U.S. Most of those people are in the cities, all blue cities.” Somewhat surprisingly there has not hardly been a peep of criticism from the Trump haters who are caught in a quandary. They can’t applaud Trump for easing up on his deportation of illegals when they would really love to say that he is only doing this to help the dastardly Big Agriculture continue to exploit the “migrants.”

Exports, perhaps the only source of growth in the Japanese economy, fell last month. Japan’s Prime Minister Ishiba said “The series of tariff measures taken by the U.S., which accounts for approximately a quarter of global GDP and about 20% of Japan’s exports, are damaging profits of many Japanese companies, including the auto industry.”  However, Japan’s negotiators say that they cannot reach a deal because Trump’s negotiators can’t agree among themselves. It has been reported that open disagreements and confusion among Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick and U.S. Trade Representative Jamieson Greer have made negotiations difficult – to be kind. It is said that often the three argue and debate amongst themselves while at the negotiating table with the Japanese. Trump needs them to get their act together. I still say the Japanese should threaten to dump their $1 trillion in Treasury holdings if Trump doesn’t roll their tariffs back to zero.

Would it be racist to call Trump’s insistence on Chinese tariffs “gung-ho?”

Israel vs Iran: What is Trump doing?

Did John Bolton sneak into the White House when we were not looking? How else to explain the sudden rise of the neocons at the White House with Trump being all in with Israel against Iran. Yes the MAGA apologists will point to Trump’s actions against Iran in his first term. Trump imposed tough sanctions against Iran that Biden lifted. Now in his second term Trump has reimposed the sanctions. They are export oil restrictions, a nuclear program blockade, a disruption of proxy group financing of Iran’s terrorist allies (Hamas, Hezbollah and the Houthis), and various economic sanctions. But the most significant action is the signaling that the United States might join Israel militarily in their war on Iran. How else do you explain the movement of another carrier group to the Middle East along with 30 fighter planes and refueling tankers to Europe? 

Trump’s increasingly pointed threats against Khomenei are intensifying. His threats have been called “bellicose.” He has intimated that the US may take direct military action and pivot away from seeking a diplomatic agreement to restrict Tehran’s nuclear program. He has called for Itan’s unconditional surrender and said that although the US knows where Khomenei is hiding that the US wouldn’t kill him, “at least for now.”

 I thought that Trump and the MAGAs like JD Vance were opposed to intervening in foreign wars? Apparently not so with this one. Yes Trump has been consistent in saying that Iran should never have a nuclear weapon. But couldn’t he just support Israel’s attempt to destroy Iran’s nuclear capacity rather than seeming to want to join them in the effort? I keep reading that only B-52s carrying bunker busting bombs can get to Iran’s nuclear facilities that are buried deep beneath the surface. Yet no one has told me why the Israeli army could not attack the facilities after they were made more secure by its air force. We did not need the B-52s to go after Hamas’ underground network and we should not need the to go after Iran’s either. Just sounds like the neocons are itching for another military involvement.

Will the MAGA faithful fall into line to kiss Trump’s ring – like they always do? Apparently not all of them. First, Tucker Carlson who is definitely not a ring kisser remains staunchly opposed to US military involvement as does Steve Bannon. Trump now calls Carlson a kook. Marjorie Taylor Greene has voiced her concerns. Although Bannon says that military involvement will cause most of the MAGA folk to get on board with the president, he acknowledges that it does have the potential to splinter Trump’s support among his base.

Trump has said repeatedly that Iran should not be allowed to have a nuclear weapon. As to ordering US involvement, Trump has been perfectly clear saying “I may and then I may not.” But it is clear that Khomenei has pledged to destroy Israel and wipe it off the face of the planet by 2040. He has called Israel a “dangerous and lethal cancerous tumor” and has expressed genocidal intentions. Calling for the complete eradication of Israel by the Irani leader is reason to incapacitate Iran and reason to topple the entire government in the hope that whatever replaces it could not possibly be worse than the current regime. Thus far Israel has assassinated or killed Iran’s military leaders and its nuclear scientists but has not targeted Khomenei – yet. 

The bottom line is that Iran must not have a nuclear weapon because the zealots running the country will use it on Israel. That threat is intolerable for any people but especially one that has experienced the holocaust, the pogroms and all the purging and terrorism of the Jewish people throughout history. That said, this is Israel’s war and its responsibility. The US military should sit this one out.

Trump vs Powell: Who’s the Numbskull?

If anything, Powell has demonstrated the pitfalls of discretionary monetary policy. Way back in the 1950s until his death in 2006, the legendary Milton Friedman argued that discretionary monetary policy was inherently destabilizing. That is the constant manipulation of policy tools by the central bank created uncertainly in the marketplace and resulted in fits and starts in investment and consumer behavior. Friedman postulated using the Quantity Theory of Money that if the central bank grew the money supply at a rate equal to the long term real rate of growth in the economy, that we would have steady growth without inflation. If the rate of growth in money were above that of the economy then there would be inflation. If it were below that we would have slower growth and rising unemployment. This was called monetarism and was in direct contrast to Keynesianism where the central bank was to manipulate interest rates to change economic activity rather than concentrate on monetary aggregates.

Needless to say, central bankers choose the fiddling around strategy rather than that suggested by Freidman. Manipulating stuff is what they do. Central bankers love to fiddle. They love to increase interest rates or decrease them. They love to be the dominant forces in the economy. It gives them god-like status. Consider that Donald Trump who loves to fling insults and belittle people is particularly incensed with Fed chair Jerome (Jay) Powell. He just called him a “numbskull” for his refusal to bend to Trump’s badgering about lowering rates (namely the Fed funds rate). Trump points to inflation staying around the Fed’s target of 2 percent (which Friedman would argue is too high) and an unemployment rate of 4.2% (again Friedman would contend is too high). 

Trump wants lower interest rates to cover for the possibility that his tariffs will lower economic growth. He keeps yelling that there is no inflation so lower rates. The Fed is less sanguine and is taking a wait and see attitude. If it lowers rates and the impact of the tariffs is inflationary, then it would have added fuel to the fire and then will be blamed for not preventing the inflation. Recall that Powell has said “Inflation is likely to go up as tariffs find their way and some part of those tariffs come to be paid by the public.” Trump points to the European Central bank’s lowering rates and wonders why the Fed doesn’t do so. The answer is rather simple. The Europeans are countering the negative impact that Trump’s tariffs will have on their economies which should be the opposite of the impact that the tariffs will have on the US economy. 

Lest we forget, Powell was given high praise during Trump’s first year. The Fed accommodated the Trump tax cuts. Employment grew. Real wages grew. The market recovered from its losses of the previous decade and Trump took all the credit. Then came Covid and the fear of a severe recession or worse. The Fed cut its Fed funds rate to zero. It bought unprecedented amounts of government securities and inflated the size of its balance sheet. It provided funds to other nations’ central banks to ward off a world wide liquidity crisis. It even loaned funds directly to state and local governments. Again most gave Powell high praise for averting economic disaster. But there were those who argued that letting the economy crash would result in self-healing, a cleansing of balance sheets and a speedier recovery. Others argued otherwise and credited the Fed from saving the economy from a depression. 

Then came the prolonged inflation resulting from the Fed’s accommodation of Biden’s profligate ways. The inflation fueled by the Fed’s actions during Covid, exploded with the Fed’s accommodation of the $2 trillion American Rescue Act, the $1 trillion Infrastructure and Jobs Act, the $300 billion CHIPS Act, and the $900 billion so-called Inflation Reduction Act. That inflation will tarnish Powell’s legacy.

Now why does Trump want Powell to “lower” rates? Initially he said it was to stimulate growth because inflation was low. However, in his speech when he called Powell a “numbskull” Trump said “If we cut our interest by 1 point, for years we save $300 billion. If we cut it by 2 points we save … $600 billion a year, $600 billion because of one numbskull that sits here, ‘I don’t see enough reason to cut the rates’ no.” Trump is wrong. The Fed’s cut of the Fed funds rate will not lower the interest rates on Treasury bonds. Instead of saying that the Fed cut is necessary to stimulate the economy, the president is mistakenly conflating the long term Treasury bond market with the short term Treasury bill market. Now he saying that the Fed should cut interest rates to lower the government’s cost of financing the growing national debt? Pardon me but this is a numbskull comment.

Of course, all this could be avoided if the Fed abandoned discretionary policy. But that will never happen. But Trump should realize that calling Powell names will likely make him – and the Fed’s Open Market Committee – dig in their heels. A recent Supreme Court decision appears to imply that Trump cannot fire Powell and the Fed’s governors. Also, the reserve bank presidents who serve on the Open Market Committee could never be fired by the president since they are not nominated by the president nor have to go through senate confirmation. So a modest suggestion would be for Trump to get off social media, harness his insults and start quietly negotiating with the Fed and its chairman about the conduct of monetary policy. But that is not his tendency. Yet what he is doing is solidifying in the market’s mind that the central bank should be independent of the executive.

Mind you, I am not excusing Powell and the Fed for what some see as missteps. Powell like then Treasury secretary Yellen had testified before congress that the Biden inflation was “temporary and would likely wane.” They were wrong. But at the time they thought they were right. The inflation was the product of policies taken first because of the pandemic and then Biden’s fiscal blowout. Taking his cue from the Bernanke era at the Fed, Powell’s Fed reacted during the pandemic by dramatically increasing the Fed’s balance sheet. It went from holding about $500 billion in securities to over $9 trillion. It has since cut that number in half but has stopped reducing it and now looks like it may start increasing it again. The Fed’s buying (mostly) government securities injects money into the economy and typically is inflationary. Thus, the increase in the Fed’s balance sheet allowed new money to finance Joe Biden’s spending splurge. Again it is easy to criticize this as rubber-stamping Biden’s policies. But from the Fed’s perspective, this injection of funds prevented the economy from collapsing into a depression. Again it is easy to criticize when hindsight is 50-50.

Yet I think that one thing has not been considered – at least not publicly.  Is the impact of the tariffs temporary? That is, let us suppose that Trump’s tariffs raise prices by 10 percent. The question is whether that 10 percent is a one time shock to the system. That is if prices rise by 10 percent will they then increase by ten percent per annum or just once? Treasury Secretary Bessent has said “Tariffs are a one-time price adjustment,” Projections are that the initial impact will be to raise the cost to US households by $1,200 which then lowers real income. Most projections (outside of the White House) show the tariffs causing inflation to rise above 3%. The question is will it stay there. So do tariffs lead to higher prices and sustained inflation or are tariffs only a short-term spike in inflation due to immediate cost adjustments and do not result in long-term, sustained inflation? As Chairman Powell has stated “It’s really hard to know how this is going to work out.” 

So Trump versus Powell. Who’s the numbskull? You decide.

A New Fed Chairman?

For reasons only known to himself the president is making noises about naming a new Fed chair to replace incumbent Jay Powell. Mind you, Powell’s term as chairman of the Fed doesn’t end until May 2026 and his term as a governor doesn’t end until 2028. That means if Trump names someone other than a sitting Fed governor, he needs Powell to resign when his term as chairman expires. If Powell elects to stay, then Trump’s announced replacement would need another governor to resign to open up a slot at the Board.

So the question is why so early? Kevin Warsh is the clubhouse favorite although I would bet that he would not be the nominee. His view of the role of the Fed is a traditional one (pre-Bernanke) and he would be no rubber stamp for the president. He would also move to return the Fed to monitoring monetary aggregates rather than its obsession with interest rates and conduct less discretionary monetary policy. Since Trump loves to talk about interest rates and favors more Fed interference in markets, Warsh would not be a logical choice (assuming Trump is logical in this instance).

Other possibilities currently bandied about are David Malpass, Christopher Waller and Treasury Secretary Scott Bessent. Again I would bet that none of these winds up as the nominee. Mind you whoever is nominated is going to carry the suspicion of being Trump’s toady and would face a very difficult and contentious senate confirmation process. But lets briefly look at each of the above. David Malpass has solid credentials. He was president of the World Bank, chief economist at Bear Stearns, and has held positions in the Reagan, Bush and Trump administrations. On the plus side he was a critic of all the Fed’s quantitative easing during the Obama years. He was also an advisor to Trump’s first campaign and became under secretary of the Treasury for International Affairs. Malpass is not an Ivy Leaguer – thank goodness – with degrees from Colorado College and the University of Denver. Interestingly, he does not have a PhD.

Christopher Waller is a sitting governor at the Fed. If Powell decided to stay on as a governor, Waller might be the choice although I think another governor, Michelle Bowman would be a possibility. Waller is the only governor who actually knows something about monetary economics. He had been research director at the Federal Reserve bank of St. Louis which is the only bank in the Fed system known for its study of monetary aggregates and monetary theory. Again, he is no Ivy Leaguer with a PhD from Washington State University. Waller has studied cryptocurrencies and is opposed to the United States having a central digital currency although he has expressed some support for stablecoins. Waller would be a solid choice although Trump might not nominate him since he (Waller) has been one of those on the Open Market Committee which has not heeded to Trump’s demands on lowering the Fed funds target rate.

Then there is Treasury Secretary Scott Bessent. He would face the most difficult confirmation process given his relationship with Trump. Bessent has been a good soldier and has publicly endorsed all Trump’s economic views – however dumb. Would Bessent leave Treasury for the Fed? I certainly would. He would have more independence at the Fed and no longer be tied to Trump. Maybe he should ask Janet Yellen which job was more fun. Others do not share my opinion. Someone named Neil Dutta, head of economics at someplace called Renaissance Macro Research says, “The Treasury job is probably a lot more fund that the Fed job unless you want to live in DC forever and manage a bunch of PhDs at the Fed while being a prop for a Representative’s viral prop at a hearing. I am not sure why someone like Bessent would take the job.” Excuse me, Mr Dutta but you are an idiot.

I cannot not see an upside to naming a nominee this early. The long knives will be out and this gives them a year to conduct a smear campaign. These would be the first Fed confirmation hearings on par with that of a Supreme Court nominee. If I were picking I would choose Stanford’s John Taylor or the Hoover Institution’s John Cochrane. Both would be great which means that neither would be nominated.