President Donald Trump is now running Federal Reserve Policy. Remember last Fall when Fed Chairman Jerome Powell made statements about raising interest rates? He cited a growing economy as evidence it was time. Powell even raised rates twice. Doing so brought ire from Trump, whose public criticisms of Fed policy have been unprecedented.
So how has Powell adjusted to Trump’s reproaches? Powell has folded the Fed tent. Recent Fed announcements indicate a future course closely aligned with Trump’s expressed desires, pledging soon to lower rates and even usher new rounds of “quantitative easing.”
QE, as it is known, is an act by the Federal Reserve Central Bank to release dollars into the economy, supposedly in exchange for valued assets. Recall during Obama’s Presidency, the Fed bought up mega-amounts of worthless assets from Wall Street Banks, along with U.S. Treasury bonds, to the tune of almost $4 trillion. Those dollars largely went into the American economy to help keep it and the government afloat.
Recall also, after taking office as Fed Chair, Powell embarked to “lower the Fed’s balance sheet.” Powell was trying to sell the assets bought under Obama, those dollars received in payment thus being removed from circulation during the process.
Here’s the problem. Presently circulating in America’s economy is just over $14 trillion. Were the Fed to lower its balance sheet by the amount of the Obama era QE, that would result in almost $4 trillion being destroyed, leaving only $10 trillion dollars to run the American economy at present levels, while attempting to support growth. Trump desires to grow the economy. Growth requires liquidity. Trump can’t grow the economy without an increasing supply of dollars.
Powell is obviously reading Trump’s Tweets and reacting favorably to Trump’s “instructions,” recently halting any talk of lowering the Fed’s balance sheet or raising interest rates for the foreseeable future.
Stock markets have been loving the new Fed announcements because lower interest rates mean more borrowing, more spending, which creates financial profits for Wall Street Banks and their corporate cousins. QE and the resulting high Fed balance sheet is a double-edged sword though.
Under Obama, QE resulted in a veritable wealth transfer program, the Fed buying up worthless assets from Wall Street Banks, using brand new dollars printed out of the air to do it. When someone gives you something in exchange for nothing, that is a wealth transfer.
Throughout Obama’s two terms, the Federal Reserve handed essentially free money to Wall Street Banks, which they used to pump up the stock markets and keep the U.S. government out of hock.
But there is a difference between QE under Obama and under Trump. While Obama was content for American industries to continue leaving for foreign shores, Trump’s purpose is to bring them back. Trump is revitalizing the American foundational industries, steel, aluminum, energy and the American manufacturing base.
Building a new Trump-American industrial base requires cash, economic liquidity. Trump needs the actual number of dollars in circulation to grow with the American economy. Those dollars need to be circulating before economic growth can occur. Without sufficient dollars, Trump cannot kick-start a permanently retooled and revitalized American economy. And importantly, Trump desires to transform toward a new, 21st century free-market world economy, based on real value of an American dollar.
Why do I bring the idea of real dollar value up here? I do that because since 1975 or so, the value of the dollar around the world has been based upon scam and coercion. They call it the Petrodollar system.
Here’s how it works:
The countries of the world must have dollars to buy OPEC energy. That creates a demand for dollars around the world. To gain access to dollars, those countries must sell us their cheap stuff.
To purchase their stuff, Americans must borrow more and more new dollars from Wall Street, and send them overseas. As a result, America goes further and further in debt. Then foreign producers exchange our borrowed dollars for their exports. They use those dollars to purchase OPEC energy. OPEC takes those dollars Americans originally borrowed and either (a) deposits them back in Wall Street Banks, enabling Wall Street to create even more dollars, or (b) purchases U.S. treasuries to help keep the federal government operating.
The entire process repeats like a perpetual motion machine. While it does, Wall Street and cooperating OPEC countries gets richer and richer. The American people and their government go more in debt, borrowing to buy cheap stuff from countries around the world who operate sweat shops, competing to manufacture products the cheapest ways possible just to sell them back to Americans who buy them out of borrowed funds. That’s the nutshell.
Trump’s purpose is to stop all that gamesmanship and transform America and the world into a truly free and open marketplace. In America, Trump is working to produce inherent exportable value the world will desire, creating inherent value in the U.S. dollar, which will make countries want to trade goods they produce for American goods, rather than being forced by coercive Petrodollar tactics to take otherwise worthless paper.
Trump knows the Petrodollar is dying. Fracking technology is bringing dead wells back to life worldwide. Because energy is plentiful, coercive Petrodollar devices supporting dollar value around the world will soon be ineffective.
But to execute his plan, Trump must receive cooperation from the Fed. Thus, Trump has essentially taken over Fed policy.
Note for the future: Trump just made the Fed irrelevant.
Hank Sullivan is a Forsyth County resident, businessman, author and speaker on American history, economics and geopolitics.