Now that the Fed­er­al Reserve decid­ed to keep inter­est rates steady in Sep­tem­ber and Fed­er­al Reserve chair­man Janet Yellen was forced to rebuke Don­ald Trump over his charges that the the Fed’s deci­sion mak­ing was all “obvi­ous­ly polit­i­cal” and designed to mask a weak econ­o­my that should actu­al­ly be doing much worse than it cur­rent is (yes, Trump thinks the Fed should be inten­tion­al­ly tak­ing the econ­o­my because that’s where the econ­o­my “should” be), one of the ques­tions going for­ward is how Trump is going to respond. Is he just going to take that from Janet Yellen? That would be a very non-Trumpian response.

So, assum­ing Trump decides to add Janet Yellen to his per­son­al ene­mies list and con­tin­ues assert­ing that the Fed needs to be jack­ing up rates now in order to reveal to the world how bad the Oba­ma econ­o­my real­ly is (that’s basi­cal­ly his argument...he does­n’t even make the stan­dard “there’s going to hyper­in­fla­tion” argu­ment you nor­mal­ly hear from rate hawks), we can prob­a­bly add “harm­ful­ly politi­ciz­ing Fed­er­al Reserve deci­sion-mak­ing” to the list of Trump’s accom­plish­ments. But wait, was­n’t Trump’s argu­ment that the Fed is already act­ing polit­i­cal­ly to pro­tect Oba­ma? Yes, and by mak­ing such a argu­ment in a pres­i­den­tial race and basi­cal­ly call­ing for the Fed to inten­tion­al­ly trash the econ­o­my in order to ‘unmask the real Oba­ma econ­o­my’, Don­ald Trump just mas­sive­ly politi­cized the Fed’s rate poli­cies. And at a crit­i­cal time giv­en the del­i­cate nature of the Fed’s rate “lift off”.

So, giv­en all that, get ready for a lot more GOP politi­ciza­tion of the Fed­er­al Reserve:

Bloomberg Mar­kets

Yellen Must Brace for More Polit­i­cal Attacks If Hike Is Delayed

Jean­na Smi­alek
Sep­tem­ber 19, 2016 — 11:01 PM CDT

* Most econ­o­mists see a rate increase fol­low­ing the elec­tion
* Trump says the Fed ‘is being total­ly con­trolled polit­i­cal­ly’

Janet Yellen will frame a deci­sion this week to for­go an inter­est-rate increase as nec­es­sary to achieve the Fed­er­al Reserve’s eco­nom­ic goals. Don­ald Trump and his sup­port­ers are like­ly to frame it as polit­i­cal.

That’s because the cen­tral bank on Wednes­day will also release fresh “dot plot” pro­jec­tions which will prob­a­bly show pol­i­cy mak­ers see one quar­ter-point rate hike by the end of the year. Such a fore­cast would be wide­ly inter­pret­ed as a sign that a hike is com­ing at the Fed’s Decem­ber meet­ing, instead of at the Novem­ber gath­er­ing, which comes a week before the U.S. pres­i­den­tial elec­tion and isn’t accom­pa­nied by one of the chair’s quar­ter­ly press con­fer­ences.

Prob­lem is, hav­ing the dot plot sig­nal a Decem­ber move comes with polit­i­cal bag­gage. Trump, the Repub­li­can pres­i­den­tial nom­i­nee, argues that the Fed has cre­at­ed a “false econ­o­my” by keep­ing bor­row­ing costs low in order to help Pres­i­dent Barack Oba­ma. Although econ­o­mists gen­er­al­ly have said recent cool­er eco­nom­ic data will encour­age the Fed to leave rates near rock-bot­tom, some peo­ple may see elec­toral pol­i­tics stay­ing Yellen’s hand.

Recap­ture the Nar­ra­tive

“If you’re a dyed-in-the-wool Trump sup­port­er, and Trump los­es in Novem­ber and the Fed increas­es inter­est rates, log­i­cal fal­lac­i­es aside, you will sim­ply say — cor­re­la­tion, there­fore cau­sa­tion,” said Peter Con­ti-Brown, a Fed his­to­ri­an and assis­tant pro­fes­sor at the Whar­ton School of the Uni­ver­si­ty of Penn­syl­va­nia. “What Don­ald Trump is try­ing to do is recap­ture the eco­nom­ic nar­ra­tive.”

Yellen was appoint­ed by Oba­ma and served as Pres­i­dent Bill Clinton’s top eco­nom­ic advis­er in the 1990s.

The Fed is expect­ed to leave rates unchanged this week. At her post-meet­ing press con­fer­ence, Yellen may try to stress that the next Fed gath­er­ing in Novem­ber is a “live meet­ing” where the cen­tral bank could raise rates. The Fed­er­al Open Mar­ket Com­mit­tee could even poten­tial­ly go so far as to explic­it­ly sig­nal in its state­ment that an increase is like­ly at the Nov. 1–2 gath­er­ing.

Deci­sion Pol­i­tics

Fed offi­cials reg­u­lar­ly say pol­i­tics are not a con­sid­er­a­tion as they make mon­e­tary pol­i­cy deci­sions, and peo­ple who have been in the room at FOMC meet­ings say that elec­tions are just not a top­ic dur­ing the pol­i­cy debate.

“It’s amaz­ing how lit­tle any­one talks about these things in these meet­ings — it may have been on their minds, but I nev­er heard any­one talk about it,” said Joseph Gagnon, a senior fel­low at the Peter­son Insti­tute for Inter­na­tion­al Eco­nom­ics in Wash­ing­ton and a for­mer senior econ­o­mist at the Fed.

Even so, per­cep­tions that the Fed plays pol­i­tics exist, as Trump’s com­ments sug­gest.

“The Fed is being total­ly con­trolled polit­i­cal­ly, they’re not rais­ing rates, and they’re being con­trolled polit­i­cal­ly — I think they’re going to be low, I don’t even know if they’re going to have a raise, but I think they’re going to be low until the end of the year,” Trump told an audi­ence of finance lead­ers in New York last week.

It may not mat­ter very much, prac­ti­cal­ly speak­ing, if some Amer­i­cans believe Trump’s asser­tion that the Fed is polit­i­cal. The cen­tral bank isn’t a pop­u­lar­ly elect­ed body, which shields it from near-term dis­ap­proval from the U.S. elec­torate.

Still, it is account­able to Con­gress, so if a large chunk of U.S. pub­lic opin­ion comes to view it as a politi­cized insti­tu­tion, there could be longer-term impli­ca­tions.

A Trump tri­umph on Nov. 8 could breathe life into leg­isla­tive reform of the Fed, espe­cial­ly if Repub­li­cans main­tain con­trol of Con­gress.

Emer­gency Mea­sures

Sap­ping pub­lic sup­port for the cen­tral bank may also make it hes­i­tant to use uncon­ven­tion­al poli­cies dur­ing the next reces­sion. The Fed’s emer­gency mea­sures dur­ing the 2008–2009 finan­cial cri­sis lat­er drew heat from Con­gress — spurring leg­isla­tive pro­pos­als to make it fol­low a pol­i­cy rule — and that mem­o­ry could affect FOMC think­ing next time around.

“If the Fed is under con­stant polit­i­cal assault, it will be more hes­i­tant to use those tools,” Con­ti-Brown said. “If we’ve got a cen­tral bank that’s exper­i­ment­ing, then it risks prompt­ing that exact exis­ten­tial debate that it wants to avoid.”

Demo­c­ra­t­ic pres­i­den­tial nom­i­nee Hillary Clin­ton, whose lead in nation­al opin­ion polls has nar­rowed, has said the Fed needs to work on its diver­si­ty, but has also blast­ed Trump for accus­ing the cen­tral bank of being polit­i­cal. “You should not be com­ment­ing on Fed actions when you are either run­ning for pres­i­dent or you are pres­i­dent,” she said Sept. 6.

Recent eco­nom­ic data have been less sup­port­ive of a rate change. Dis­ap­point­ing read­ings from the Insti­tute for Sup­ply Management’s ser­vices and man­u­fac­tur­ing index­es, a steep­er-than-expect­ed decline in August indus­tri­al pro­duc­tion, and slow­er retail sales have all called a Sep­tem­ber hike into ques­tion.

“You have elec­tions, the Fed is cer­tain­ly aware of that, but I think it’s easy to say that the data that we have now do not jus­ti­fy a rate increase,” said Gus Fauch­er, vice pres­i­dent at PNC Finan­cial Ser­vices Group Inc. in Pitts­burgh. “I do think that the data between now and Decem­ber will be sup­port­ive of a rate hike.”

...

“Sap­ping pub­lic sup­port for the cen­tral bank may also make it hes­i­tant to use uncon­ven­tion­al poli­cies dur­ing the next reces­sion. The Fed’s emer­gency mea­sures dur­ing the 2008–2009 finan­cial cri­sis lat­er drew heat from Con­gress — spurring leg­isla­tive pro­pos­als to make it fol­low a pol­i­cy rule — and that mem­o­ry could affect FOMC think­ing next time around.”

That’s some­thing crit­i­cal to keep in mind: the more Trump and the GOP bash the Fed now for it’s ultra-low rate pol­i­cy response to the 2008 finan­cial cri­sis that threat­ened the glob­al econ­o­my, the less like­ly the Fed is to use sim­i­lar tools in the future.

But also note that Don­ald Trump was­n’t sim­ply call­ing for a rate hike when he charged the Fed with being “total­ly con­trolled polit­i­cal­ly” ear­li­er this month. He appeared to be call for an end to low rates entire­ly. Soon:

...
“The Fed is being total­ly con­trolled polit­i­cal­ly, they’re not rais­ing rates, and they’re being con­trolled polit­i­cal­ly — I think they’re going to be low, I don’t even know if they’re going to have a raise, but I think they’re going to be low until the end of the year,” Trump told an audi­ence of finance lead­ers in New York last week.
...

That sure implies Trump was like to see a rather rapid hike it rates next year, although keep in mind that Yel­len’s term does­n’t end until 2018, which rais­es the ques­tion of whether or a Pres­i­dent Trump would some­how be pres­sur­ing the Fed to car­ry out that rapid rate hike. What sort of total­ly non-polit­i­cal method does he have in mind? Maybe some­one should ask him about that.

Anoth­er major ques­tion raised by Trump’s desire to see the Fed inten­tion­al­ly depress the econ­o­my in order to ‘expose the Oba­ma econ­o­my’ is whether or not Trump has joined the ever-grow­ing con­tin­gent of GOP­ers who want to get rid of the Fed’s dual man­date — the twin goals of hold­ing infla­tion in check while simul­ta­ne­ous­ly pro­mot­ing employ­ment — and just go with the sin­gle man­date of sole­ly try­ing to con­trol infla­tion. You know, like the Euro­pean Cen­tral Bank is tasked to exclu­sive­ly try to con­trol, to the immense detri­ment of Europe.

It’s a par­tic­u­lar­ly impor­tant ques­tion in light of ear­li­er reports that Trump was will­ing to hand over “for­eign and domes­tic pol­i­cy” to his vice pres­i­dent and Trump’s selec­tion of Mike Pence to essen­tial­ly be Trump’s Dick Cheney because, sur­prise sur­prise, back in Novem­ber 2010 — just after the GOP’s big “Tea Par­ty” med-terms sweep and a time when the econ­o­my was much weak­er and low rates were even more crit­i­cal for avoid­ing a major reces­sion — Mike Pence led the GOP charge to end the dual man­date and end the Fed’s focus on employ­ment:

The Wall Street Jour­nal

GOP’s Pence Calls for Fed to Drop Focus on Employ­ment

By Sudeep Red­dy
Nov 15, 2010 6:31 pm ET

Rep. Mike Pence of Indi­ana, a top House Repub­li­can, said he plans to intro­duce leg­is­la­tion Tues­day to end the Fed­er­al Reserve‘s dual man­date, which requires the cen­tral bank to bal­ance both employ­ment and infla­tion con­cerns in its mon­e­tary pol­i­cy.

Pence, a poten­tial 2012 pres­i­den­tial can­di­date, is one of sev­er­al GOP politi­cians in recent weeks to attack the Fed over its recent deci­sion to buy gov­ern­ment bonds to boost the econ­o­my, warn­ing that the move — often called Quan­ti­ta­tive Eas­ing 2 — could spur sig­nif­i­cant infla­tion. On Mon­day, he called for strik­ing the dual man­date to force the Fed to focus only on price sta­bil­i­ty. The Fed today, under a 1977 law, also must pur­sue max­i­mum sus­tain­able employ­ment — gen­er­al­ly view as an unem­ploy­ment rate of 5% to 6%.

“The Fed’s dual man­date pol­i­cy has failed,” Pence said in a state­ment. “For a record 18th straight month the nation’s unem­ploy­ment rate is at or above 9.4 per­cent. It’s time for the Fed to be sole­ly focused on price sta­bil­i­ty and not the recent­ly announced QE2 which will mon­e­tize our debt and trig­ger infla­tion.”

The leg­is­la­tion is unlike­ly to become law, either this year or in the next Con­gress. Democ­rats strong­ly sup­port the Fed’s focus on employ­ment, and few Repub­li­cans have voiced the infla­tion wor­ries that are gain­ing trac­tion among the GOP’s tea par­ty con­tin­gent. But Pence’s move is like­ly to fur­ther boost atten­tion on the Fed and could draw oth­er poten­tial 2012 can­di­dates into the infla­tion debate.

To sup­port the econ­o­my after the finan­cial cri­sis, the Fed has kept its tar­get for overnight inter­est rates near zero since Decem­ber 2008. It also bought $1.7 tril­lion in U.S. Trea­sury debt and mort­gage secu­ri­ties to dri­ve down long-term inter­est rates and spur more bor­row­ing and spend­ing. But it’s falling short on both sides of its man­date. Unem­ploy­ment remains too high, at 9.6%, and infla­tion is run­ning below the Fed’s tar­get of 1.7% to 2%. As a result, the cen­tral bank’s pol­i­cy com­mit­tee on Nov. 3 vot­ed 10–1 to resume the bond-buy­ing and pur­chase $600 bil­lion in Trea­surys over the next eight months.

...

Mean­while, Repub­li­can-lean­ing econ­o­mists and strate­gists, coor­di­nat­ing with GOP politi­cians, launched a cam­paign this week to boost pres­sure on the Fed and push the issue into the 2012 pres­i­den­tial cam­paign.

“The Fed’s dual man­date pol­i­cy has failed...For a record 18th straight month the nation’s unem­ploy­ment rate is at or above 9.4 per­cent. It’s time for the Fed to be sole­ly focused on price sta­bil­i­ty and not the recent­ly announced QE2 which will mon­e­tize our debt and trig­ger infla­tion.”

That was Mike Pence in 2010 when the unem­ploy­ment rate was twice the cur­rent rate. Because the Fed’s low rates had­n’t mag­i­cal­ly cured the econ­o­my two years after the largest finan­cial cri­sis since the Great Depres­sion, Mike Pence want­ed the Fed to just stop car­ing about unem­ploy­ment at all. And now he’s poised to become the most pow­er­ful vice pres­i­dent in his­to­ry.

So...shouldn’t some­one be ask­ing Don­ald Trump about his views of the dual man­date? Or, per­haps more appro­pri­ate­ly, should­n’t some­one be ask­ing Mike Pence whether or not he still backs that posi­tion? It seems like a pret­ty obvi­ous ques­tion. Along with some ques­tion of whether or not sharply high­er inter­est rates will be an issue dur­ing a Trump pres­i­den­cy giv­en the Trumpian explo­sion of debt result­ing from tax cuts for the ultra-rich that appears to be a cen­tral ele­ment of Trump’s eco­nom­ic plan.

The Huff­in­g­ton Post

Don­ald Trump’s Tax Cuts Would Cause Deficit To Explode, Report Says

Seri­ous­ly, this guy’s bud­get is a joke.

Jonathan Cohn Senior Nation­al Cor­re­spon­dent, The Huff­in­g­ton Post

09/22/2016 12:10 am ET | Updat­ed

Don­ald Trump’s poli­cies would make the fed­er­al deficit much big­ger. Hillary Clinton’s wouldn’t.

That’s the most impor­tant take­away of a new report, one that maybe should get a lit­tle atten­tion this cam­paign sea­son.

The report comes from Com­mit­tee for a Respon­si­ble Fed­er­al Bud­get, a non­par­ti­san think tank that, as the name sug­gests, focus­es heav­i­ly on whether the gov­ern­ment has enough resources to meet its finan­cial oblig­a­tions.

Ear­li­er this year, the com­mit­tee pub­lished a thor­ough review of the Clin­ton and Trump agen­das — with a par­tic­u­lar focus on how each would affect the deficit (the dif­fer­ence between what the gov­ern­ment spends and takes in) and the debt (the total amount of mon­ey that the gov­ern­ment owes).

On Thurs­day, the com­mit­tee pub­lished a new ver­sion, tak­ing into account pro­pos­als that Clin­ton and Trump had intro­duced since the last analy­sis. The ver­dict was pret­ty sim­i­lar to the last one.

Once again, the com­mit­tee found, Trump’s pro­posed tax cut would pour red ink all over the fed­er­al ledger, while Clin­ton painstak­ing­ly iden­ti­fied enough new tax­es to off­set near­ly the entire cost of the pro­grams she would launch.

To be clear, gov­ern­ment bor­row­ing isn’t always a bad thing. Econ­o­mists argue among them­selves over how much debt the fed­er­al gov­ern­ment can car­ry, and for what pur­pos­es it might be worth­while.

Today might actu­al­ly be an ide­al time for gov­ern­ment to incur high­er deficits, at least for the short term, because low inter­est rates make bor­row­ing unusu­al­ly cheap — and a burst of spend­ing for infra­struc­ture could pay off in the long run.

But, for the most part, that’s not the kind of bor­row­ing Trump has in mind.

The big item on the Repub­li­can nominee’s agen­da is that tax cut. It’s gone through no less than three incar­na­tions now, and the lat­est ver­sion is actu­al­ly small­er than the pre­vi­ous one. But the basic shape is the same, with cor­po­ra­tions and the wealthy ben­e­fit­ting dis­pro­por­tion­ate­ly.

And accord­ing to the committee’s pro­jec­tion, it would per­ma­nent­ly change the bud­getary base­line, sub­stan­tial­ly increas­ing the short­fall between what the gov­ern­ment takes in and what it sends out — to the tune of $4.5 tril­lion over the next 10 years.

Throw in the rest of Trump’s agen­da, includ­ing a boost in defense spend­ing and an even big­ger cut to Med­ic­aid, and ? accord­ing to the report ? you get a total impact of $5.3 tril­lion in new debt over the next 10 years.

The sto­ry with Clinton’s agen­da is quite dif­fer­ent. In fact, it may sur­prise cyn­ics who assume all politi­cians are equal­ly unse­ri­ous when they say they would pay for new ini­tia­tives.

The Demo­c­ra­t­ic pres­i­den­tial nom­i­nee has called for an array of new spend­ing pro­grams, some of them quite expen­sive. These include efforts to help peo­ple pay out-of-pock­et med­ical bills and gen­er­ous new aid for fam­i­lies pay­ing col­lege tuition.

But Clin­ton has also said she will off­set the cost of those pro­grams with new tax­es on cor­po­ra­tions and the wealth­i­est Amer­i­cans — a promise, the com­mit­tee found, she has large­ly kept with her pro­pos­als. All told, the com­mit­tee found, Clinton’s poli­cies would add $200 bil­lion to the fed­er­al debt over 10 years. In the con­text of cam­paign promis­es, which are nev­er that pre­cise, that’s a pit­tance ?-and maybe even a round­ing error.

The esti­mate may be slight­ly gen­er­ous to Clin­ton, as it assumes her promise of cap­ping child care costs at 10 per­cent of fam­i­ly income would cost just $150 bil­lion over 10 years. Pro­jec­tions for sim­i­lar pro­pos­als from inde­pen­dent think tanks sug­gest such a pro­gram, ful­ly imple­ment­ed, would cost much more.

But even allow­ing for that, the impact of Clinton’s agen­da on the deficit would be far less than Trump’s ? and would ulti­mate­ly depend on whether Clin­ton could iden­ti­fy oth­er sources of rev­enue to pay for it.

For a bet­ter sense of how the Trump and Clin­ton agen­das com­pare, you can think about debt in the way most econ­o­mists do — by look­ing at it as a per­cent­age of gross domes­tic prod­uct, or GDP. If Clinton’s poli­cies became law, the com­mit­tee found, fed­er­al debt after 10 years would be 86 per­cent of GDP — pret­ty much what the experts project as of now. If Trump’s poli­cies became law, by con­trast, fed­er­al debt after 10 years would land at around 105 per­cent.

A very real dan­ger of push­ing debt lev­els high­er indef­i­nite­ly is that it could slow the econ­o­my — or, at the very least, cre­ate a finan­cial short­fall that would even­tu­al­ly force deep cuts to Medicare and Social Secu­ri­ty, pro­grams Trump has insist­ed he would defend.

...

“Once again, the com­mit­tee found, Trump’s pro­posed tax cut would pour red ink all over the fed­er­al ledger, while Clin­ton painstak­ing­ly iden­ti­fied enough new tax­es to off­set near­ly the entire cost of the pro­grams she would launch.”

That’s right, the Trump cam­paign’s recent­ly revised bud­get pro­pos­als — which were intend­ed in part to address pre­vi­ous crit­i­cisms of his ear­li­er pro­pos­al that would have explod­ed the deficit to pay for tax cuts for the rich — con­tin­ue to explode the deficit to pay for tax cuts for the rich. Hillary’s plan large­ly pays for itself. Should this be more of a cam­paign issue? Sure, vot­ers gen­er­al­ly don’t real­ly care about the debt or deficit when that debt is being used to pay for things that help aver­age peo­ple. But this is basi­cal­ly a a mas­sive explo­sion of the debt to pay for tax cuts for Don­ald Trump and his bil­lion­aire bud­dies. That seems like poten­tial­ly big issue in this cam­paign, espe­cial­ly now that Don­ald Trump has made it clear he wants inter­est rates — and there­fore the inter­est paid on gov­ern­ment debt — to rise sharply. Should­n’t he be forced to answer ques­tions about his desire to have the Fed jack up rates and then have the pub­lic pay high­er inter­est on the debt he plans to cre­ate to pay for those tax cuts for bil­lion­aires (and prob­a­bly try to get rid of the Fed’s dual man­date so employ­ment is no longer a con­sid­er­a­tion) at least once dur­ing this elec­tion? Sure, his answer will undoubt­ed­ly be non­sense, but since he’s about to become pres­i­dent it’s pret­ty impor­tant non­sense.

It’s all a reminder that when Trump says his plan for the econ­o­my is “jobs, jobs, jobs”, he’s most­ly talk­ing about jobs for bankers, bond traders, and bank­rupt­cy lawyers. The job growth is going to be YUUUUGE!

With the first big Clinton/Trump debate Mon­day night with a focus on nation­al secu­ri­ty, it’s worth not­ing the Trump cam­paign has a new argu­ment it can make for how much Trump loves the mil­i­tary: Now that the Trump has final­ly decid­ed to par­tial­ly pay for his tril­lions in pro­posed tax cuts for the rich by imple­ment­ing a “pen­ny plan” of reduc­ing a dis­cre­tionary fed­er­al spend­ing by one per­cent a year, the mil­i­tary is one of the only parts of the gov­ern­ment his bud­get plan would­n’t evis­cer­ate to pay for those tax cuts. That’s how much he loves the mil­i­tary. It’s prob­a­bly not an argu­ment the Trump cam­paign wants to actu­al­ly make in pub­lic since it’s been try­ing to pre­tend like Trump’s not a typ­i­cal slash and burn sup­ply-side Repub­li­can, but the Trump cam­paign could indeed make that argu­ment:

Asso­ci­at­ed Press

AP FACT CHECK: How Trump’s ‘Pen­ny Plan’ adds up to big cuts

By CHRISTOPHER S. RUGABER and CALVIN WOODWARD
Sep. 16, 2016 2:48 PM EDT

WASHINGTON (AP) — Don­ald Trump’s “Pen­ny Plan” sounds like a pain­less pin­prick in the fed­er­al bud­get — a 1 per­cent annu­al cut in a chunk of gov­ern­ment spend­ing, adding up to huge sav­ings. “One pen­ny,” he says. “We can all do that.”

But it’s real­ly an axe that would hol­low out much of what it touch­es.

In his eco­nom­ic speech Wednes­day in New York, Trump said the plan would save $1 tril­lion over a decade. Mil­i­tary spend­ing, Social Secu­ri­ty, Medicare, Med­ic­aid and vet­er­ans pro­grams would be left untouched.

How can a mere pen­ny on the dol­lar do that, espe­cial­ly when the biggest bud­get items are exempt­ed?

A look at some of Trump’s eco­nom­ic claims and how they com­pare with the facts:

TRUMP: “If we just save one pen­ny of each fed­er­al dol­lar spent on non­de­fense and non-enti­tle­ment pro­grams, we can save almost $1 tril­lion over the next decade. One pen­ny, we can all do that.”

THE FACTS: It’s far from that sim­ple. Trump only has about a third of the bud­get to work with, because he’s vow­ing to pro­tect the vast areas of spend­ing in the oth­er two-thirds. The cuts he’s actu­al­ly talk­ing about would add up to about 25 per­cent over the 10 years, com­pared with what would hap­pen with future spend­ing under cur­rent law, cal­cu­lates the non­par­ti­san Com­mit­tee for a Respon­si­ble Fed­er­al Bud­get.

Those cuts are “poten­tial­ly dras­tic,” the com­mit­tee says in its analy­sis of the Pen­ny Plan, and Trump did not spell out what they would be.

The chunk of spend­ing he would tar­get — known as non-mil­i­tary dis­cre­tionary spend­ing — cov­ers health pro­grams, edu­ca­tion, the envi­ron­ment, pub­lic works, ener­gy and almost every­thing else the gov­ern­ment does, apart from the huge enti­tle­ment pro­grams and Pen­ta­gon spend­ing. And the cuts would come as the coun­try grap­ples with ris­ing health costs and an aging pop­u­la­tion.

If the coun­try bites the bul­let and accepts severe cuts, would that real­ly save $1 tril­lion in a decade? Not quite, but in the ball­park.

The group’s analy­sis esti­mates sav­ings of $700 to $800 bil­lion. “Still,” it says, “imple­ment­ing the pro­pos­al would be quite dif­fi­cult with­out elim­i­nat­ing or dra­mat­i­cal­ly scal­ing back sev­er­al gov­ern­ment func­tions, and we would encour­age the Trump cam­paign to iden­ti­fy where at least some of these cuts would come from.”

___

TRUMP, on 14 mil­lion peo­ple leav­ing the work­force dur­ing Oba­ma’s pres­i­den­cy: “My eco­nom­ic plan rejects the cyn­i­cism that says our labor force will keep declin­ing.”

THE FACTS: It’s not cyn­i­cism that’s the prob­lem, it’s most­ly aging.

Rough­ly 10,000 baby boomers turn 65 every day, and many of them retire. That reduces the num­ber of Amer­i­cans work­ing or look­ing for work and lim­its how fast the econ­o­my can grow. Few­er peo­ple work­ing trans­lates into slow­er growth. The non­par­ti­san Con­gres­sion­al Bud­get Office esti­mates that the labor force par­tic­i­pa­tion rate will be 60.2 per­cent in 2026, down from 62.8 per­cent today, based part­ly on pop­u­la­tion trends.

To be sure, aging isn’t the only fac­tor. The pro­por­tion of Amer­i­cans in their prime work­ing years — from age 25 through 54 — who have jobs or are look­ing for work is still about 1.5 per­cent­age points below pre-reces­sion lev­els. Some have giv­en up look­ing, while oth­ers have joined the dis­abil­i­ty rolls.

It’s also true that the num­ber of Amer­i­cans out­side the work­force has increased to 94 mil­lion from about 80 mil­lion when Oba­ma was inau­gu­rat­ed. That also reflects increas­ing retire­ments, and the ris­ing like­li­hood that those aged 16 through 24 will stay in school rather than seek work.

___

TRUMP: “Over the next 10 years, our eco­nom­ic team esti­mates that under our plan, the econ­o­my will aver­age 3.5 per­cent growth and cre­ate a total of 25 mil­lion new jobs.”

THE FACTS: That sounds like a lot, but it’s the cur­rent pace of job growth, which is a lit­tle slow­er than in 2014 and 2015.

In the past 12 months end­ing in August, the U.S. econ­o­my has added near­ly 2.5 mil­lion jobs — the same annu­al pace Trump is promis­ing. In 2015, the econ­o­my added 2.7 mil­lion, and the year before that, 3 mil­lion. Those were the two best years of hir­ing since 1998–99.

Trump’s goal, then, could be quite real­is­tic, but it might be hard to square with his dec­la­ra­tion that his plan is “the most pro-growth, pro-jobs, pro-fam­i­ly plan put forth per­haps in the his­to­ry of our coun­try.”

___

...

“The chunk of spend­ing he would tar­get — known as non-mil­i­tary dis­cre­tionary spend­ing — cov­ers health pro­grams, edu­ca­tion, the envi­ron­ment, pub­lic works, ener­gy and almost every­thing else the gov­ern­ment does, apart from the huge enti­tle­ment pro­grams and Pen­ta­gon spend­ing. And the cuts would come as the coun­try grap­ples with ris­ing health costs and an aging pop­u­la­tion.”

Also recall the reports that Trump told Paul Ryan that cut­ting enti­tle­ments is the ‘moral­ly right’ thing to do but that he can’t get elect­ed run­ning on that so, in all like­li­hood, the only part of the fed­er­al gov­ern­ment that isn’t going to get slashed and burned under a Trump pres­i­den­cy is the mil­i­tary. He real­ly loves the mil­i­tary. To the near exclu­sion of every­thing else appar­ent­ly. He’s prob­a­bly not going to bring that up in the nation­al secu­ri­ty debate, but he could.

So Don­ald Trump decid­ed to attack not just the Fed­er­al Reserve and Janet Yellen dur­ing last nights debate but also the over­all US econ­o­my. “We are in a big, fat, ugly bub­ble. And we bet­ter be awful­ly care­ful.” That was Don­ald Trump’s mes­sage to Amer­i­ca. And when you con­sid­er that con­sumer con­fi­dence is actu­al­ly on the upswing and main­tain­ing that con­fi­dence is one of the trends we need in order to safe­ly lift off from the cur­rent ultra-low rate envi­ron­ment, it’s prob­a­bly safe to say that what Trump told the US pub­lic about the state of the US econ­o­my was­n’t actu­al­ly very care­ful. Per­haps even awful­ly care­less:

US News & World Report

Con­sumers Feel­ing Good Despite Trump’s ‘Bub­ble’ Belief

Con­sumer con­fi­dence and investor sen­ti­ment is high. But is Trump right about a dan­ger­ous bub­ble form­ing?

By Andrew Soergel | Econ­o­my Reporter Sept. 27, 2016, at 5:06 p.m.

Amer­i­can con­sumers haven’t felt as com­fort­able as they do now since before the Great Reces­sion. That in some ways does­n’t bode well for GOP nom­i­nee Don­ald Trump’s doom-and-gloom assess­ment of the econ­o­my, but it also could sup­port his claims that the coun­try is perched in a pre­car­i­ous bub­ble.

The Con­fer­ence Board­’s lat­est Con­sumer Con­fi­dence Index climbed in Sep­tem­ber to its high­est lev­el since 2007, as com­po­nents track­ing both present con­di­tions and future expec­ta­tions improved over the month.

“Con­sumers’ assess­ment of present-day con­di­tions improved, pri­mar­i­ly the result of a more pos­i­tive view of the labor mar­ket. Look­ing ahead, con­sumers are more upbeat about the short-term employ­ment out­look,” Lynn Fran­co, the board­’s direc­tor of eco­nom­ic indi­ca­tors, said in a state­ment accom­pa­ny­ing the report.

It’s no sur­prise Amer­i­cans are feel­ing com­fort­able with their employ­ment prospects. The domes­tic labor mar­ket has now gen­er­at­ed more than 14 mil­lion new posi­tions over 71 con­sec­u­tive months of expan­sion. The gov­ern­men­t’s most recent lay­off tal­ly dropped to a three-year low in July, and the unem­ploy­ment rate has hov­ered at 4.9 per­cent for three straight months.

By near­ly all indi­ca­tions, employ­ment in the U.S. is on sol­id foot­ing.

“If you showed up on the plan­et today and knew very lit­tle about today’s envi­ron­ment and had­n’t been liv­ing through it, you’d look at the U.S. and see 3 per­cent unem­ploy­ment rates in some cities,” says Andrew Cham­ber­lain, chief econ­o­mist at employ­ment hub Glass­door. “You’d see record num­bers of job open­ings. And you’d see a labor mar­ket that is work­ing remark­ably well, espe­cial­ly in light of how bad the last reces­sion was.”

And yet a major pres­i­den­tial can­di­date has made unem­ploy­ment and job loss a sta­ple of his cam­paign. Dur­ing his Mon­day night debate with Demo­c­ra­t­ic nom­i­nee Hillary Clin­ton at Hof­s­tra Uni­ver­si­ty, Trump ham­mered home the idea that Amer­i­ca’s labor mar­ket is hurt­ing because Chi­na and Mex­i­co have eat­en up man­u­fac­tur­ing jobs – jobs that are wide­ly believed to be gone for good.

“Our coun­try is suf­fer­ing because peo­ple like Sec­re­tary Clin­ton have made such bad deci­sions in terms of our jobs and in terms of what’s going on,” Trump said. “Look, we have the worst revival of an econ­o­my since the Great Depres­sion.”

To be sure, Amer­i­ca’s recov­ery from the Great Reces­sion – which was itself the coun­try’s sin­gle worst eco­nom­ic down­turn since the Great Depres­sion – has­n’t exact­ly been stel­lar. Yet while Trump is right that eco­nom­ic growth has been slug­gish of late, his diag­noses of what’s wrong with the labor mar­ket have been hit as off base.

He has repeat­ed­ly sug­gest­ed African-Amer­i­can youth unem­ploy­ment, for exam­ple, sits north of 50 per­cent, when actu­al gov­ern­ment sta­tis­tics sug­gest the rate is rough­ly half that. And he con­tin­ues to sug­gest he can bring back mil­lions of jobs, some of which have been ren­dered obso­lete by tech­no­log­i­cal inno­va­tion.

So despite recent labor mar­ket suc­cess­es, wide­spread wage gains, a con­tin­ued hous­ing recov­ery, low lay­off totals and pre-reces­sion­ary lev­els of con­sumer con­fi­dence, Trump reg­u­lar­ly dou­bles down on doom-and-gloom.

In that vein, he made an inter­est­ing point Mon­day night that’s sure to send eco­nom­ic doom­say­ers into a tizzy. Maybe cer­tain aspects of the econ­o­my and the mar­ket appear too strong right now, he implied. We’re in a bub­ble, he alleged, and pol­i­cy­mak­ing allies of Pres­i­dent Barack Oba­ma – Clin­ton includ­ed – have put us at risk of a burst.

“Believe me, we’re in a bub­ble right now. And the only thing that looks good is the stock mar­ket, but if you raise inter­est rates even a lit­tle bit, that’s going to come crash­ing down,” Trump said Mon­day. “We are in a big, fat, ugly bub­ble. And we bet­ter be awful­ly care­ful.”

Although it’s not exact­ly cor­rect to say that the “only thing that looks good is the stock mar­ket,” Trump’s right that the mar­ket has looked good late­ly: The Dow Jones indus­tri­al aver­age closed Tues­day up more than 130 points. That’s more than 2,220 points – 13.9 per­cent – high­er than where it sat a year ago. Stocks have climbed con­sid­er­ably over the last few years, and the mar­ket’s strength is undoubt­ed­ly one of the rea­sons con­sumer sen­ti­ment is so high.

The prob­lem with bub­bles, though, is that they’re hard to iden­ti­fy before they burst. But ana­lysts gen­er­al­ly don’t believe the coun­try is on the verge of a melt­down.

Nouriel Roubi­ni, an econ­o­mist and pro­fes­sor at New York Uni­ver­si­ty’s Stern School of Busi­ness – and a man who pre­dict­ed the hous­ing bub­ble of the mid-2000s and sub­se­quent finan­cial cri­sis – told CNBC last week that he does­n’t think “we are in a bub­ble right now,” but that “the price of many assets … look kind of expen­sive.”

“Across the board, I don’t see a bub­ble,” he said. “But I see cer­tain­ly some froth­i­ness.”

Trump blames what he sees as a “bub­ble” on polit­i­cal games being played by the U.S. Fed­er­al Reserve. He’s made this claim sev­er­al times before but dug in fur­ther Mon­day night, say­ing that stocks will “come crash­ing down” when the Fed rais­es inter­est rates even slight­ly.

“Crash­ing down” might be extreme, but there are actu­al mar­ket move­ments to back up Trump’s claims. Stocks have tend­ed to waver of late when Fed offi­cials deliv­er state­ments sug­gest­ing they’d sup­port a near-term inter­est rate hike, and mar­kets have climbed after cen­tral bankers passed on rais­ing their bench­mark inter­est rate at their peri­od­ic meet­ings in Wash­ing­ton.

Low inter­est rates are designed to help stim­u­late eco­nom­ic growth, and investors aren’t look­ing for­ward to see­ing the train­ing wheels come off com­plete­ly. But what Trump is alleg­ing is that Fed Chair Janet Yellen and her col­leagues are keep­ing rates low to secure Oba­ma’s eco­nom­ic lega­cy. The GOP nom­i­nee believes stocks will plum­met when the next pres­i­dent moves into the White House.

Yellen and a hand­ful of her col­leagues, for their part, have repeat­ed­ly indi­cat­ed their eco­nom­ic delib­er­a­tions are con­duct­ed inde­pen­dent­ly of polit­i­cal pres­sures. It’s also worth not­ing that Trump has seemed to con­tra­dict his own argu­ment by say­ing the Fed should have raised rates already. If the econ­o­my is as bad as Trump says it is, rates the­o­ret­i­cal­ly should be as low as pos­si­ble to boost growth. Trump thinks rates should be high­er, as do many oth­er ana­lysts, but that desire typ­i­cal­ly is based on the assump­tion that the econ­o­my is strong enough to han­dle high­er rates.

Still, if the Fed rais­es inter­est rates in Decem­ber as expect­ed and Trump emerges vic­to­ri­ous on Elec­tion Day, the stock mar­ket could come crash­ing down – though not for the rea­sons Trump believes.

“Should Trump win, there is like­ly to be an imme­di­ate neg­a­tive shock in the finan­cial mar­kets due to increased lev­els of uncer­tain­ty and a shak­ing up of the sta­tus quo,” Nigel Green, founder and CEO of finan­cial con­sul­tan­cy the deVere Group, wrote in a research note Tues­day. “Should Clin­ton win, the finan­cial mar­kets are like­ly to imme­di­ate­ly bounce as they breathe a col­lec­tive sigh of relief – they high­ly val­ue the con­ti­nu­ity she rep­re­sents.”

...

So even though con­sumers feel pret­ty good about cur­rent con­di­tions, the labor mar­ket is in good shape and stocks con­tin­ue to exhib­it strength, ana­lysts will be keep­ing a keen eye on any bub­ble-like devel­op­ments.

And should Trump win in Novem­ber, his Wall Street dooms­day prophe­cies could become self-ful­fill­ing.

“Low inter­est rates are designed to help stim­u­late eco­nom­ic growth, and investors aren’t look­ing for­ward to see­ing the train­ing wheels come off com­plete­ly. But what Trump is alleg­ing is that Fed Chair Janet Yellen and her col­leagues are keep­ing rates low to secure Oba­ma’s eco­nom­ic lega­cy. The GOP nom­i­nee believes stocks will plum­met when the next pres­i­dent moves into the White House.”

That’s right, Trump’s mes­sage to the Amer­i­can pub­lic isn’t sim­ply that Janet Yellen and the Fed board of gov­er­nors are in a con­spir­a­cy to uphold the stock mar­ket to secure Pres­i­dent Oba­ma’s lega­cy. He’s extend­ing that asser­tion to include the pre­dic­tion that the stock mar­ket is poised to crash with just the slight­est hike in rates and that this is going to hap­pen soon, regard­less of who wins the elec­tion:

...
Believe me, we’re in a bub­ble right now. And the only thing that looks good is the stock mar­ket, but if you raise inter­est rates even a lit­tle bit, that’s going to come crash­ing down,” Trump said Mon­day. “We are in a big, fat, ugly bub­ble. And we bet­ter be awful­ly care­ful.”
...

Now, it is true that stock mar­kets do tend to got down with cen­tral bank rate hikes, which is why you gen­er­al­ly don’t want to hike rates before the econ­o­my is improv­ing. But it appears that Trump is telling the Amer­i­can pub­lic that we are just months away from a major, unavoid­able stock mar­ket crash. And there’s noth­ing we can do. If pun­dits and oth­er com­men­ta­tors want to pub­licly pre­dict that out­come there’s noth­ing wrong with that. But here we have the GOP nom­i­nee who has made the pre­dic­tion of an inevitable major stock mar­ket col­lapse, soon, one of his major cam­paign themes. That’s prob­a­bly not going to do great things for con­sumer con­fi­dence.

As we can see, while the US econ­o­my is indeed con­tin­u­ing to face chal­lenges, includ­ing the major chal­lenges asso­ci­at­ed with care­ful­ly extri­cat­ing our­selves out a ultra-low-inter­est envi­ron­ment with­out mak­ing things worse, the biggest bub­ble threat­en­ing the US econ­o­my today isn’t exact­ly finan­cial in nature.

Now that Don­ald Trump has declared war on the Fed­er­al Reserve and Janet Yellen in par­tic­u­lar (although he was actu­al­ly declar­ing war on the entire Fed but does­n’t seem to real­ize that), one of the unpleas­ant ques­tions we have to ask is whether or not Trump actu­al­ly try­ing to cre­ate an eco­nom­ic cri­sis by freak­ing out the mar­kets in advance of the elec­tion. After all, giv­en that Trump is basi­cal­ly pledg­ing to some­how force the Fed to raise inter­est rates and tank the stock mar­kets, the clos­er he gets tying or lead­ing in the polls the like­li­er it is that we’re going to see a Trump pres­i­den­cy and some sort of major eco­nom­ic cri­sis. We’ve long known that he was plan­ning on caus­ing a fis­cal cri­sis giv­en his bud­get and tax schemes. But now that he’s declared war on the Fed and low inter­est rates and is assur­ing the pub­lic that the mar­kets are going to crash the moment Oba­ma leaves office, it’s also very clear to mar­kets that a Trump pres­i­den­cy is going to cre­ate a mon­e­tary cri­sis too.

Mar­kets notice things like that. And Trump sure knows mar­kets know that. So is Trump try­ing to make sure the mar­kets are going to get increas­ing­ly freaked out in the hope of trig­ger­ing a big sell off that he can use to sour the elec­torate’s mood on the econ­o­my? Or maybe he’s just being chaot­i­cal­ly reck­less and there’s no real method to the mad­ness? Who knows. But as this Baron’s inter­view makes clear, when Trump trash talks the Fed and econ­o­my simul­ta­ne­ous­ly and assures vot­ers that a big crash is just around the cor­ner (but his mag­i­cal sup­ply-side uni­corn econ­o­my plan will fix it all so don’t wor­ry) the finan­cial sec­tor is lis­ten­ing too:

Baron’s

What A Trump Pres­i­den­cy Could Mean for Janet Yellen

By Amey Stone
Sep­tem­ber 28, 2016, 9:35 A.M. ET

Post debate analy­sis among bond strate­gists is cen­ter­ing on the ques­tion of what Fed Chair Janet Yellen will do if Don­ald Trump is elect­ed pres­i­dent. Trump trashed Fed pol­i­cy in Mon­day night’s spec­ta­cle (you can see a video of his com­ments here).

For the bond mar­ket, polit­i­cal med­dling in mon­e­tary pol­i­cy is trou­bling, to put it mild­ly.

RBS strate­gists have been field­ing ques­tions from clients about what a Trump pres­i­den­cy could mean for the Fed. There are two main ques­tions strate­gist Blake Gwinn answers Wednes­day:

Ques­tion No. 1: Would Trump try to push out Yellen?

Answer: Cer­tain­ly seems like­ly.

Gwinn adds:

How­ev­er, Yellen’s term as Chair doesn’t end until Feb­ru­ary of 2018, while her Board term doesn’t expire until Jan­u­ary 2024, although it would be high­ly unusu­al for her to keep serv­ing on the Board after her Chair term ends.

Ques­tion No. 2: If Trump starts active­ly push­ing her out, would she go?

Answer: Maybe, but she would prob­a­bly stay until the end of her term.

Gwinn explains:

This ques­tion is much more dif­fi­cult. On the one hand, Yellen might want to avoid drag­ging the Fed into the crosshairs of the new admin­is­tra­tion or at least feel that the Fed/economy would be bet­ter served by allow­ing the new Pres­i­dent to speed up the time frame for choos­ing her replace­ment. On the oth­er, Yellen may see stay­ing until the end of her term as a state­ment about Fed inde­pen­dence. She might see not step­ping down as send­ing a clear mes­sage that the Fed is not anoth­er branch of the admin­is­tra­tion. There is also an argu­ment to be made for main­tain­ing some con­ti­nu­ity in Fed lead­er­ship dur­ing a peri­od of tran­si­tion for both mon­e­tary pol­i­cy, as the Fed (the­o­ret­i­cal­ly) con­tin­ues on the path to nor­mal­iz­ing rates, and gov­ern­ment, as a Trump win would like­ly bring about some sig­nif­i­cant changes at Trea­sury, as well as some like­ly changes in fis­cal pol­i­cy.

I would expect her to take the sec­ond option, and stay until the end of her term. Nev­er for­get, Yellen is old-school Brook­lyn. I think she may stay around for no oth­er rea­son than to send a clear mes­sage that the Fed won’t be pushed around by the polit­i­cal process.

Gwinn makes one addi­tion­al point on Trump and the addi­tion­al Fed board seats that would open up:

It’s worth remem­ber­ing that there are still 2 open seats on the Fed Board that Trump could poten­tial­ly fill if he is elect­ed. So even if Yellen didn’t resign, he could the­o­ret­i­cal­ly start stack­ing the deck with FOMC mem­bers more in-line with his point of view from day 1. Who those nom­i­nees would be, for either those FOMC seats or Yellen’s replace­ment, are anyone’s guess but I would assume that he would lean more towards the business/MBA side than the academic/PhD side and prob­a­bly lean more hawk­ish than dovish. Over­all, I could see this adding a hawk­ish ele­ment to any Trump on/off trade as we con­tin­ue to ride the poller-coast­er into Novem­ber.

“I would expect her to take the sec­ond option, and stay until the end of her term. Nev­er for­get, Yellen is old-school Brook­lyn. I think she may stay around for no oth­er rea­son than to send a clear mes­sage that the Fed won’t be pushed around by the polit­i­cal process.”

It sure sounds like the fight Trump picked with the Fed is a fight he might actu­al­ly get if he wins. A fight that could rever­ber­ate across the glob­al econ­o­my, poten­tial­ly for years. Attack­ing Yellen as being part of some sort of Oba­ma cabal that’s going to let the econ­o­my tank as soon as Oba­ma leaves office (appar­ent­ly even if Hillary wins they’ll let it tank) isn’t exact­ly the kind of cam­paign theme that’s going to reas­sure mar­kets but that’s we he said. That’s lit­er­al­ly what he explic­it­ly said dur­ing the debate.

So if Trump wins, the glob­al mar­kets are poised to get a very sud­den and weird­ly unpleas­ant shock: Trump either bul­lies the Fed into doing his bid­ding and inter­est rates get hiked or he spends his first year in office in open oppo­si­tion to the Fed wait­ing for Yel­len’s term to end while he com­plains about the Fed not jack­ing up inter­est rates when infla­tion is still near zero. That’s new.

Adding to the cer­tain uncer­tain­ty that a Trump pres­i­den­cy brings, we still don’t real­ly know who he would appoint to the Fed Board.

...

It’s worth remem­ber­ing that there are still 2 open seats on the Fed Board that Trump could poten­tial­ly fill if he is elect­ed. So even if Yellen didn’t resign, he could the­o­ret­i­cal­ly start stack­ing the deck with FOMC mem­bers more in-line with his point of view from day 1. Who those nom­i­nees would be, for either those FOMC seats or Yellen’s replace­ment, are anyone’s guess but I would assume that he would lean more towards the business/MBA side than the academic/PhD side and prob­a­bly lean more hawk­ish than dovish. Over­all, I could see this adding a hawk­ish ele­ment to any Trump on/off trade as we con­tin­ue to ride the poller-coast­er into Novem­ber.

...

Con­sid­er­ing there are two Board seats open, and con­sid­er­ing he’s made his Yel­len/Oba­ma/the-econ­o­my-is-about-to-crash Fed con­spir­a­cy a major cam­paign theme, should­n’t we be ask­ing him about who he’s plan­ning on fill­ing those two seats? We know they’ll be hawks. But what kind? The more tra­di­tion­al right-wing hawk crank or a full-blown Alt-Right end-the-Fed gold-bug? It’s an espe­cial­ly impor­tant ques­tion to be ask­ing at this point after one of Trump’s eco­nom­ic advi­sors, Judy Shel­ton, just wrote a piece for the Finan­cial Times that pre­dicts bring­ing back the gold stan­dard will be on the Trumpian agen­da (and that cen­tral banks should­n’t be manip­u­lat­ing inter­est rates at all because that’s a form of cur­ren­cy manip­u­la­tion):

Finan­cial Times

Trump is right to take aim at the ‘polit­i­cal’ Fed

He actu­al­ly under­stands how inter­est rates affect invest­ment calls, writes Judy Shel­ton

by: Judy Shel­ton

Sep­tem­ber 28, 2016

Don­ald Trump has bro­ken a car­di­nal rule in US pres­i­den­tial cam­paign­ing by open­ly ques­tion­ing the effec­tive­ness of the Fed­er­al Reserve. He believes that the low inter­est rate regime engi­neered by America’s cen­tral bank has not stim­u­lat­ed real growth but has rather cre­at­ed a “false econ­o­my” that could lead to the next glob­al finan­cial melt­down. More­over, he ques­tions the motives of Fed offi­cials. “The Fed is being more polit­i­cal than Sec­re­tary Clin­ton,” he said in Mon­day night’s pres­i­den­tial debate.

To sug­gest that the imple­men­ta­tion of mon­e­tary pol­i­cy could be influ­enced by polit­i­cal con­sid­er­a­tions is to pull back the cur­tain on an insti­tu­tion with vast dis­cre­tionary pow­ers. “We do not dis­cuss pol­i­tics at our meet­ings,” Fed chair Janet Yellen stat­ed after its lat­est opt-out on rais­ing rates.

Not explic­it­ly, per­haps. But the cen­tral bank can hard­ly be exempt­ed from the ram­i­fi­ca­tions of its pow­er­ful role in dis­trib­ut­ing eco­nom­ic rewards. The Fed has adopt­ed mon­e­tary pol­i­cy deci­sions that chan­nel low-cost fund­ing to wealthy investors and cor­po­rate bor­row­ers at the expense of peo­ple with ordi­nary bank sav­ings accounts and retirees on fixed-income pen­sions. That is not only inher­ent­ly polit­i­cal — it is anti­thet­i­cal to the Amer­i­can prin­ci­ple of treat­ing all cit­i­zens equal­ly.

...

Amer­i­can eco­nom­ic revival is the crux of the Trump pro-growth agen­da. And while his eco­nom­ic plan encom­pass­es tax reform and a roll­back of exces­sive reg­u­la­tions, Mr Trump also recog­nis­es the impor­tance of a depend­able, sta­ble mon­e­tary foun­da­tion to fos­ter eco­nom­ic growth for the whole of soci­ety, rather than mere­ly lin­ing the pock­ets of finan­cial mar­ket spec­u­la­tors.

This posi­tion is in keep­ing with his long-expressed dis­ap­proval of coun­tries that manip­u­late their cur­ren­cies to gain a trade advan­tage. He sees it as a vio­la­tion of free-trade prin­ci­ples, a dis­tor­tion that rewards one set of indi­vid­u­als at the expense of oth­ers. How can gen­uine free-mar­ket com­pe­ti­tion flour­ish when for­eign gov­ern­ments can tilt the play­ing field in favour of their own indus­tries? It is time to acknowl­edge, too, that cen­tral banks are the biggest cul­prits when it comes to mov­ing exchange rates.

What can we expect in the event of a Trump vic­to­ry in Novem­ber? Any­one who thinks that the candidate’s crit­i­cisms of the Fed are meant to spur a rise in inter­est rates is miss­ing the point: we have arrived at a point where con­jec­ture over when the cen­tral bank will increase its key inter­est rate by a mere one-quar­ter of 1 per cent car­ries the threat of ignit­ing the world’s next finan­cial cri­sis.

Clear­ly, this is no way for the US to run mon­e­tary pol­i­cy. The minu­ti­ae of mon­e­tary pol­i­cy have seem­ing­ly become more impor­tant than the full­ness of fis­cal pol­i­cy in forg­ing the path to sal­va­tion for our low-growth, low-pro­duc­tiv­i­ty econ­o­my — crowd­ing out the pil­lars of sub­stan­tive reform and under­cut­ting the poten­tial for fun­da­men­tal renew­al aimed at mak­ing Amer­i­ca great again. Mr Trump’s bold plan for increas­ing jobs, wages, incomes and oppor­tu­ni­ties depends on fix­ing what is bro­ken. He believes peo­ple flour­ish under a min­i­mum gov­ern­ment bur­den and warns that the Fed’s eco­nom­ic med­dling is doing more harm than good.

Some­thing has clear­ly gone wrong with the Fed’s mod­el; even when its own met­rics have been attained, we are left to guess what hap­pens next. No won­der its motives have like­wise been called into ques­tion. By focus­ing on the Fed, Mr Trump rais­es the impor­tance of restor­ing mon­e­tary integri­ty. The dol­lar should be the world’s most trust­wor­thy cur­ren­cy.

Can the pur­suit of sound mon­ey at home be rec­on­ciled with the notion of Amer­i­can eco­nom­ic lead­er­ship on the world stage? Mike Pence, Mr Trump’s run­ning mate, has called for a rethink­ing of the inter­na­tion­al cur­ren­cy sys­tem — even propos­ing that per­haps the time has come to have a debate over gold and the prop­er role it should play in mon­e­tary affairs.

Mr Trump has not pub­licly embraced any such idea, although he has mused: “Bring­ing back the gold stan­dard would be very hard to do, but boy, would it be won­der­ful.” No one antic­i­pates that a Bret­ton Woods-style con­fer­ence will soon take place at Mar-a-Lago, the exclu­sive Trump resort in Flori­da. Still, as Mr Trump often urges: it is time to start think­ing big once again.

The writer is a mem­ber of the Trump eco­nom­ic advi­so­ry coun­cil

“This posi­tion is in keep­ing with his long-expressed dis­ap­proval of coun­tries that manip­u­late their cur­ren­cies to gain a trade advan­tage. He sees it as a vio­la­tion of free-trade prin­ci­ples, a dis­tor­tion that rewards one set of indi­vid­u­als at the expense of oth­ers. How can gen­uine free-mar­ket com­pe­ti­tion flour­ish when for­eign gov­ern­ments can tilt the play­ing field in favour of their own indus­tries? It is time to acknowl­edge, too, that cen­tral banks are the biggest cul­prits when it comes to mov­ing exchange rates.”

That’s right, Trump’s eco­nom­ic advi­sor, Judy Shel­ton, just told us that cen­tral banks are the biggest cul­prits of cur­ren­cy manip­u­la­tion. So it would appear that in Trump’s view cen­tral banks should­n’t actu­al­ly ever change inter­est rates because that would be a form of cur­ren­cy manip­u­la­tion. Could that real­ly be what Shel­ton is imply­ing? Well, that would indeed appear to be what she’s imply­ing. Espe­cial­ly con­sid­er­ing that she end­ed the piece with talk­ing about how Trump and Mike Pence are both fans of the gold stan­dard and real­ly would­n’t mind a dis­cus­sion about return­ing to that:

...

Can the pur­suit of sound mon­ey at home be rec­on­ciled with the notion of Amer­i­can eco­nom­ic lead­er­ship on the world stage? Mike Pence, Mr Trump’s run­ning mate, has called for a rethink­ing of the inter­na­tion­al cur­ren­cy sys­tem — even propos­ing that per­haps the time has come to have a debate over gold and the prop­er role it should play in mon­e­tary affairs.

Mr Trump has not pub­licly embraced any such idea, although he has mused: “Bring­ing back the gold stan­dard would be very hard to do, but boy, would it be won­der­ful.” No one antic­i­pates that a Bret­ton Woods-style con­fer­ence will soon take place at Mar-a-Lago, the exclu­sive Trump resort in Flori­da. Still, as Mr Trump often urges: it is time to start think­ing big once again.

Yes, it is time to start think­ing big once again. Like how bithe finan­cial cri­sis will be under a Trump pres­i­den­cy once he starts talk­ing about “rethink­ing of the inter­na­tion­al cur­ren­cy sys­tem” and trots out Mike Pence and folks like Judy Shel­ton to fill in the details. And with Trump in strik­ing dis­tance of tak­ing the White House, the time to think big (big cri­sis) isn’t after the elec­tion. The time is now. Espe­cial­ly for the mar­kets. The mar­kets that will get increas­ing­ly jit­tery at the prospect of a Trump pres­i­den­cy and there­fore increas­ing­ly pro-Trump since jit­tery mar­kets are bound to help Trump at the polls. Is that inten­tion­al or just Trump being Trump? Or rather, Trump being Pence?

It’s also worth keep­ing in mind that since Trump appears simul­ta­ne­ous­ly ques­tion the Fed’s inde­pen­dence and attempt­ing to bul­ly it into hik­ing rates, as appeal­ing as end­ing Fed inde­pen­dence might sound a lot of peo­ple, it’s not as if there isn’t a branch of gov­ern­ment that has poten­tial­ly far more pow­er than the Fed­er­al Reserve to manip­u­late the econ­o­my and is, at least in the­o­ry, direct­ly account­able to the pub­lic: Con­gress. Con­gress con­trols spend­ing. And Con­gress can, and should, spend a lot in an low-inter­est envi­ron­ment fol­low­ing the kind of finan­cial cri­sis that hap­pened in 2008. Instead the GOP forced the spend­ing sequester as the com­pro­mise to much larg­er cuts they were demand­ing. And Trump is promis­ing to cut spend­ing even more to close the giant bud­get gap his tax cuts for the rich will cre­ate. So the fis­cal pol­i­cy and over­all pub­lic invest­ments that Con­gress should have been leg­is­lat­ing in the wake of the 2008 finan­cial cri­sis, the largest finan­cial cri­sis since the Great Depres­sion, have had no prospect of hap­pen­ing and will con­tin­ue to have no prospect of hap­pen­ing as long as the GOP is in con­trol of the exec­u­tive or leg­isla­tive branch­es of gov­ern­ment. But that does­n’t mean Con­gress could­n’t be stim­u­lat­ing the econ­o­my like it should. It just choos­es not to. Maybe the vot­ers could uti­lize their col­lec­tive vot­er inde­pen­dence to do some­thing about that. Maybe.

Now that the 2005 ‘hot mic’ footage of Don­ald Trump brag­ging about how he can use his fame to sex­u­al­ly assault women has appar­ent­ly final­ly cre­at­ed the kind of con­tro­ver­sy that will lead his fel­low GOP­ers to call for him to drop of the race, it’s prob­a­bly worth remind­ing our­selves that Trump’s run­ning mate, Mike Pence, is a misog­y­nist’s dream politi­cian based on how his poli­cies cal­lous­ly harm women. So while Trump’s pol­i­cy pro­pos­als can be seen as a metaphor­i­cal assault on the almost every­one who isn’t wealthy, it’s pret­ty clear that women in gen­er­al will be one of the groups threat­ened and dis­re­spect­ed by a Trump pres­i­den­cy, espe­cial­ly when it comes to repro­duc­tive health poli­cies.

So with that in mind, and with the fact that about 25 per­cent of US house­holds are head­ed by sin­gle-moth­ers (and 6 per­cent by sin­gle-fathers) in mind, check out which group of Amer­i­cans is prob­a­bly going to see their tax­es rise under Don­ald Trump’s bud­get-bust­ing tax cut plans:

Medi­um
CAP Action

Trump’s Tax Plan Rais­es Tax­es on Sin­gle Par­ents. His Campaign’s Exam­ples Prove It.

By: Har­ry Stein
Sep 26, 2016

Don­ald Trump seems to have a grudge against sin­gle par­ents. His mater­ni­ty leave pro­pos­al might exclude some sin­gle moth­ers. And a new study by New York Uni­ver­si­ty Law Pro­fes­sor Lily Batchelder found that Trump would raise tax­es on at least 7.8 mil­lion fam­i­lies, includ­ing the major­i­ty of sin­gle par­ents.

Per­haps this is why Trump uses exam­ples with mar­ried cou­ples when dis­cussing his tax plan. Even Trump’s exam­ple fam­i­lies would pay high­er tax­es under Trump’s plan, if those fam­i­lies were head­ed by a sin­gle par­ent instead of a mar­ried cou­ple. These tax increas­es are larg­er than the tax cuts received by the mar­ried cou­ples in Trump’s exam­ples.

Com­par­ing Trump’s tax plan to the cur­rent tax sys­tem, Trump rais­es tax­es on sin­gle par­ents in three ways: elim­i­nat­ing the head of house­hold fil­ing sta­tus, elim­i­nat­ing per­son­al exemp­tions, and rais­ing the tax rate in the low­est tax brack­et from 10 per­cent to 12 per­cent.

To illus­trate how his tax plan would work, Trump uses two exam­ple fam­i­lies, both of which are head­ed by mar­ried cou­ples with two chil­dren. One of these fam­i­lies makes $50,000 per year and has $8,000 in child care expens­es. The oth­er fam­i­ly makes $75,000 per year and has $10,000 in child care expens­es. The fam­i­ly mak­ing $50,000 would get a tax cut of $93, and the fam­i­ly mak­ing $75,000 would get a tax cut of $1,083.

If Trump gets his way, the wealth­i­est Amer­i­cans would see much larg­er tax cuts, accord­ing to an analy­sis by the con­ser­v­a­tive Tax Foun­da­tion. At the same time, Trump’s tax plan would make huge spend­ing cuts to afford­able hous­ing, edu­ca­tion, and even health care for vet­er­ans.

Yet even with such a large over­all tax cut that would under­mine health care, retire­ment secu­ri­ty, and oth­er mid­dle-class pro­grams, Trump would still raise tax­es on most sin­gle par­ents. A sin­gle par­ent with a $50,000 income, two chil­dren, and $8,000 in child care expenses?—?the same as Trump’s exam­ple but with a sin­gle parent?—?would get a $340 tax increase. If their income was $75,000 and their child care expens­es were $10,000, Trump would raise their tax­es by $1,140.

The Trump cam­paign claims that Batchelder’s study is “invalid,” because it does not include the pos­si­bil­i­ty that fam­i­lies will receive a $500 match­ing con­tri­bu­tion from the fed­er­al gov­ern­ment for using Trump’s pro­posed Depen­dent Care Sav­ings Accounts. How­ev­er, Trump’s own num­bers using the sam­ple fam­i­lies exam­ined here also did not include any gov­ern­ment match from these accounts.

The Tax Foun­da­tion also did not include Depen­dent Care Sav­ings Accounts in its analy­sis of Trump’s tax plan, but instead of call­ing this analy­sis invalid, the Trump cam­paign tout­ed the Tax Foundation’s findings?—?even after crit­i­ciz­ing the Batchelder study. If the Tax Foun­da­tion had includ­ed this pro­vi­sion in its analy­sis, it would have fur­ther increased the already mas­sive cost of Trump’s tax plan. The Trump cam­paign says that the gov­ern­ment match­ing con­tri­bu­tion is for “low-income fam­i­lies,” but has not made clear whether a fam­i­ly income of $50,000 or $75,000 qual­i­fies as low-income. Even if the sin­gle par­ent with a $75,000 income received a $500 match for both chil­dren, Trump’s plan would still raise their tax­es by $140.

The Trump cam­paign now says that Trump would tell Con­gress not to raise tax­es on any low- and mid­dle-income Amer­i­cans — even though his own tax plan says oth­er­wise. In oth­er words, Trump is say­ing “believe me” to some of the same work­ing fam­i­lies that have already been vic­tim­ized by Trump’s scams and bro­ken promis­es.

...

“Yet even with such a large over­all tax cut that would under­mine health care, retire­ment secu­ri­ty, and oth­er mid­dle-class pro­grams, Trump would still raise tax­es on most sin­gle par­ents. A sin­gle par­ent with a $50,000 income, two chil­dren, and $8,000 in child care expenses?—?the same as Trump’s exam­ple but with a sin­gle parent?—?would get a $340 tax increase. If their income was $75,000 and their child care expens­es were $10,000, Trump would raise their tax­es by $1,140.”

That’s right, despite the tril­lions of dol­lars Trump’s tax cut would add to the debt, some­how a major­i­ty of sin­gle par­ents, a demo­graph­ic that is over­whelm­ing­ly sin­gle moth­ers, would get a tax hike. Fun­ny how that works.

Also note that when Trump responds to these crit­i­cism by say­ing that he’ll tell Con­gress not to raise tax­es on any low- and mid­dle-income Amer­i­cans, the Pres­i­dent does­n’t actu­al­ly get to tell Con­gress what to do. And the GOP-con­trolled Con­gress might have its own tax and spend­ing plans:

Politi­co

Ryan on Trump’s tax plans: ‘Con­gress writes these laws’

By Kyle Cheney

09/25/16 11:16 AM EDT

Pre­sent­ed with a series of Don­ald Trump’s poli­cies that con­flict with his own pol­i­cy vision, House Speak­er Paul Ryan had a mes­sage: “Con­gress writes these laws.”

“Con­gress is the one that writes these laws and puts them on the president’s desk,” the Wis­con­sin Repub­li­can said Sun­day on CBS’ “Face the Nation.”

Pressed by host John Dick­er­son about Trump’s plans for a mater­ni­ty leave enti­tle­ment and insis­tence on pro­tect­ing enti­tle­ments from cuts, Ryan said, “We have some­one that is going to work with us at putting these reforms in place.”

“They should pay atten­tion to both of us … we are offer­ing a uni­fied front of solu­tions,” Ryan said.

““They should pay atten­tion to both of us … we are offer­ing a uni­fied front of solu­tions,” Ryan said.”

Yes, when House Speak­er Paul Ryan is asked about Don­ald Trump’s plans that don’t fall under tra­di­tion­al GOP ‘starve the needy’ ortho­doxy like Trump’s pro­posed mater­ni­ty leave plan or his pledge to not cut enti­tles like social secu­ri­ty, Ryan’s response is ‘hey, I’ve got plans too! Talk to both of us!’. Ryan prob­a­bly isn’t actu­al­ly con­cerned about Trump refus­ing to cut enti­tle­ments since Trump report­ed­ly told Ryan he agrees they need to be cut but can’t get elect­ed if he admits it, but his fake protes­ta­tions are still a sign of what’s to come if Trump or a any oth­er GOP­er that steps in to replace Trump actu­al­ly wins. And since Paul Ryan’s plans basi­cal­ly nev­er change, even after the Romney/Ryan tick­et lost in 2012, all signs point towards the Ryan Bud­get plan. A bud­get plan seem­ing­ly designed to harm women:

The Nation

What Paul Ryan’s Bud­get Means for Women
Short ver­sion: a huge reduc­tion in many of the pro­grams they rely on.

By Bryce Covert
March 12, 2013

The lat­est iter­a­tion of Paul Ryan’s bud­get is out today, and while you might expect it to look very dif­fer­ent than the one pro­posed before he was part of a los­ing pres­i­den­tial tick­et, he seems to have dug in his heels on some of his most extreme pro­pos­als, like block grant­i­ng vital pro­grams, voucher­iz­ing Medicare and dras­ti­cal­ly slash­ing spend­ing. As with the first rounds of Ryan bud­get­ing, this one would be bad for near­ly every­one (except per­haps the wealthy), but it would espe­cial­ly take an enor­mous toll on the country’s women.

Med­ic­aid

Women depend heav­i­ly on Med­ic­aid. They make up 70 per­cent of its ben­e­fi­cia­ries, which means 19 mil­lion low-income women have access to health care.

Last time around, Paul Ryan want­ed to block grant Med­ic­aid. This time is no dif­fer­ent. In its cur­rent form, Med­ic­aid is a pro­gram in which states and the fed­er­al gov­ern­ment joint­ly finance health care for low-income peo­ple. Because the fed­er­al gov­ern­ment shares the cost with states, it also requires them to adhere to some guide­lines on ben­e­fits and eli­gi­bil­i­ty. In a block grant sys­tem, how­ev­er, the fed­er­al gov­ern­ment sends a lump of cash off to the states with no strings attached. Even if actu­al spend­ing on the pro­gram isn’t reduced (which, giv­en the huge cuts to gov­ern­ment spend­ing includ­ed in this pro­gram, those who are wonki­er than I may find it will be), sim­ply chang­ing the struc­ture of the pro­gram this way is a very bad plan.

We’ve tried this exper­i­ment before: we block grant­ed wel­fare, now called TANF, and it’s done a ter­ri­ble job of help­ing low-income Amer­i­cans, par­tic­u­lar­ly as demand sky­rock­et­ed dur­ing the reces­sion. In 2010, only twen­ty-sev­en of every hun­dred fam­i­lies liv­ing in pover­ty received TANF ben­e­fits. Some states could decide to increase ben­e­fits and eli­gi­bil­i­ty, but giv­en the tight bud­get con­straints they face it’s much more like­ly that peo­ple will be dropped. In fact, some­where between 14 mil­lion and 27 mil­lion could lose Med­ic­aid cov­er­age by 2021 under a block grant sys­tem. That will have a huge impact on the women who rely on it.

But the pic­ture gets even worse when you con­sid­er what else he wants to do.

Oba­macare

Ryan also promis­es to repeal the Afford­able Care Act. While he doesn’t want to repeal cuts to Medicare spend­ing includ­ed in the act, he does promise to repeal the ben­e­fits, per­haps the biggest of which is the Med­ic­aid expan­sion. Women would reap huge ben­e­fits from the expan­sion of Med­ic­aid, giv­en that 13.5 mil­lion were expect­ed to get health cov­er­age that way by 2016.

Oth­er pro­vi­sions that women have been ben­e­fit­ting from in the ACA: the end to gen­der rat­ing, which was cost­ing women an extra $1 bil­lion a year; access to pre­ven­tive care with­out a co-pay, net­ting a woman around $11,000 now that she doesn’t have to pay a co-pay for con­tra­cep­tion, among oth­er things; get­ting rid of “pre-exist­ing con­di­tions” like preg­nan­cy and domes­tic vio­lence; and many oth­er great ben­e­fits. All out the win­dow if Ryan gets his way.

Medicare

As with Med­ic­aid, the major­i­ty of Medicare ben­e­fi­cia­ries are women. Women live longer than men, but they also are far more like­ly to live in pover­ty in their old age, with twice as many women over age 65 in pover­ty com­pared to men.

Ryan still wants to voucher­ize Medicare, even though the elec­toral trounc­ing he and Rom­ney took last year seemed at least in part a rejec­tion of mess­ing with this pro­gram. Cur­rent­ly, tax­pay­ers are on the hook for any increase in health­care costs or pre­mi­ums that are high­er than expect­ed. But with the vouch­er pro­gram, seniors get a coupon of sorts to buy insur­ance cov­er­age—in its cur­rent form, Ryan’s bud­get allows for them to buy pri­vate insur­ance or Medicare insurance—and will have to make up the dif­fer­ence if the coupon doesn’t go far enough. Mean­while, Medicare cur­rent­ly guar­an­tees what ser­vices will be cov­ered, but in Ryan’s pro­gram seniors will be respon­si­ble for deter­min­ing what ser­vices they need depend­ing on which insur­ers they pick. That’s a pret­ty dif­fi­cult job in such an opaque mar­ket.

On top of this, last time around the coupons increased so slow­ly that spend­ing on the aver­age 67-year-old would have dropped by 35 to 42 per­cent by 2050. Elder­ly women would see less and less sup­port for buy­ing the insur­ance they need.

Food stamps

Women rely on food stamps to feed them­selves and their fam­i­lies. They are more than 60 per­cent of adult SNAP (the food stamp pro­gram) recip­i­ents and over 65 per­cent of elder­ly recip­i­ents. More than half of the house­holds that rely on SNAP ben­e­fits are head­ed by a sin­gle adult, near­ly all women.

Ryan’s plan would block grant SNAP the same as Med­ic­aid. Cur­rent­ly, eli­gi­bil­i­ty for the pro­gram has few restric­tions, allow­ing it to serve a wide swath of needy peo­ple—47 mil­lion par­tic­i­pants. On top of this, it’s extreme­ly flex­i­ble, allow­ing it to be one of the most effec­tive cush­ions for the ris­ing mis­ery dur­ing the reces­sion. That would all change under a block grant. Eli­gi­bil­i­ty would vary by state. Mean­while, while SNAP reach­es 75 per­cent of those who are eli­gi­ble, we can look at the low rates of TANF par­tic­i­pa­tion to see what would hap­pen if it were block grant­ed.

Dis­cre­tionary spend­ing

Ryan’s tax reforms would lead to the fed­er­al gov­ern­ment los­ing out on $7 tril­lion in rev­enue, most­ly with tax breaks aimed at the rich and cor­po­ra­tions. But at the same time, he promis­es to bal­ance the bud­get in ten years. To get there, he’ll cut spend­ing by $5.7 tril­lion com­pared to the cur­rent base­line (which, lets remem­ber, is already so low that it’s cut­ting into vital pro­grams). These cuts won’t fall even­ly on defense and non-defense spending—he actu­al­ly increas­es defense spend­ing com­pared to cur­rent law by $500 bil­lion over the same time peri­od.

...

There are like­ly lots of oth­er ways this bud­get will harm women—we’ll find out as bud­get wonks con­tin­ue to ana­lyze it. But it’s clear either way that Paul Ryan took his defeat and decid­ed to dou­ble down on the poli­cies he set forth. Women vot­ers round­ly reject­ed him and his run­ning mate in 2012. This bud­get does noth­ing to address their needs and works against the most vul­ner­a­ble among them.

“There are like­ly lots of oth­er ways this bud­get will harm women—we’ll find out as bud­get wonks con­tin­ue to ana­lyze it. But it’s clear either way that Paul Ryan took his defeat and decid­ed to dou­ble down on the poli­cies he set forth. Women vot­ers round­ly reject­ed him and his run­ning mate in 2012. This bud­get does noth­ing to address their needs and works against the most vul­ner­a­ble among them.”

That was the Ryan Bud­get in 2013, back before he was Speak­er of the House and mere­ly the GOP­er on the House Bud­get Com­mit­tee who got to take the lead in design­ing the GOP’s dooms­day bud­get. it was also right after the Romney/Ryan tick­et went down in flames in part due to a pub­lic rejec­tion of things like the Ryan Bud­get. So how have things changed in 2016? Well, Ryan is Speak­er now. That’s about it. The dooms­day bud­get is still the plan, and Paul Ryan has a plan to make it real­i­ty:

Think Progess

Paul Ryan plans to use a Trump pres­i­den­cy to ram through his extreme agen­da
He’s already talk­ing about how he’ll pull it off.

Bryce Covert
10/6/2016

Elec­tion Day is still a month away, but House Speak­er Paul Ryan (R‑WI) has already tipped his hand about how he plans to enact his agen­da with­out inter­fer­ence from Democ­rats if Don­ald Trump wins.

At a recent news con­fer­ence, as report­ed by Politi­co, Ryan said that he planned to use the process known as bud­get rec­on­cil­i­a­tion to imple­ment his pol­i­cy agen­da, which he has dubbed “A Bet­ter Way.” That would mean Repub­li­cans could pass their pri­or­i­ties with­out Demo­c­ra­t­ic mem­bers of Con­gress being able to block them.

“This is our plan for 2017,” he said, show­ing off a copy of the agen­da. “Much of this you can do through bud­get rec­on­cil­i­a­tion… This is our game plan for 2017.”

...

Ryan and oth­er Repub­li­can law­mak­ers could use this process to push through their desired changes to the tax code. The tax plan Ryan put for­ward in June would low­er the cor­po­rate tax rate, low­er rates for the wealthy, and repeal the estate tax. An analy­sis of the plan found that 99.6 per­cent of its ben­e­fits would go to the rich­est 1 per­cent of Amer­i­cans, leav­ing just 0.4 per­cent for every­one else. It would also cost the gov­ern­ment $3.1 tril­lion over a decade.

They could also pass their pro­pos­als for Medicare and Med­ic­aid, food stamps, and rental assis­tance. Ryan recent­ly pro­posed insti­tut­ing strict work require­ments for food stamps and hous­ing assis­tance that could mean throw­ing peo­ple off the rolls if they can’t ful­fill the new con­di­tions. His recent agen­da includes block-grant­i­ng Med­ic­aid, which would cut the pro­gram by bil­lions and leave tens of mil­lions of peo­ple unin­sured, and replac­ing the cur­rent guar­an­tee of health care cov­er­age under Medicare with a vouch­er to pur­chase pri­vate health insur­ance.

Mean­while, Repub­li­cans are like­ly to gut key parts of the Afford­able Care Act this way, as they have already tried to do only to be thwart­ed by a veto from Pres­i­dent Oba­ma.

It seems like­ly that a Pres­i­dent Trump would then sign the mea­sures. One of Trump’s eco­nom­ic advis­ers, Lar­ry Kud­low, told Politi­co that pass­ing a tax pack­age through rec­on­cil­i­a­tion would be “not good, fab­u­lous” and “the fastest way in our judge­ment to get nec­es­sary pro-growth tax reform.” He’s been encour­ag­ing Trump to use the pro­ce­dure and he said Trump’s team is con­sid­er­ing it.

Rec­on­cil­i­a­tion has been deployed 20 times by both par­ties, includ­ing Repub­li­cans push­ing through Pres­i­dent George W. Bush’s tax cuts in 2001 and 2003 and Democ­rats push­ing through the final ver­sion of the Afford­able Care Act in 2010. But Repub­li­cans expressed wide­spread out­rage about its usage in the lat­ter instance: Ryan him­self called it “an extra­or­di­nary and unprece­dent­ed abuse” and a “con­vo­lut­ed leg­isla­tive cha­rade” and said, “Nev­er before has the House com­mit­tee process been so gross­ly exploit­ed.”

“It seems like­ly that a Pres­i­dent Trump would then sign the mea­sures. One of Trump’s eco­nom­ic advis­ers, Lar­ry Kud­low, told Politi­co that pass­ing a tax pack­age through rec­on­cil­i­a­tion would be “not good, fab­u­lous” and “the fastest way in our judge­ment to get nec­es­sary pro-growth tax reform.” He’s been encour­ag­ing Trump to use the pro­ce­dure and he said Trump’s team is con­sid­er­ing it.”

Behold, the Ryan Dooms­day Bud­get Plan! Com­ing to a Con­gress near you. Com­ple­ments of Pres­i­dent Don­ald Trump or any GOP replace­ment. Sure, it’s the kind of plan that will hurt almost every­one who isn’t wealthy. Men and women. Young and old. But as we saw, it’s going to be women and their depen­dents who are prob­a­bly going to get hit the hard­est. Because of course. It’s a Repub­li­can plan.

Some reports com­par­ing the tax plans of Hillary Clin­ton and Don­ald Trump came out over the last week in response to the big changes Trump made to his plan last month fol­low­ing crit­i­cism that it would explode the debt to pay for tax cuts for the rich. And, of course, the new Trump plan explodes the still debt to still pay for tax cuts for the rich (and Hillary’s does the oppo­site):

The New York Times

Don­ald Trump Tax Plan Would Add to Debt and Hillary Clinton’s Wouldn’t, Study Finds

By JACKIE CALMES
OCT. 11, 2016

WASHINGTON — The stark choice that Hillary Clin­ton and Don­ald J. Trump pose for vot­ers goes as well for their revised tax plans: Mr. Trump would sim­pli­fy the tax code but cut tax­es main­ly for the rich and add tril­lions of dol­lars to the fed­er­al debt, while Mrs. Clin­ton would do the oppo­site, an inde­pen­dent analy­sis released Tues­day.

The review by the Tax Pol­i­cy Cen­ter, a joint research arm of the Brook­ings Insti­tu­tion and the Urban Insti­tute, is the first to exam­ine the plans since Mr. Trump sig­nif­i­cant­ly rewrote his pro­pos­al after crit­i­cisms of its costs and inequities and Mrs. Clin­ton on Mon­day pro­posed to dou­ble the exist­ing tax break for par­ents with young chil­dren.

“They real­ly couldn’t be more dif­fer­ent,” Len Bur­man, direc­tor of the cen­ter and a pro­fes­sor at Syra­cuse Uni­ver­si­ty, said in a con­fer­ence call with reporters.

It is unclear that either plan would pass in Con­gress. If Repub­li­cans keep con­trol of the House, even if they lose the Sen­ate, they would prob­a­bly block Mrs. Clinton’s pro­posed tax increas­es. And while Mr. Trump’s plan is sim­i­lar to one that House Repub­li­cans have out­lined, many Repub­li­cans would prob­a­bly object to its cost giv­en the size and pro­ject­ed growth of the fed­er­al debt as an aging pop­u­la­tion dri­ves spend­ing high­er.

Mr. Trump’s tax cuts would be the deep­est ever, reduc­ing rev­enue $6.2 tril­lion in the first decade and most­ly ben­e­fit­ing cor­po­ra­tions and the high­est-income Amer­i­cans, the cen­ter said. Some mid­dle-income fam­i­lies, how­ev­er, would receive a tax increase.

With inter­est, the cost would be $7.2 tril­lion over 10 years, near­ly dou­bling the growth in the fed­er­al debt that is oth­er­wise pro­ject­ed. The cost would build in sub­se­quent decades, though Mr. Trump denounces the size of the debt at near­ly every cam­paign appear­ance.

His cam­paign dis­put­ed the cost esti­mates, say­ing that the Tax Pol­i­cy Cen­ter did not account for the eco­nom­ic ben­e­fits of his tax cuts and oth­er poli­cies on trade, ener­gy and fed­er­al reg­u­la­tions. The center’s econ­o­mists said they would have anoth­er analy­sis of both can­di­dates’ plans with­in days that accounts for eco­nom­ic changes, but said it was unlike­ly to alter their con­clu­sions much.

Mrs. Clin­ton would sub­stan­tial­ly raise tax­es on high-income tax­pay­ers, most­ly on the top 1 per­cent; slight­ly reduce tax­es on aver­age for mid­dle- and low-income house­holds; and over­haul cor­po­rate tax­es. Her plan would increase fed­er­al rev­enue $1.4 tril­lion over the first decade. Rather than low­er the fed­er­al debt, how­ev­er, Mrs. Clin­ton would use the mon­ey to pay for edu­ca­tion and oth­er ini­tia­tives.

...

While Mr. Trump, in keep­ing with his pop­ulist mes­sage, fre­quent­ly points to his pro­pos­al to end the so-called car­ried inter­est tax break for hedge fund oper­a­tors and oth­er invest­ment man­agers, the center’s analy­sis reaf­firmed that his tax plan actu­al­ly gave them “a much bet­ter deal” than the exist­ing tax break, Mr. Bur­man said.

Under cur­rent law, much of their income is taxed as cap­i­tal gains, at a pref­er­en­tial rate of 23.8 per­cent instead of high­er income-tax rates. Though Mr. Trump would repeal that break, his plan would allow mon­ey man­agers to pay a new 15 per­cent busi­ness rate and “retain a sub­stan­tial tax advan­tage on their income com­pared with wage earn­ers,” accord­ing to the cen­ter.

The Trump plan would give the rich­est 0.1 per­cent of tax­pay­ers — those with incomes of more than $3.7 mil­lion this year — an aver­age tax cut of $1.1 mil­lion, for a 14 per­cent increase on aver­age in their after-tax income. The mid­dle one-fifth of Amer­i­cans by income would receive a tax cut increas­ing after-tax income less than 2 per­cent, on aver­age, while the poor­est fifth would get a break of less than 1 per­cent.

But many large fam­i­lies and sin­gle par­ents — a sep­a­rate study put the num­ber at about eight mil­lion fam­i­lies — would face tax increas­es under Mr. Trump’s pro­pos­als. That reflects his pro­pos­als to repeal per­son­al exemp­tions and the head-of-house­hold fil­ing sta­tus.

Mr. Trump would reduce the top mar­gin­al tax rate for indi­vid­u­als, now 39.6 per­cent, to 33 per­cent, and the cor­po­rate rate to 15 per­cent from 35 per­cent.

The Trump cam­paign has sent con­tra­dic­to­ry sig­nals about the candidate’s plan for own­ers of so-called pass-through busi­ness­es — sole pro­pri­etor­ships, part­ner­ships and S cor­po­ra­tions. Cam­paign offi­cials have told the Nation­al Fed­er­a­tion of Inde­pen­dent Busi­ness that such busi­ness­es could pay a flat 15 per­cent busi­ness rate instead of the gen­er­al­ly much high­er indi­vid­ual rates they cur­rent­ly pay but told accoun­tants cal­cu­lat­ing the cost of the plan that they would get no such choice.

Absent clar­i­fi­ca­tion from the cam­paign, the cen­ter assumed that choice would be avail­able and con­clud­ed the change could lead to sig­nif­i­cant tax avoid­ance — of income tax­es and pay­roll tax­es that finance Social Secu­ri­ty and Medicare — as high-wage employ­ees reclas­si­fy them­selves as pass-through busi­ness­es for tax advan­tage.

Unlike Mrs. Clin­ton, Mr. Trump would also repeal tax­es on the wealthy that help finance the Afford­able Care Act, and elim­i­nate estate and gift tax­es. He would tax some cap­i­tal gains at death and cap some item­ized deduc­tions, to hold down his plan’s costs.

Mr. Trump, in his plan, does not address the tax breaks so ben­e­fi­cial to real estate devel­op­ers that may have allowed him to avoid fed­er­al income tax­es for as much as 18 years. Rober­ton C. Williams, an econ­o­mist at the tax cen­ter, said about one-tenth of 1 per­cent of high-income tax­pay­ers avoid­ed any fed­er­al income tax­es.

But the num­ber may be larg­er: Mr. Bur­man not­ed that Mr. Trump would not have qual­i­fied as rich in the years in ques­tion because of the big real estate loss­es he was claim­ing.

“Mr. Trump, in his plan, does not address the tax breaks so ben­e­fi­cial to real estate devel­op­ers that may have allowed him to avoid fed­er­al income tax­es for as much as 18 years. Rober­ton C. Williams, an econ­o­mist at the tax cen­ter, said about one-tenth of 1 per­cent of high-income tax­pay­ers avoid­ed any fed­er­al income tax­es.”

Yep, Trump’s revised bud­get-bust­ing tax plan, which was released before every­one dis­cov­ered that he may have avoid­ed almost two decades of income tax due to a real estate tax deduc­tion loop­hole, still con­tains that loop­hole. Imag­ine that. Per­haps a third revi­sion is in order. Per­haps a revi­sion that does­n’t erode the econ­o­my’s growth poten­tial and even­tu­al­ly lead to the loss of mil­lions of jobs:

For­tune

Don­ald Trump’s Tax Plan Could Cost the U.S. 11 Mil­lion Jobs

by Lucin­da Shen

Octo­ber 17, 2016, 7:12 PM EDT

Accord­ing to the Penn Whar­ton Bud­get Mod­el.

Don­ald Trump’s pres­i­den­cy may boost the economy—but only in the short run.

The Repub­li­can pres­i­den­tial nominee’s plan to low­er the cor­po­rate tax rate and indi­vid­ual tax­es would increase fed­er­al debt, accord­ing to a study the the Penn Whar­ton Bud­get Mod­el released in tan­dem with the Tax Pol­i­cy Cen­ter Mon­day.

Trump’s tax plan would ini­tial­ly boost gross domes­tic pro­duc­tion by 1.12% and jobs by 1.7 mil­lion more than what both would have been in 2018 with­out his plan. But by 2027, the results of those tax cuts would push GDP 0.43% low­er, and cut some 692,000 jobs.

If the gov­ern­ment con­tin­ued spend­ing as much as Trump pro­posed, the U.S. could lose 11 mil­lion jobs by 2040, said Kent Smet­ters, pro­fes­sor of eco­nom­ics and pub­lic pol­i­cy at Whar­ton who led the devel­op­ment of the mod­el, in a Mon­day inter­view at the uni­ver­si­ty.

“Almost all the bang comes ear­ly on” in Trump’s tax plan, Smet­ters said in the inter­view. “How­ev­er, over time, because his plan is unbal­anced fis­cal­ly, it’s going to pro­duce fair­ly large deficits.”

Those bud­get deficits would the­o­ret­i­cal­ly crowd out pri­vate invest­ments in the long term, lead­ing to an eco­nom­ic slow down.

Demo­c­ra­t­ic pres­i­den­tial nom­i­nee Hillary Clinton’s tax plans, how­ev­er, would be “fair­ly neu­tral on the econ­o­my in the short run.”

Clinton’s tax plan would shrink GDP by 0.19% and add just 282,012 posi­tions by 2018. But by 2027, Clinton’s poli­cies would lead the GDP up by 0.4%, and add 645,161 jobs. By 2040, the U.S. would have added some two mil­lion jobs in com­par­i­son to what that fig­ure would have been with­out her.

...

““Almost all the bang comes ear­ly on” in Trump’s tax plan, Smet­ters said in the inter­view. “How­ev­er, over time, because his plan is unbal­anced fis­cal­ly, it’s going to pro­duce fair­ly large deficits.””

Yeah, that sounds like a Repub­li­can tax plan: tax cuts for the top trick­le down to give the econ­o­my a cheap short-term buzz. And then it’s hangover/crash time because it was a stu­pid plan. Except this time it’s going to be an extra-YUU­U­UGE hangover/crash that per­ma­nent­ly low­ers the eco­nom­ic growth rate. Yay.

Still, in mild defense of Trump’s plan, it’s worth not­ing that when the above analy­sis makes the argu­ment that the bud­get deficits caused by Trump’s plan would reduce future eco­nom­ic growth by “crowd­ing out” pri­vate sec­tor spend­ing by flood­ing the debt mar­kets with pub­lic debt, keep in mind that this is a favorite right-wing argu­ment for oppos­ing just about any gov­ern­ment spend­ing. Espe­cial­ly stim­u­lus spend­ing.

Now, the “crowd­ing out” argu­ment is actu­al­ly going to be valid under some cir­cum­stances, like under a Trump plan where gov­ern­ment debt spikes due to tax cuts for the super-rich but with­out a pro­por­tion­al boost to the econ­o­my (because the super-rich just throw it all in their off­shore tax shel­ters). So it’s not like argu­ments against the “crowd­ing out” argu­ment actu­al­ly dou­bles as a defense of Trump’s incred­i­bly reck­less tax plan. Still, if the Trump cam­paign would like to come out against that clas­sic “crowd­ing out” right-wing argu­ment against gov­ern­ment deficits, it’s sort of an option but they would have to sort of agree with Paul Krug­man:

The New York Times
The Con­science of a Lib­er­al

The Doc­trine of Immac­u­late Crowd­ing Out

Paul Krug­man
May 11, 2011 4:42 pm

I’ve writ­ten before about the doc­trine of immac­u­late trans­fer in inter­na­tion­al macro­eco­nom­ics, which is a com­mon fal­la­cy but not, I’ve sug­gest­ed, one that ris­es to zom­bie sta­tus.

There is, how­ev­er, a some­what relat­ed doc­trine — call it the doc­trine of immac­u­late crowd­ing out — which has now, I’d argued, achieved true zom­biehood. That is, it keeps com­ing back no mat­ter how many times you kill it.

The most recent exam­ple came from John Boehner’s Wall Street talk, where, as Bloomberg puts it,

Boehner’s state­ment in his Wall Street speech that gov­ern­ment spend­ing “is crowd­ing out pri­vate invest­ment and threat­en­ing the avail­abil­i­ty of cap­i­tal” runs counter to the behav­ior of cred­it mar­kets.

“Look at inter­est rates. Look at cap­i­tal spend­ing,” said Nari­man Behravesh, chief econ­o­mist of IHS Inc., a research firm based in Engle­wood, Col­orado. “It’s very hard to come to a con­clu­sion that there’s any kind of crowd­ing out.”

Well, yes. If you believe that gov­ern­ment spend­ing has to crowd out pri­vate spend­ing by actu­al­ly chang­ing incen­tives, name­ly by rais­ing inter­est rates, you have to con­front the fact that rates are his­tor­i­cal­ly very low, even for busi­ness bor­row­ers:

...

But it’s now an arti­cle of faith on the right that gov­ern­ment spend­ing must crowd out pri­vate spend­ing, no evi­dence is nec­es­sary. And one must say, alas, that this view has been pro­mul­gat­ed by sup­pos­ed­ly seri­ous econ­o­mists.

And the thing is, at this point no amount of facts and log­ic will dis­lodge that arti­cle of faith. It’s pret­ty hard to kill a zom­bie.

“Well, yes. If you believe that gov­ern­ment spend­ing has to crowd out pri­vate spend­ing by actu­al­ly chang­ing incen­tives, name­ly by rais­ing inter­est rates, you have to con­front the fact that rates are his­tor­i­cal­ly very low, even for busi­ness bor­row­ers”

As Paul Krug­man point­ed out back in 2011, the GOP’s argu­ments against gov­ern­ment stim­u­lus spend­ing were basi­cal­ly the clas­sic “crowd­ing out” argument...despite the fact that inter­est rates were near his­toric lows at the time which is not a sign of “crowd­ing out” in the debt mar­kets. Quite the oppo­site. And here we are, five years lat­er with tril­lions more in debt — large­ly thanks to the 2008 finan­cial cri­sis and the GOP’s unwill­ing­ness to do the respon­si­ble thing and raise tax­es on the rich — and those inter­est rates are still near-his­toric lows. No signs of “crowd­ing out” so far.

So, giv­en all that, it’s not unimag­in­able that the Trump cam­paign could try to make the case that the “crowd­ing out” argu­ment being used against his tax plan isn’t entire­ly fair. Sure, it would basi­cal­ly be a disin­gen­u­ous argu­ment if Trump bust­ed out Paul Krug­man’s case against the “crowd­ing out” crowd for a vari­ety of rea­sons (like how it would ignore the dif­fer­ent impacts of gov­ern­ment debt used for use­ful stim­u­lus spend­ing vs gov­ern­ment debt as a result of tax cuts for the rich and the fact that Trump wants to dra­mat­i­cal­ly cut tax­es but also dra­mat­i­cal­ly indis­crim­i­nate­ly cuts use­ful gov­ern­ment jobs and ser­vices). But still, Trump could make anti-“crowding out” argu­ments in favor of his drunk­en-sailor tax-cut plan. But he won’t because he would also have to basi­cal­ly aban­don his war on the Fed­er­al Reserve and stop argu­ing that there needs to be hike inter­est rates. And acknowl­edge that his plan is going to explode the debt and deficit and that’s def­i­nite­ly not going to hap­pen. It’s one of those sit­u­a­tion where the pre­ex­ist­ing insan­i­ty and van­i­ty of Trump and the rest of the GOP pre­clude him/them from using rel­a­tive­ly sane views in a decep­tive man­ner to jus­ti­fy his/their insane/vain poli­cies. While that’s not a great sit­u­a­tion, it could be worse. Yay.

Here’s some news out of the Fed that should at least sort of please the Trump cam­paign giv­en Don­ald Trump’s desire to see inter­est rates rise: While the Fed is keep­ing rates steady in Novem­ber, it sounds like it’s also com­mit­ted to not only to rais­ing rates rel­a­tive­ly soon (like­ly in Decem­ber), but is also com­mit­ted to keep­ing infla­tion under 2 per­cent indef­i­nite­ly. It all that sug­gests that the Fed is prep­ping for an extend­ed series of rate hikes. That should be music to Trump’s ears.

But an even more pleas­ing tune for Trump is the rea­son the hawk­ish Fed board is giv­ing for why it feels to need to raise rates soon, espe­cial­ly giv­en Trump’s pri­or state­ments about how wages in Amer­i­ca are too high: The Fed’s hawks are con­cerned that if unem­ploy­ment falls too low, wages will rise and that will cause the infla­tion they dread so much and that’s why they need to raise rates soon:

The Wall Street Jour­nal

Fed Doesn’t Aim to Push Infla­tion Beyond 2%
Janet Yellen’s sym­pa­thy for low inter­est, job­less rates doesn’t alter Fed­er­al Reserve’s pol­i­cy tar­get

By Kate David­son
Updat­ed Nov. 2, 2016 4:27 a.m. ET

Fed Chair­woman Janet Yellen set mar­kets abuzz last month when she said run­ning a “high-pres­sure econ­o­my” might help undo some of the eco­nom­ic dam­age wrought by the Great Reces­sion.

Some investors won­dered whether she meant the Fed was now seek­ing to push infla­tion above its 2% tar­get. Her remarks came the same day Bank of Eng­land Gov. Mark Car­ney said the cen­tral bank was will­ing to let infla­tion tem­porar­i­ly over­shoot its 2% goal to pre­vent the job­less rate from ris­ing sharply, and three weeks after the Bank of Japan said it would aim to exceed its 2% infla­tion tar­get.

But Ms. Yellen wasn’t sug­gest­ing the Fed fol­low suit, nor do the cen­tral bank’s pro­jec­tions imply a sim­i­lar strat­e­gy.

She effec­tive­ly expressed sym­pa­thy for the idea of let­ting short-term inter­est rates and the job­less rate stay low for a while to explore the costs and ben­e­fits to the econ­o­my. That would cause infla­tion to accel­er­ate, but not rise above 2%, accord­ing to the Fed’s fore­cast. Infla­tion has run below that lev­el for more than four years.

Her remarks reflect the debate Fed offi­cials are hav­ing at their two-day meet­ing, which con­cludes Wednes­day. They are like­ly to leave their bench­mark fed­er­al-funds rate unchanged in a range between 0.25% and 0.5% and sig­nal they could raise it next month.

Some offi­cials argue for keep­ing rates low and let­ting the job­less rate, which was 5% in Sep­tem­ber, fall fur­ther in hopes of gen­er­at­ing more jobs and eco­nom­ic gains for peo­ple who are only just start­ing to ben­e­fit from the expan­sion, includ­ing African-Amer­i­cans and His­pan­ics.

Oth­ers say the Fed should have raised rates already, warn­ing that let­ting unem­ploy­ment fall too low could lead to a surge in prices that forces the Fed to raise rates quick­ly, in turn caus­ing a reces­sion. These offi­cials say this could hurt the very peo­ple their col­leagues aim to help.

Fed offi­cials’ pro­jec­tions show they are run­ning a mild ver­sion of a high-pres­sure econ­o­my. They expect the unem­ploy­ment rate to drop over the next few years below 4.8%, which many of them believe is the level—called full employment—below which infla­tion picks up. They see it falling as low as 4.5% by the end of 2018. In the­o­ry, that could draw more work­ers back into the labor force and boost busi­ness invest­ment.

The job­less rate has held steady around 5% for much of this year despite strong job growth, while the share of Amer­i­cans who have a job or are seek­ing one has edged up in recent months. And the unem­ploy­ment rate for African-Amer­i­cans has fall­en to 8.3% in Sep­tem­ber from 9.2% a year ear­li­er.

Mean­time, Fed pro­jec­tions show offi­cials expect infla­tion to rise to 2% by 2018 and stay there through 2019 and in the long run.

...

Fed offi­cials don’t know exact­ly how low the job­less rate can go before infla­tion picks up too much. If they allow unem­ploy­ment to fall to 4.5% and infla­tion doesn’t start to pick up, they will have learned that they might be able to let it decline fur­ther with­out spurring infla­tion.

San Fran­cis­co Fed Pres­i­dent John Williams said last week he has no prob­lem run­ning the econ­o­my “some­what hot,” and said it wouldn’t be unex­pect­ed or prob­lem­at­ic for infla­tion to slight­ly exceed the 2% tar­get. How­ev­er, aside from Chica­go Fed Pres­i­dent Charles Evans, who has said infla­tion should be above 2% half the time and below it half the time, no Fed offi­cials are call­ing for an infla­tion over­shoot.

“This idea that we’re going to pur­pose­ful­ly over­shoot and maybe try to make up for lost ground for the fact that we were miss­ing [the tar­get] for a num­ber of years, that’s a dif­fer­ent strat­e­gy,” Mr. Williams said.

That strat­e­gy could have advan­tages, he said, but it isn’t the one Fed offi­cials are pur­su­ing.

“Fed offi­cials’ pro­jec­tions show they are run­ning a mild ver­sion of a high-pres­sure econ­o­my. They expect the unem­ploy­ment rate to drop over the next few years below 4.8%, which many of them believe is the level—called full employment—below which infla­tion picks up. They see it falling as low as 4.5% by the end of 2018. In the­o­ry, that could draw more work­ers back into the labor force and boost busi­ness invest­ment”

Yes, the unem­ploy­ment rate is so low that econ­o­mists are wor­ried that it could drop the so called “full employ­ment” unem­ploy­ment rate of 4.8 per­cent and maybe even drop a lit­tle below that and start draw­ing peo­ple back into the labor force. And appar­ent­ly this is con­cern­ing to the Hawks:

...
Some offi­cials argue for keep­ing rates low and let­ting the job­less rate, which was 5% in Sep­tem­ber, fall fur­ther in hopes of gen­er­at­ing more jobs and eco­nom­ic gains for peo­ple who are only just start­ing to ben­e­fit from the expan­sion, includ­ing African-Amer­i­cans and His­pan­ics.

Oth­ers say the Fed should have raised rates already, warn­ing that let­ting unem­ploy­ment fall too low could lead to a surge in prices that forces the Fed to raise rates quick­ly, in turn caus­ing a reces­sion. These offi­cials say this could hurt the very peo­ple their col­leagues aim to help.
...

If we don’t pre­vent unem­ploy­ment from falling so low that peo­ple start get­ting rais­es, there’s going to be hyper­in­fla­tion!!!! That’s the argu­ment from the Fed hawks. And that’s the argu­ment that appears to be win­ning on the Fed Board.

So, giv­en that Don­ald Trump attacked the Fed for not rais­ing rates, and giv­en that Trump actu­al­ly dou­bled-down on his “US wages are too high (espe­cial­ly the low­est wages” com­ment when ques­tion­able about it, it seems like Trump should at least be asked as to whether or not he approves of the Fed’s cur­rent plan to raise rates in order to ward off a peri­od of low unem­ploy­ment and high­er wages. It seems like he should be thrilled. His sup­port­ers maybe should­n’t be so thrilled, but Trump sure should be.

While cor­re­la­tion is not cau­sa­tion, it’s worth not­ing that the rise of Don­ald Trump’s odds of win­ning over the last week or so just hap­pens to coin­cide with the longest con­sec­u­tive drop in US stocks since 1988:

CBS Mon­ey­Watch

As Trump keeps ris­ing in polls, stocks keep falling

By Antho­ny Mirhay­dari
Novem­ber 4, 2016, 5:40 PM

U.S. equi­ties fell for the ninth con­sec­u­tive ses­sion on Fri­day — the longest los­ing streak since 1980 — as investors grew increas­ing­ly ner­vous about the ris­ing odds of GOP pres­i­den­tial hope­ful Don­ald Trump pre­vail­ing over Demo­c­ra­t­ic rival Hillary Clin­ton. Fresh polls show him tak­ing thelead in New Hamp­shire, which could be enough to push him to vic­to­ry, giv­en polling in oth­er bat­tle­ground states (assum­ing he gets Neva­da, Flori­da, and Maine’s Sec­ond Con­gres­sion­al Dis­trict).

A Trump win next Tues­day could upend the three-year calm in the stock mar­ket: Cit­i­group ana­lysts believe the result could be a 5 per­cent sell-off for stocks.

...

“Our Sep­tem­ber client sur­vey showed that the Street con­vinc­ing­ly believes that Hillary Clin­ton will be the next Amer­i­can pres­i­dent,” wrote Citi’s Tobias Lev­kovich. “How­ev­er, if Don­ald Trump were to win, that out­come would have been unex­pect­ed and there­by may cause a jump in the equi­ty risk pre­mi­um.”

In oth­er words, stocks would sud­den­ly look riski­er and thus, less valu­able.

...

““Our Sep­tem­ber client sur­vey showed that the Street con­vinc­ing­ly believes that Hillary Clin­ton will be the next Amer­i­can pres­i­dent,” wrote Citi’s Tobias Lev­kovich. “How­ev­er, if Don­ald Trump were to win, that out­come would have been unex­pect­ed and there­by may cause a jump in the equi­ty risk pre­mi­um.””

Oh look at that, the busi­ness com­mu­ni­ty is scared shit­less of Don­ald Trump, which is rather amaz­ing when you look at his plans to gut tax rates for both cor­po­ra­tions and wealthy indi­vid­u­als and dereg­u­lat­ed almost every­thing...includ­ing food safe­ty. Nor­mal­ly stock mar­kets love that kind of poi­son. So what’s going on?

Well, it’s pos­si­ble that even investors rec­og­nize that author­i­tar­i­an fas­cists pledg­ing to burn the sys­tem down as part of an appeal to the griev­ance pol­i­tics zeit­geist of the times are bad for busi­ness in long-run because it destroys soci­eties. Maybe that’s part of what’s prompt­ing this his­toric mar­ket drop as Trump’s prospects rise.

But let’s not for­get one very obvi­ous rea­son that the mar­kets might have to get­ting mas­sive­ly spooked by the prospects of a Trump pres­i­den­cy: He pledged to tank them:

The New York­er

Trump and the Truth: The Inter­est-Rate Flip-Flop

By Adam David­son
Sep­tem­ber 15, 2016

Over the past year, Don­ald Trump, who famous­ly nev­er backs down, has attacked, backed down, and then again attacked Janet Yellen, the chair of the Fed­er­al Reserve. He has done it in his way, nev­er acknowl­edg­ing when he says pre­cise­ly the oppo­site of what he has pre­vi­ous­ly said. (Yellen, for her part, has ignored the whole thing.)

Trump’s Yellen cycle began in Octo­ber, when, in an inter­view with The Hill, he accused Yellen of keep­ing down the Fed’s key inter­est rate, known as the Fed funds rate, because Pres­i­dent Oba­ma “doesn’t want to have a reces­sion-slash-depres­sion dur­ing his admin­is­tra­tion.” (This raised the ques­tion, of course, Who expects a Pres­i­dent to want a reces­sion-slash-depres­sion?) By the spring of this year, Trump had revised his think­ing about Yellen. “I have noth­ing against Janet Yellen what­so­ev­er,” he told CNBC, on May 5th. “She’s a very capa­ble per­son. Peo­ple that I know have a very high regard for her.” Trump explained his new­ly rosy view by endors­ing the very pol­i­cy he had mocked a few months ear­li­er. “She’s a low-inter­est-rate per­son; she’s always been a low-inter­est-rate per­son. And I must be hon­est, I’m a low-inter­est-rate per­son.” A cou­ple of weeks lat­er, Trump reit­er­at­ed his hap­py view of the Fed chair. In an inter­view with Reuters, he said, “I’m not a per­son that thinks Janet Yellen is doing a bad job.”

This week, Trump was back on the attack. On Mon­day, he told CNBC that Yellen should be “ashamed” of the low-inter­est-rate pol­i­cy that Trump him­self endorsed so ful­ly in May. “She is obvi­ous­ly polit­i­cal, and she’s doing what Oba­ma wants her to do,” he said. Once again, Trump made the claim that there was a secret Oba­ma-Yellen pact to keep rates low, root­ed in their nefar­i­ous desire to pre­vent an eco­nom­ic cri­sis. They both knew, he said, that “as soon as [rates] go up, the stock mar­ket is going to go way down.” On Thurs­day, after giv­ing a speech at the Eco­nom­ic Club of New York, Trump again took aim at the Fed. “The Fed has become very polit­i­cal,” he said. “Beyond any­thing I would have ever thought pos­si­ble.”

...

“This week, Trump was back on the attack. On Mon­day, he told CNBC that Yellen should be “ashamed” of the low-inter­est-rate pol­i­cy that Trump him­self endorsed so ful­ly in May. “She is obvi­ous­ly polit­i­cal, and she’s doing what Oba­ma wants her to do,” he said. Once again, Trump made the claim that there was a secret Oba­ma-Yellen pact to keep rates low, root­ed in their nefar­i­ous desire to pre­vent an eco­nom­ic cri­sis. They both knew, he said, that “as soon as [rates] go up, the stock mar­ket is going to go way down.” On Thurs­day, after giv­ing a speech at the Eco­nom­ic Club of New York, Trump again took aim at the Fed. “The Fed has become very polit­i­cal,” he said. “Beyond any­thing I would have ever thought pos­si­ble.””

Gee...might the mar­kets be spooked a bit by Trump’s claims that the Fed is rig­ging mar­kets with low rates as part of a polit­i­cal con­spir­a­cy cou­pled with his pre­dic­tion that the mar­kets will be “going way down” once rates rise? That sure would strong­ly imply that he’s plan­ning on a big hike with the full expec­ta­tion that it will tank the mar­kets. Espe­cial­ly since his eco­nom­ic advi­sors are encour­ag­ing him to do exact­ly that...and maybe con­sid­er the gold stan­dard.

Might that be spook­ing that mar­kets? Maybe. Although the fact that he’s an overt­ly unhinged lunatic prob­a­bly has some­thing to do with it.

Oh look, Janet Yellen is being used in a Trump ad. It’s one of the clos­ing ads of the cam­paign that attempt to sort of sum­ma­rize his over­all pitch to vot­ers. And, of course — since this is the Trump cam­paign we’re talk­ing about — it’s an ad that aggre­sive­ly flirts with “glob­al Jew­ish banker cabal” imagery:

Talk­ing Points Memo Edi­tor’s Blog

Trump Rolls Out Anti-Semit­ic Clos­ing Ad

By Josh Mar­shall
Pub­lished Novem­ber 5, 2016, 8:22 PM EDT

Take a moment to look at this clos­ing ad from Don­ald Trump.

From a tech­ni­cal and the­mat­ic per­spec­tive it’s a well made ad. It’s also packed with anti-Semit­ic dog whis­tles, anti-Semit­ic tropes and anti-Semit­ic vocab­u­lary. I’m not even sure whether it makes sense to call them dog whis­tles. The four read­i­ly iden­ti­fi­able Amer­i­can bad guys in the ad are Hillary Clin­ton, George Soros (Jew­ish financier), Janet Yellen (Jew­ish Fed Chair) and Lloyd Blank­fein (Jew­ish Gold­man Sachs CEO).

The Trump nar­ra­tion imme­di­ate­ly pre­ced­ing Soros and Yellin pro­ceeds as fol­lows: “The estab­lish­ment has tril­lions of dol­lars at stake in this elec­tion. For those who con­trol the levers of pow­er in Wash­ing­ton [start Soros] and for the glob­al [start Yellen] spe­cial inter­ests [stop Yellen]. They part­ner with these peo­ple [start Clin­ton] who don’t have your good in mind.”

For Blank­fein: “It’s a glob­al pow­er struc­ture that is respon­si­ble for the eco­nom­ic deci­sions that have robbed our work­ing class, stripped our coun­try of its wealth and put that mon­ey into the [start Blankein] pock­ets of a hand­ful of large cor­po­ra­tions [stop Blank­fein] and polit­i­cal enti­ties.”

These are stan­dard anti-Semit­ic themes and sto­ry­lines, using estab­lished anti-Semit­ic vocab­u­lary lined up with high pro­file Jews as the only Amer­i­cans oth­er than Clin­ton who are appar­ent­ly rel­e­vant to the sto­ry. As you can see by my tran­scrip­tion, the Jews come up to punc­tu­ate spe­cif­ic key phras­es. Soros: “those who con­trol the levers of pow­er in Wash­ing­ton”; Yellen “glob­al spe­cial inter­ests”; Blank­fein “put mon­ey into the pock­ets of hand­ful of large cor­po­ra­tions.”

This is an anti-Semit­ic ad every bit as much as the infa­mous Jesse Helms ‘white hands’ ad or the Willie Hor­ton ad were anti-African-Amer­i­can racist ads. Which is to say, real­ly anti-Semit­ic. You could even argue that it’s more so, giv­en cer­tain lin­guis­tic sim­i­lar­i­ties with anti-Semit­ic pro­pa­gan­da from the 1930s. But it’s not a con­test. This is an ad intend­ed to appeal to anti-Semi­tes and spread anti-Semit­ic ideas. That’s the only stan­dard that real­ly mat­ters.

This is inten­tion­al and by design. It is no acci­dent.

Trump has elec­tri­fied anti-Semi­tes and racist groups across the coun­try. His own cam­paign has repeat­ed­ly found itself speak­ing to anti-Semi­tes, tweet­ing their anti-Semit­ic memes, retweet­ing anti-Semi­tes. His cam­paign man­ag­er, Steven Ban­non, is an anti-Semi­te. The Bre­it­bart News site he ran and will con­tin­ue run­ning after the cam­paign has become increas­ing­ly open in the last year with anti-Semit­ic attacks and pol­i­tics.

Beyond that, this should­n’t sur­prise us for a broad­er rea­son. Author­i­tar­i­an, xeno­pho­bic polit­i­cal move­ments, which the Trump cam­paign unques­tion­ably is, are dri­ven by trib­al­ism and ‘us vs them’ exclu­sion of out­siders. This may begin with oth­er groups — Mex­i­can immi­grants, African-Amer­i­cans, Mus­lims. It almost always comes around to Jews.

...

“From a tech­ni­cal and the­mat­ic per­spec­tive it’s a well made ad. It’s also packed with anti-Semit­ic dog whis­tles, anti-Semit­ic tropes and anti-Semit­ic vocab­u­lary. I’m not even sure whether it makes sense to call them dog whis­tles. The four read­i­ly iden­ti­fi­able Amer­i­can bad guys in the ad are Hillary Clin­ton, George Soros (Jew­ish financier), Janet Yellen (Jew­ish Fed Chair) and Lloyd Blank­fein (Jew­ish Gold­man Sachs CEO).”

No doubt this was all an inno­cent mis­take. Much like all the oth­er inno­cent neo-Nazi-ish mis­takes of this nature that the Trump cam­paign some­how can’t stop mak­ing. So that gives us a bit of pre­view of how a Trump admin­is­tra­tion would go about shoring up pub­lic opin­ion if Trump tries to force Yellen out or push­es for a return to the gold stan­dard: first, frame the Fed as part of a glob­al­ist Jew­ish banker cabal out to rob the Unit­ed States.

In iron­i­cal­ly tan­gen­tial­ly relat­ed news, the Trump cam­paign recent­ly, and qui­et­ly, issued its big plans for rebuild­ing Amer­i­ca’s roads, bridges and oth­er pub­lic infra­struc­ture: pri­va­tize them:

Slate

While You Weren’t Look­ing, Don­ald Trump Released a Plan to Pri­va­tize America’s Roads and Bridges

By Jor­dan Weiss­mann
Nov. 4 2016 6:56 PM

So this is kind of cute. While most of us were tear­ing our hair out over the FBI and Hillary Clin­ton’s emails last week­end, Don­ald Trump’s cam­paign qui­et­ly released a plan to pri­va­tize new infra­struc­ture devel­op­ment in the Unit­ed States. I know, that’s not very sexy on the sur­face. But giv­en that the man might be pres­i­dent come Tues­day, it seems worth remark­ing upon. Because it could mean we’ll all be pay­ing to dri­ve on more roads built for prof­it.

Trump, as you might have noticed dur­ing this long, emo­tion­al­ly tor­tur­ous cam­paign, likes to wax poet­ic about Amer­i­ca’s col­laps­ing bridges and “third-world” air­ports, and he has vowed to fix up the coun­try by dou­bling Hillary Clin­ton’s pro­posed spend­ing on infra­struc­ture. At the same time, he’s also promised to pass gar­gan­tu­an tax cuts while lim­it­ing the bud­get deficit.

This has all raised an obvi­ous ques­tion: How, exact­ly, does America’s angri­est clemen­tine plan to pay for all of this build­ing? I mean, Mex­i­co isn’t going to cov­er the wall and repairs to I‑95, is it?

Thank­ful­ly, we now have an answer from two of Trump’s chief eco­nom­ic advis­ers. In a report from Oct. 27, Uni­ver­si­ty of California–Irvine pro­fes­sor Peter Navar­ro and pri­vate equi­ty hon­cho Wilbur Ross out­lined how the can­di­date would trans­form about $167 bil­lion of fed­er­al tax cred­its into $1 tril­lion of infra­struc­ture spend­ing. Fac­tor in the effects of eco­nom­ic growth, they argued, and the cost to tax­pay­ers would amount to zero, zilch, nada. Or, as they put it, the whole thing would be “bud­get neu­tral.”

Of course, it‘s not real­ly free. Amer­i­cans would just end up pay­ing for the con­struc­tion a bit lat­er on.

Under Trump’s plan—at least as it’s writ­ten (more on that in a minute)—the fed­er­al gov­ern­ment would offer tax cred­its to pri­vate investors inter­est­ed in fund­ing large infra­struc­ture projects, who would put down some of their own mon­ey up front, then bor­row the rest on the pri­vate bond mar­kets. They would even­tu­al­ly earn their prof­its on the back end from usage fees, such as high­way and bridge tolls (if they built a high­way or bridge) or high­er water rates (if they fixed up some water mains). So instead of pay­ing for their new roads at tax time, Amer­i­cans would pay for them dur­ing their dai­ly com­mute. And of course, all these pri­vate devel­op­ers would earn a nice return at the end of the day.

The fed­er­al gov­ern­ment already offers cred­it pro­grams designed to help states and cities team up with pri­vate-sec­tor investors to finance new infra­struc­ture. Trump’s plan is unusu­al because, as writ­ten, it seems to be tar­get­ed at ful­ly pri­vate projects, which are less com­mon. That may or may not be what the cam­paign entire­ly intend­ed; in an email exchange, Ross and Navar­ro sug­gest­ed to me that the tax cred­its could also be used for pub­lic-pri­vate part­ner­ships, but they were a bit vague and mud­dled on the details. In any event, one obvi­ous dis­ad­van­tage of rely­ing so heav­i­ly on pri­vate devel­op­ers, as the Wash­ing­ton Post notes, is that it would most­ly encour­age new build­ing in wealthy areas that can afford to pay high user fees. Pri­vate com­pa­nies go where there are pri­vate prof­its to be earned, after all. Poor­er areas—areas where infra­struc­ture may be more like­ly to be crumbling!—could end up being neglect­ed.

Despite the Trump cam­paign’s sales pitch, it may also be a pret­ty expen­sive plan for build­ing new roads. Gov­ern­ments can bor­row for much, much less than your typ­i­cal pri­vate com­pa­ny. That gives them a big, built-in cost advan­tage when it comes to infra­struc­ture. If a cor­po­ra­tion wants to com­pete, it has to be hyper-effi­cient about con­struc­tion. And some might be! But between the high­er inter­est rates they pay on their debt and the need to turn a prof­it, chances are a lot of pri­vate devel­op­ers would end up just charg­ing a boat­load in tolls and fees—more, over time, than the gov­ern­ment would have to levy in tax­es. The fed­er­al tax cred­its Trump would offer are designed so com­pa­nies would be able to charge less in fees, of course. But that’s still mon­ey com­ing out of the pub­lic cof­fers.

...

“The fed­er­al gov­ern­ment already offers cred­it pro­grams designed to help states and cities team up with pri­vate-sec­tor investors to finance new infra­struc­ture. Trump’s plan is unusu­al because, as writ­ten, it seems to be tar­get­ed at ful­ly pri­vate projects, which are less com­mon. That may or may not be what the cam­paign entire­ly intend­ed; in an email exchange, Ross and Navar­ro sug­gest­ed to me that the tax cred­its could also be used for pub­lic-pri­vate part­ner­ships, but they were a bit vague and mud­dled on the details. In any event, one obvi­ous dis­ad­van­tage of rely­ing so heav­i­ly on pri­vate devel­op­ers, as the Wash­ing­ton Post notes, is that it would most­ly encour­age new build­ing in wealthy areas that can afford to pay high user fees. Pri­vate com­pa­nies go where there are pri­vate prof­its to be earned, after all. Poor­er areas—areas where infra­struc­ture may be more like­ly to be crumbling!—could end up being neglect­ed.”

Yes, under Trump’s plan to rebuild Amer­i­ca’s crum­bling infra­struc­ture, the lucky wealthy neigh­bor­hoods would get pri­va­tized roads and bridges, bristling with tolls (because prof­its take a pri­or­i­ty in Trump’s Amer­i­ca). And the less lucky poor­er neigh­bor­hoods most like­ly get noth­ing. Or maybe they’ll get tolls too, in which case the poor won’t even be able to afford to use their local roads. If you’re plan­ning on dri­ving through the wealth­i­er areas of the Unit­ed States be sure to bring lots of cash. And if you want to dri­ve in the poor­er parts of town, well, hope­ful­ly some pri­vate investors deemed that area a worth­while invest­ment. Oth­er­wise, good luck!

Also keep in mind that for­eign investors have been some of the biggest buy­ers of pri­va­tized US infra­struc­ture, so it would be inter­est­ing to learn if Trump’s infra­struc­ture pri­va­ti­za­tion plan will include investors from around the globe or just US investors. Of course, with the elec­tion tomor­row hope­ful­ly Trump will los­es and it will end up being a moot ques­tion. But if Trump ends up win­ning, it’s going to be quite inter­est­ing to see if the cam­paign that’s blow­ing ‘glob­al Jew­ish banker’ in its clos­ing argu­ment is also plan­ning on a mas­sive glob­al fire sale of US infra­struc­ture. Either way, as we can see, the Trump cam­paign’s YUUUUGE new $1 tril­lion plan for rebuild­ing Amer­i­ca’s infra­struc­ture is basi­cal­ly $167 bil­lion tax cred­it to pri­vate investors. And lots and lots of tolls. That will sure­ly teach those Jew­ish bankers a les­son.

It looks like Wall Street is start­ing to get used to idea of liv­ing under Don­ald Trump’s jack­boot. Or rather, the idea of putting on Don­ald Trump’s jack­boots and danc­ing like it’s 2006:

CNBC.com

This sec­tor is ‘par­ty­ing like it’s 2006’

Rebec­ca Ungari­no
Fri­day, 11 Nov 2016 | 7:00 AM ET

The Finan­cial Select Sec­tor SPDR ETF (XLF) rose on Thurs­day to its high­est lev­el since before the finan­cial cri­sis in ear­ly 2008, ral­ly­ing near­ly 8 per­cent fol­low­ing Trump’s vic­to­ry.

But some experts warn that there’s not much room left for the banks to run.

Banks have ral­lied to a com­bi­na­tion of the mas­sive ral­ly in U.S. bond yields since Trump’s vic­to­ry — the 10-year Trea­sury yield has surged 23 per­cent since Wednes­day — and the belief that the Don­ald Trump admin­is­tra­tion will bring less reg­u­la­tion in the bank­ing indus­try.

In a note pub­lished Thurs­day, Michael Block, chief strate­gist at Rhi­no Trad­ing Part­ners, wrote that the banks are “trad­ing like Dodd-Frank and the Vol­ck­er rule have already been wiped out of exis­tence and that we are par­ty­ing like it’s 2006.”

JPMor­gan, one of the largest com­po­nents in the XLF, touched an all-time high in Thurs­day trad­ing. Gold­man Sachs and Bank of Amer­i­ca both rose 4 per­cent.

Trump’s pres­i­den­tial tran­si­tion team said in a Wednes­day state­ment that it would “dis­man­tle” the Dodd-Frank Act, the leg­is­la­tion passed in 2010 that brought sig­nif­i­cant reg­u­la­tion upon the bank­ing indus­try fol­low­ing the finan­cial cri­sis.

In anoth­er poten­tial­ly bull­ish sign, sources told CNBC’s Kate Kel­ly that JPMor­gan CEO Jamie Dimon has been con­sid­ered for the role of trea­sury sec­re­tary.

...

“In a note pub­lished Thurs­day, Michael Block, chief strate­gist at Rhi­no Trad­ing Part­ners, wrote that the banks are “trad­ing like Dodd-Frank and the Vol­ck­er rule have already been wiped out of exis­tence and that we are par­ty­ing like it’s 2006.””

Yes, not only is Wall Street set to be dereg­u­lat­ed so we can have anoth­er 2006–2008 boom/bust bonan­za, but Jamie Dimon is get­ting court­ed to head up with Trea­sury too. Ooo...those bankers Trump was warn­ing every­one about in his anti-Semit­ic final ad must be super sad a pop­ulist like Don­ald Trump won.

Still, don’t assume Dimon will take the job. As the arti­cle below notes, now that Trump has won and sort of bro­ken the US polit­i­cal mold by demon­strat­ing that a bil­lion­aire with no polit­i­cal expe­ri­ence can because pres­i­dent, Jamie Dimon is think­ing about a a polit­i­cal role much big­ger than Trea­sure Sec­re­tary:

Reuters

Here’s Why Trump Out­reach to Jamie Dimon for Trea­sury Post May Fall Flat

by Reuters

Novem­ber 11, 2016, 4:15 AM EST

Dimon has said the only job in gov­ern­ment he would want is the one Don­ald Trump is about to get.

JPMor­gan Chase Chief Exec­u­tive Offi­cer Jamie Dimon did not sup­port Repub­li­can Don­ald Trump’s pres­i­den­tial cam­paign, yet some Trump advis­ers want America’s most famous banker to become Trea­sury Sec­re­tary to calm nerves on Wall Street.

A mem­ber of Trump’s tran­si­tion team con­tact­ed Dimon recent­ly to see if he would be inter­est­ed in the role, two peo­ple famil­iar with the mat­ter told Reuters on Thurs­day.

It was not clear whether Dimon had respond­ed, though he has said emphat­i­cal­ly mul­ti­ple times that he was not inter­est­ed in the role. JPMor­gan spokesman Andrew Gray declined to com­ment, and Dimon, who is trav­el­ing out­side the Unit­ed States, could not be reached.

Trump’s close cir­cle of advis­ers includes sev­er­al with Wall Street ties. His cam­paign finance man­ag­er, Steven Mnuchin, is a for­mer Gold­man Sachs Group banker. Fundrais­er Antho­ny Scara­muc­ci is a hedge fund exec­u­tive.

A per­son famil­iar with Trump’s per­son­nel efforts said the tran­si­tion team’s list includ­ed Dimon, Mnuchin and Rep. Jeb Hen­sar­ling. The per­son said that Mnuchin was a more like­ly choice giv­en his prox­im­i­ty to Trump.

Trump’s con­tro­ver­sial rhetoric and behav­ior dur­ing the cam­paign con­cern­ing immi­grants, women, minori­ties, the dis­abled, Mus­lims and Chi­na, among oth­er things, were offen­sive to many senior Wall Street exec­u­tives who have tried to embrace inclu­sion, diver­si­ty and glob­al­iza­tion.

Trump also crit­i­cized Wall Street on the trail, say­ing the indus­try “got away with mur­der” and would not be let off the hook.

Since being elect­ed on Tues­day, Trump has soft­ened his tone and tried to bridge gaps by meet­ing with Pres­i­dent Oba­ma and tak­ing calls from for­eign offi­cials. Bring­ing Dimon on board could help him mend fences with the finan­cial indus­try, which appears to be com­ing around to the idea of Trump in the White House.

At an event on Thurs­day, Gold­man Sachs Group CEO Lloyd Blank­fein said Trump could be good for the econ­o­my and Dimon would be an excel­lent choice for Trea­sury Sec­re­tary, while hedge fund man­ag­er Bill Ack­man said Trump’s advis­ers would get “the best and bright­est” to run the econ­o­my.

Hensarling’s office indi­cat­ed in a state­ment that he did not want the job.

“Serv­ing in his Cab­i­net is not some­thing I’ve indi­cat­ed an inter­est in and it’s not some­thing I am pur­su­ing,” the state­ment said. He said he looked for­ward to work­ing in Con­gress to repeal the Dodd-Frank Act which tight­ened reg­u­la­tions on Wall Street in the wake of the finan­cial cri­sis.

Dimon, a life­long Demo­c­rat, has been float­ed as a pos­si­ble can­di­date for roles like Trea­sury Sec­re­tary in the past. How­ev­er, resent­ment toward bankers fol­low­ing the 2007–2009 finan­cial cri­sis made his can­di­da­cy much less like­ly, as did JPMor­gan-spe­cif­ic scan­dals relat­ed to a cost­ly deriv­a­tives trade and bad mort­gages.

A $13 bil­lion mort­gage set­tle­ment JPMor­gan reached with the fed­er­al gov­ern­ment in 2013 prompt­ed Trump then to call Dimon “the worst banker in the Unit­ed States.”

How­ev­er, Dimon has man­aged to retain a rep­u­ta­tion with­in the bank­ing indus­try as a dis­tin­guished leader, in part by the way he han­dled those scan­dals and the way he talks about JPMorgan’s role in soci­ety as the largest U.S. bank.

...

How­ev­er, Dimon has said as recent­ly as Sep­tem­ber that he would not want a role as Trea­sury Sec­re­tary. If he holds to that, it could put him and JPMor­gan in an awk­ward posi­tion.

Say­ing “no” to a pres­i­den­tial request to join the cab­i­net is unusu­al, and the bank would then be over­seen by appointees from an admin­is­tra­tion Dimon reject­ed.

Even so, his asso­ciates do not expect Dimon to say “yes.”

Dimon has said his deter­mi­na­tion to act would make it hard to make polit­i­cal com­pro­mis­es. Talk­ing before an audi­ence in Sep­tem­ber, he said the only job in gov­ern­ment he would want is the one Trump is about to get.

“I would love to be pres­i­dent of the Unit­ed States of Amer­i­ca,” Dimon told the Eco­nom­ic Club of Wash­ing­ton. “Until Don­ald Trump got to where he was, they said you’ll nev­er see a rich busi­ness­man who’s nev­er been in pol­i­tics be pres­i­dent. I clear­ly was wrong about that.”

“I would love to be pres­i­dent of the Unit­ed States of America,...Until Don­ald Trump got to where he was, they said you’ll nev­er see a rich busi­ness­man who’s nev­er been in pol­i­tics be pres­i­dent. I clear­ly was wrong about that.”

And now we know any­one can become pres­i­dent. Don­ald Trump is sure­ly an inspi­ra­tion for bil­lion­aires every­where. But in this case it looks like that inspi­ra­tional might back­fire because now Jamie Dimon might get pres­i­den­tial hopes of his own. As we can see, the US’s busi­ness elites are clear­ly shak­en by Don­ald Trump’s pop­ulist revolt of 2016. Pow­er to the peo­ple! The real­ly, real­ly rich peo­ple. But since it does­n’t look like Dimon is going to take the job, it looks like pop­ulists will have to set­tle for ex-Gold­man Sachs banker/Hollywood pro­duc­er Steven Mnuchin.

2016 was quite the year for pop­ulism.

Kansas Gov­er­nor Sam Brown­back, whose name is on the Trump admin­is­tra­tion’s short-list for Agri­cul­ture sec­re­tary and whose hyper-sup­ply-side eco­nom­ic poli­cies destroyed Kansas’s finances in a shock­ing­ly short amount of time, report­ed­ly heard Vice Pres­i­dent-elect Mike Pence talk­ing with oth­er gov­er­nors at the Repub­li­can Gov­er­nors Asso­ci­a­tion con­fer­ence about the Trump admin­is­tra­tion’s plans. Brown­back called the agen­da “an excit­ing one.” So that’s pret­ty omi­nous. But Brown­back also has some omi­nous words of advice for the incom­ing Trump admin­is­tra­tion: beware of high pub­lic expec­ta­tions (which pre­sum­ably includes expec­ta­tions that the nation’s finances aren’t about to be destroyed):

McClatchy

Kansas’ Brown­back: Excit­ed about GOP agen­da, but pub­lic could be impa­tient

By David Light­man

ORLANDO, Fla.

Gov. Sam Brown­back is excit­ed about the prospect of Repub­li­cans tak­ing con­trol of both Con­gress and the White House – but also has a word of cau­tion.

In Flori­da this week for the Repub­li­can Gov­er­nors Asso­ci­a­tion con­fer­ence, the Kansas gov­er­nor heard Vice Pres­i­dent-elect Mike Pence tell the gov­er­nors in a pri­vate meet­ing how the White House wants to pro­ceed. Brown­back called the agen­da “an excit­ing one.”

“There are real­ly some things you can do near term,” Brown­back told McClatchy in an inter­view. Exec­u­tive orders and actions can be undone. The cor­po­rate income tax could come down. Pieces of Oba­macare can be repealed and replaced.

But, Brown­back, who also served as a con­gress­man and U.S. sen­a­tor, warned, “There’s high expec­ta­tions now,” and the pub­lic doesn’t have end­less patience.

“Our team’s been pret­ty insis­tent for a long peri­od of time and you’ve got to get things out there and you’re going to have to move it fast,” he said.

...

One mis­take Repub­li­cans must avoid, Brown­back said, is tak­ing action that doesn’t get the econ­o­my mov­ing. “I thought that’s where (Pres­i­dent Barack) Oba­ma made a mis­take. He went with Oba­macare,” Brown­back said.

Oba­ma did push a mas­sive eco­nom­ic stim­u­lus plan quick­ly that helped revive the ail­ing econ­o­my. Lat­er in his first year, he cham­pi­oned the over­haul of the health­care sys­tem that con­tin­ues to sharply divide Democ­rats and Repub­li­cans.

“But, Brown­back, who also served as a con­gress­man and U.S. sen­a­tor, warned, “There’s high expec­ta­tions now,” and the pub­lic doesn’t have end­less patience.”

Yes, when you sell the pub­lic on mag­i­cal sup­ply-side cures for what ails the econ­o­my and con­vince aver­age vot­ers that mas­sive tax cuts for the wealth­i­est is going to improve every­one’s lives, the pub­lic might actu­al­ly devel­op high expec­ta­tions. It’s a les­son Sam Brown­back knows well, per­haps bet­ter than any oth­er gov­er­nor in the nation:

The Kansas City Star

Gov. Sam Brown­back retains his title as ‘America’s most unpop­u­lar gov­er­nor’

* New poll has same result as one last year: Kansas’ gov­er­nor is real­ly not pop­u­lar in his home state

* Unfor­tu­nate­ly, it’s a well-deserved hon­or giv­en the woes he has cre­at­ed for the Sun­flower State bud­get

Yael T. Abouhalkah
May 12, 2016 11:08 AM

The new sur­vey is out today: Kansas Gov. Sam Brown­back has nar­row­ly kept his title as the “most unpop­u­lar gov­er­nor in Amer­i­ca.”

As many Kansans real­ize, it’s a well-deserved “hon­or” for a gov­er­nor whose poli­cies have pret­ty much destroyed the state bud­get.

Brown­back had to beat out some tough com­peti­tors for the title.

The sur­vey from Morn­ing Con­sult made a spe­cial point of not­ing that Brown­back is even more unpop­u­lar in his home state than Michi­gan Gov. Rick Sny­der is in his even giv­en the Flint water cri­sis.

“Despite nation­al out­rage being direct­ed to Sny­der and his admin­is­tra­tion, he does not have the worst approval rat­ing” in the coun­try, the authors wrote.

The sur­vey culled infor­ma­tion from more than 66,000 vot­ers in all 50 states from Jan­u­ary until May.

The result for Brown­back is that only 26 per­cent of Kansas vot­ers approve of the job he’s doing — and a whop­ping 65 per­cent dis­ap­prove.

Those are the same num­bers he had in Novem­ber, the last time this kind of sur­vey came out.

...

“The sur­vey from Morn­ing Con­sult made a spe­cial point of not­ing that Brown­back is even more unpop­u­lar in his home state than Michi­gan Gov. Rick Sny­der is in his even giv­en the Flint water cri­sis.”

Sam Brown­back­’s deci­sion to turn Kansas into a giant exper­i­ment in hyper-sup­ply-side eco­nom­ics made him less pop­u­lar than a gov­er­nor whose sup­ply-side poli­cies lead-poi­soned an entire city. Appar­ent­ly Kansas’s vot­ers grew impa­tient watch­ing their state go bank­rupt. Imag­ine that.

and Kansas does­n’t just have the priv­i­lege of hav­ing the most unpop­u­lar gov­er­nor in the nation thanks to his far-right eco­nom­ic scheme end­ing dis­as­trous­ly. As the arti­cle below notes, the Fed­er­al Reserve Bank of Philadel­phia recent­ly ranked Kansas 50th in the nation for employ­ment growth, man­u­fac­tur­ing hours worked, unem­ploy­ment rate and wage growth. And as the arti­cle also notes, the Brown­back plan that destroyed Kansas is the Trump plan for Amer­i­ca:

The Wichi­ta Eagle

Does Trump’s tax plan sound famil­iar, Kansas? It should.

By Kelsey Ryan
Novem­ber 15, 2016 7:00 AM

Slow growth. Tax cuts. Sound famil­iar?

Pres­i­dent-elect Don­ald Trump’s pro­posed tax plan for the nation is sim­i­lar to Gov. Sam Brownback’s self-pro­claimed “real-live exper­i­ment” tax plan enact­ed in 2012.

Both plans include a rate cut for indi­vid­ual income tax and cuts for busi­ness income, ana­lysts say.

Kansas faces a near­ly $350 mil­lion bud­get gap for the cur­rent fis­cal year, which runs through June. The bud­get gap has forced the state to make cuts to most state agen­cies, the state pen­sion sys­tem, high­way projects and uni­ver­si­ties.

In Sep­tem­ber, the Fed­er­al Reserve Bank of Philadel­phia ranked Kansas 50th in the nation for employ­ment growth, man­u­fac­tur­ing hours worked, unem­ploy­ment rate and wage growth. An econ­o­mist with the Wash­ing­ton-based, low-tax advo­cate Tax Foun­da­tion told Mis­sis­sip­pi law­mak­ers eval­u­at­ing planned tax cuts that Kansas is “an exam­ple of what not to do in tax reform.”

Mean­while, some leg­is­la­tors say they will push for the state to roll back the tax cuts next year, and the state bud­get direc­tor said last week that rais­ing tax­es is not out of the ques­tion.

Brown­back has stood by his tax plan and said he is hap­py Trump plans to imple­ment a sim­i­lar strat­e­gy at the nation­al lev­el.

“I am pleased the Pres­i­dent-elect under­stands the impor­tance of revi­tal­iz­ing the Amer­i­can econ­o­my by cre­at­ing an envi­ron­ment that keeps jobs in Amer­i­ca and encour­ages the growth of both large and small busi­ness­es,” Brown­back said in a state­ment to The Eagle.

“Just as we did in Kansas, the Pres­i­dent-elect intends to low­er tax­es on both indi­vid­ual Amer­i­cans who are work­ing hard to build a future for them­selves and their fam­i­lies, and cre­ate a favor­able envi­ron­ment for the small busi­ness­es that dri­ve growth and cre­ate jobs. The nation­al econ­o­my has been lethar­gic for a long time and it is good the Pres­i­dent-elect wants to take deci­sive actions to move our nation for­ward.”

Will the rest of the nation live the Kansas exper­i­ment first­hand?

‘Trick­le down’

Both Kansas tax pol­i­cy and the Trump pro­pos­als are pred­i­cat­ed on the idea that such tax cuts will spur eco­nom­ic activ­i­ty – trick­le-down eco­nom­ics, some­times called Reaganomics.

Under Pres­i­dent Ronald Rea­gan, tax­es were cut and the econ­o­my expand­ed, but the nation­al debt also increased.

Both Brown­back and Trump were advised on their tax plans by econ­o­mist Art Laf­fer, who was on Reagan’s eco­nom­ic pol­i­cy advi­so­ry board.

In Kansas, the the­o­ry was that the cuts would spur eco­nom­ic growth.

“You can look at Kansas and see what hap­pened here. The eco­nom­ic growth did not hap­pen here,” said Duane Goossen, for­mer state bud­get direc­tor in both Repub­li­can and Demo­c­ra­t­ic admin­is­tra­tions and a senior fel­low at Kansas Cen­ter for Eco­nom­ic Growth, which has been con­sis­tent­ly crit­i­cal of Brownback’s poli­cies.

“In Kansas, the state bud­get is bro­ken,” Goossen said.

The ben­e­fits of the tax cuts went pri­mar­i­ly to the wealth­i­est Kansans.

Kansas’ poor­est res­i­dents, those who make $25,000 a year or less, saw a slight increase in their tax­es after the 2012 law went into effect, accord­ing to an Eagle analy­sis of data from the Kansas Depart­ment of Rev­enue.

The aver­age state income tax lia­bil­i­ty for Kansans in that brack­et rose near­ly $50 from 2012 – the last year under the old rates – to 2013. The aver­age tax lia­bil­i­ty went down in 2014, but it was still a net increase of about $40 since the rate cuts.

Last year, the Leg­is­la­ture elim­i­nat­ed income tax­es for 380,000 low-income Kansans. But it also increased the state sales tax, a change that some ana­lysts say wipes out the sav­ings from the income tax exemp­tion.

Brownback’s office says drop­ping agri­cul­ture and oil prices have con­tributed to the state’s bud­get gap.

When the Kansas Leg­is­la­ture passed the tax cuts in 2012, it didn’t cou­ple it with ade­quate spend­ing cuts, said Kyle Pomer­leau, direc­tor of fed­er­al projects at the con­ser­v­a­tive Wash­ing­ton-based Tax Foun­da­tion.

Kansas has to have a bal­anced bud­get, unlike the fed­er­al gov­ern­ment.

“It’s either reduce spend­ing or allow bor­row­ing to go up,” Pomer­leau said.

There are sim­i­lar­i­ties between the Brown­back plan and the Trump campaign’s tax plan.

“Of course, it’s a much dif­fer­ent scale,” Pomer­leau said.

Brownback’s tax cut was about an $800 mil­lion annu­al tax cut start­ing in 2014 – about 10 per­cent of rev­enue.

“Trump’s tax plan is sim­i­lar in nature. ... It’s about a $6 tril­lion tax cut over 10 years, and that’s a lit­tle more than 10 per­cent of fed­er­al rev­enues over the next decade,” Pomer­leau said.

To avoid increas­ing the nation­al debt, the gov­ern­ment would need to find ways to cut at least 10 per­cent of fed­er­al spend­ing to off­set the tax cuts if growth does not occur as a result of the cuts.

“What we should pay atten­tion to as time goes on is how Trump’s plan may change as it goes through the leg­isla­tive process,” Pomer­leau said.

The House GOP has a tax reform pro­pos­al that is dif­fer­ent than Trump’s plan and is much small­er – $2.4 tril­lion ver­sus the $6 tril­lion in cuts over a decade.

“Trump will have to decide: ‘Is this the size of the tax cut that I want, which requires a lot of spend­ing cuts?’ Or does he rethink some of these pro­pos­als, maybe adopt the dis­tance between the House GOP plan and the Trump plan,” Pomer­leau said.

...

“Just as we did in Kansas, the Pres­i­dent-elect intends to low­er tax­es on both indi­vid­ual Amer­i­cans who are work­ing hard to build a future for them­selves and their fam­i­lies, and cre­ate a favor­able envi­ron­ment for the small busi­ness­es that dri­ve growth and cre­ate jobs. The nation­al econ­o­my has been lethar­gic for a long time and it is good the Pres­i­dent-elect wants to take deci­sive actions to move our nation for­ward.”

As we can see, Gov­er­nor Brown­back remains proud of his eco­nom­ic accom­plish­ments and excit­ed to see the Trump admin­is­tra­tion is fol­low­ing in his foot­steps. And why should­n’t he be pleased? The odds of Kansas mov­ing up from its worst-in-the-nation eco­nom­ic sta­tus are going to be a lot bet­ter after Trump does to the rest of the US what Brown­back already did to Kansas. Yes, things are look­ing up for Sam Brown­back­’s legacy...specifically because that very same lega­cy is about to be applied nation­al­ly and now things are look­ing down for every­one else. He must be so proud.

One of the inter­est­ing things about the Trump tran­si­tion peri­od is how near­ly every day we seem to be learn­ing les­son about what a Trump pres­i­dent will be like. Lessons that we should have already known through sim­ple obser­va­tion. And while Trump’s Sun­day tweet tirade alleg­ing that “mil­lions” of peo­ple vot­ed ille­gal­ly for Hillary Clin­ton — cheat­ing him of a pop­u­lar vote vic­to­ry he asserts he tru­ly won - is just the lat­est reminder that he’ll be an incred­u­lous pres­i­dent lead­ing an incred­u­lous admin­is­tra­tion, it’s impor­tant to keep in mind that the lessons about Trump’s incred­u­lous­ness aren’t just a les­son about his decep­tive nature. It’s also a les­son about how his admin­is­tra­tion is going to be oper­at­ing from a world­view that is divorced from real­i­ty. Yes, Trump has been divorced not twice but thrice: Ivana, Mar­la, and Real­i­ty.

So with that unfor­tu­nate pair of lessons in mind, it’s also prob­a­bly worth not­ing that just because a Trump pres­i­den­cy is going to be bas­ing its poli­cies on a bed of lies and fan­ta­sy, that does­n’t mean it’s going to be orig­i­nal lies and fan­ta­sy. There are are plen­ty of long-stand­ing right-wing pol­i­cy root­ed in lies and fan­ta­sy already pack­aged and ready Trump to ped­dle. And plen­ty of oth­er ped­dlers of those lies and fan­tasies that are more than hap­py to help. For instance, since it’s look­ing like Trump’s eco­nom­ic pol­i­cy is going to be a nation­al ver­sion of the sup­ply-side night­mare Art Laf­fer helped unleash in Kansas, we should prob­a­bly expect to hear a lot from Art Laf­fer over the next four to eight years. And that means, much like how we need to intel­lec­tu­al­ly steel our­selves from a flood of lies like “mil­lions of peo­ple vot­ed ille­gal­ly” from the Pres­i­dent, we’re also going to have to get ready for an abun­dance of bad advice and pro­found­ly poor lessons about eco­nom­ics from Art Laf­fer for fore­see­able future:

The New York Times
The Con­science of a Lib­er­al

The Laf­fer Swerve

Apr 10, 2015 Apr 10, 2015
Paul Krug­man

Jim Tanker­s­ley has a good arti­cle on Arthur Laffer’s nev­er-stronger influ­ence on the Repub­li­can par­ty, with just one seri­ous­ly mis­lead­ing state­ment:

Laffer’s ideas have also grown out of fash­ion with much of the main­stream eco­nom­ic com­mu­ni­ty. There is an entire branch of eco­nom­ic lit­er­a­ture that uses detailed equa­tions to show cut­ting top tax rates does not spark addi­tion­al growth.

No, Laf­fer hasn’t “grown out of fash­ion” with main­stream eco­nom­ics — he was nev­er in fash­ion. There was nev­er any evi­dence to sup­port strong sup­ply-side claims about the mar­vels of tax cuts and the hor­rors of tax increas­es; even fresh­wa­ter macro­econ­o­mists, despite their will­ing­ness to believe fool­ish things, nev­er went down that road.

And noth­ing in the expe­ri­ence of the past 35 years has made Laf­ferism any more cred­i­ble. Since the 1970s there have been four big changes in the effec­tive tax rate on the top 1 per­cent: the Rea­gan cut, the Clin­ton hike, the Bush cut, and the Oba­ma hike. Repub­li­cans are fix­at­ed on the boom that fol­lowed the 1981 tax cut (which had much more to do with mon­e­tary pol­i­cy, but nev­er mind). But they pre­dict­ed dire effects from the Clin­ton hike; instead we had a boom that eclipsed Reagan’s. They pre­dict­ed won­der­ful things from the Bush tax cuts; instead we got an unim­pres­sive expan­sion fol­lowed by a dev­as­tat­ing crash. And they pre­dict­ed ter­ri­ble things from the tax rise after Obama’s reelec­tion; instead we got the best job growth since 1999.

And when I say “they pre­dict­ed”, I espe­cial­ly mean Laf­fer him­self, who has a tru­ly extra­or­di­nary record of being wrong at cru­cial turn­ing points. As Bruce Bartlett point­ed out a few years ago, Laf­fer was even wrong dur­ing the Rea­gan years: he pre­dict­ed that the Rea­gan tax hikes of 1982, which par­tial­ly reversed ear­li­er cuts, would crip­ple the econ­o­my; “morn­ing in Amer­i­ca” prompt­ly fol­lowed. Oh, and let’s not for­get his 2009 warn­ings about soar­ing inter­est rates and infla­tion.

The ques­tion you should ask, then, is why this always-wrong eco­nom­ic doc­trine now has a stronger grip on the GOP than ever before.

It wasn’t always thus. George W. Bush’s inner cir­cle clear­ly had lit­tle use for the likes of Laf­fer; they engaged in a lot of decep­tive adver­tis­ing about the econ­o­my (and a few oth­er things), but they nev­er made extrav­a­gant sup­ply-side claims — and remem­ber that Greg “char­la­tans and cranks” Mankiw served as chair­man of the Coun­cil of Eco­nom­ic Advis­ers. But since 2009 the GOP has swerved hard right into fan­ta­sy land — and it has done so despite a remark­able string of dead-wrong pre­dic­tions by the peo­ple ped­dling that fan­ta­sy.

Tanker­s­ley quotes me as say­ing that it’s about want­i­ng econ­o­mists who tell them what they want to hear, which is self-evi­dent­ly true. But that kind of wish­ful think­ing is always around. What seems to have hap­pened to Amer­i­can con­ser­v­a­tives is that they have lost all the checks and bal­ances that used to lim­it that kind of solip­sism. And of course it’s not just eco­nom­ic pol­i­cy.

What do we do in the face of a major par­ty gone mad?

“It wasn’t always thus. George W. Bush’s inner cir­cle clear­ly had lit­tle use for the likes of Laf­fer; they engaged in a lot of decep­tive adver­tis­ing about the econ­o­my (and a few oth­er things), but they nev­er made extrav­a­gant sup­ply-side claims — and remem­ber that Greg “char­la­tans and cranks” Mankiw served as chair­man of the Coun­cil of Eco­nom­ic Advis­ers. But since 2009 the GOP has swerved hard right into fan­ta­sy land — and it has done so despite a remark­able string of dead-wrong pre­dic­tions by the peo­ple ped­dling that fan­ta­sy.”

Worse than W. That’s what we’re in for. Unless you sub­scribe to Art Laf­fer­’s fan­ta­sy ver­sion of eco­nom­ics, in which case we’re in for 25 years of pros­per­i­ty just like the 25 years of pros­per­i­ty Rea­gan cre­at­ed which was the great­est pros­per­i­ty ever:

The Wall Street Jour­nal

A New Jus­tice

A tran­script of the weekend’s pro­gram on FOX News Chan­nel.

Nov. 27, 2016 6:33 p.m. ET

David Asman: Wel­come to “The Jour­nal Edi­to­r­i­al Report.” I’m David Asman, in for Paul Gig­ot.

And this week, we’re look­ing ahead to the first days of the Trump pres­i­den­cy, the chal­lenges fac­ing his admin­is­tra­tion at home and abroad, and the poli­cies that are like­ly to top his agen­da.

...

Asman: It’s been called a gold­en oppor­tu­ni­ty. House Repub­li­can lead­ers, look­ing ahead to a Trump pres­i­den­cy, have already have begun to map out a very ambi­tious agen­da, kind of a blue­print for ear­ly next year. At the top of their to-do list is a com­plete over­haul of the U.S. tax sys­tem, all 75,000 pages. This is some­thing the GOP has been advo­cat­ing and plan­ning for decades.

Art Laf­fer has been doing that. He is a for­mer Rea­gan eco­nom­ic advis­er and Trump sup­port­er.

You know, Art, for the first time in decades, real­ly, the stars are in align­ment for real mean­ing­ful change. I’d just like to know, is there any­thing that can stop it now? We have the Repub­li­cans con­trol­ling the House, the Sen­ate, of course the White House. They’ve said this will be tops in their agen­da. Is there any­thing Democ­rats can do to stop it?

Laf­fer: I don’t think so—the gov­er­nor­ships, the state leg­is­la­tures, short­ly the Supreme Court and short­ly the Fed. You know, this is the grand con­junc­tion, this is the moment in time and space when we can real­ly do some­thing. and the House has already, with Brady and Ryan, has already gone huge dis­tances in prepar­ing the ground­work and work­ing out the details. You got Ted Cruz in the Sen­ate who has worked out a lot as well. This is our moment, and I think we will real­ly shine.

Asman: I men­tioned the 75,000 pages. We could show the piles of page after page. Most Amer­i­cans, of course, don’t have to deal with that much. But they do have to deal with more than they think is nec­es­sary. Are aver­age Amer­i­cans going to see a sim­pli­fi­ca­tion out of this process? Are they going to final­ly be able to get rid of their accoun­tants and do tax­es them­selves?

Laf­fer: Yeah. I think they have to be patient. First, it takes time for tax bills to get through all the com­mit­tees, get through all the stuff and then be signed. Then they imple­ment it over time. So, it takes time in the first bill. But the real killer comes, the real bit—in ’86 we did the final bill, which is the great one. We reduced the num­ber of brack­ets from 14 to two—28% and 15%—with the two tax rates. We got rid of the deduc­tions, exemp­tions, exclu­sions, loop­holes. It led to the great­est pros­per­i­ty ever. That’s the one. It’s a long process. It’s a marathon. Please don’t make it a sprint. It’s not a sprint. But the House has done a great job in prepar­ing the ground­work for all of this.

Asman: It sounds like a lot of peo­ple want to make it a sprint, Art, includ­ing Paul Ryan and Don­ald Trump. This is one thing those guys agree on. Is it con­ceiv­able that by the time most Amer­i­cans do their tax­es in April 2017, they will have a much sim­pler, much low­er tax rate to deal with?

Laf­fer: I think it will be very dif­fi­cult to do that for the year 2016.

Asman: Twen­ty sev­en­teen.

Laf­fer: Yeah, but that’s when they file your returns—tax year 2016.

Asman: Twen­ty six­teen, gotcha.

Laf­fer: We have all of our tax laws already in place. It’s almost the end of the year. I don’t know how they can do it retroac­tive­ly. We did a lit­tle bit retroac­tive with Rea­gan. We had a 1.25% cut retroac­tive­ly in 1981. That’s very tough. It’ll be even tough to do much in 2017 because this stuff takes time. Slow and steady wins the race. I’d much rather have it done care­ful­ly, delib­er­a­tive­ly and pur­pose­ful­ly, and have it work a thou­sand years than put it in, in a rush, and have it fall apart in two years.

Asman: You know the process. That’s one rea­son you are a great asset in this.

The sup­ply side effect of this—that’s what the Laf­fer Curve is about.

Laf­fer: Yes.

Asman: The econ­o­mists, most of the main­stream econ­o­mists have looked at this tax plan and say it will cost a lot of mon­ey because we’re going to get—the gov­ern­ment is going much few­er rev­enues; there­fore, the deficit and debt will go up, as they cared about that over the past 10 years.

Laf­fer: They nev­er have.

Asman: But what hap­pened in the 1980s, with Ronald Rea­gan, tax rates, as you men­tioned, came down tremen­dous­ly. Didn’t rev­enues actu­al­ly dou­ble? They got so much more rev­enue because there was so much more growth, right?

Laf­fer: Yes, they did. And espe­cial­ly in the high­est income brack­ets where we had the biggest tax cuts, those groups way increased their pay­ments. I mean, if I remem­ber cor­rect­ly, the amount paid as a share of GDP in 1980 was about 1.5% of GDP by the top 1%. By 2006, it was 3.2% of GDP. And GDP had gone through the ceil­ing. So, it was real­ly work­ing on the high­est-income earn­ers, which is—what you call main­stream, I call them kooks. But where they say it doesn’t work, of course, it works there, and it works there the most.

But don’t for­get, when you take over a com­pa­ny that’s been run into the ground, David, it’s lost its pro­duc­tive capac­i­ty, it’s lost its good employ­ees, it’s lost its mar­ket share, you’ve got to cut prices, which means tax rates, you’ve got to do infra­struc­ture rates, and then you’ve got to get it going. So, it will take some deficit, some invest­ment in the peri­od, but don’t believe for a moment this won’t lead to 25 years of huge pros­per­i­ty, just like Reagan’s did.

Asman: A final ques­tion.

Laf­fer: Yes, sir.

...

Laf­fer: Thank you, sir.

Asman: Art Laf­fer—

Laf­fer: You’re won­der­ful.

Asman: —you are one opti­mistic man in the uni­verse, I think, it’s fair to say.

Good to see you, my friend.

till ahead—

Laf­fer: Thank you very much, David. Talk to you lat­er.

...

“Laf­fer: Yeah. I think they have to be patient. First, it takes time for tax bills to get through all the com­mit­tees, get through all the stuff and then be signed. Then they imple­ment it over time. So, it takes time in the first bill. But the real killer comes, the real bit—in ’86 we did the final bill, which is the great one. We reduced the num­ber of brack­ets from 14 to two—28% and 15%—with the two tax rates. We got rid of the deduc­tions, exemp­tions, exclu­sions, loop­holes. It led to the great­est pros­per­i­ty ever. That’s the one. It’s a long process. It’s a marathon. Please don’t make it a sprint. It’s not a sprint. But the House has done a great job in prepar­ing the ground­work for all of this.”

The 1986 tax cut led to the great­est pros­per­i­ty ever! Now you know. Or maybe Art Laf­fer is just a ser­i­al deceiv­er. We’ll find out since we’re about to repeat his­to­ry. But it’s worth not­ing that when you hear the asser­tion that Rea­gan’s tax cuts dou­bled tax rev­enues, increased the per­cent­age of tax­es paid by the top 1 per­cent, and led to a gen­er­a­tion of pros­per­i­ty...

...
Asman: But what hap­pened in the 1980s, with Ronald Rea­gan, tax rates, as you men­tioned, came down tremen­dous­ly. Didn’t rev­enues actu­al­ly dou­ble? They got so much more rev­enue because there was so much more growth, right?

Laf­fer: Yes, they did. And espe­cial­ly in the high­est income brack­ets where we had the biggest tax cuts, those groups way increased their pay­ments. I mean, if I remem­ber cor­rect­ly, the amount paid as a share of GDP in 1980 was about 1.5% of GDP by the top 1%. By 2006, it was 3.2% of GDP. And GDP had gone through the ceil­ing. So, it was real­ly work­ing on the high­est-income earn­ers, which is—what you call main­stream, I call them kooks. But where they say it doesn’t work, of course, it works there, and it works there the most.

But don’t for­get, when you take over a com­pa­ny that’s been run into the ground, David, it’s lost its pro­duc­tive capac­i­ty, it’s lost its good employ­ees, it’s lost its mar­ket share, you’ve got to cut prices, which means tax rates, you’ve got to do infra­struc­ture rates, and then you’ve got to get it going. So, it will take some deficit, some invest­ment in the peri­od, but don’t believe for a moment this won’t lead to 25 years of huge pros­per­i­ty, just like Reagan’s did.
...

...keep in mind that the top 1 per­cents share of the total nation­al wealth has explod­ed since 1980 as a per­cent­age of GDP as a con­se­quence of these sup­ply-side poli­cies and it’s the top 0.01 per­cent where we’ve seen the biggest income growth for the past twen­ty years, with a dou­bling of the 0.01 per­cent’s nation­al share of wealth since 1995 and a qua­dru­pling over the last half cen­tu­ry. Also keep in mind that tax rev­enue growth under Rea­gan’s tax cuts did­n’t actu­al­ly dou­ble and was his­tor­i­cal­ly rather lack­lus­ter and Democ­rats repeat­ed­ly hiked rates on the rich­es which is what has actu­al­ly been a source of sig­nif­i­cant­ly increas­ing rev­enues and decreas­ing deficits and debt:

The New York Times
The Con­science of a Lib­er­al

Rea­gan and rev­enue

Paul Krug­man
Jan­u­ary 17, 2008 7:03 pm

Ah – com­menter Tom says, in response to my post on tax­es and rev­enues:

Tax­es were cut at the begin­ning of the Rea­gan admin­is­tra­tion.

Fed­er­al tax receipts increased by 50% by the end of the Rea­gan Admin­is­tra­tion.

Although cor­re­la­tion does not prove cau­sa­tion the tax cut must have account­ed for some por­tion of this increase in fed­er­al tax receipts.

I couldn’t have asked for a bet­ter exam­ple of why it’s impor­tant to cor­rect for infla­tion and pop­u­la­tion growth, both of which tend to make rev­enues grow regard­less of tax pol­i­cy.

Actu­al­ly, fed­er­al rev­enues rose 80 per­cent in dol­lar terms from 1980 to 1988. And num­bers like that (some­times they play with the dates) are thrown around by Rea­gan hagiog­ra­phers all the time.

But real rev­enues per capi­ta grew only 19 per­cent over the same peri­od — bet­ter than the like­ly Bush per­for­mance, but still noth­ing excit­ing. In fact, it’s less than rev­enue growth in the peri­od 1972–1980 (24 per­cent) and much less than the amaz­ing 41 per­cent gain from 1992 to 2000.

Is it real­ly pos­si­ble that all the tri­umphant dec­la­ra­tions that the Rea­gan tax cuts led to a rev­enue boom — dec­la­ra­tions that you see in high­ly respectable places — are based on noth­ing but a fail­ure to make the most ele­men­tary cor­rec­tions for infla­tion and pop­u­la­tion growth? Yes, it is. I know we’re sup­posed to pre­tend that we’re hav­ing a seri­ous dis­cus­sion in this coun­try; but the truth is that we aren’t.

Update: For the econowonks out there: busi­ness cycles are an issue here — rev­enue growth from trough to peak will look bet­ter than the reverse. Unfor­tu­nate­ly, busi­ness cycles don’t cor­re­spond to admin­is­tra­tions. But look­ing at rev­enue changes peak to peak is still reveal­ing. So here’s the annu­al rate of growth of real rev­enue per capi­ta over some cycles:
1973–1979: 2.7%
1979–1990: 1.8%
1990–2000: 3.2%
2000–2007 (prob­a­ble peak): approx­i­mate­ly zero
Do you see the rev­enue booms from the Rea­gan and Bush tax cuts? Me nei­ther.

“Is it real­ly pos­si­ble that all the tri­umphant dec­la­ra­tions that the Rea­gan tax cuts led to a rev­enue boom — dec­la­ra­tions that you see in high­ly respectable places — are based on noth­ing but a fail­ure to make the most ele­men­tary cor­rec­tions for infla­tion and pop­u­la­tion growth? Yes, it is. I know we’re sup­posed to pre­tend that we’re hav­ing a seri­ous dis­cus­sion in this coun­try; but the truth is that we aren’t.”

Yes, just as we were sup­posed to pre­tend that we were hav­ing a seri­ous dis­cus­sion of eco­nom­ic pol­i­cy back in 2008, we’re still sup­posed to pre­tend that today. Even more so. And as Laf­fer kept warn­ing, it’s going to be a marathon, not a spring. A marathon of bad ideas and half-truths that will inevitably end in a dis­as­ter that Democ­rats will one day be forced to clean up while the oli­garchy waits for right-wing amne­sia to once again set in. Assum­ing we actu­al­ly can clean up the com­ing mess. Don’t for­get, com­pared to what we’re in store for, W. was the good ‘ol days. *gulp*

Well that’s, ummm, inter­est­ing: the next Trea­sury Sec­re­tary is going to be a for­mer Gold­man Sachs exec­u­tive and Hol­ly­wood pro­duc­er who played a role in the hous­ing cri­sis and worked for George Soros:

The Wash­ing­ton Post

Trump expect­ed to name financier Steve Mnuchin to Trea­sury

By Ylan Q. Mui and Philip Ruck­er
Novem­ber 29, 2016

Pres­i­dent-elect Don­ald Trump is plan­ning to name investor and for­mer Gold­man Sachs exec­u­tive Steven Mnuchin as trea­sury sec­re­tary, opt­ing for an indus­try insid­er with no gov­ern­ment expe­ri­ence to helm the agency in charge of the nation’s finances, accord­ing to peo­ple famil­iar with the mat­ter.

Mnuchin (pro­nounced mah-NEW-chin) joined Trump’s whirl­wind cam­paign in May as finance chair­man, despite the fact that he had nev­er worked in pol­i­tics and that he had donat­ed to Democ­rats in the past. He quick­ly earned Trump’s trust as he worked close­ly with the Repub­li­can Nation­al Com­mit­tee to raise sub­stan­tial amounts of mon­ey in a short peri­od. On pol­i­cy issues, he was instru­men­tal in craft­ing the details of Trump’s pro­pos­al to over­haul the tax code.

“He’s an expert on finance issues,” said Stephen Moore, who worked with Mnuchin as an advis­er to the pres­i­dent-elect on the cam­paign trail. “He clear­ly, like Don­ald Trump, under­stands that the num­ber one goal for this admin­is­tra­tion is going to be to grow the econ­o­my and get jobs.”

The pres­i­dent-elect scored an ear­ly vic­to­ry Tues­day night when air-con­di­tion­ing man­u­fac­tur­er Car­ri­er announced that it would reverse plans to move one of its fac­to­ries from Indi­ana to Mex­i­co. The com­pa­ny, which is owned by Unit­ed Tech­nolo­gies, said about 1,000 U.S. jobs would be pre­served.

Trump’s tough talk on trade dur­ing his cam­paign helped cement his pop­ulist appeal. But Trump — a real estate devel­op­er famous for his flashy style — appears to be staffing his Cab­i­net with advis­ers who also have amassed extra­or­di­nary wealth. Trump is expect­ed to nom­i­nate indus­tri­al­ist bil­lion­aire Wilbur Ross to lead the Com­merce Depart­ment, and Michi­gan bil­lion­aire Bet­sy DeVos was named as Trump’s pick for edu­ca­tion sec­re­tary last week.

Mnuchin made his for­tune on Wall Street, first at the sto­ried New York invest­ment bank Gold­man Sachs and then as the head of his own pri­vate-equi­ty fund. His close ties to an indus­try he would be in charge of reg­u­lat­ing have the poten­tial to com­pli­cate his con­fir­ma­tion and could under­mine Trump’s pop­ulist mes­sage.

While on the stump, the ­pres­i­dent-elect fre­quent­ly lam­bast­ed big banks — Gold­man Sachs in par­tic­u­lar — and advo­cat­ed the rein­state­ment of the Glass-Stea­gall leg­is­la­tion that once sep­a­rat­ed retail and invest­ment banks. In addi­tion, Mnuchin was deeply involved in run­ning a bank that had been at the heart of the sub­prime hous­ing bust, even­tu­al­ly sell­ing it for bil­lions of dol­lars in prof­it.

“So much for drain­ing the swamp,” said Adam Hodge, com­mu­ni­ca­tions direc­tor for the Demo­c­ra­t­ic Nation­al Com­mit­tee. “Trump is already head­ing into office as the most cor­rupt, con­flict­ed and unpop­u­lar pres­i­dent-elect in his­to­ry, and now he’s break­ing his sig­na­ture promise to the vot­ers who elect­ed him.”

As trea­sury sec­re­tary, one of Mnuchin’s top pri­or­i­ties prob­a­bly would be shep­herd­ing Trump’s tax plan through Con­gress. Trump has advo­cat­ed cut­ting the cor­po­rate tax rate to 15 per­cent and stream­lin­ing indi­vid­ual tax rates into three brack­ets. Although Repub­li­can law­mak­ers have expressed enthu­si­asm for reform, there remains sub­stan­tial debate over how to tack­le cor­po­rate prof­its over­seas, among oth­er issues. In addi­tion, key GOP sen­a­tors are advo­cat­ing for a more bipar­ti­san approach that prob­a­bly would require com­plex nego­ti­a­tions with Democ­rats.

...

In news inter­views, Mnuchin has said he was not pre­vi­ous­ly close to Trump, but the two move in the same cir­cles of big-mon­ey financiers, will­ing to take big risks in the face of improb­a­ble odds. Trump’s cam­paign was just the lat­est big bet in Mnuchin’s var­ied career in the upper ech­e­lons of finance, which has stretched from New York to Hol­ly­wood.

Work­ing at Gold­man Sachs was a fam­i­ly affair for Mnuchin. Before he worked at the Wall Street giant, his father, Robert Mnuchin, spent more than 33 years at the bank. His broth­er, Alan, was a Gold­man Sachs vice pres­i­dent.

Mnuchin spent 17 years at the bank, ris­ing from its sav­ings-and-loan busi­ness to mort­gage-backed bond trad­ing before becom­ing the bank’s chief infor­ma­tion offi­cer in 1999. Mnuchin is a “very smart guy,” Lloyd Blank­fein, chief exec­u­tive of Gold­man Sachs, said this month.

“He was a very senior guy at a very young age at Gold­man Sachs,” he said.

...

After leav­ing the bank, Mnuchin worked for famed bil­lion­aire investor George Soros — a well-known Demo­c­ra­t­ic donor. He then found­ed his own pri­vate-equi­ty fund, Dune Cap­i­tal Man­age­ment. Among its most notable invest­ments was the pur­chase of Indy­Mac from the Fed­er­al Deposit Insur­ance Cor­po­ra­tion dur­ing the depths of the finan­cial cri­sis in 2009.

Dune led the con­sor­tium of investors who bought the failed sub­prime lender for about $1.6 bil­lion, and Mnuchin over­saw the rebuild­ing of its busi­ness as chair­man of the renamed OneWest. (A mem­ber of Trump’s eco­nom­ic advi­so­ry team, John Paul­son, was also part of the investor group.)

Under Mnuchin, the bank more than dou­bled its branch­es and increased its assets. But it also faced crit­i­cism from advo­ca­cy groups who com­plained about aggres­sive fore­clo­sure tac­tics. At one point, activists marched to Mnuchin’s home in the Bel Air area of Los Ange­les to protest its treat­ment of cus­tomers.

As trea­sury sec­re­tary, Mnuchin would be respon­si­ble for the Trump administration’s response to the after­math of the hous­ing bust. A cri­sis-era pro­gram that helps home­own­ers refi­nance their mort­gages, for exam­ple, is not sched­uled to end until next year. He also would head the Finan­cial Sta­bil­i­ty Over­sight Coun­cil, which over­sees some of the country’s largest finan­cial insti­tu­tions.

“Putting a Wall Street CEO in charge of his administration’s over­sight of Wall Street is dan­ger­ous and even more proof that Don­ald Trump is only inter­est­ed in pro­tect­ing cor­po­ra­tions at the expense of work­ing fam­i­lies,” said Jes­si­ca Mack­ler, head of Amer­i­can Bridge 21st Cen­tu­ry, a Demo­c­ra­t­ic polit­i­cal action com­mit­tee.

In 2014, OneWest was sold to finan­cial ser­vices firm CIT Group for $3.4 bil­lion. Mnuchin is on CIT’s board of direc­tors but is not involved in day-to-day oper­a­tions. He owns about $100 mil­lion in com­pa­ny stock, accord­ing to com­pen­sa­tion research firm Equi­lar.

After mov­ing to Cal­i­for­nia with the pur­chase of Indy­Mac, Mnuchin also became involved in financ­ing Hol­ly­wood films. Dune Cap­i­tal invest­ed in sev­er­al block­busters, includ­ing “Amer­i­can Sniper,” “Grav­i­ty,” “Avatar” and “Life of Pi.”

“While on the stump, the ­pres­i­dent-elect fre­quent­ly lam­bast­ed big banks — Gold­man Sachs in par­tic­u­lar — and advo­cat­ed the rein­state­ment of the Glass-Stea­gall leg­is­la­tion that once sep­a­rat­ed retail and invest­ment banks. In addi­tion, Mnuchin was deeply involved in run­ning a bank that had been at the heart of the sub­prime hous­ing bust, even­tu­al­ly sell­ing it for bil­lions of dol­lars in prof­it.”

Ok, so Don­ald Trum­np just chose the liv­ing embod­i­ment of the bankster arche­type he alleged­ly opposed through­out his cam­paign to be the next Trea­sury Sec­re­tary. It kind of rais­es the ques­tion of why, of all the pos­si­ble right-wing peo­ple in finance he could have cho­sen, he went with Mnuchin. Is it just because Mnuchin was Trump’s mon­ey man dur­ing the cam­paign and there­fore pass­es Trump’s loy­al­ty fetish? Per­haps in part. But let’s not dis­count the role a Trea­sury sec­re­tary will play in cheer­lead­ing and jus­ti­fy­ing any upcom­ing Trump tax cuts, and the incred­i­ble val­ue in hav­ing who will say any­thing to make those tax cuts a real­i­ty. Any­thing:

The Wash­ing­ton Post

Trump’s new Trea­sury, Com­merce nom­i­nees say no ‘absolute’ tax cut for the wealthy, pre­dict faster eco­nom­ic growth

By Ylan Q. Mui and Jim Tanker­s­ley
Novem­ber 30, 2016

Pres­i­dent-elect Don­ald Trump’s nom­i­nee to lead the Trea­sury Depart­ment on Wednes­day called reform­ing the nation’s tax code his top pri­or­i­ty, promis­ing sig­nif­i­cant tax breaks for the mid­dle class but no over­all tax cut for high-income house­holds.

Steven Mnuchin, a for­mer Gold­man Sachs banker and Hol­ly­wood financier, con­firmed in an inter­view Wednes­day on CNBC’s Squawk Box that Trump had asked him to serve in the admin­is­tra­tion. Bil­lion­aire indus­tri­al­ist Wilbur Ross also con­firmed that he is the nom­i­nee for Com­merce Sec­re­tary. In the joint inter­view, they pro­fessed con­fi­dence in the new administration’s abil­i­ty to boost eco­nom­ic growth as high as 4 per­cent a year.

Cru­cial to that pro­jec­tion would be pas­sage of Trump’s pro­posed over­haul of the tax code, includ­ing stream­lin­ing indi­vid­ual tax rates into three brack­ets and reduc­ing the cor­po­rate tax rate to 15 per­cent. Inde­pen­dent research groups have esti­mat­ed the plan could cost as much as $6 tril­lion over the next decade. How­ev­er, that analy­sis does not include the poten­tial eco­nom­ic ben­e­fits the tax cuts could gen­er­ate.

Mnuchin said Wednes­day that he believed the tax cuts would gen­er­ate more jobs, help­ing to off­set the cost. Some of Trump’s eco­nom­ic advis­ers said dur­ing the cam­paign that his plan would not add to the fed­er­al deficit. How­ev­er, the Tax Foun­da­tion esti­mat­ed that even with so-called “dynam­ic scor­ing,” Trump’s tax pack­age could cost about $3 tril­lion over a decade.

In addi­tion, Mnuchin empha­sized that a reduced tax rate for the high­est earn­ers would be off­set by the elim­i­na­tion or cur­tail­ing of many deduc­tions that favor the wealthy. He sug­gest­ed that the cap on the pop­u­lar deduc­tion for mort­gage inter­est could be low­ered but did not pro­vide details. The cur­rent cap is $1 mil­lion on first and sec­ond mort­gages.

Mnuchin also pushed back against analy­sis by the non­par­ti­san Tax Pol­i­cy Cen­ter that found the bulk of the ben­e­fits under Trump’s plan would go to wealthy house­holds, while some sin­gle-par­ent house­holds would end up pay­ing high­er tax­es. He high­light­ed plans for a child-care tax cred­it and rebates for low­er-income fam­i­lies.

“There will be no absolute tax cut for the upper class,” he said. “There will be a big tax cut for the mid­dle class.”

The com­ments high­light two poten­tial sources of ten­sion for the Trump admin­is­tra­tion as it push­es its tax plan – one with con­gres­sion­al Repub­li­cans, the oth­er with the fed­er­al bud­get deficit. They also fly in the face of every inde­pen­dent analy­sis of the Trump plan, includ­ing one Trump has fre­quent­ly cit­ed favor­ably.

Mnuchin reit­er­at­ed Trump’s com­mit­ment to cut­ting tax­es for the mid­dle class, a key dif­fer­ence between the president-elect’s cam­paign plan and the tax blue­print put forth by GOP lead­ers on Capi­tol Hill. The con­gres­sion­al plan, like Trump’s, would cut tax­es for the wealthy and for cor­po­ra­tions, but it would not do near­ly as much as Trump would to cut tax­es for low­er- and mid­dle-income Amer­i­cans. Rec­on­cil­ing the two will be a major stick­ing point in any tax-reform nego­ti­a­tions next year.

Mnuchin also said two things about Trump’s tax plan that inde­pen­dent analy­ses do not sup­port. One is the idea that the wealthy will receive no net tax ben­e­fits from the plan. The oth­er is that the plan will not add to the deficit, because of increased eco­nom­ic growth.

Even the friend­liest analy­sis toward Trump, work by the inde­pen­dent Tax Foun­da­tion that the Trump cam­paign fre­quent­ly cit­ed to bol­ster his pro­pos­als, finds Trump’s plan would add at least $2.6 tril­lion to the fed­er­al debt over a decade, and as much as $3.9 tril­lion, after account­ing for increased eco­nom­ic growth.

The Tax Foun­da­tion also finds Trump’s plan would boost incomes for the top 1 per­cent of U.S. earn­ers by between 10 and 16 per­cent, an amount that dwarfs the ben­e­fits low­er- and mid­dle-income earn­ers would see from the plan. That’s true even though the group fac­tored in Trump’s promise to lim­it deduc­tions for high earn­ers, which Mnuchin reit­er­at­ed on Wednes­day.

Mnuchin and Ross also appeared to step back from some of Trump’s most con­fronta­tion­al rhetoric on the cam­paign trail. Trump has repeat­ed­ly threat­ened to levy dou­ble-dig­it tar­iffs on goods com­ing from Chi­na and Mex­i­co and pull out of exist­ing free-trade deals. But Ross said Wednes­day those mea­sures may only be a last resort.

“Every­body talks about tar­iffs as the first things. Tar­iffs are the last thing. Tar­iffs are a part of the nego­ti­a­tion,” he said. “The real trick is going to be increase Amer­i­can exports.”

...

“Mnuchin also said two things about Trump’s tax plan that inde­pen­dent analy­ses do not sup­port. One is the idea that the wealthy will receive no net tax ben­e­fits from the plan. The oth­er is that the plan will not add to the deficit, because of increased eco­nom­ic growth.”

Yep, George W. Bush’s ‘Fuzzy’ math is back! With a vengeance. Oh good­ie.

And that means the rich are about to get a lot fuzzi­er rich­er. A lot rich­er:

CNBC

Trump Trea­sury sec­re­tary pick Mnuch­in’s tax claims about the wealthy defy math

Robert Frank
Wednes­day, 30 Nov 2016 | 10:47 AM ET

New­ly des­ig­nat­ed for Trea­sury sec­re­tary, Steve Mnuchin told CNBC on Wednes­day that Don­ald Trump’s tax plan would con­tain “no reduc­tion” in tax­es for the rich. Yet an inde­pen­dent analy­sis of the pres­i­dent-elec­t’s plan sug­gests that most of the ben­e­fits would, in fact, go to the top earn­ers.

...

“There will be no absolute tax cut for the upper class,” Mnuchin said. “Any tax cuts we have for the upper class will be off­set by less deduc­tions that pay for it. ”

But the non­par­ti­san Tax Pol­i­cy Cen­ter said Mnuch­in’s com­ments don’t square with Trump’s plan. In an analy­sis that includ­ed the deduc­tion caps, which include ben­e­fits from char­i­ta­ble giv­ing and mort­gages, the cen­ter found that those changes aren’t large enough to off­set low­er income tax and cap­i­tal gains rates for the top earn­ers.

Specif­i­cal­ly, Trump’s plan calls for cap­ping deduc­tions for sin­gle fil­ers at $100,000, and at $200,000 for joint fil­ers. It would also cut the top tax rate from 39.6 per­cent to 33 per­cent; trim the cap­i­tal gains tax to 20 per­cent from 23.8 per­cent; low­er the cor­po­rate tax and rate for pass-through incomes (part­ner­ships and LLCs used by the weathy); and elim­i­nate the estate tax.

“The lim­i­ta­tion on tax pref­er­ences avail­able to the rich are not sig­nif­i­cant enough to off­set tax cuts else­where in the plan,” said Rober­ton Williams, a fel­low at the cen­ter. “The cuts on the oth­er side are so large you’ve got to come up with some­thing real­ly big to off­set them. And deduc­tions aren’t even close.”

Accord­ing to the cen­ter’s analy­sis, mid­dle-class and low­er earn­ers would get a tax cut of less than 2 per­cent. The top 1 per­cent of earn­ers would get a cut of 14 per­cent. And the top 0.1 per­cent would receive a break of more than 14 per­cent — total­ing more than $1 mil­lion a year per fil­er.

The Tax Foun­da­tion also found that the Trump plan gives the largest cuts to those at the top — includ­ing the cap on deduc­tions. “Even with the cap on deduc­tions, you still end up with a net tax cut for those at the top, and they are the ones ben­e­fit­ing the most from the plan,” said the foun­da­tion’s Kyle Pomer­leau.

That’s not to say that Trump’s plan won’t stim­u­late the econ­o­my or invest­ment. And there is no doubt that Trump’s plan low­ers tax­es for almost every type of tax­pay­er in Amer­i­ca.

But Mnuchin may have over­stepped the law of num­bers when he said the wealthy will get no tax break.

“Accord­ing to the cen­ter’s analy­sis, mid­dle-class and low­er earn­ers would get a tax cut of less than 2 per­cent. The top 1 per­cent of earn­ers would get a cut of 14 per­cent. And the top 0.1 per­cent would receive a break of more than 14 per­cent — total­ing more than $1 mil­lion a year per fil­er.”

Oh may, So Trump’s nom­i­nee for Trea­sury sec­re­tary is mak­ing star­tling­ly absurd state­ments about Trump’s pro­posed tax cut. Imag­ine that!

But also keep in mind that while it’s true that the low­er and mid­dle-class­es will at least see a tiny tax cut (sin­gle par­ent house­holds being a notable excep­tion) in addi­tion to the rich’s major cut and the super-rich’s mega-cut, this is also all going to come at the cost of a far more use­less and, even­tu­al­ly, bank­rupt gov­ern­ment that will be inca­pable of pro­vid­ing use­ful pub­lic ser­vices. It’s a reminder that, as the GOP con­tin­ues to sig­nal that it’s going to gut Medicare over con­cerns that ‘we can’t afford it’ in the long-run, the GOP’s embrace of ‘fuzzy math’ is part of a broad­er embrace of a ‘fuzzy lives’ phi­los­o­phy.

Remem­ber how Don­ald Trump would rail against the Fed­er­al Reserve and it’s ulta-low rates, and even includ­ed Janet Yellen in his creepy anti-semit­ic final cam­paign com­mer­cial? And remem­ber how he thought rates were too low and need­ed to be raised, and then changed his mind, and then changed his mind back? Well, now that the Fed­er­al Reserve made its sec­ond fate­ful rate hike as it eas­es off of his­toric lows, it’s worth keep in mind that the econ­o­my is already run­ning close to full employ­ment but Trump’s stim­u­lus plans are a sup­ply-side mess that’s unlike­ly to stim­u­late effec­tive­ly so it’s unclear if we should expect even short-term eco­nom­ic strength­en­ing. But if that does hap­pen, Don­ald Trump is prob­a­bly going to get those rate hikes he was ask­ing for

The New York Times

A Trump Eco­nom­ic Boom? The Fed May Stand in the Way

By BINYAMIN APPELBAUM
DEC. 13, 2016

WASHINGTON — Investors in finan­cial mar­kets, and those pre­dict­ing faster eco­nom­ic growth in 2017, would do well to remem­ber the famous words that William McCh­es­ney Mar­tin Jr., the for­mer Fed­er­al Reserve chair­man, uttered way back in 1955: The Fed’s job is to remove the punch bowl just as the par­ty gets going.

Pres­i­dent-elect Don­ald J. Trump’s promis­es to cut tax­es and reg­u­la­tion and to increase spend­ing on infra­struc­ture and defense have con­vinced many that a sug­ar high in the near term will goose the econ­o­my. But Fed offi­cials say the econ­o­my is already expand­ing at some­thing close to its max­i­mum sus­tain­able pace, mean­ing faster growth would dri­ve infla­tion toward unwel­come lev­els.

To avoid over­heat­ing, the Fed could respond by rais­ing inter­est rates more quick­ly. The more Mr. Trump stim­u­lates growth, the faster the Fed is like­ly to increase rates.

“I guess I would argue that I think peo­ple have got­ten a bit ahead of them­selves about what a Trump pres­i­den­cy would mean,” said Lewis Alexan­der, chief Unit­ed States econ­o­mist at Nomu­ra. “If we have a big stim­u­lus, the log­i­cal thing for the Fed to do is to raise rates faster. There isn’t a whole heck of a lot of scope to just let the econ­o­my run under those cir­cum­stances. There’s a big ques­tion about whether fis­cal stim­u­lus under Trump just leads to high­er inter­est rates.”

Under­scor­ing that ques­tion, the Fed is expect­ed to raise its bench­mark rate on Wednes­day for the first time since last Decem­ber in light of new eco­nom­ic data. The rate sits in a range of 0.25 per­cent to 0.5 per­cent, a low lev­el intend­ed to stim­u­late eco­nom­ic growth by encour­ag­ing bor­row­ing and risk-tak­ing. Ana­lysts pre­dict the Fed will shift the range upward by a quar­ter of a per­cent­age point, mod­est­ly reduc­ing those incen­tives.

The rate increase is wide­ly regard­ed as a fore­gone con­clu­sion. The odds, derived from asset prices, topped 95 per­cent Mon­day, accord­ing to the CME Group. The loom­ing ques­tion is how quick­ly the Fed will con­tin­ue to raise rates in 2017.

Eco­nom­ic fore­casts always require large assump­tions, but that is par­tic­u­lar­ly true in the present case because Mr. Trump has pro­vid­ed rel­a­tive­ly few details about his plans. Per­haps the most accu­rate thing that can be said about Mr. Trump’s vic­to­ry is that it has increased the uncer­tain­ty of the eco­nom­ic out­look.

“At this junc­ture, it is pre­ma­ture to reach firm con­clu­sions about what will like­ly occur,” William C. Dud­ley, pres­i­dent of the New York Fed, said in a recent speech.

Dur­ing his cam­paign, Mr. Trump pre­dict­ed 4 per­cent annu­al growth, and his actions since Elec­tion Day point to a sin­gle-mind­ed goal of short-term job cre­ation.

“Our No. 1 pri­or­i­ty is going to be the econ­o­my, get back to 3 to 4 per­cent growth,” Steven Mnuchin, Mr. Trump’s pick to serve as Trea­sury sec­re­tary, said last month.

Many econ­o­mists regard such growth pre­dic­tions as fan­ci­ful; the econ­o­my has been mired in an extend­ed peri­od of slow growth and the rea­sons, includ­ing an aging pop­u­la­tion and a dearth of inno­va­tion, are unlike­ly to change quick­ly. Some think Mr. Trump is more like­ly to push the econ­o­my into reces­sion than to cat­alyze a new boom.

Even if Mr. Trump is right, how­ev­er, the Fed does not want 4 per­cent growth.

The cen­tral bank’s out­look has become increas­ing­ly gloomy. Offi­cials esti­mat­ed in Sep­tem­ber that annu­al growth of 1.8 per­cent was the max­i­mum sus­tain­able pace, and they pre­dict­ed growth would not exceed 2 per­cent in the next three years. They will update those fore­casts Wednes­day, but large shifts are unlike­ly.

Fed offi­cials also are increas­ing­ly con­vinced that steady job growth has sub­stan­tial­ly elim­i­nat­ed the post-reces­sion back­log of peo­ple seek­ing work. The unem­ploy­ment rate fell to 4.6 per­cent in Novem­ber, a lev­el the Fed regards as healthy.

For years, Fed offi­cials urged Con­gress to increase fis­cal spend­ing. Now, Mr. Trump is promis­ing to do just that — and the Fed has con­clud­ed that it is too late.

Stan­ley Fis­ch­er, the Fed’s vice chair­man, said last month the Fed might still ben­e­fit from fis­cal stim­u­lus because it could raise rates more quick­ly. That would increase the Fed’s abil­i­ty to respond to future down­turns by reduc­ing inter­est rates.

But such gains would come at real cost: A fis­cal stim­u­lus would increase the fed­er­al government’s debt bur­den, which already is at a high lev­el by his­tor­i­cal stan­dards, reduc­ing the room for a fis­cal response to a future down­turn. Janet L. Yellen, the Fed’s chair­woman, urged Con­gress last month to be mind­ful that the gov­ern­ment is already on the hook for more spend­ing as baby boomers age into retire­ment.

“With the debt-to‑G.D.P. ratio at around 77 per­cent, there’s not a lot of fis­cal space, should a shock to the econ­o­my occur, an adverse shock, that did require fis­cal stim­u­lus,” she said.

The ten­sion between fis­cal and mon­e­tary pol­i­cy is like­ly to unfold in slow motion.

Mr. Trump has promised to press for rapid changes in gov­ern­ment pol­i­cy, but Con­gress is not built for speed. A sim­i­lar effort to cut tax­es at the begin­ning of the George W. Bush admin­is­tra­tion, for exam­ple, was signed into law on June 7, 2001. The impact of new cuts, and any increase in infra­struc­ture spend­ing that Mr. Trump can per­suade dubi­ous Repub­li­cans to embrace, would be felt most­ly in future years.

Mark M. Zan­di, chief econ­o­mist at Moody’s Ana­lyt­ics, pre­dict­ed that tax cuts, reg­u­la­to­ry roll­backs and deficit-financed spend­ing would fuel faster growth in the first half of Mr. Trump’s four-year term. But he said that the Fed’s rate increas­es, and restric­tions on trade and immi­gra­tion, would grad­u­al­ly begin to take a larg­er toll. By the end, Mr. Zan­di pre­dict­ed, the Amer­i­can econ­o­my would be “unnerv­ing­ly close” to reces­sion.

“The Fed and mar­kets in gen­er­al will ulti­mate­ly wash out any ben­e­fit,” Mr. Zan­di said Mon­day. “The econ­o­my under Pres­i­dent Trump ulti­mate­ly will be dimin­ished.”

...

““Our No. 1 pri­or­i­ty is going to be the econ­o­my, get back to 3 to 4 per­cent growth,” Steven Mnuchin, Mr. Trump’s pick to serve as Trea­sury sec­re­tary, said last month.”

Yep, the Trump admin­is­tra­tion’s top goal is explic­it­ly to cre­ate the kinds of eco­nom­ic con­di­tions that are guar­an­teed to prompt a strong rate hik­ing envi­ron­ment. So how Trump responds to the fact that the Fed is sys­tem­at­i­cal­ly poised to respond to his eco­nom­ic plans with con­trac­tionary mon­e­tary poli­cies is one of the big Trumpian unknowns going for­ward. With rates being still near 0 and the econ­o­my in the midst of a slow but steady expan­sion since the cri­sis near­ly broke the glob­al econ­o­my, it’s hard to see the Fed pass­ing up this oppor­tu­ni­ty to raise rates. Espe­cial­ly giv­en the over­all dis­dain for low rates and cen­tral bank inter­ven­tion in gen­er­al with rightwing eco­nom­ic ortho­doxy.

So while the real­i­ty of any sort of Trump stim­u­lus plan remains to be seen — tax cuts for the rich and an infra­struc­ture stim­u­lus plan that’s real­ly just a pri­va­ti­za­tion plan prob­a­bly won’t be very stim­u­lat­ing — it’s not impos­si­ble that there’s going to be some sort of eco­nom­ic sug­ar high in the short run and if that hap­pens a sig­nif­i­cant series of rate hikes could be what fol­lows it along with all the fun effects that could have across the globe as the dol­lar ris­es. And if that sug­ar high hap­pens, it’s not impos­si­ble the Fed will respond in a way that earns Trump’s ire. Tur­bo-charged eco­nom­ic growth is part of Trump’s planned “brand”. So the fact that this puts him on a path towards con­flict with the Fed can’t be tak­en casu­al­ly. Don’t for­get that Trump’s eco­nom­ic advi­sor, Judy Shel­ton, would like to see the Fed destroyed and a return to the gold stan­dard. Don’t dis­count the dam­age a Trump war with the Fed could do.

Of course, it’s also pos­si­ble there won’t be any con­flict with the Fed­er­al Reserve at all due to there being no pres­sure to raise rates at all giv­en all the dam­age Trump and the GOP will do to the econ­o­my from the sav­age cuts to enti­tle­ments and the safe­ty net that are cen­tral to the Paul Ryan agen­da that Trump appears to ful­ly back. Which would, in this con­text, at least have the ben­e­fit of keep infla­tion down:

The New York Times
The Con­science of a Lib­er­al

Will Fis­cal Pol­i­cy Real­ly Be Expan­sion­ary?

Paul Krug­man
Dec 18, 2016 1:49 pm

It’s now gen­er­al­ly accept­ed that Trump­ism will final­ly involve the kind of fis­cal stim­u­lus pro­gres­sive econ­o­mists have been plead­ing for ever since the finan­cial cri­sis. After all, Repub­li­cans are deeply wor­ried about bud­get deficits when a Demo­c­rat is in the White House, but sud­den­ly become fis­cal doves when in con­trol. And there real­ly is no ques­tion that the deficit will go up.

But will this actu­al­ly amount to fis­cal stim­u­lus? Right now it looks as if Repub­li­cans are going to ram through their whole agen­da, includ­ing an end to Oba­macare, pri­va­tiz­ing Medicare and block-grant­i­ng Med­ic­aid, sharp cuts to food stamps, and so on. These are spend­ing cuts, which will reduce the dis­pos­able income of low­er- and mid­dle-class Amer­i­cans even as tax cuts raise the income of the wealthy. Giv­en the sharp dis­tri­b­u­tion­al changes, look­ing just at the bud­get deficit may be a poor guide to the macro­eco­nom­ic impact.

Giv­en the extent to which things are in flux, I can’t put num­bers on what’s like­ly to hap­pen. But I was able to find match­ing analy­ses by the good folks at CBPP of tax and spend­ing cuts in Paul Ryan’s 2014 bud­get, which may be a use­ful mod­el of things to come.

If you leave out the mag­ic aster­isks — clos­ing of unspec­i­fied tax loop­holes — that bud­get was a deficit-hik­er: $5.7 tril­lion in tax cuts over 10 years, ver­sus $5 tril­lion in spend­ing cuts. The spend­ing cuts involved cuts in dis­cre­tionary spend­ing plus huge cuts in pro­grams that serve the poor and mid­dle class; the tax cuts were, of course, very tar­get­ed on high incomes.

The plus­es and minus­es here would have quite dif­fer­ent effects on demand. Cut­ting tax­es on high incomes prob­a­bly has a low mul­ti­pli­er: the wealthy are unlike­ly to be cash-con­strained, and will save a large part of their wind­fall. Cut­ting dis­cre­tionary spend­ing has a large mul­ti­pli­er, because it direct­ly cuts gov­ern­ment pur­chas­es of goods and ser­vices; cut­ting pro­grams for the poor prob­a­bly has a pret­ty high mul­ti­pli­er too, because it reduces the income of many peo­ple who are liv­ing more or less hand to mouth.

Tak­ing all this into account, that old Ryan plan would almost sure­ly have been con­trac­tionary, not expan­sion­ary.

Will Trumpo­nom­ics be any dif­fer­ent? It would mat­ter if there real­ly were a large infra­struc­ture push, but that’s becom­ing ever less plau­si­ble. There will be big tax cuts at the top, but as I said, the push to dis­man­tle the safe­ty net def­i­nite­ly seems to be on. Put it all togeth­er, and it’s extreme­ly doubt­ful whether we’re talk­ing about net fis­cal stim­u­lus.

...

“But will this actu­al­ly amount to fis­cal stim­u­lus? Right now it looks as if Repub­li­cans are going to ram through their whole agen­da, includ­ing an end to Oba­macare, pri­va­tiz­ing Medicare and block-grant­i­ng Med­ic­aid, sharp cuts to food stamps, and so on. These are spend­ing cuts, which will reduce the dis­pos­able income of low­er- and mid­dle-class Amer­i­cans even as tax cuts raise the income of the wealthy. Giv­en the sharp dis­tri­b­u­tion­al changes, look­ing just at the bud­get deficit may be a poor guide to the macro­eco­nom­ic impact.”

It turns out gut­ting the the ser­vices that actu­al­ly help peo­ple hurts the econ­o­my too. Now we know. Still. And just to make it clear how severe those cuts are going to be, note the size of those cuts that Paul Ryan’s bud­get would have made real­i­ty in 2014:

...
If you leave out the mag­ic aster­isks — clos­ing of unspec­i­fied tax loop­holes — that bud­get was a deficit-hik­er: $5.7 tril­lion in tax cuts over 10 years, ver­sus $5 tril­lion in spend­ing cuts. The spend­ing cuts involved cuts in dis­cre­tionary spend­ing plus huge cuts in pro­grams that serve the poor and mid­dle class; the tax cuts were, of course, very tar­get­ed on high incomes.

...

That’s $5 tril­lion in cuts to enti­tle­ments and spend­ing for the poor head­ing out way in order to pay for more tax cuts for the rich so they can bet­ter afford to buy up our pub­lic infra­struc­ture in a pri­va­ti­za­tion bonan­za. In oth­er words, Trump’s giant tax cut for the rich is get­ting paired with the trash­ing of pro­grams for the mid­dle-class and poor.

So while the Fed­er­al Reserve may be poised to raise rates for poten­tial­ly years to come, putting it in poten­tial oppo­si­tion with the Trump admin­is­tra­tion that’s made rapid econ­o­my growth one of its pri­ma­ry promis­es, let’s not for­get that this is an unusu­al­ly far-right GOP admin­is­tra­tion with an unusu­al­ly far-right GOP con­gress, which means the stars have aligned for the kind of bru­tal aus­ter­i­ty you only see once every few gen­er­a­tions. And when you pair your nation­al stim­u­lus with a nation­al lobot­o­my of pri­va­ti­za­tion and sav­age aus­ter­i­ty, infla­tion­ary pres­sures may not be as one might oth­er­wise expect. Although not non-exis­tent.

With the Trump admin­is­tra­tion set to slash tax­es for the rich and explode the deficit it’s worth not­ing that Fitch just threat­ened to down­grade the US’s top cred­it rat­ing specif­i­cal­ly because of Trump’s tax cuts:

Reuters

Trump’s tax cuts may pres­sure U.S.‘s top cred­it rat­ing: Fitch

By John Ged­die | LONDON
Thu Jan 12, 2017 | 6:20am EST

U.S. Pres­i­dent-elect Don­ald Trump’s plans to slash tax­es could threat­en the coun­try’s triple‑A cred­it rat­ing over the medi­um term, the head of EMEA sov­er­eign rat­ings at the Fitch agency said on Thurs­day.

“We do see increas­ing medi­um-term pres­sures (on the U.S. rat­ing),” Ed Park­er said at the agen­cy’s annu­al cred­it out­look con­fer­ence in Lon­don.

“Even before elec­tions the U.S had the high­est lev­el of gov­ern­ment debt of any triple‑A coun­try. If we add on top of that Trump’s plans to cut tax­es by $6.2 tril­lion over the next 10 years that could add around 33 per­cent to U.S. gov­ern­ment debt,” he added.

Trump will take office on Jan. 20 but some of his promised pol­i­cy changes have already sparked mar­ket and eco­nom­ic con­cern, includ­ing tax cuts, a repeal of the health­care reform enact­ed under Pres­i­dent Barack Oba­ma and a threat to slap tar­iffs on com­pa­nies mov­ing jobs over­seas.

Park­er said that in the short-term Trump did not pose a risk to the U.S. cred­it rat­ing because the coun­try con­tin­ues to ben­e­fit from strengths such as the role of the dol­lar as the world’s pre­dom­i­nant reserve cur­ren­cy

Fitch has a sta­ble out­look on its AAA rat­ing on the Unit­ed States. Of the oth­er two main agen­cies, Moody’s also has the top rat­ing for the No. 1 world econ­o­my but Stan­dard and Poor’s has it one notch low­er at AA+.

...

“Even before elec­tions the U.S had the high­est lev­el of gov­ern­ment debt of any triple‑A coun­try. If we add on top of that Trump’s plans to cut tax­es by $6.2 tril­lion over the next 10 years that could add around 33 per­cent to U.S. gov­ern­ment debt,” he added.”

Huh. It appears Fitch isn’t very opti­mistic that Trump’s bud­get bust­ing tax cuts will mag­i­cal­ly pay for itself. Imag­ine that.

And if you’re tempt­ed to blame the cur­rent US debt that Trump’s tax cuts will be on some sort of spend­thrift Oba­ma admin­is­tra­tion, it’s prob­a­bly worth recall­ing that the bud­get deficit has fall­en almost every year under the Oba­ma admin­is­tra­tion. Although, as we can see, that did­n’t pre­vent S&P from down­grad­ing the US’s cred­it rat­ing back in 2011 from AAA to AA+.

And if you’re tempt­ed to blame that cred­it rat­ing down­grade on the Oba­ma admin­is­tra­tion and spend­thrift Democ­rats, it’s prob­a­bly worth recall­ing that the S&P’s 2011 down­grade was specif­i­cal­ly because of the Bush tax cuts. Or rather, specif­i­cal­ly because S&P was pret­ty con­fi­dent that the Bush tax cuts were going to become per­ma­nent in 2012 due to the GOP’s will­ing­ness to engage in leg­isla­tive hostage-tak­ing and threat­en to shut down the gov­ern­ment if it did­n’t get its way:

The Nation

GOP Caus­es S&P Down­grade, but Repub­li­can Can­di­dates Blame Oba­ma

S&P down­grad­ed the US cred­it rat­ing because the GOP won’t raise tax­es and played brinks­man­ship with the debt ceil­ing. But Rom­ney, Bach­mann et al. say it’s Obama’s fault.

By Ben Adler
August 8, 2011

It is clear from Stan­dard & Poor’s state­ment down­grad­ing the fed­er­al government’s cred­it rat­ing that it places the blame square­ly on Repub­li­can actions and poli­cies. Two of S&P’s biggest con­cerns about whether the Unit­ed States will pay off its debt are whether Repub­li­cans will be so insane as to refuse to lift the debt ceil­ing, a pos­si­bil­i­ty Repub­li­cans inten­tion­al­ly stoked fears of, and whether the Unit­ed States will raise much-need­ed tax rev­enue. Specif­i­cal­ly, S&P changed its base­line assump­tion that the Bush tax cuts would expire on sched­ule in 2012 because Repub­li­cans are so insis­tent that they must be renewed. “We have changed our assump­tion on this because the major­i­ty of Repub­li­cans in Con­gress con­tin­ue to resist any mea­sure that would raise rev­enues,” wrote S&P. That adds $4 tril­lion over ten years to the pro­ject­ed deficits.

So, how are Repub­li­can pres­i­den­tial can­di­dates respond­ing? By blam­ing Pres­i­dent Oba­ma, instead of their co-par­ti­sans in Con­gress who are actu­al­ly respon­si­ble. “America’s cred­it­wor­thi­ness just became the lat­est casu­al­ty in Pres­i­dent Obama’s failed record of lead­er­ship on the econ­o­my,” said front-run­ner Mitt Rom­ney in a state­ment. “His failed poli­cies have led to high unem­ploy­ment, sky­rock­et­ing deficits, and now, the unprece­dent­ed loss of our nation’s prized AAA cred­it rat­ing.” Appar­ent­ly, Rom­ney knows bet­ter than S&P itself why it down­grad­ed our cred­it rat­ing, and it has noth­ing to do with lost rev­enue due to Repub­li­can tax cuts, or Repub­li­can threats not to pay our debts (a fair­ly straight­for­ward threat to our cred­it­wor­thi­ness if ever there was one.) No, it’s just because of our eco­nom­ic per­for­mance, which Rom­ney seems to think is deter­mined entire­ly by the actions of the pres­i­dent and is in no way beyond his con­trol.

...

If you want to take a longer view of how the US debt reached this height, Steve Benen of The Wash­ing­ton Month­ly made a time­line illus­trat­ing how it is almost entire­ly the Repub­li­cans’ fault. But the long view is not of any inter­est to the mod­ern Repub­li­can Par­ty.

“It is clear from Stan­dard & Poor’s state­ment down­grad­ing the fed­er­al government’s cred­it rat­ing that it places the blame square­ly on Repub­li­can actions and poli­cies. Two of S&P’s biggest con­cerns about whether the Unit­ed States will pay off its debt are whether Repub­li­cans will be so insane as to refuse to lift the debt ceil­ing, a pos­si­bil­i­ty Repub­li­cans inten­tion­al­ly stoked fears of, and whether the Unit­ed States will raise much-need­ed tax rev­enue. Specif­i­cal­ly, S&P changed its base­line assump­tion that the Bush tax cuts would expire on sched­ule in 2012 because Repub­li­cans are so insis­tent that they must be renewed. “We have changed our assump­tion on this because the major­i­ty of Repub­li­cans in Con­gress con­tin­ue to resist any mea­sure that would raise rev­enues,” wrote S&P. That adds $4 tril­lion over ten years to the pro­ject­ed deficits.”

And, sure enough, at the end of 2012 there was indeed a debt ceil­ing show­down, with the GOP even offer­ing to end the show­down if the entire Bush tax cuts, includ­ing for the top 2 per­cent, were extend­ed per­ma­nent­ly. And, sure enough, the US went off the “fis­cal cliff” on New Years Eve 2012 as part of that bud­get show­down. It was resolved the next day and at the end of it all the Bush tax cuts for all but the wealth­i­est where made per­ma­nent. Flash for­ward four years, and we have an even big­ger round of tax cuts that are even more ori­ent­ed for the rich.

Giv­en all that, while the ques­tion of whether or not Fitch will actu­al­ly down­grade the US is a pret­ty big and loom­ing ques­tion, it’s prob­a­bly not as big as the ques­tion of when Moody’s joins S&P and Fitch and the “big three” make the tax-cut fueled down­grad­ing of the US offi­cial.

Elaine Chao, George W. Bush’s Labor Sec­re­tary and Don­ald Trump’s choice for Trans­porta­tion Sec­re­tary and the wife of Sen­ate Major­i­ty Leader Mitch McConnell, just had her Sen­ate con­fir­ma­tion hear­ing. It was, by all accounts, a pret­ty breezy affair with few sub­stan­tive ques­tions and few­er sub­stan­tive answers. Although quite a few dodges. So it’s basi­cal­ly more of the same from the Trump Team on its big infra­struc­ture plans. Which is a prob­lem since there have been few answers from the Trump Team so far and and the few answers we’ve got­ten so far are so alarm­ing. Although we did learn some­thing from Chao’s tes­ti­mo­ny. It sounds like she’s up for pri­va­tiz­ing the FAA and turn­ing it into a non-prof­it. Pre­sum­ably as a foot in the door for a prof­it-dri­ven mod­el (oth­er­wise how is the mag­ic of the mar­ket sup­posed to work). Oh good­ie.

And when it comes to Trump’s big $1 tril­lion infra­struc­ture mys­tery pack­age, the mys­tery remains intact. Chao con­firmed lit­tle oth­er than that there would be some pub­lic spend­ing (big sur­prise) and oth­er­wise they would focus on being “cre­ative” in financ­ing the $1 tril­lion plan. And, of course, “cre­ative” = pri­va­tize cre­ative­ly:

Politi­co

Chao skates through hear­ing despite lit­tle info on infra­struc­ture

By Kathryn A. Wolfe

01/11/17 10:22 AM EST
Updat­ed 01/11/17 03:57 PM EST

Trans­po­ra­tion Sec­re­tary-designee Elaine Chao emerged from the Sen­ate Com­merce Com­mit­tee’s hear­ing today large­ly unscathed despite offer­ing few con­crete details about how she or Don­ald Trump planned to roll out a mas­sive infra­struc­ture invest­ment pro­gram that the pres­i­dent-elect has promised.

Chao, a famil­iar face to many on the com­mit­tee because of her work in the two Bush admin­is­tra­tions and her mar­riage to Sen­ate Major­i­ty Leader Mitch McConnell, promised to look at cre­ative ways to attract fund­ing for the $1 tril­lion infra­struc­ture invest­ment that Trump cam­paigned on — though she was care­ful to avoid men­tion­ing any spe­cif­ic finan­cial fig­ures.

Under ques­tion­ing from Sen. Cory Book­er (D‑N.J.), Chao said she thinks Trump’s infra­struc­ture pack­age would include at least some fed­er­al spend­ing.

Book­er com­ment­ed that most of the mon­ey Trump has pledged for his infra­struc­ture plan seems to be derived from tax breaks and pri­vate invest­ment, but he also not­ed advis­er Steve Bannon’s pri­or sup­port for direct invest­ments. “Do you and Pres­i­dent-elect Trump sup­port an infra­struc­ture pack­age that will include direct fed­er­al spend­ing?” he asked.

“I believe the answer is yes,” Chao said.

That’s the clos­est the Wash­ing­ton vet­er­an came to stat­ing that fed­er­al mon­ey would be use to help repairs the nation’s high­ways, bridges, rail­ways and air­ports after stat­ing in her pre­pared remarks that the incom­ing admin­is­tra­tion would look at “all the options ... both pub­lic and pri­vate, that pro­vide the great­est cost-ben­e­fit.”

Chao did acknowl­edge that a fix was need­ed for the nation’s main trans­porta­tion infra­struc­ture pro­gram, the High­way Trust Fund, say­ing it was “among the top pri­or­i­ties” for Trump. But gave no hints just how the incom­ing pres­i­dent planned to alter its rev­enue source.

“The High­way Trust Fund is in bad shape,” Chao said, in part because more fuel effi­cient vehi­cles mean less gaso­line tax dol­lars going into the fund.

“The pay-fors for an infra­struc­ture pro­pos­al are chal­leng­ing,” Chao said. “They all have their par­tic­u­lar cham­pi­ons and also detrac­tors.”

Chao demurs on FAA spin­off

Under ques­tion­ing from Sen. Bill Nel­son (D‑Fla.) about her posi­tion on spin­ning air traf­fic con­trol away from the FAA and into a non­prof­it body, as pro­posed by the House last year, Chao demurred. She replied “I’d like to get con­firmed first,” to laugh­ter through­out the hear­ing room.

Gath­er­ing her­self, Chao fol­lowed up: “Obvi­ous­ly this is an issue of great impor­tance, it’s a huge issue that needs to have a nation­al con­sen­sus,” she said. “For that nation­al con­sen­sus to occur there needs to be a dia­logue. The admin­is­tra­tion has not made a deci­sion on this point.” Chao said she is “open to all ideas,” under­stands the sides, and pledged to work with Con­gress on the mat­ter.

...

McConnell prais­es Chao’s “good judg­ment”

McConnell opened his state­ment with a raft of praise for Chao, includ­ing a dry­ly ref­er­enced com­pli­ment about her “good judg­ment ... on a whole vari­ety of things.”

“Let me just say this — Elaine is going to do a fan­tas­tic job as sec­re­tary of Trans­porta­tion. She’s going to do good things for her coun­try, she’s going to make the Com­mon­wealth of Ken­tucky proud. She’ll be only the sec­ond Cab­i­net sec­re­tary we’ve had from my state since World War II,” McConnell said. “Who is the oth­er? Sec­re­tary of Labor Elaine Chao.”

McConnell, Chao’s hus­band, plans to tes­ti­fy on her behalf this morn­ing, lend­ing extra wel­com­ing fire­pow­er to what should already be a rel­a­tive­ly easy day for Chao. Sen. John Thune (R‑S.D.) will speak first at the hear­ing, and with Sen. Rand Paul (R‑Ky.), Chao’s oth­er home-state sen­a­tor, will also tes­ti­fy.

...

“Chao, a famil­iar face to many on the com­mit­tee because of her work in the two Bush admin­is­tra­tions and her mar­riage to Sen­ate Major­i­ty Leader Mitch McConnell, promised to look at cre­ative ways to attract fund­ing for the $1 tril­lion infra­struc­ture invest­ment that Trump cam­paigned on — though she was care­ful to avoid men­tion­ing any spe­cif­ic finan­cial fig­ures.”

Yeah, that sure sounds like cryp­to-fas­cist way of say­ing “we’re gonna pri­va­tize every­thing. In a hur­ry. At some yet to be deter­mined point in time. When no one is pay­ing atten­tion.” It’s omi­nous code-speak.

And note the lev­el of com­mit­ment we’ve got­ten to non-prof­it pub­lic invest­ment: It will be includ­ed in the $1 tril­lion envi­sion pack­age. That’s the lev­el of com­mit­ment. But at least now it’s sort of been con­firmed for the first time ever:

...

Book­er com­ment­ed that most of the mon­ey Trump has pledged for his infra­struc­ture plan seems to be derived from tax breaks and pri­vate invest­ment, but he also not­ed advis­er Steve Bannon’s pri­or sup­port for direct invest­ments. “Do you and Pres­i­dent-elect Trump sup­port an infra­struc­ture pack­age that will include direct fed­er­al spend­ing?” he asked.

“I believe the answer is yes,” Chao said.

That’s the clos­est the Wash­ing­ton vet­er­an came to stat­ing that fed­er­al mon­ey would be use to help repairs the nation’s high­ways, bridges, rail­ways and air­ports after stat­ing in her pre­pared remarks that the incom­ing admin­is­tra­tion would look at “all the options ... both pub­lic and pri­vate, that pro­vide the great­est cost-ben­e­fit.”

...

“That’s the clos­est the Wash­ing­ton vet­er­an came to stat­ing that fed­er­al mon­ey would be use to help repairs the nation’s high­ways, bridges, rail­ways and air­ports after stat­ing in her pre­pared remarks that the incom­ing admin­is­tra­tion would look at “all the options ... both pub­lic and pri­vate, that pro­vide the great­est cost-ben­e­fit.””

Gee, will pri­va­tiz­ing every­thing with pub­licly guar­an­teed prof­its for by the great­est cost-ben­e­fit mod­el? Hmmm...

So, pri­vate util­i­ties are prob­a­bly pret­ty hap­py with the next Trea­sury Sec­re­tary’s tes­ti­mo­ny. Or lack there­of.

Inter­est­ing­ly, as the arti­cle below notes, the Fed isn’t shar­ing that opti­mism based on the min­utes from the recent meet­ing. And the rea­son has to do with a con­cern that Trump’s big $1 tril­lion infra­struc­ture plan is going to raise in infla­tion fast enough to force the Fed to jack up inter­est rates so fast that the mar­kets get roiled. It also notes that the oth­er part of the plan is a tax hol­i­day of 0% for repa­tri­at­ed over­seas cor­po­rate prof­its if that mon­ey is invest­ed in the infra­struc­ture. So who knows if we could see some infla­tion­ary pres­sure emerge from the plan.

But as the arti­cle also notes, the schemes pro­posed so far are some­thing that should be wor­ry­ing the Fed. Why? Well, for starters the Trump tran­si­tion web­site already updat­ed the scope of the plan. It’s now less than $600 mil­lion in spend­ing, with plen­ty more room to shrink once Con­gress gets a hold of it.

And giv­en the like­li­hood it’ll most­ly be pri­va­ti­za­tion schemes it’s prob­a­bly going to be a lot small­er than $600 mil­lion any­way because there aren’t enough pub­lic infra­struc­ture plans that can fea­si­bly be set up in a way that can real­is­ti­cal­ly guar­an­tee a steady rev­enue stream. And that’s a require­ment in a pri­va­ti­za­tion scheme. There are only so many toll roads you can have unless the GOP is will­ing to take the polit­i­cal hit of becom­ing the toll road par­ty.

So if the arti­cle below is cor­rect and there real­ly is a dearth of exist­ing or new pri­va­ti­za­tion pos­si­bil­i­ties that can real­ly work with the mod­el Trump is prob­a­bly going to use (where infra­struc­ture real­ly is run for prof­it wher­ev­er pos­si­ble) and there real­ly won’t be a big infla­tion­ary push so the Fed should­n’t wor­ry about being forced into a desta­bi­liz­ing rate spike because the plan is all a Trump hype illu­sion that will fail and be for­got­ten:

Yahoo Finance

Everybody’s get­ting Trump’s infra­struc­ture plan wrong

Rick New­man
Colum­nist
Jan­u­ary 5, 2017

The Fed­er­al Reserve is wor­ried.

At its Decem­ber meet­ing, mem­bers of the Fed’s inter­est-rate-set­ting com­mit­tee debat­ed the like­li­hood of “more expan­sion­ary fis­cal pol­i­cy” dur­ing the next 12 months. That’s Fed­speak for increased infra­struc­ture spend­ing under incom­ing pres­i­dent Don­ald Trump. The con­cern is that more gov­ern­ment spend­ing could push infla­tion high­er than nor­mal, which would force the Fed to raise rates faster than it would otherwise—which would most like­ly be an unpleas­ant sur­prise for stock and bond mar­kets.

...

Trump began last fall by propos­ing $1 tril­lion in new spend­ing on roads, bridges and oth­er projects, which would indeed be a his­tor­i­cal­ly large sum. But that was the cam­paign pitch; the goal now is $550 bil­lion in spend­ing, accord­ing to the Trump tran­si­tion web­site. So the open­ing bid has already dropped by 45%.

Even more impor­tant is the way Trump wants to raise that mon­ey. The tran­si­tion site doesn’t spell it out, but the plan Trump put out last fall relied large­ly on pri­vate investors to fund new infra­struc­ture projects. The government’s role would be to offer an 82% tax cred­it on a por­tion of the pri­vate invest­ment, as an incen­tive to draw pri­vate mon­ey, which might oth­er­wise flow to invest­ments deemed safer or more lucra­tive. The tax cred­its, rep­re­sent­ing the ulti­mate cost to tax­pay­ers, would rep­re­sent a small por­tion of the $1 tril­lion, and an even small­er amount if the real tar­get is $550 bil­lion.

The prob­lem with get­ting pri­vate investors

The Trump plan—drafted by Wilbur Ross, Trump’s nom­i­nee for Com­merce Sec­re­tary, and econ­o­mist Peter Navar­ro, who will be a pres­i­den­tial advisor—went one step fur­ther. Trump also wants to offer US com­pa­nies a repa­tri­a­tion hol­i­day, by cut­ting the tax rate on over­seas prof­its booked in the Unit­ed States from the cur­rent rate of 35% to 10%. A com­pa­ny repa­tri­at­ing prof­its could cut its effec­tive tax rate on that mon­ey to zero if it invest­ed the right amount in infra­struc­ture projects and took advan­tage of the 82% tax cred­it for that. On paper, the net cost to tax­pay­ers would be noth­ing.

There’s one huge catch, though. Pri­vate investors only typ­i­cal­ly put mon­ey into infra­struc­ture projects when there’s a guar­an­teed rev­enue stream backed by tolls or oth­er types of user fees that can’t be revoked. Some pri­vate infra­struc­ture invest­ing already exists, but it hasn’t real­ly caught on in the Unit­ed States. The Trump mod­el relies on pri­vate debt for a con­sid­er­able part of the financ­ing, and with­out tolls or user fees, there’s no cash flow­ing back to investors to make debt pay­ments and com­pen­sate investors. With­out that, the mod­el sim­ply doesn’t work.

So Trump, in essence, has pro­posed an infra­struc­ture pro­gram that would require lit­tle or no tax­pay­er mon­ey, but would only work on projects where user fees pro­vide a cash flow back to investors. There are a few projects that fit the pro­file, such as air­port ren­o­va­tions that can be fund­ed in whole or part by air­port fees tacked on to tick­et prices. There are a cou­ple of pri­vate­ly owned and oper­at­ed toll roads in the Unit­ed States, such as the Chica­go Sky­way and the Indi­ana East-West toll road. But the prospect of impos­ing tolls on roads or oth­er facil­i­ties that are cur­rent­ly free is a non­starter in Con­gress and just about every state cap­i­tal, except for unusu­al cas­es where a munic­i­pal­i­ty is des­per­ate­ly strapped for mon­ey or pri­vate fund­ing for a new project may be the only way it gets built.

It’s pos­si­ble Con­gress could come up with a dif­fer­ent plan to boost infra­struc­ture spend­ing the old-fash­ioned way, through tax­es. But there seems to be lit­tle appetite for that. Democ­rats might go along, but they’re the minor­i­ty in both cham­bers. House Speak­er Paul Ryan is a bud­get hawk who says he doesn’t sup­port a big boost in tax­pay­er fund­ing for roads and bridges, and enough Repub­li­cans prob­a­bly agree with him to squelch any big new programs—especially with all the oth­er pri­or­i­ties Repub­li­cans are pur­su­ing.

So Trump has pro­posed a nov­el infra­struc­ture pro­gram that’s only applic­a­ble to a hand­ful of projects, while Repub­li­cans in Con­gress are look­ing the oth­er way and Democ­rats have no truck on the mat­ter. The big ques­tion on infra­struc­ture spend­ing is always, where will the mon­ey come from? For the next few years, the answer is prob­a­bly nowhere.

“So Trump, in essence, has pro­posed an infra­struc­ture pro­gram that would require lit­tle or no tax­pay­er mon­ey, but would only work on projects where user fees pro­vide a cash flow back to investors. There are a few projects that fit the pro­file, such as air­port ren­o­va­tions that can be fund­ed in whole or part by air­port fees tacked on to tick­et prices. There are a cou­ple of pri­vate­ly owned and oper­at­ed toll roads in the Unit­ed States, such as the Chica­go Sky­way and the Indi­ana East-West toll road. But the prospect of impos­ing tolls on roads or oth­er facil­i­ties that are cur­rent­ly free is a non­starter in Con­gress and just about every state cap­i­tal, except for unusu­al cas­es where a munic­i­pal­i­ty is des­per­ate­ly strapped for mon­ey or pri­vate fund­ing for a new project may be the only way it gets built.”

So as the arti­cle puts it, the pri­vate mod­el is such a bad fit for pub­lic util­i­ties and infra­struc­ture that there’s not much avail­able that pri­vate investors are even going to be inter­est­ed in oth­er than toll rates. And there’s prob­a­bly not going to be a lot of pub­lic demand for things like toll roads (and, in turn, Con­gres­sion­al demand if it’s super unpop­u­lar). Unless, of course, Con­gress pass­es an infra­struc­ture plan that forces almost all the fund­ing be pri­vate fund­ing and just hopes the pub­lic does­n’t care because it’s so dis­tract­ed with all the oth­er Trump scan­dals or not pay­ing atten­tion at all. And the oth­er sce­nario is if munic­i­pal­i­ties become total­ly cash-strapped and can’t raise pub­lic funds due to insane tax cuts or a trashed econ­o­my and the munic­i­pal­i­ties are going to go with things like toll roads out of des­per­a­tion.

Unfor­tu­nate­ly, nei­ther of those sce­nar­ios seem that out­landish. We’re in the Trump Era. Unfor­tu­nate sce­nar­ios abound. Although even if they hap­pen it might not be on a very large scale. Just wide­spread pri­va­ti­za­tion of the remain­ing low-hang­ing fruit. And in both of those sce­nar­ios they’ll either be the cause of or con­se­quence of dis­as­ters which will prob­a­bly damp­en infla­tion. So, all in all, while the Fed might be fear­ing that an big infra­struc­ture and tax-cut fueled spend­ing spree forces its inter­est rate ‘liftoff’ to become a lit­tle too Huu­u­uge to han­dle, that might not be the case if it’s a Huu­uge scam. Yay.

Oh look at that: It appears Trump isn’t sim­ply plan­ning on slow­ing the growth of fed­er­al spend­ing. No, he’s plan­ning on cut­ting the fed­er­al bud­get. Specif­i­cal­ly, cut­ting it by $10.5 tril­lion over 10 years. So about a $1 tril­lion a year. And do to that he’s plan­ning on imple­ment­ing the Her­itage Foun­da­tion’s “Pen­ny Plan”. That’s the plan where the bud­get of every fed­er­al agency is cut by 1 per­cent. Every year. But that “Pen­ny Plan” still won’t come close to sav­ing a $1 tril­lion annu­al­ly since dis­cre­tionary spend­ing is already only ~$1 tril­lion annu­al­ly and he has also pledged to sig­nif­i­cant­ly increase mil­i­tary spend­ing and not cut enti­tle­ments at all. So unless he’s plan­ning on revers­ing his pledge to increase mil­i­tary spend­ing and/or not touch enti­tle­ments, that just leaves dis­cre­tionary spend­ing to cut. And, again, since dis­cre­tionary spend­ing is only about $1 tril­lion a year that means he’s basi­cal­ly plan­ning on imple­ment­ing a scheme that would elim­i­nate all fed­er­al dis­cre­tionary spend­ing over the next decade:

Salon

Don­ald Trump will adopt Her­itage Foundation’s “skin­ny bud­get”: Arts, vio­lence against women fund­ing to be cut

Trump’s tran­si­tion team has report­ed­ly met with career White House staff to plan mas­sive cuts to major agen­cies

Sophia Tes­faye
Thurs­day, Jan 19, 2017 12:32 PM CST

Don­ald Trump is rely­ing on a blue­print bud­get from the con­ser­v­a­tive Her­itage Foun­da­tion and the guid­ance of a for­mer Rand Paul staffer to deliv­er the most extreme­ly right-wing restruc­tur­ing of the fed­er­al gov­ern­ment in decades.

The Trump tran­si­tion team has been at work for months with career staffers at the White House and through­out the fed­er­al bureau­cra­cy to draft a plan to cut $10.5 tril­lion out of the fed­er­al gov­ern­ment over 10 years, accord­ing to mul­ti­ple reports.

The pres­i­dent-elect vowed to slash gov­ern­ment spend­ing on the cam­paign trail, promis­ing to add those sav­ings to the mas­sive bud­get of the Depart­ment of Defense. New report­ing now out­lines just which parts of the fed­er­al gov­ern­ment will be elim­i­nat­ed by the incom­ing Trump admin­is­tra­tion.

So-called “land­ing teams” have been assigned by the Trump tran­si­tion team to fed­er­al agen­cies in order to devel­op a plan to cut some depart­ment bud­gets by as much as 10 per­cent while slash­ing 20 per­cent from the fed­er­al work­force. Accord­ing to the Hill, this effort is being head­ed by two long­time con­ser­v­a­tive spend­ing hawks — Russ Vought, who has a rep­u­ta­tion for pres­sur­ing mod­er­ate Repub­li­cans while at the right-wing Her­itage Foun­da­tion, and John Gray, a for­mer staffer for lib­er­tar­i­an-lean­ing Repub­li­can Sen. Rand Paul — both also staffers for Vice Pres­i­dent-elect Mike Pence.

Although the Her­itage Foun­da­tion ini­tial­ly brand­ed Trump as a big-gov­ern­ment lib­er­al in conservative’s cloth­ing, his pick of Mike Pence as his run­ning mate pleased the anti-tax and anti-spend­ing group that has since emerged as one of the most influ­en­tial forces shap­ing the president-elect’s tran­si­tion team. Trump’s pick of a bud­get hawk, South Car­oli­na Rep. Mick Mul­vaney, to head the Office of Man­age­ment and Bud­get, pro­vid­ed a clear­er sign that the long sought mas­sive cuts in the bureau­cra­cy will be a top pri­or­i­ty in the new admin­is­tra­tion.

Most past pres­i­dents have mea­sured suc­cess in “cut­ting” the bud­get by how much they reduce the growth of spend­ing from year to year. For instance, if fed­er­al spend­ing typ­i­cal­ly grows by 2 per­cent or more year over year, freez­ing spend­ing at the cur­rent rate could be con­sid­ered a reduc­tion in future spend­ing. Trump’s plan looks to go even fur­ther with actu­al cuts just as a new U.S. Gov­ern­ment Account­abil­i­ty Office report released on Tues­day found that “the struc­tur­al gap between rev­enues and spend­ing puts the fed­er­al gov­ern­ment on an unsus­tain­able long-term fis­cal path.”

...

But Trump’s cuts would tar­get only dis­cre­tionary spend­ing, not man­dat­ed pro­grams such as Medicare or Social Secu­ri­ty, the Wash­ing­ton Exam­in­er report­ed Wednes­day.

Part of Trump’s plan to reduce spend­ing involves the pen­ny plan, which would cut back cer­tain agen­cies’ bud­gets by one cent for every dol­lar spent over sev­er­al years. In total, the admin­is­tra­tion aims to cut spend­ing by $10.5 tril­lion over the next decade. All fed­er­al dis­cre­tionary spend­ing amounts to rough­ly $1.1 tril­lion a year, so cut­ting $1.05 tril­lion a year under Trump’s 10-year plan means cut­ting near­ly all of the government’s dis­cre­tionary spend­ing. All fed­er­al bud­get expen­di­tures in 2016 totaled an esti­mat­ed $3.9 tril­lion.

At the Depart­met of Jus­tice, Trump’s plan would elim­i­nate pro­grams that aim to pre­vent vio­lence against women, encour­age com­mu­ni­ty-ori­ent­ed polic­ing, and pro­vide legal aid to the indi­gent. The Her­itage Foun­da­tion has called those pro­grams a “mis­use of fed­er­al resources and a dis­trac­tion from con­cerns that are tru­ly the province of the fed­er­al gov­ern­ment.”

Trump’s tran­si­tion team report­ed­ly also wants to elim­i­nate all fund­ing for the Minor­i­ty Busi­ness Devel­op­ment Agency, the Nation­al Endow­ment for the Arts, and the Nation­al Endow­ment for the Human­i­ties, which offers grants to muse­ums, edu­ca­tion­al insti­tutes, researchers, and authors. The Cor­po­ra­tion for Pub­lic Broad­cast­ing, which dis­trib­utes fund­ing to near­ly 1,500 local­ly owned pub­lic radio and TV sta­tions would be pri­va­tized, accord­ing to the Hill. Three years ago, the NEH and NEA were pushed out of the Old Post Office in Wash­ing­ton, D.C. to make way for Trump’s newest hotel.

At the Ener­gy Depart­ment, Trump’s plan would elim­i­nate the Office of Ener­gy Effi­cien­cy and Renew­able Ener­gy and Office of Fos­sil Ener­gy, which devel­ops tech­nolo­gies to reduce car­bon emis­sions. The so-called skin­ny bud­get would also dras­ti­cal­ly reduce fund­ing for the DOJ’s Civ­il Rights and Envi­ron­ment and Nat­ur­al Resources divi­sions.

But as the Wash­ing­ton Post’s Phillip Bump point­ed out, elim­i­nat­ing some of these pub­lic arts pro­grams only amounts to a quar­ter of 1 per­cent of the entire bud­get. The major­i­ty of fed­er­al gov­ern­ment spend­ing is allo­cat­ed to non-dis­cre­tionary pro­grams like Social Secu­ri­ty and Medicare that can­not be eas­i­ly slashed or elim­i­nat­ed.

Trump has repeat­ed­ly pledged not to cut spend­ing on these so-called enti­tle­ment pro­grams.

The incom­ing Trump admin­is­tra­tion has also trum­pet­ed plans to increase infra­struc­ture and mil­i­tary spend­ing, all while pass­ing big tax cuts for cor­po­ra­tions and indi­vid­u­als. With­out cut­ting defense or enti­tle­ment spend­ing, it will be near­ly impossible—short of com­plete­ly elim­i­nat­ing every oth­er part of the fed­er­al government—to get to the report­ed $1 tril­lion in cuts Trump is seek­ing every year. Per­haps that is why even the orig­i­nal Her­itage “skin­ny bud­get” also cut out-of-con­trol mil­i­tary spend­ing.

Trump’s bud­get pro­pos­al should be released with­in 45 days of Trump tak­ing office, accord­ing to the Hill, and the full bud­get would have to be approved by Con­gress. Trump’s cuts are sim­i­lar to those in the bud­get adopt­ed by the con­ser­v­a­tive Repub­li­can Study Com­mit­tee, rep­re­sent­ing a major­i­ty of House Repub­li­cans. But when that sim­i­lar­ly dra­con­ian bud­get came up for a vote in the GOP-con­trolled House in 2015, it was reject­ed by a vote of 132 to 294.

“Part of Trump’s plan to reduce spend­ing involves the pen­ny plan, which would cut back cer­tain agen­cies’ bud­gets by one cent for every dol­lar spent over sev­er­al years. In total, the admin­is­tra­tion aims to cut spend­ing by $10.5 tril­lion over the next decade. All fed­er­al dis­cre­tionary spend­ing amounts to rough­ly $1.1 tril­lion a year, so cut­ting $1.05 tril­lion a year under Trump’s 10-year plan means cut­ting near­ly all of the government’s dis­cre­tionary spend­ing. All fed­er­al bud­get expen­di­tures in 2016 totaled an esti­mat­ed $3.9 tril­lion.”

So what’s it going to be?
a. Elim­i­nat­ing basi­cal­ly all fed­er­al dis­cre­tionary pro­grams.
b. Cut­ting enti­tle­ments too.
c. How about mil­i­tary cuts?

Well, don’t for­get about the $7 tril­lion that Trump’s pro­posed tax cuts for the rich are expect­ed to add to the debt over the next decade too. So the answer is prob­a­bly:

d. All of the above.

Wilbur Ross, Trump’s new bil­lion­aire Sec­re­tary of Com­merce who co-authored the pre­vi­ous $1 tril­lion infra­struc­ture plan with Peter Navar­ro that was almost entire­ly based on pri­vate invest­ment, offered more details on the admin­is­tra­tion’s think­ing on how it’s going to struc­ture the $1 tril­lion infra­struc­ture stim­u­lus plan:
sur­prise, sur­prise, it’ll be $137 bil­lion in tax cred­its for pri­vate investors and the rest is sup­posed to come from the pri­vate investors:

The Wash­ing­ton Post

Econ­o­mists pan infra­struc­ture plan cham­pi­oned by Trump nom­i­nees

By Steven Muf­son
Jan­u­ary 17, 2017

Bil­lion­aire busi­ness­man Wilbur Ross, whose nom­i­na­tion as com­merce sec­re­tary comes before Con­gress this week, has mapped out details to one major pol­i­cy pro­pos­al to boost infra­struc­ture spend­ing — and lead­ing econ­o­mists say it doesn’t hold water.

The pro­pos­al is this: To stim­u­late $1 tril­lion in expen­di­tures over 10 years, the Trump admin­is­tra­tion should hand out $137 bil­lion worth of tax cred­its to pri­vate busi­ness­es. That fed­er­al tax cred­it would lever­age a flood of pri­vate mon­ey, cov­er­ing 82 per­cent of the equi­ty need­ed for new projects, argues Ross, who co-authored the plan with Peter Navar­ro, a Uni­ver­si­ty of Cal­i­for­nia at Irvine busi­ness pro­fes­sor whom Pres­i­dent-elect Don­ald Trump has tapped as his trade advis­er

“Today, much of America’s infra­struc­ture is crum­bling. Much more needs to be built anew,” Ross and Navar­ro wrote, adding that under Pres­i­dent Oba­ma, “urgent­ly need­ed projects have been rou­tine­ly delayed for years due to end­less stud­ies, red-tape, and obstruc­tion­ist law­suits.”

More­over, Ross and Navar­ro say the tax cred­its would cost the gov­ern­ment noth­ing because of increased tax rev­enue from new pri­vate spend­ing, eco­nom­ic activ­i­ty and employ­ment.

Hog­wash, say econ­o­mists from across the polit­i­cal spec­trum. “It is total­ly ill con­ceived,” Lawrence H. Sum­mers, Har­vard Uni­ver­si­ty econ­o­mist and for­mer trea­sury sec­re­tary, said in an email.

The clash over the plan goes to the heart of one of Trump’s main cam­paign pledges — to boost infra­struc­ture spend­ing. Trump nev­er laid out whether he would do that through fed­er­al spend­ing or through pub­lic-pri­vate part­ner­ships. And he has not defined what would qual­i­fy as infra­struc­ture, poten­tial­ly trig­ger­ing a feed­ing fren­zy in Con­gress as pub­lic offi­cials and cor­po­ra­tions seek sup­port for their pet projects.

As a result, the Ross-Navar­ro pro­pos­al, unveiled in late Octo­ber, is the clos­est thing to an offi­cial one. But econ­o­mists say its flaws are numer­ous.

First, “it will func­tion large­ly as a give­away to con­trac­tors on projects that would have hap­pened any­way,” Sum­mers said.

Take the Key­stone XL pipeline, for exam­ple. Tran­sCana­da decid­ed years ago that the project made eco­nom­ic sense on its own mer­its. Now, if Trump fol­lows his pledge to approve the project’s path from the Cana­di­an bor­der through Nebras­ka, then the Cal­gary-based com­pa­ny might make even more mon­ey thanks to the new tax cred­it.

The tax-cred­it plan would also exclude a wide vari­ety of wor­thy projects that are unlike­ly to appeal to pri­vate investors, because they don’t gen­er­ate an iden­ti­fi­able stream of rev­enue.

“This pro­pos­al would work only if you have projects that gen­er­ate cash flows such as tolls, con­ges­tion charges or user fees that can be used to gen­er­ate the return on equi­ty,” said Dou­glas Holtz-Eakin, pres­i­dent of the Amer­i­can Action Forum, which describes itself as a cen­ter-right pol­i­cy insti­tute.

One area that doesn’t usu­al­ly gen­er­ate cash, pol­i­cy experts say, is main­te­nance. And U.S. infra­struc­ture is aging fast. Repair­ing exist­ing infra­struc­ture, such as bridges, can often be the most effec­tive way to bol­ster com­mu­ni­ties and spur oth­er invest­ment — even if new tolls or fees can’t be imposed.

More­over, oth­er ana­lysts note, user fees and tolls are regres­sive, like gaso­line tax­es, plac­ing a big­ger bur­den on the low­er and mid­dle class because they eat up a larg­er por­tion of their income. Fed­er­al grants for infra­struc­ture, how­ev­er, would draw on tax rev­enue raised through the pro­gres­sive income tax.

In addi­tion, most of the biggest pri­vate investors in infra­struc­ture don’t need tax cred­its, Sum­mers added. That’s because they are tax-exempt enti­ties such as pen­sion funds. Instead, the high tax cred­it would be more like­ly to attract those seek­ing tax shel­ters, not those seek­ing the most urgent pub­lic needs or effi­cient invest­ments.

Holtz-Eakin, a for­mer direc­tor of the non­par­ti­san Con­gres­sion­al Bud­get Office, takes issue with the assump­tion the tax cred­its would pay for them­selves. “It’s imag­in­ing that some­how there will be an imme­di­ate macro-feed­back,” he said. “It’s not going to be that big.”

He not­ed that the new cap­i­tal devot­ed to infra­struc­ture would “shift from one place to anoth­er. For the nation as a whole, a big chunk of that’s a wash.” The increase in wages Ross and Navar­ro promise, “that’s com­ing at the expense of some­thing else,” Holtz-Eakin said.

Holtz-Eakin also said that a plan to boost infra­struc­ture must include state and local gov­ern­ments and must also define what infra­struc­ture is. Peo­ple have called for spend­ing on every­thing from bike paths and afford­able hous­ing to schools and roads.

...

Sum­mers also fired salvos at anoth­er paper by Ross and Navar­ro con­tain­ing esti­mates of the impact of trade tar­iffs. Ross and Navar­ro said they would boost U.S. gross domes­tic prod­uct. Sum­mers called their cal­cu­la­tions the “eco­nom­ic equiv­a­lent of deny­ing cli­mate change or being for cre­ation­ism.”

Ross and Navar­ro did not return calls or emails ask­ing for com­ment. Their Octo­ber paper defends the tax cred­it for pri­vate investors, say­ing con­struc­tion costs “tend to be high­er” when projects are built by the gov­ern­ment rather than pri­vate sec­tor. They said that by cov­er­ing 82 per­cent of equi­ty need­ed, the tax cred­its would ease con­cerns about fore­casts of rev­enue streams.

Yet Amer­i­cans appar­ent­ly don’t want to pay bridge and trans­porta­tion tolls for pri­vate infra­struc­ture investors via tax breaks as Ross and Navar­ro sug­gest, accord­ing to a Wash­ing­ton Post-ABC News poll con­duct­ed Jan. 12 to 15. The sur­vey showed that 66 per­cent opposed such a plan and only 29 per­cent sup­port­ed it.

While Repub­li­cans were more favor­able, at least half of each group, Repub­li­cans, Democ­rats and inde­pen­dents, opposed the idea. The poll was a ran­dom nation­al sam­ple of 1,005 adults. The ques­tion didn’t men­tion Trump, Ross or Navar­ro.

Even econ­o­mists who favor pri­va­ti­za­tion of infra­struc­ture oppose tax cred­its as the way to go about that. Steve H. Han­ke, a pro­fes­sor of applied eco­nom­ics at Johns Hop­kins Uni­ver­si­ty, served on Pres­i­dent Ronald Reagan’s Coun­cil of Eco­nom­ic Advis­ers, where he was in charge of the infra­struc­ture port­fo­lio.

Han­ke believes that infra­struc­ture should be built and oper­at­ed by pri­vate com­pa­nies, argu­ing that pub­lic infra­struc­ture projects are plagued by “mas­sive waste, fraud and abuse.”

Yet Han­ke, too, says that tax cred­its won’t do the trick. He says that tax cred­its for financ­ing infra­struc­ture are “an opaque way to finance infra­struc­ture” that would “com­pli­cate an already mon­strous­ly com­plex U.S. tax code.”

More­over, he said, “tax cred­its are resold from cash-flow-poor devel­op­ers to a small num­ber of cash-flow-rich banks, insti­tu­tion­al investors and cor­po­ra­tions who have prof­its and desire tax cred­its to off­set their income tax oblig­a­tions.” He said that “these are not boil­er­plate-type trans­ac­tions but only for the sharpest of the Wall Street sharpies.”

“My point is that tax cred­its are fraught with many prob­lems,” Han­ke said. “This is not the slam dunk that has been adver­tised. A very com­pli­cat­ed set of issues would have to be addressed before I would con­sid­er a thumbs up for tax-cred­it financ­ing for infra­struc­ture.”

“The pro­pos­al is this: To stim­u­late $1 tril­lion in expen­di­tures over 10 years, the Trump admin­is­tra­tion should hand out $137 bil­lion worth of tax cred­its to pri­vate busi­ness­es. That fed­er­al tax cred­it would lever­age a flood of pri­vate mon­ey, cov­er­ing 82 per­cent of the equi­ty need­ed for new projects, argues Ross, who co-authored the plan with Peter Navar­ro, a Uni­ver­si­ty of Cal­i­for­nia at Irvine busi­ness pro­fes­sor whom Pres­i­dent-elect Don­ald Trump has tapped as his trade advis­er”

Get ready for toll-roads, toll-bridges, and toll-what­ev­er-else-can-be-tolled. Although don’t get ready for infra­struc­ture main­te­nance:

...

The tax-cred­it plan would also exclude a wide vari­ety of wor­thy projects that are unlike­ly to appeal to pri­vate investors, because they don’t gen­er­ate an iden­ti­fi­able stream of rev­enue.

“This pro­pos­al would work only if you have projects that gen­er­ate cash flows such as tolls, con­ges­tion charges or user fees that can be used to gen­er­ate the return on equi­ty,” said Dou­glas Holtz-Eakin, pres­i­dent of the Amer­i­can Action Forum, which describes itself as a cen­ter-right pol­i­cy insti­tute.

One area that doesn’t usu­al­ly gen­er­ate cash, pol­i­cy experts say, is main­te­nance. And U.S. infra­struc­ture is aging fast. Repair­ing exist­ing infra­struc­ture, such as bridges, can often be the most effec­tive way to bol­ster com­mu­ni­ties and spur oth­er invest­ment — even if new tolls or fees can’t be imposed.

...

With all these great fea­tures, is it any sur­prise that a whole one third of peo­ple sup­port this kind of public(a little)-private(almost entire­ly) part­ner­ship mod­el? Yes, it’s a lit­tle sur­pris­ing in that the sup­port is that high. Still, polit­i­cal­ly speak­ing, it does­n’t sounds like there’s going to be much polit­i­cal sup­port for Trump’s big infra­struc­ture scheme:

...

Yet Amer­i­cans appar­ent­ly don’t want to pay bridge and trans­porta­tion tolls for pri­vate infra­struc­ture investors via tax breaks as Ross and Navar­ro sug­gest, accord­ing to a Wash­ing­ton Post-ABC News poll con­duct­ed Jan. 12 to 15. The sur­vey showed that 66 per­cent opposed such a plan and only 29 per­cent sup­port­ed it.

While Repub­li­cans were more favor­able, at least half of each group, Repub­li­cans, Democ­rats and inde­pen­dents, opposed the idea. The poll was a ran­dom nation­al sam­ple of 1,005 adults. The ques­tion didn’t men­tion Trump, Ross or Navar­ro.

...

It does­n’t sounds like peo­ple like tolls every­where and a for-prof­it-for-every­thing mod­el of soci­ety. Imag­ine that.

So we’ll see what hap­pens polit­i­cal­ly, but note that Trump’s infra­struc­ture scheme does have have sig­nif­i­cant sup­port in one major demo­graph­ic: the Speak­er of the House demo­graph­ic:

The Hill

Ryan offers pic­ture of pub­lic-pri­vate spend­ing in Trump’s infra­struc­ture plan

By Melanie Zanona — 01/19/17 02:06 PM EST

Pres­i­dent-elect Don­ald Trump’s mas­sive infra­struc­ture pack­age should have $40 of pri­vate-sec­tor spend­ing for every $1 of pub­lic spend­ing, accord­ing to House Speak­er Paul Ryan (R‑Wis.)

“A great agency … has pub­lic-pri­vate part­ner­ships. For every one dol­lar of fed­er­al dol­lars, there’s $40 of pri­vate sec­tor spend­ing,” Ryan said on the Char­lie Rose Show. “We want to lever­age as much pri­vate-sec­tor dol­lars as pos­si­ble to max­i­mize the fix­ing of our infra­struc­ture.”

It’s per­haps the clear­est pic­ture to date of whether — and how much — direct fed­er­al fund­ing for trans­porta­tion upgrades may be includ­ed in Trump’s promised $1 tril­lion infra­struc­ture bill.

There has been mount­ing con­cern, par­tic­u­lar­ly among Democ­rats and rur­al Repub­li­cans, that rely­ing on pri­vate financ­ing would only attract projects that can recoup invest­ment costs through tolls or user fees.

...

How­ev­er, based on Ryan’s pre­ferred ratio, pri­vate-sec­tor dol­lars are still like­ly to make up a major­i­ty of the pack­age, with pub­lic dol­lars only account­ing for 2.5 per­cent.

Trump float­ed a blue­print on the cam­paign trail that would offer $137 bil­lion in fed­er­al tax cred­its to pri­vate investors that back trans­porta­tion projects, which he says would unlock $1 tril­lion worth of infra­struc­ture invest­ment over 10 years.

Ryan empha­sized that although the price tag of Trump’s pro­pos­al is “eye pop­ping,” that fig­ure is only the over­all invest­ment lev­el, not the cost of the leg­is­la­tion.

“That’s not a tril­lion dol­lars com­ing from fed­er­al tax­pay­ers into the trans­porta­tion sys­tem,” Ryan said. “That is the total amount we’re shoot­ing for.”

But tax cred­its would still need to be ful­ly paid for, Ryan said. Trump claims his plan would be rev­enue neu­tral thanks to tax­es from new jobs and con­trac­tor prof­its, but econ­o­mists have cast doubt on those asser­tions.

And any direct spend­ing in the plan, which would be around $3.5 bil­lion under Ryan’s vision, would def­i­nite­ly need an off­set to pass the Repub­li­can-led Con­gress.

“Now we have to go about fig­ur­ing out how to, in a fis­cal­ly respon­si­ble way, get that going,” Ryan said. “We have to cut spend­ing else­where to pay for infra­struc­ture.”

Trump has not yet defined which infra­struc­ture needs he intends to upgrade, which could include every­thing from roads and bridges to pow­er grids and broad­band.

He has put togeth­er a team, lead by real estate devel­op­ers Richard LeFrak and Steven Roth, to start iden­ti­fy­ing which projects should be tar­get­ed under any infra­struc­ture pro­pos­al.

Ryan indi­cat­ed on Wednes­day that the plan would run the gamut.

“That’s air­ports, that’s pipelines, that’s roads, that’s bridges, that’s har­bors, that’s canals,” he said. “All of them is essen­tial.”

““A great agency … has pub­lic-pri­vate part­ner­ships. For every one dol­lar of fed­er­al dol­lars, there’s $40 of pri­vate sec­tor spend­ing,” Ryan said on the Char­lie Rose Show. “We want to lever­age as much pri­vate-sec­tor dol­lars as pos­si­ble to max­i­mize the fix­ing of our infra­struc­ture.””

So there we have it: Between Wilbur Ross’s com­ments and Paul Ryan’s state­ment, it’s pret­ty clear by now that Trump’s big $1 tril­lion infra­struc­ture plan is almost cer­tain­ly going to be almost entire­ly pri­vate invest­ment. Which might mean it’s not actu­al­ly that big giv­en the lim­it­ed num­ber of pos­si­ble invest­ments that could be run for-prof­it unless it becomes a gener­ic tax cred­it slush fund for the ener­gy sec­tor or some­thing. It’s not the most inspir­ing stim­u­lus plack­age. Espe­cial­ly since it’s appar­ent­ly going to require spend­ing cuts else­where to finance it:

...

But tax cred­its would still need to be ful­ly paid for, Ryan said. Trump claims his plan would be rev­enue neu­tral thanks to tax­es from new jobs and con­trac­tor prof­its, but econ­o­mists have cast doubt on those asser­tions.

And any direct spend­ing in the plan, which would be around $3.5 bil­lion under Ryan’s vision, would def­i­nite­ly need an off­set to pass the Repub­li­can-led Con­gress.

“Now we have to go about fig­ur­ing out how to, in a fis­cal­ly respon­si­ble way, get that going,” Ryan said. “We have to cut spend­ing else­where to pay for infra­struc­ture.”
...

“Now we have to go about fig­ur­ing out how to, in a fis­cal­ly respon­si­ble way, get that going,” Ryan said. “We have to cut spend­ing else­where to pay for infra­struc­ture.”

That’s right, all those tax-cred­its to fuel the pri­va­ti­za­tion of the pub­lic’s infra­struc­ture is going to have to be paid for with cuts else­where in the fed­er­al budget...presumably cuts for pro­grams that help sin­gle moms or some­thing because this is going to be GOP-deter­mined cuts.

Tolls every­where, min­i­mal main­te­nance, and cuts else­where to pay for the tax-sub­si­dized tolls. It should be a super pop­u­lar pro­gram.

It looks like cur­ren­cy traders have found a new muse to keep them burn­ing the mid­night oil: Trump-induced anx­i­ety. Specif­i­cal­ly, Trump-induced anx­i­ety caused by the con­fu­sion cre­at­ed by the Trump team’s dol­lar pol­i­cy. More specif­i­cal­ly, Trump-induced anx­i­ety caused by the con­fu­sion cre­at­ed by the Trump team’s own very appar­ent con­fu­sion over its dol­lar pol­i­cy:

Bloomberg Mar­kets

Dol­lar Pol­i­cy Con­fu­sion Keep­ing Cur­ren­cy Traders Up at Night

by Liz McCormick
Feb­ru­ary 8, 2017, 1:50 PM CST

* Trump Admin­stra­tion sends mixed sig­nals on green­back strength
* Bech­tel of Jef­feries says pro­nounce­ments lead to paral­y­sis

Cur­ren­cy traders appear to be just as per­plexed as the Trump Admin­is­tra­tion when it comes to the dol­lar.

With the greenback’s for­tunes ebbing and flow­ing as the White House sends mixed sig­nals on its pref­er­ences for the currency’s strength, sleep has been hard to come by. Even the administration’s pol­i­cy pre­scrip­tions have kept traders guess­ing. More infra­struc­ture spend­ing, revi­tal­ized man­u­fac­tur­ing and low­er tax­es should spell faster growth and infla­tion — and a stronger dol­lar. But the focus late­ly has been on restric­tive trade and immi­gra­tion mea­sures, dim­ming growth prospects — and send­ing the green­back into a tail­spin.

After Steven Mnuchin, Trump’s pick for Trea­sury sec­re­tary, seemed in ear­ly Decem­ber to fall in line with long-held pol­i­cy of the gov­ern­ment sup­port­ing a stronger dol­lar, things have become much less clear. The pres­i­dent has since said Chi­na and Japan had unfair­ly deval­ued their cur­ren­cies, while his trade advis­er Peter Navar­ro said the euro was “gross­ly under­val­ued.” And Mnuchin him­self has since seemed to adjust, say­ing in Jan­u­ary that an “exces­sive­ly strong dol­lar” could have a neg­a­tive short-term effect on the econ­o­my.

“The think­ing among mar­ket par­tic­i­pants is that the U.S. strong-dol­lar pol­i­cy has end­ed,” said Neil Jones, head of hedge-fund sales at Mizuho Bank Ltd. “But the strong dol­lar has not nec­es­sar­i­ly end­ed. That’s why there is some dilem­ma in the mar­ket.”

That’s because traders are still hope­ful that over the long-term, Trump will bol­ster growth by lift­ing infra­struc­ture spend­ing, cut­ting tax­es and reduc­ing reg­u­la­tion.

The Bloomberg Dol­lar Spot Index fell 0.1 per­cent Wednes­day to 1,236.22, extend­ing a loss in 2017 to 2.5 per­cent. The index gained 7.2 per­cent in the fourth quar­ter.

Adding to the cloudy out­look for the buck is that not every­one is con­vinced that Trump will in the end push through pro-growth agen­da changes.

Black­Rock Inc.’s Chief Exec­u­tive Offi­cer Lau­rence D. Fink said Wednes­day busi­ness­es are in a “slow down” because of the uncer­tain­ty about whether Con­gress and the new admin­is­tra­tion will enact poli­cies that ener­gized mar­kets after the elec­tion.

...

The Fed­er­al Reserve for its part added sup­port to the dol­lar in Decem­ber by ratch­et­ing up by a quar­ter a per­cent­age point its pol­i­cy rate band. That has lost steam, with traders now not see­ing more than a fifty-per­cent prob­a­bil­i­ty for anoth­er hike until June, after wage growth stalled in Jan­u­ary.

“The mar­ket is in this state of con­fu­sion in terms of how to price the tim­ing of this stuff,” said Brad Bech­tel, a cur­ren­cy strate­gist at Jef­feries Group LLC in New York. And gov­ern­ment offi­cials recent­ly “have had noth­ing but neg­a­tive dol­lar com­ments. There is a lot of ebbing and tid­ing in terms of the news flow and it is real­ly putting traders frozen in their tracks.”

“With the greenback’s for­tunes ebbing and flow­ing as the White House sends mixed sig­nals on its pref­er­ences for the currency’s strength, sleep has been hard to come by. Even the administration’s pol­i­cy pre­scrip­tions have kept traders guess­ing. More infra­struc­ture spend­ing, revi­tal­ized man­u­fac­tur­ing and low­er tax­es should spell faster growth and infla­tion — and a stronger dol­lar. But the focus late­ly has been on restric­tive trade and immi­gra­tion mea­sures, dim­ming growth prospects — and send­ing the green­back into a tail­spin.”

Well, it’s not hard to see why traders would be kept up at night try­ing to fig­ure out what the hell the Trump admin­is­tra­tion is think­ing. Or not think­ing. So it’s prob­a­bly not going to help these traders’ sleep deficit once they learn that the same ques­tions keep­ing them up at night are keep­ing Trump up at night too, and he’s call­ing Lt. Gen. Michael Fly­nn, who is not an econ­o­mist, to get answers:

The Huff­in­g­ton Post

Leaks Sug­gest Trump’s Own Team Is Alarmed By His Con­duct
White House leaks are com­mon, but leak­ers sug­gest­ing the pres­i­dent might be unfit for office are not.

S.V. Date Senior White House Cor­re­spon­dent, The Huff­in­g­ton Post
Christi­na Wilkie White House reporter, The Huff­in­g­ton Post
02/07/2017 09:30 pm ET | Updat­ed 11 hours ago

WASHINGTON – Pres­i­dent Don­ald Trump was con­fused about the dol­lar: Was it a strong one that’s good for the econ­o­my? Or a weak one?

So he made a call — except not to any of the busi­ness lead­ers Trump brought into his admin­is­tra­tion or even to an old friend from his days in real estate. Instead, he called his nation­al secu­ri­ty advis­er, retired Lt. Gen. Mike Fly­nn, accord­ing to two sources famil­iar with Flynn’s accounts of the inci­dent.

Fly­nn has a long record in coun­ter­in­tel­li­gence but not in macro­eco­nom­ics. And he told Trump he didn’t know, that it wasn’t his area of exper­tise, that, per­haps, Trump should ask an econ­o­mist instead.

Trump was not thrilled with that response — but that may have been a func­tion of the time of day. Trump had placed the call at 3 a.m., accord­ing to one of Flynn’s retellings — although nei­ther the White House nor Flynn’s office respond­ed to requests for con­fir­ma­tion about that detail.

For Amer­i­cans who based their impres­sion of Trump on the com­pe­tent and deci­sive tycoon he por­trayed on his “Appren­tice” TV real­i­ty shows, the por­trait from these and many oth­er tid­bits emerg­ing from his admin­is­tra­tion may seem a shock: an impul­sive, some­times pet­ty chief exec­u­tive more con­cerned with the adu­la­tion of the nation than the details of his own poli­cies — and quick to assign blame when things do not go his way.

...

“Fly­nn has a long record in coun­ter­in­tel­li­gence but not in macro­eco­nom­ics. And he told Trump he didn’t know, that it wasn’t his area of exper­tise, that, per­haps, Trump should ask an econ­o­mist instead.”

That’s our ‘busi­ness­man’ pres­i­dent! Sur­prised? Well, you should­n’t be sur­prised giv­en all the back­flip­ping he was doing on Fed­er­al Reserve pol­i­cy and inter­est rate poli­cies dur­ing the course of the cam­paign. Although it is pret­ty sur­pris­ing Michael Fly­nn was the guy he decid­ed to call. At 3 AM.

So, since Trump does­n’t seem to be inter­est­ed in talk­ing to the actu­al econ­o­mists on his team, per­haps some­one should give him Paul Krug­man’s phone num­ber. At least he’ll get answers, although he might not like the answers he gets:

The New York Times
The Con­science of a Lib­er­al

Rea­gan, Trump, and Man­u­fac­tur­ing

Paul Krug­man
Jan 25, 2017 3:46 pm

It’s hard to focus on ordi­nary eco­nom­ic analy­sis amidst this polit­i­cal apoc­a­lypse. But get­ting and spend­ing will still con­sume most of peo­ples’ ener­gy and time; fur­ther­more, like it or not the progress of CASE NIGHTMARE ORANGE may depend on how the econ­o­my does. So, what is actu­al­ly like­ly to hap­pen to trade and man­u­fac­tur­ing over the next few years?

As it hap­pens, we have what looks like an unusu­al­ly good mod­el in the Rea­gan years — minus the severe reces­sion and con­ve­nient­ly timed recov­ery, which some­what over­shad­owed the trade sto­ry. Leave aside the Vol­ck­er reces­sion and recov­ery, and what you had was a large move toward bud­get deficits via tax cuts and mil­i­tary buildup, cou­pled with quite a lot of pro­tec­tion­ism — it’s not part of the Rea­gan leg­end, but the import quo­ta on Japan­ese auto­mo­biles was one of the biggest pro­tec­tion­ist moves of the post­war era.

I’m a bit uncer­tain about the actu­al fis­cal stance of Trumpo­nom­ics: deficits will sure­ly blow up, but I won’t believe in the infra­struc­ture push until I see it, and giv­en sav­age cuts in aid to the poor it’s not entire­ly clear that there will be net stim­u­lus. But sup­pose there is. Then what?

Well, what hap­pened in the Rea­gan years was “twin deficits”: the bud­get deficit pushed up inter­est rates, which caused a strong dol­lar, which caused a big­ger trade deficit, main­ly in man­u­fac­tured goods (which are still most of what’s trad­able.) This led to an accel­er­at­ed decline in the indus­tri­al ori­en­ta­tion of the U.S. econ­o­my:
[see chart show­ing show sharp drop in per­cent­age of US labor in man­u­fac­tur­ing]

...

Again, this hap­pened despite sub­stan­tial pro­tec­tion­ism.

So Trump­ism will prob­a­bly fol­low a sim­i­lar course; it will actu­al­ly shrink man­u­fac­tur­ing despite the big noise made about sav­ing a few hun­dred jobs here and there.

On the oth­er hand, by then the BLS may be thor­ough­ly politi­cized, com­mand­ed to report good news what­ev­er hap­pens.

“As it hap­pens, we have what looks like an unusu­al­ly good mod­el in the Rea­gan years — minus the severe reces­sion and con­ve­nient­ly timed recov­ery, which some­what over­shad­owed the trade sto­ry. Leave aside the Vol­ck­er reces­sion and recov­ery, and what you had was a large move toward bud­get deficits via tax cuts and mil­i­tary buildup, cou­pled with quite a lot of pro­tec­tion­ism — it’s not part of the Rea­gan leg­end, but the import quo­ta on Japan­ese auto­mo­biles was one of the biggest pro­tec­tion­ist moves of the post­war era.”

And what hap­pened when Rea­gan slashed tax­es while going on a mil­i­tary spend­ing spree and some trade pro­tec­tion (Trump’s cur­rent game plan)?

...

Well, what hap­pened in the Rea­gan years was “twin deficits”: the bud­get deficit pushed up inter­est rates, which caused a strong dol­lar, which caused a big­ger trade deficit, main­ly in man­u­fac­tured goods (which are still most of what’s trad­able.) This led to an accel­er­at­ed decline in the indus­tri­al ori­en­ta­tion of the U.S. econ­o­my

...

So that gives us one answer to Trump’s “should the US pur­sue a strong or weak dol­lar?” ques­tion: he should­n’t real­ly be try­ing to push up the dol­lar if reviv­ing US man­u­fac­tur­ing is one of his top pri­or­i­ties, but since slash­ing tax­es (and explod­ing the deficit) is also one of his top pri­or­i­ties, a strong dol­lar is prob­a­bly inevitable. So it’s less a ques­tion of whether or not Team Trump should be try­ing for stronger or weak­er dol­lar. It’s a ques­tion of what’s his top pri­or­i­ty: tax cuts for the rich or reviv­ing US man­u­fac­tur­ing.

Also keep in mind that Krug­man’s analy­sis isn’t an indi­ca­tion that bud­get deficits are always going to lead to a strong dol­lar or that pro­tec­tion­ist poli­cies are always going to be futile. Like every­thing in eco­nom­ics, con­text mat­ters. If, for exam­ple, you’re econ­o­my is in the mid­dle of a mas­sive tail-spin and inter­est rates are already near zero, sig­nif­i­cant deficit spend­ing can be exact­ly what your econ­o­my needs in part because it’s not going to put the same kind of upward pres­sure on inter­est rates (and the val­ue of the cur­ren­cy) than would hap­pen if those same deficits occurred in the mid­dle of a rel­a­tive­ly strong econ­o­my. But we should­n’t expect the same kind of dynam­ic if deficits explode when the econ­o­my is as strong as it is today.

It’s sort of like how it’s not absurd that a pres­i­dent, espe­cial­ly a new pres­i­dent, would ask his advi­sors the ques­tion of whether or not a stronger or weak­er dol­lar is desir­able. The meta-answer is “it depends” and it’s a ques­tion that should be asked rou­tine­ly when craft­ing pol­i­cy. But call­ing your loopy nation­al secu­ri­ty advi­sor in the mid­dle of the night to ask him about macro­eco­nom­ics is indeed pret­ty absurd. Con­text mat­ters.

The Finan­cial Times had a recent report on the “dim­ming” US cor­po­rate prof­it esti­mates and ear­ly indi­ca­tions that the Trump-infused spir­its that infect­ed investors at the very begin­ning of the Trump pres­i­den­cy aren’t quite as high as they were in Jan­u­ary. It’s not bad news in terms of investor sen­ti­ment. Just not as good as it was ini­tial­ly. The bad news hap­pens when Trump can’t actu­al­ly fol­low through on all the promis­es that led to such pos­i­tive investor sen­ti­ment.

And while Trump can like­ly fol­low through on those expec­ta­tions when it comes to slash­ing cor­po­rate tax­es, the larg­er Trump pledge of lead­ing an eco­nom­ic renais­sance (which is basi­cal­ly what Trump was pledg­ing, espe­cial­ly to rur­al Amer­i­ca) is much hard­er to do. Espe­cial­ly when Trump’s tril­lion dol­lar infra­struc­ture stim­u­lus is real­ly less than $200 bil­lion in tax cred­its for pri­vate investors who pro­vide the rest of the tril­lion dol­lar “stim­u­lus”. And also since Trump’s bud­get assumes that the econ­o­my grows between 3–3.5 per­cent for the next decade which is far high­er than should real­is­ti­cal­ly assumed, espe­cial­ly since Trump inher­it­ing a decent econ­o­my. So irra­tional Trumpian expec­ta­tions is a real thing that is already hav­ing real impacts on the mar­ket and could have a big­ger impact if those expec­ta­tions aren’t met. But for now, those expec­ta­tions are still going strong. Just not quite a strong as two months ago:

Finan­cial Times

Out­look for US cor­po­rate prof­its dims
Ana­lysts pare down fore­casts for 2017 at a time when S&P 500 is at near record highs

Adam Sam­son and Nicole Bul­lock in New York
March 19, 2017

The US cor­po­rate prof­it out­look has dimmed in recent weeks, with ana­lysts par­ing back their fore­casts, in a fresh sign of the risks fac­ing the Wall Street ral­ly that has pow­ered equi­ties to record peaks.

Earn­ings for com­pa­nies list­ed on the S&P 500 index, the main US stock barom­e­ter, are pre­dict­ed to rise 9 per cent in the first quar­ter, Fact­Set data show. While the rate marks a sig­nif­i­cant uptick from the 4.9 per cent notched in the final three months of 2016, it rep­re­sents a reduc­tion from the 12.3 per cent expect­ed at the start of this year.

The weak­er esti­mates come at a time when stocks are trad­ing near record highs. The S&P 500 has ral­lied by 6.2 per cent year-to-date as of Friday’s close — and the bench­mark sits less than 1 per cent from the all-time peak it hit on March 1.

Equi­ties look more expen­sive as a result. A close­ly watched val­u­a­tion mea­sure devel­oped by Yale econ­o­mist Robert Shiller, the cycli­cal­ly adjust­ed price-to-earn­ings ratio, struck its high­est point in 15 years this month.

Nicholas Colas, chief mar­ket strate­gist at Con­vergex, not­ed that it was a “nor­mal pat­tern” for ana­lysts to “start high with [earn­ings] esti­mates and move low­er”, but he said this time should have been dif­fer­ent giv­en Pres­i­dent Don­ald Trump’s slate of busi­ness-friend­ly ini­tia­tives.

“You wouldn’t know that there was an agen­da in place to low­er cor­po­rate tax­es and raise infra­struc­ture spend­ing. That is invis­i­ble in the num­bers,” he said.

Investors may have become too opti­mistic about the pos­i­tive impact of Mr Trump’s fis­cal poli­cies, said Russ Koes­terich, a port­fo­lio man­ag­er at Black­Rock.

In par­tic­u­lar, he said that it is pos­si­ble that the heat­ed debate on Capi­tol Hill over health­care reform will delay oth­er mea­sures, such as tweaks to the cor­po­rate tax code, that are expect­ed to be a boon to com­pa­nies’ bot­tom lines.

Beyond earn­ings, anoth­er cause for cau­tion is that while data on the US econ­o­my have been “sol­id” over­all, there are indi­ca­tions that growth may not “accel­er­ate as quick­ly as peo­ple thought at the begin­ning of the year,” accord­ing to Mr Koes­terich.

A run­ning pro­jec­tion for first-quar­ter eco­nom­ic growth from the Atlanta Fed­er­al Reserve offers a prime exam­ple. It pegged the annu­alised rate of expan­sion at 3.4 per cent at the start of Feb­ru­ary on the back of strong data on man­u­fac­tur­ing.

But the fig­ure has con­sis­tent­ly fall­en, hit­ting 0.9 per cent after the jobs report on March 10 — a pre­dic­tion that has held steady since then as fur­ther pri­vate and gov­ern­ment eco­nom­ic reports have been released.

“We’re cer­tain­ly in a bet­ter place than a year ago, but it’s not entire­ly obvi­ous” that the pick-up will be as strong as investors had antic­i­pat­ed, Mr Koes­terich said.

“Earn­ings for com­pa­nies list­ed on the S&P 500 index, the main US stock barom­e­ter, are pre­dict­ed to rise 9 per cent in the first quar­ter, Fact­Set data show. While the rate marks a sig­nif­i­cant uptick from the 4.9 per cent notched in the final three months of 2016, it rep­re­sents a reduc­tion from the 12.3 per cent expect­ed at the start of this year.”

Cor­po­rate earn­ings expec­ta­tions aren’t quite what they were in Jan­u­ary: 9 per­cent pro­ject­ed growth vs 12 per­cent. It’s not the kind of dim­ming sen­ti­ment that’s prob­a­bly going to wor­ry the Trump admin­is­tra­tion very much. At least not yet. But, again, the Trump bud­get is based on the assump­tion of unusu­al­ly high growth rates over the next decade and you have to won­der how much of the investor sen­ti­ment today is pred­i­cat­ed on an assump­tion that US eco­nom­ic growth and cor­po­rate prof­its real­ly are enter­ing into a new Trumpian era where his­tor­i­cal­ly high growth rates are the norm. If so, it could be quite a wake up call for mar­kets if that sen­ti­ment changes. For instance, Bank of Amer­i­ca just put out a sur­vey of fund man­agers that found more fund man­agers say­ing stocks are over­val­ued now than at any point over the last 20 years. And while, on the one hand, that’s a pos­i­tive sign in the sense that it indi­cates “the mar­kets” aren’t quite as irra­tional as they could be but it’s also a reflec­tion of how mar­kets real­ly have shot up pret­ty sub­stan­tial­ly since Trump’s win and there’s now a sig­nif­i­cant Trump bull run baked into cur­rent val­u­a­tions. So despite the fact that an eco­nom­ic pull back is to be entire­ly expect­ed at some point dur­ing Trump’s term, it’s not clear just how much investors are expect­ing that, at least based on cur­rent mar­ket val­u­a­tions.

That’s all part of what’s going to make the per­for­mance of the econ­o­my under Trump so fas­ci­nat­ing: It’s got to be con­sis­tent­ly good to meet cur­rent expec­ta­tions and it’s not real­ly clear how expec­ta­tions will shift if things don’t go well. Like, what will Trump him­self do if the econ­o­my cools off — or actu­al­ly expe­ri­ences a full blown cri­sis? Will he just start brood­ing and blam­ing phan­toms (prob­a­bly Oba­ma) for the econ­o­my’s woes on Twit­ter? Declare war? Dereg­u­late Wall Street even more? What’s he going to do? It’s a very open ques­tion, like a choose-your-own-adven­ture with no good end­ings.

But the role that ele­vat­ed mar­ket expec­ta­tions could play into the Trump econ­o­my is also pret­ty fas­ci­nat­ing in part due to the fact that the Fed­er­al Reserve is basi­cal­ly man­dat­ed to try and ensure that the econ­o­my does well, but not too. And by “too well”, we of course mean not too much infla­tion. More specif­i­cal­ly, not too much wage infla­tion. If the econ­o­my heats up hot enough long enough and wages start ris­ing more than 2 per­cent a year or so, the Fed feels it has a man­date to step in and cool off the econ­o­my. That’s just how the Fed works these days.

So assum­ing the Trump team does man­age an extend­ed string of plus 3 per­cent annu­al growth rates and wages start ris­ing at the kind of clip that nor­mal­ly freaks out con­ser­v­a­tive cen­tral bankers, what on earth is the Trump team going to do if the Fed steps in to ‘take away the punch bowl’ and cool things off? Will the Trump team view that as the excuse they were look­ing for to weasel their way out of the irra­tional expec­ta­tions the Trump team set up for itself? Or will Trump get all pis­sy? It’s a ques­tion with­out clear answers at this point, but as the arti­cle below points out, the Fed board of gov­er­nors is lean­ing strong­ly towards a rapid rate rise this year alone in order to ward off plus‑2 per­cent infla­tion and that’s not going to stop if the eco­nom­ic expan­sion Trump inher­it­ed con­tin­ues, so the answer to that ques­tion could get a lot clear­er in the next year or two:

Bloomberg Mar­kets

Kashkari Emerges as Oppos­ing Voice as Fed Shows Opti­mism

by Jean­na Smi­alek, Matthew Boesler, and Christo­pher Con­don
March 20, 2017, 10:29 AM CDT March 20, 2017, 11:08 AM CDT

* Pres­i­dents Hark­er, Evans both see more rate increas­es com­ing
* Min­neapo­lis Fed chief doesn’t see 2% core infla­tion in 2017

The U.S. Fed­er­al Reserve could raise inter­est rates two, three or four times this year, said Chica­go Fed Pres­i­dent Charles Evans, though his Min­neapo­lis col­league Neel Kashkari argued that there was no need to rush.

“We do not have a high-infla­tion threat right around the cor­ner,” Kashkari said dur­ing an inter­view on Bloomberg Tele­vi­sion Mon­day, adding that the lack of price pres­sure affords the Fed patience in rais­ing rates. “I’d be very sur­prised if core infla­tion reach­es 2 per­cent this year.”

The Min­neapo­lis Fed chief cast the sole dis­sent when the Fed­er­al Open Mar­ket Com­mit­tee vot­ed on March 15 to raise rates. Kashkari’s stance estab­lish­es him as a voice of resis­tance as the Fed gets mov­ing: as of last week’s meet­ing, offi­cials fore­cast two more rate increas­es this year, assum­ing their eco­nom­ic pro­jec­tions for low unem­ploy­ment and near‑2 per­cent infla­tion are met.

“The data are basi­cal­ly mov­ing side­ways, so I’m ask­ing, what’s the rush to raise rates,” Kashkari said. “When the data real­ly call for it, then we should remove accom­mo­da­tion.”

‘Entire­ly Rea­son­able’

Kashkari is a first-time vot­er in 2017 and his com­ments were in con­trast to those of Chicago’s Evans, who also votes on pol­i­cy this year.

“If the growth out­look solid­i­fies and I have more con­fi­dence that infla­tion is going up, three for the entire year is entire­ly rea­son­able,” Evans, who has long been an advo­cate of a patient approach to rais­ing rates, said ear­li­er on Fox Busi­ness. “It could be three, it could be two, it could be four if things real­ly pick up.”

U.S. unem­ploy­ment has dipped to 4.7 per­cent, which is near the lev­el most Fed offi­cials see as con­sis­tent with max­i­mum employ­ment. The Fed’s pre­ferred gauge of price pres­sures, exclud­ing food and ener­gy, rose 1.7 per­cent in the 12 months through Jan­u­ary, still a bit shy of its 2 per­cent goal. Pol­i­cy mak­ers also view inter­na­tion­al risks as less threat­en­ing than last year, and sol­id progress at home with­out major head­winds from abroad have improved their con­fi­dence in the out­look.

Philadel­phia Fed Pres­i­dent Patrick Hark­er, who also votes on mon­e­tary pol­i­cy this year, sep­a­rate­ly said that he can’t rule out more than three rate increas­es this year, and that there prob­a­bly will be some over­shoot on the Fed’s 2 per­cent infla­tion goal.

Dot Plot

The Fed’s so-called dot plot — the anony­mous chart that dis­plays pol­i­cy mak­ers’ esti­mates for rate increas­es over the next three years — was updat­ed at the March FOMC meet­ing. All 17 FOMC par­tic­i­pants sub­mit­ted fore­casts. Two favored just one hike in 2017; one offi­cial pen­ciled in two; nine saw three being war­rant­ed; and five pol­i­cy mak­ers viewed four or more increas­es as need­ed.

St. Louis Fed Pres­i­dent James Bullard has pre­vi­ous­ly said he only fore­casts one increase this year. Kashkari declined to say how many he had esti­mat­ed, though some Fed watch­ers say he prob­a­bly has just one increase writ­ten down, while Evans prob­a­bly has two hikes.

That implies all sev­en mem­bers of the Board of Gov­er­nors in Wash­ing­ton, includ­ing Chair Janet Yellen, Vice Chair Stan­ley Fis­ch­er and New York Fed chief William Dud­ley, have also prob­a­bly fore­cast three increas­es in 2017.

...

“U.S. unem­ploy­ment has dipped to 4.7 per­cent, which is near the lev­el most Fed offi­cials see as con­sis­tent with max­i­mum employ­ment. The Fed’s pre­ferred gauge of price pres­sures, exclud­ing food and ener­gy, rose 1.7 per­cent in the 12 months through Jan­u­ary, still a bit shy of its 2 per­cent goal. Pol­i­cy mak­ers also view inter­na­tion­al risks as less threat­en­ing than last year, and sol­id progress at home with­out major head­winds from abroad have improved their con­fi­dence in the out­look.”

That’s right: Don­ald Trump inher­it­ed an econ­o­my near max­i­mum employ­ment, at least accord­ing to the US unem­ploy­ment rate. And while Trump has repeat­ed­ly claimed this the unem­ploy­ment rate is much clos­er to 42 per­cent, the Fed does­n’t base its deci­sions based on Trump’s hal­lu­ci­na­tions.

Also note that the lone dis­senter on the Fed’s board for the lat­est rate hike, Niel Kashkari, is a Repub­li­can who was gen­er­al­ly hawk­ish and crit­i­cal of the Fed’s low rates before he was appoint­ed as Fed gov­er­nor in 2015. So the biggest Dove was recent­ly Hawk and is still poten­tial­ly very hawk­ish. Just not yet.

So we could be look­ing at Fed rate hikes impos­ing real eco­nom­ic head­winds for Trump’s econ­o­my fair­ly soon. Sure, Fed rates are still his­tor­i­cal­ly low and there’s plen­ty of room for them to rise before they even approach his­tor­i­cal­ly “nor­mal” ranges. But those ris­es still have an impact, espe­cial­ly on sec­tors of the econ­o­my that are often seen as a proxy/barometer like hous­ing and stock mar­kets. Will Trump sim­ply tout how great it is that mid­dle-class savers can earn high­er inter­est on their bank CDs are could we be look­ing at a real fight between Trump and the Fed. Trump promised a wild par­ty and the Fed is already plan­ning on pulling away the punch bowl, it’s a pret­ty big ques­tion. Espe­cial­ly since Turm­p’s pri­or com­ments on the Fed are pret­ty schizo and he has immense pow­er to reshape the Fed in com­ing years (and has sur­round­ed him­self with peo­ple who want to bring back the gold stan­dard and are quite hawk­ish in gen­er­al):

Politi­co
The Agen­da

What Trump could do to the Fed­er­al Reserve

His inner cir­cle con­tains some rad­i­cal mon­e­tary thinkers—and Wall Street bankers. Who will pre­vail?

By Dan­ny Vinik
03/15/17 05:26 AM EDT

What hap­pens when Pres­i­dent Don­ald Trump gets his hands on the Fed?

It’s the ques­tion grip­ping the eco­nom­ic world these days. Though not as big a head­line as immi­gra­tion pol­i­cy or his cab­i­net picks, Trump has a chance to appoint a new per­son to near­ly every top Fed job over the next two years—a pow­er not afford­ed most pres­i­dents, and with very high stakes. The Fed’s deci­sions can rip­ple through the econ­o­my, mak­ing mort­gages more expen­sive, caus­ing min­ing com­pa­nies to reduce invest­ment in new machin­ery and pre­vent­ing retail stores from hir­ing new work­ers.

Giv­en the president’s ten­den­cy to take advice from a very close cir­cle, experts have start­ed cast­ing a wary eye on just who’s in Trump’s imme­di­ate orbit—and what they think about the Fed­er­al Reserve. What they’re see­ing sug­gests that Trump has the poten­tial to bring more dra­mat­ic changes to the Fed than any pres­i­dent since at least Ronald Rea­gan.

While recent pres­i­dents have drawn from bankers and econ­o­mists with a nar­row set of views, Trump has sur­round­ed him­self with a num­ber of advi­sors who hold extreme, even fringe ideas about mon­e­tary policy—including at least six who have spo­ken favor­ably about the gold stan­dard. Not all are gold stan­dard sup­port­ers, but many are far more hawk­ish in their approach to mon­ey than typ­i­cal Fed offi­cials over the past few decades.

The sup­port for the gold stan­dard around the pres­i­dent “seems like noth­ing that’s hap­pened since the Great Depres­sion,” said Joseph Gagnon, a senior fel­low at the Peter­son Insti­tute for Inter­na­tion­al Eco­nom­ics who has worked at the Fed off-and-on for the past 30 years. “You have to go back to Her­bert Hoover.”

The first big sig­nal of Trump’s direc­tion will come with his choic­es for three open Fed board spots. Two spots have been emp­ty for near­ly three years, while anoth­er will open up in April when Fed Gov­er­nor Daniel Tarul­lo steps down. Wall Street is espe­cial­ly await­ing Tarullo’s replace­ment because he has over­seen the imple­men­ta­tion of the Fed’s reg­u­la­to­ry respon­si­bil­i­ties under Dodd-Frank.

That’s just the begin­ning, though. Before even half his term is com­plete, Trump will be able to choose an entire new lead­er­ship of the cen­tral bank: the terms of the chair and vice chair of the Board, Janet Yellen and Stan­ley Fis­ch­er, are both up in the first half of 2018. He will also influ­ence the replace­ment for the pres­i­dent of the New York Fed, William Dud­ley, who is sup­posed to retire in Jan­u­ary, 2019. Yellen, Fis­ch­er and Dud­ley cur­rent­ly hold the three most impor­tant posi­tions at the Fed—known togeth­er as the Troi­ka.

So, what will Fed pol­i­cy look like under the Trump admin­is­tra­tion? As on so many oth­er issues, Trump’s own views are near­ly impos­si­ble to deter­mine. At one point dur­ing the pres­i­den­tial cam­paign, Trump called him­self a “low-rate per­son”; at anoth­er, he attacked the Fed’s low-rate pol­i­cy for cre­at­ing a “false econ­o­my.” But based on the fig­ures around him, it’s pos­si­ble to game out a few ideas for what mon­e­tary pol­i­cy could look like in the years ahead. To do so, POLITICO spoke with for­mer Fed staffers, econ­o­mists and Trump advi­sors to under­stand what Trump might look for in nom­i­nees for top Fed posi­tions and how those nom­i­nees, in turn, could alter the most impor­tant eco­nom­ic insti­tu­tion in the world. Here are four pos­si­bil­i­ties:

1. The gold stan­dard returns.

The gold stan­dard is near­ly syn­ony­mous with “fringe idea” in mod­ern mon­e­tary policy—not since 1933 has the Unit­ed States lit­er­al­ly pledged that it would back every dol­lar with a dollar’s worth of stored gold. But right now it’s high times for gold stan­dard advo­cates, start­ing at the top of the exec­u­tive branch: “Bring­ing back the gold stan­dard would be very hard to do, but, boy, would it be won­der­ful. We’d have a stan­dard on which to base our mon­ey,” Trump said in Novem­ber, 2015.

Giv­en Trump’s oth­er com­ments on mon­e­tary pol­i­cy, it’s impos­si­ble to say whether he actu­al­ly sup­ports the gold stan­dard. But if he does, he would become the first pres­i­dent to favor it since Hoover, accord­ing to Louis John­ston, an econ­o­mist at the Col­lege of Saint Benedict—a fact that’s not lost on its oth­er fans in Amer­i­can pol­i­tics. “We’re in a bet­ter posi­tion than we’ve ever been in my life­time as far as talk­ing about seri­ous changes to the mon­e­tary sys­tem and talk­ing about gold,” said for­mer Rep. Ron Paul, a long-time sup­port­er of the gold stan­dard.

It’s not just Trump. Not since Reagan­—perhaps earlier—have so many gold bugs had such high lev­els of influ­ence in the White House. Beyond the pres­i­dent, the gold stan­dard has sup­port from Judy Shel­ton, the direc­tor of the Sound Mon­ey Project at the Atlas Net­work, who was on Trump’s tran­si­tion team; Rebekah and Robert Mer­cer, top Trump donors who have fund­ed past efforts in sup­port of the gold stan­dard; Ben Car­son, the neu­ro­sur­geon turned pres­i­den­tial can­di­date who is now Trump’s Sec­re­tary of Hous­ing and Urban Devel­op­ment; David Mal­pass, a for­mer mem­ber of Trump’s tran­si­tion team and poten­tial selec­tion for a top spot at Trea­sury; and John Alli­son, the for­mer CEO of BB&T Corp. who Trump inter­viewed for trea­sury sec­re­tary in Novem­ber.

Gold appeals to peo­ple who are skep­ti­cal of banks and glob­al insti­tu­tions and fear society’s col­lapse; it’s a durable com­mod­i­ty with tan­gi­ble val­ue that can be held in the hand. Like most “hard mon­ey” fans, gold stan­dard sup­port­ers fear that the government’s loose­ness with issu­ing mon­ey will cause sky­rock­et­ing infla­tion and reduce the val­ue of the dollar—unless they can put on the brakes by strict­ly tying dol­lars to a valu­able, lim­it­ed com­mod­i­ty.

...

Start­ing in 1879, the U.S. tied the dol­lar to gold until it effec­tive­ly aban­doned the pol­i­cy in 1933 after pol­i­cy­mak­ers blamed it, in part, for the government’s weak response to the Great Depres­sion. (Richard Nixon com­plete­ly end­ed the dollar’s ties to gold in 1971, and today, no indus­tri­al­ized econ­o­my links its cur­ren­cy to gold.) Main­stream econ­o­mists from both sides of the aisle oppose the gold stan­dard for lim­it­ing the Fed’s abil­i­ty to respond to reces­sions. In a 2012 sur­vey of 32 econ­o­mists by the Uni­ver­si­ty of Chica­go, not a sin­gle one sup­port­ed it.

Could Trump bring it back? Not like­ly. Even sup­port­ers of the gold stan­dard admit that there are prac­ti­cal lim­i­ta­tions to return­ing to such a stan­dard today, includ­ing deter­min­ing the price of gold giv­en the government’s lim­it­ed sup­ply. But a Fed filled with gold stan­dard sup­port­ers might weigh gold much more heav­i­ly in their mon­e­tary pol­i­cy decisions—an indi­rect way, at least, for a gold-dri­ven phi­los­o­phy to influ­ence the econ­o­my.

That would rep­re­sent a dra­mat­ic break from the mon­e­tary pol­i­cy debates in recent decades. Reviv­ing the argu­ment over gold would undoubt­ed­ly roil the eco­nom­ics pro­fes­sion, with unknow­able effects on the broad­er econ­o­my. To most pres­i­dents, that may be a rea­son to avoid such a move. To Trump, it may be his exact rea­son for doing it. “He may not even sup­port [the gold stan­dard] but it’s a way of stick­ing the mid­dle fin­ger to the estab­lish­ment,” said David Beck­worth, a mon­e­tary econ­o­mist at the Mer­ca­tus Cen­ter. “I could see a cer­tain part of him being like ‘So gold stan­dard is what irri­tates them, great, let’s run with it.’”

2. End­ing the Fed’s dual man­date

Since 1978, the Fed has offi­cial­ly had two main direc­tives: max­i­mum employ­ment and sta­ble infla­tion. This is called the “dual man­date,” and some­times the goals can be in con­flict, as when unem­ploy­ment falls so low that infla­tion ris­es. The art of run­ning the Fed often con­sists in bal­anc­ing the two suc­cess­ful­ly.

But Mick Mul­vaney, pres­i­dent Trump’s new bud­get direc­tor, actu­al­ly spon­sored leg­is­la­tion to end the dual man­date when he was in Con­gress. Instead, Mul­vaney, a fis­cal hawk, wants to see the Fed focus sole­ly on keep­ing infla­tion low. (Mul­vaney has also flirt­ed with fringe mon­e­tary think­ing. In 2013, he appeared to pub­licly sup­port a the­o­ry, pop­u­lar on the lib­er­tar­i­an right, that U.S. infla­tion sta­tis­tics are rigged, and the gov­ern­ment is under­es­ti­mat­ing the true lev­el of infla­tion.)

Mul­vaney has a pow­er­ful ally in Vice Pres­i­dent Mike Pence, who dur­ing his time in Con­gress also spon­sored leg­is­la­tion to end the dual man­date. But since the dual man­date is a statu­to­ry respon­si­bil­i­ty, Trump can’t end it through nom­i­na­tions alone. That could only hap­pen through an act of Con­gress and it’s unlike­ly Sen­ate Democ­rats, and many Sen­ate Repub­li­cans, would agree to such a rad­i­cal change. But even if the dual man­date is unlike­ly to be for­mal­ly repealed, Mul­vaney and Pence’s roles in the White House ensure that Fed hawks will receive a full hear­ing in the Trump admin­is­tra­tion and poten­tial­ly gain impor­tant posi­tions at the Fed. That could por­tend a more infla­tion-pho­bic Fed in the years ahead, even with the dual man­date still firm­ly in place.

3. A rules-based approach to mon­e­tary pol­i­cy.

The most like­ly reform for the cen­tral bank goes by the tech­ni­cal term “rules-based.” This means that instead of the Fed set­ting its bench­mark inter­est rate on the judg­ment of its pol­i­cy-mak­ing com­mit­tee, it would do so accord­ing to a spe­cif­ic rule. The most famous pro­posed rule comes from Stan­ford econ­o­mist John Taylor­—it’s known as the Tay­lor Rule—and incor­po­rates changes to infla­tion, growth and oth­er eco­nom­ic indi­ca­tors. If applied now, the Tay­lor Rule would call for the Fed to set its bench­mark inter­est rate at around 2.5 percent—far above its cur­rent lev­el of 0.5 per­cent. This would instant­ly raise inter­est rates on every­thing from mort­gages to cred­it cards to cor­po­rate loans, and like­ly roil finan­cial mar­kets.

Repub­li­cans for years have been yearn­ing for a rules-based Fed, argu­ing that dur­ing the Oba­ma admin­is­tra­tion, the Fed’s pol­i­cy of keep­ing its bench­mark inter­est rate near zero and buy­ing tril­lions of dol­lars in assets to fur­ther low­er long-term rates hurt seniors, whose sav­ings ben­e­fit from high­er inter­est rates, deval­ued the dol­lar and set the stage for high­er infla­tion. House Repub­li­cans passed leg­is­la­tion requir­ing the Fed to adopt a rule of some kind, although it didn’t spec­i­fy the Tay­lor Rule. The Fed would have been allowed to devi­ate from the rule, but would have to explain to Con­gress why it did so.

Unlike the gold stan­dard, a rules-based approach to mon­e­tary pol­i­cy enjoys sup­port from many main­stream econ­o­mists, includ­ing those who have large­ly sup­port­ed Oba­ma-era mon­e­tary pol­i­cy. It also has sup­port in Trump’s inner cir­cles, includ­ing many of those who sup­port a gold stan­dard. Often, a rules-based approach to mon­e­tary pol­i­cy is seen as a less-extreme ver­sion of the “hard mon­ey” phi­los­o­phy, one that would still like­ly lead to tighter mon­e­tary pol­i­cy. Fans in the Trump orbit include Peter Navar­ro, the U.C.-Irvine econ­o­mist Trump chose to head the new­ly-cre­at­ed Nation­al Trade Coun­cil; Tom Price, the head the Depart­ment of Health and Human Ser­vices; and Lar­ry Kud­low, the famed sup­ply-sider and infor­mal Trump advi­sor.

...

4. Busi­ness as usu­al.

One oth­er pos­si­bil­i­ty: Trump doesn’t remake the cen­tral bank after all.

Tra­di­tion­al­ly, the president’s selec­tions for top Fed posts are guid­ed by a few key policymakers—the heads of the Office of Man­age­ment and Bud­get, Nation­al Eco­nom­ic Coun­cil and Coun­cil of Eco­nom­ic Advi­sors, and the trea­sury sec­re­tary, along with senior staff at the White House. Besides Mul­vaney, at OMB, feel­ings in that group on the Fed are more tra­di­tion­al. Trea­sury Sec­re­tary Steven Mnuchin and NEC Direc­tor Gary Cohn have both spo­ken pos­i­tive­ly of recent Fed pol­i­cy, as has Wilbur Ross, Trump’s choice as com­merce sec­re­tary, and are like­ly to sup­port more tra­di­tion­al GOP nom­i­nees. Kevin Has­sett, Trump’s pick to head the CEA who was a researcher at the Fed ear­li­er in his career, has expressed skep­ti­cism about some of the Fed’s deci­sions after the finan­cial cri­sis but is con­sid­ered an estab­lish­ment fig­ure.

What could that look like? For­mer Fed offi­cials and main­stream econ­o­mists hope that Trump will choose to replace Yellen with a tra­di­tion­al Repub­li­can econ­o­mist like Kevin Warsh, a for­mer Fed gov­er­nor, or Glenn Hub­bard, the for­mer top econ­o­mist to George W. Bush. John Tay­lor is also fre­quent­ly rumored as a top can­di­date for the job.

Maybe he even keeps Janet Yellen.

“That would rep­re­sent a dra­mat­ic break from the mon­e­tary pol­i­cy debates in recent decades. Reviv­ing the argu­ment over gold would undoubt­ed­ly roil the eco­nom­ics pro­fes­sion, with unknow­able effects on the broad­er econ­o­my. To most pres­i­dents, that may be a rea­son to avoid such a move. To Trump, it may be his exact rea­son for doing it. “He may not even sup­port [the gold stan­dard] but it’s a way of stick­ing the mid­dle fin­ger to the estab­lish­ment,” said David Beck­worth, a mon­e­tary econ­o­mist at the Mer­ca­tus Cen­ter. “I could see a cer­tain part of him being like ‘So gold stan­dard is what irri­tates them, great, let’s run with it.’””

Might Trump decide to flirt with the gold stan­dard just to f#ck with every­one? It would cer­tain­ly be a great dis­trac­tion. But as the arti­cle as point­ed out, the more Trump indulges in gold-stan­dard-ish eco­nom­ic the­o­ries, the hard­er it’s going to be for him to avoid an extreme­ly hawk­ish Fed. Because if today’s Fed looks hawk­ish just look at the gold bugs. THAT’s hawk­ish. And yet Trump has sur­round­ed him­self with gold bugs and is going to have the oppor­tu­ni­ty dur­ing his term to dra­mat­i­cal­ly reshape the Fed, both in terms of per­son­nel and poten­tial­ly the rules that the Fed oper­ates under. Very basic rules like whether or not the Fed even fac­tors in the unem­ploy­ment rate at all in its deci­sions (the dual man­date) or whether the Fed even gets to fac­tor any­thing at all into its deci­sions and instead just fol­lows a sets of rules (the “rules-based” approach”). Even if Trump does­n’t push the gold-stan­dard, he can still impose gold-stan­dard-lite:

...
2. End­ing the Fed’s dual man­date

Since 1978, the Fed has offi­cial­ly had two main direc­tives: max­i­mum employ­ment and sta­ble infla­tion. This is called the “dual man­date,” and some­times the goals can be in con­flict, as when unem­ploy­ment falls so low that infla­tion ris­es. The art of run­ning the Fed often con­sists in bal­anc­ing the two suc­cess­ful­ly.

But Mick Mul­vaney, pres­i­dent Trump’s new bud­get direc­tor, actu­al­ly spon­sored leg­is­la­tion to end the dual man­date when he was in Con­gress. Instead, Mul­vaney, a fis­cal hawk, wants to see the Fed focus sole­ly on keep­ing infla­tion low. (Mul­vaney has also flirt­ed with fringe mon­e­tary think­ing. In 2013, he appeared to pub­licly sup­port a the­o­ry, pop­u­lar on the lib­er­tar­i­an right, that U.S. infla­tion sta­tis­tics are rigged, and the gov­ern­ment is under­es­ti­mat­ing the true lev­el of infla­tion.)

Mul­vaney has a pow­er­ful ally in Vice Pres­i­dent Mike Pence, who dur­ing his time in Con­gress also spon­sored leg­is­la­tion to end the dual man­date. But since the dual man­date is a statu­to­ry respon­si­bil­i­ty, Trump can’t end it through nom­i­na­tions alone. That could only hap­pen through an act of Con­gress and it’s unlike­ly Sen­ate Democ­rats, and many Sen­ate Repub­li­cans, would agree to such a rad­i­cal change. But even if the dual man­date is unlike­ly to be for­mal­ly repealed, Mul­vaney and Pence’s roles in the White House ensure that Fed hawks will receive a full hear­ing in the Trump admin­is­tra­tion and poten­tial­ly gain impor­tant posi­tions at the Fed. That could por­tend a more infla­tion-pho­bic Fed in the years ahead, even with the dual man­date still firm­ly in place.

3. A rules-based approach to mon­e­tary pol­i­cy.

The most like­ly reform for the cen­tral bank goes by the tech­ni­cal term “rules-based.” This means that instead of the Fed set­ting its bench­mark inter­est rate on the judg­ment of its pol­i­cy-mak­ing com­mit­tee, it would do so accord­ing to a spe­cif­ic rule. The most famous pro­posed rule comes from Stan­ford econ­o­mist John Taylor­—it’s known as the Tay­lor Rule—and incor­po­rates changes to infla­tion, growth and oth­er eco­nom­ic indi­ca­tors. If applied now, the Tay­lor Rule would call for the Fed to set its bench­mark inter­est rate at around 2.5 percent—far above its cur­rent lev­el of 0.5 per­cent. This would instant­ly raise inter­est rates on every­thing from mort­gages to cred­it cards to cor­po­rate loans, and like­ly roil finan­cial mar­kets.
...

So is Trump at all tempt­ed at this point to ditch the dual man­date, move over to a “rules-based” mon­e­tary pol­i­cy and for­mal­ly switch over to a gold-stan­dard-lite mod­el? Well, at this point prob­a­bly not since that would destroy the econ­o­my and the cur­rent Trumpian enthu­si­asm. But what if we’re talk­ing, say, a few years from new and the econ­o­my is already kind of destroyed or at least very trou­bled and Trump has noth­ing to lose? What then?

That’s one of the very fas­ci­nat­ing ques­tions raised by the jux­ta­po­si­tion of Trump’s promis­es of his­toric eco­nom­ic growth cou­pled with his palling around with gold bugs and uber-hawks. While the gold bugs and uber-hawks like to tell you that awe­some eco­nom­ic growth is syn­ony­mous with gold bug­gery and uber-hawk­ish­ness, there’s a rea­son mod­ern economies don’t the gold stan­dard. It’s like turn­ing the cen­tral bank on auto-pilot. A cen­tral bank auto-pilot pre­dis­posed to high-than-war­rant­ed poli­cies favor­ing banks and those with lots of bonds and sav­ings when times are worst. That’s not a use­ful auto-pilot, espe­cial­ly for an eco­nom­ic super-pow­er that wants to retain that sta­tus and yet Trump has an awful lot of peo­ple that either want the gold stan­dard or some sort of gold-stan­dard-lite scheme like ditch­ing the dual man­date (how the ECB is structure...which a rather big warn­ing flag right there) or switch­ing over a brain dead “rules-based” sys­tem. And all of these gold bug-ish peo­ple Trump sur­round­ed him­self with either advo­cate end­ing the Fed out­right or at least hik­ing rates a lot. And that means keep­ing a lid on the Trump econ­o­my that Trump’s teams has pre­dict­ed is going to be run­ning hot for the next decade and is already run­ning hot right out of the gates because, again, Trump inher­it­ed an unem­ploy­ment rate that’s so low the Fed con­sid­ers it near “full unem­ploy­ment” (despite what you may have heard).

And that’s all part of why how Trump’s rela­tion­ship with the Fed is going to be so fas­ci­nat­ing: the pol­i­tics and eco­nom­ics do not mix. At all. Unless things get real­ly, real­ly bad eco­nom­i­cal­ly. So while the stock mar­ket is near all time highs and the gold mar­kets have seen bet­ter days, the gold bug mar­ket is look­ing pret­ty bull­ish, espe­cial­ly if things get extreme­ly bear­ish in gen­er­al. And you thought the last bub­ble was scary.

Here’s an inter­est­ing stu­dent loan-relat­ed fun fact about Don­ald Trump’s for-prof­it gov­ern­ing phi­los­o­phy: When Trump was cam­paign­ing back in 2015 he remarked about how the one area of the fed­er­al gov­ern­ment that should­n’t make mon­ey off is on stu­dent loans, say­ing at the time “That’s prob­a­bly one of the only things the gov­ern­ment shouldn’t make mon­ey off — I think it’s ter­ri­ble that one of the only prof­it cen­ters we have is stu­dent loans.” And while Trump has­n’t real­ly had much to say about US stu­dent loan cri­sis at all since get­ting elect­ed that does­n’t mean Trump and the GOP aren’t poised to make some pret­ty big changes to stu­dent lean reg­u­la­tions. Specif­i­cal­ly, once the GOP gets fin­ished gut­ting the Con­sumer Finan­cial Pro­tec­tions Burueau, those stu­dents loans are going to be a lot more prof­itable. prof­itable for the gov­ern­ment and the stu­dent loan ser­vicers who will be allowed to legal­ly steer strug­gling bor­row­ers towards prof­it-max­i­miz­ing repay­ment strate­gies and do this all under the guise of pro­vid­ing sound finan­cial advice and with­out any Con­sumer Finan­cial Pro­tec­tion Bureau to try and stop them:

Bloomberg

Stu­dent Debt Giant Navient to Bor­row­ers: You’re on Your Own
The ser­vicer says pub­licly it wants to help you pay debt. In a gov­ern­ment law­suit, it has a dif­fer­ent mes­sage.

by Shahien Nasiripour
April 3, 2017, 3:00 AM CDT

Over the past sev­er­al years, Jack Remon­di, chief exec­u­tive of stu­dent loan giant Navient Corp., has gone out of his way to tout the company’s devo­tion to help­ing Amer­i­cans cope with stu­dent debt.

He’s men­tioned it in meet­ings with investors, on calls with Wall Street ana­lysts, in tes­ti­mo­ny before Con­gress, and even on his Medi­um blog. “At Navient, our pri­or­i­ty is to help each of our 12 mil­lion cus­tomers suc­cess­ful­ly man­age their loans in a way that works for their indi­vid­ual cir­cum­stances,” he said March 20.

But faced with a poten­tial mul­ti-bil­lion dol­lar law­suit by the fed­er­al gov­ern­ment for not liv­ing up to that mantra, Remondi’s com­pa­ny, for­mer­ly an arm of stu­dent lender Sal­lie Mae, sang a dif­fer­ent tune in court fil­ings.

Bor­row­ers can’t rea­son­ably rely on America’s largest stu­dent loan ser­vicer to coun­sel them about their many options, Navient said on March 24 in a motion to dis­miss the case, because its pri­ma­ry role is, after all, to col­lect their pay­ments.

“There is no expec­ta­tion that the ser­vicer will act in the inter­est of the con­sumer,” Navient said in response to the lit­i­ga­tion filed Jan. 18 by the U.S. Con­sumer Finan­cial Pro­tec­tion Bureau.

With about one in four of the nation’s rough­ly 44 mil­lion stu­dent debtors either in default or strug­gling to stay cur­rent, there’s broad agree­ment that loan ser­vicers such as Navient are key to end­ing the cri­sis. Remon­di, 54, has said as much on sev­er­al occa­sions. One of his four ideas to slash defaults is for pol­i­cy­mak­ers to encour­age bor­row­ers to call their loan ser­vicer. “For some bor­row­ers, stu­dent loan debt can be espe­cial­ly daunt­ing. The good news is that bor­row­ers can turn to their stu­dent loan ser­vicers for help to nav­i­gate the com­plex repay­ment options,” Remon­di said in Feb­ru­ary.

But in court, Navient made clear that the company’s main job isn’t help­ing debtors; it’s get­ting them to cough up cash for cred­i­tors like its biggest client, the U.S. Depart­ment of Edu­ca­tion. The depart­ment, Navient explained, didn’t agree to pay for the lev­el of cus­tomer ser­vice the CFPB wants Navient to give.

“This ranks among the most appalling state­ments I have heard in my career,” said David Berg­eron, who after more than 30 years of work­ing at the Edu­ca­tion Depart­ment recent­ly retired as the head of post­sec­ondary edu­ca­tion. “If that’s all they are doing,” Berg­eron said of Navient’s claim that its only respon­si­bil­i­ty is to col­lect, “the Trea­sury Depart­ment and the Inter­nal Rev­enue Ser­vice would do it bet­ter.”

“What this means for the Edu­ca­tion Depart­ment is that it needs to fire Navient,” Berg­eron said. “Damn the costs.”

Patri­cia Chris­tel, a Navient spokes­woman, declined to make Remon­di avail­able for an inter­view. The com­pa­ny helps bor­row­ers “nav­i­gate loan repay­ment through proven solu­tions,” she said in a pre­pared state­ment. In court, Navient has also sought to under­cut the law­suit by argu­ing that the CFPB—under siege by a Repub­li­can-con­trolled Con­gress and White House—is itself uncon­sti­tu­tion­al.

In Jan­u­ary, the CFPB sued Navient in a Penn­syl­va­nia fed­er­al court, alleg­ing the com­pa­ny “sys­tem­at­i­cal­ly” cheat­ed stu­dent debtors by tak­ing short­cuts to min­i­mize its own costs. Navient ille­gal­ly steered strug­gling bor­row­ers fac­ing long-term hard­ship into pay­ment plans that tem­porar­i­ly post­poned bills, the gov­ern­ment alleged, rather than help­ing them enroll in plans that cap pay­ments rel­a­tive to their earn­ings.

The lat­ter option promis­es debtors the pos­si­bil­i­ty of debt for­give­ness after years of steady pay­ment. The for­mer rais­es the pos­si­bil­i­ty of a finan­cial time-bomb.

Navient chose the for­mer, the CFPB said, because it took less time for its employ­ees to set up. Bor­row­ers can typ­i­cal­ly enroll in so-called for­bear­ance plans over the phone, while income-based repay­ment plans require paper­work and lots of expla­na­tion.

In July 2013, when Navient was the ser­vic­ing arm of Sal­lie Mae, Remon­di said in an earn­ings call that “it’s very expen­sive work, for exam­ple, to enroll a bor­row­er into some­thing like an income-based repay­ment pro­gram … which we are doing. But we don’t actu­al­ly get paid for out­per­for­mance in that side of the equa­tion.”

By push­ing dis­tressed debtors into for­bear­ance agree­ments, the CFPB said, Navient’s con­duct vio­lat­ed a fed­er­al law (PDF) ban­ning “abu­sive” prac­tices.

The Edu­ca­tion Depart­ment and Navient repeat­ed­ly encour­aged bor­row­ers to con­tact the com­pa­ny if they had trou­ble meet­ing their oblig­a­tions, the CFPB said in its com­plaint. Through state­ments on the web­sites of both the com­pa­ny and the gov­ern­ment, debtors were prod­ded to reach out. But when they did, Navient employ­ees alleged­ly sought to exploit their lack of knowl­edge and steer them into pay­ment plans more ben­e­fi­cial to Navient, the CFPB said.

The con­sumer pro­tec­tion bureau esti­mates that as much as $4 bil­lion in addi­tion­al inter­est charges were added to prin­ci­pal bal­ances of loans repeat­ed­ly placed in for­bear­ance. The CFPB seeks an injunc­tion bar­ring such con­duct, mod­i­fi­ca­tion of exist­ing pay­ment agree­ments, and resti­tu­tion to affect­ed stu­dents.

“The Edu­ca­tion Depart­ment ulti­mate­ly is ask­ing loan ser­vicers to act on its behalf to ful­fill its fidu­cia­ry respon­si­bil­i­ty to bor­row­ers,” Berg­eron said, and the gov­ern­ment “expects its ser­vicers to make sure that bor­row­ers gain access to income-based repay­ment plans.” The CFPB argued in its com­plaint that this was decid­ed­ly not the case with Navient.

Navient has repeat­ed­ly denied the government’s alle­ga­tions, point­ing to how more than 40 per­cent of loan bal­ances it ser­vices for the Edu­ca­tion Depart­ment are enrolled in income-based repay­ment plans. Bor­row­ers with Navient-ser­viced fed­er­al loans are less like­ly to default with­in the first three years of pay­ments than the nation­al aver­age, com­pa­ny spokes­woman Chris­tel argued, cit­ing the company’s inter­nal data.

How­ev­er, an analy­sis of the most recent fed­er­al fig­ures shows that 30 per­cent of Navient-ser­viced bor­row­ers are behind on their payments—the worst rate among the Edu­ca­tion Department’s loan con­trac­tors. CFPB data also show (PDF) that Navient ranks sev­enth on a list of the nation’s most recent­ly com­plained-about finan­cial com­pa­nies.

In its motion to dis­miss the con­sumer bureau’s com­plaint (PDF), Navient argued that bor­row­ers couldn’t “rea­son­ably rely” on the com­pa­ny to coun­sel them about their options, because fed­er­al law doesn’t require it. Fur­ther­more, Navient said, its pub­lic state­ments encour­ag­ing bor­row­ers to con­tact the com­pa­ny didn’t mean Navient would act in bor­row­ers’ best inter­ests. Its only legal duty is to lenders, it argued.

“It’s rare for a com­pa­ny to be this bold,” said Jen­ny Lee, a for­mer CFPB attor­ney now with the law firm Dorsey & Whit­ney LLP in Wash­ing­ton. “It’s a sound legal argu­ment, but it may not be the best pub­lic rela­tions argu­ment.”

Suzanne Mar­tin­dale, a San Fran­cis­co-based attor­ney for Con­sumers Union, the advo­ca­cy arm of Con­sumer Reports, said Navient’s claim rais­es ques­tions as to whether bor­row­ers are afford­ed their right to apply for income-based repay­ment plans. Berg­eron, the for­mer Edu­ca­tion Depart­ment offi­cial, and Rohit Chopra, for­mer­ly a stu­dent loan reg­u­la­tor with the CFPB, added that they couldn’t recall ever hearing—in pub­lic or private—a loan ser­vicer argu­ing that it wasn’t required to coun­sel bor­row­ers about their options.

“When con­sumers call their ser­vicers, they’re not expect­ing them to with­hold infor­ma­tion,” Chopra said.

If any­thing, a close review of Navient’s utter­ances out­side of court revealed a con­sis­tent mes­sage of com­mit­ment to help­ing bor­row­ers man­age their stu­dent loans.

Last May, for exam­ple, Remon­di wrote on his blog that “at Navient, we make it a pri­or­i­ty to edu­cate our fed­er­al bor­row­ers about income-dri­ven options,” because, he explained, the government’s var­i­ous income-based repay­ment plans “are our pri­ma­ry tool in help­ing bor­row­ers avoid default.”

Almost two years ear­li­er, in Sep­tem­ber 2014, Remon­di told investors at a Wall Street con­fer­ence that the typ­i­cal bor­row­er doesn’t know the dif­fer­ence between the government’s var­i­ous income-based repay­ment plans. “Our job as a ser­vicer,” Remon­di explained, “is to real­ly work with those cus­tomers and make sure that they under­stand the dif­fer­ences and which pro­gram best fits their needs.”

Dur­ing the Oba­ma admin­is­tra­tion, the CFPB urged finan­cial com­pa­nies to reori­ent their cul­ture toward a more con­sumer-focused approach, said Lee, the for­mer CFPB lawyer. “But then there’s a per­verse incen­tive,” she said. “If a com­pa­ny does too good of a job adver­tis­ing how con­sumer-friend­ly it is, the CFPB could use it as evi­dence against the company—in that it cre­at­ed this rea­son­able expec­ta­tion that con­sumers can rely on the com­pa­ny.”

“It’s a real­ly seri­ous dilem­ma,” she said.

...

“In its motion to dis­miss the con­sumer bureau’s com­plaint (PDF), Navient argued that bor­row­ers couldn’t “rea­son­ably rely” on the com­pa­ny to coun­sel them about their options, because fed­er­al law doesn’t require it. Fur­ther­more, Navient said, its pub­lic state­ments encour­ag­ing bor­row­ers to con­tact the com­pa­ny didn’t mean Navient would act in bor­row­ers’ best inter­ests. Its only legal duty is to lenders, it argued.”

Stu­dent loan giant Navient, which adver­tis­es itself as pro­vid­ing sound finan­cial advice to stu­dent bor­row­ers, argued in court after the CFPD sued them that bor­row­ers could­n’t “rea­son­ably rely” on the com­pa­ny to actu­al­ly giv­en them good advice because their only legal duty is to the lenders. And accord­ing to a for­mer CFPB attor­ney that’s a sound, albeit unseem­ly, legal argu­ment:

...
“It’s rare for a com­pa­ny to be this bold,” said Jen­ny Lee, a for­mer CFPB attor­ney now with the law firm Dorsey & Whit­ney LLP in Wash­ing­ton. “It’s a sound legal argu­ment, but it may not be the best pub­lic rela­tions argu­ment.”
...

So that gives us a sense of the legal land­scape in the finance indus­try: com­pa­nies that base their busi­ness mod­el on con­vinc­ing peo­ple that the com­pa­ny exists to pro­vide clients was sound per­son­al finan­cial advice can actu­al­ly legal­ly steer those peo­ple towards per­son­al­ly finan­cial time-bombs:

...
In Jan­u­ary, the CFPB sued Navient in a Penn­syl­va­nia fed­er­al court, alleg­ing the com­pa­ny “sys­tem­at­i­cal­ly” cheat­ed stu­dent debtors by tak­ing short­cuts to min­i­mize its own costs. Navient ille­gal­ly steered strug­gling bor­row­ers fac­ing long-term hard­ship into pay­ment plans that tem­porar­i­ly post­poned bills, the gov­ern­ment alleged, rather than help­ing them enroll in plans that cap pay­ments rel­a­tive to their earn­ings.

The lat­ter option promis­es debtors the pos­si­bil­i­ty of debt for­give­ness after years of steady pay­ment. The for­mer rais­es the pos­si­bil­i­ty of a finan­cial time-bomb.

Navient chose the for­mer, the CFPB said, because it took less time for its employ­ees to set up. Bor­row­ers can typ­i­cal­ly enroll in so-called for­bear­ance plans over the phone, while income-based repay­ment plans require paper­work and lots of expla­na­tion.
...

And it’s just a mat­ter of time before the GOP does away with the CFPB, the gov­ern­ment agency designed to bring at least a min­i­mum lev­el of con­sumer inter­est to the finance indus­try or at least inform con­sumers about pos­si­ble scams.

It’s anoth­er reminder that watch­ing out for scams is going to be a key sur­vival skill for the Trump era. And not just finan­cial scams.

With Don­ald Trump hav­ing already embarked on his much antic­i­pat­ed first for­eign trip as pres­i­dent, it’s worth not­ing one of the pret­ty sig­nif­i­cant domes­tic impli­ca­tions of his first stop in Sau­di Ara­bia: Remem­ber how Trump’s big $1 tril­lion infra­struc­ture invest­ment plan turned out to be a mass pub­lic infra­struc­ture pri­va­ti­za­tion plan where the vast major­i­ty of the $1 tril­lion is sup­posed to come from the pri­vate sec­tor who will buy up and man­age US infra­struc­ture? Well, it’s look­ing like one of those big pri­vate sec­tor enti­ties is going to be gov­ern­ment of Sau­di Ara­bia and Trump is set to ink the deal:

Bloomberg Pol­i­tics

Saud­is to Boost U.S. Ties With $40 Bil­lion Invest­ment

by Dinesh Nair, Kei­th Camp­bell, and Matthew Mar­tin

May 11, 2017, 1:39 PM CDT May 12, 2017, 5:01 AM CDT

* Kingdom’s wealth fund plans to invest in infra­struc­ture deals
* Plan may be unveiled next week when Trump vis­its king­dom

Sau­di Ara­bia is prepar­ing to cement ties with Pres­i­dent Don­ald Trump by com­mit­ting to unprece­dent­ed invest­ments in the U.S.

The kingdom’s sov­er­eign wealth fund is set to announce plans to deploy as much as $40 bil­lion into U.S. infra­struc­ture, accord­ing to peo­ple famil­iar with the mat­ter. The invest­ment may be unveiled as ear­ly as next week to coin­cide with Trump’s vis­it to the king­dom, said the peo­ple, ask­ing not to be iden­ti­fied as the infor­ma­tion is pri­vate. No final deci­sions have been made and the announce­ment may still be delayed, they said.

...

A White House offi­cial, speak­ing on con­di­tion of anonymi­ty, con­firmed that the plans were in the works and that Trump’s son-in-law and senior advis­er, Jared Kush­n­er, had played a crit­i­cal role in the dis­cus­sions. A rep­re­sen­ta­tive for Sau­di Arabia’s Pub­lic Invest­ment Fund declined to com­ment. The Min­istry of Finance didn’t imme­di­ate­ly respond to requests for com­ment.

Trump in March offered his sup­port for devel­op­ing a new U.S.-Saudi pro­gram in ener­gy, indus­try, infra­struc­ture and tech­nol­o­gy that could be val­ued at more than $200 bil­lion in direct and indi­rect invest­ments with­in the next four years, accord­ing to the White House. The pres­i­dent has said he intends to push for$1 tril­lion in U.S. infra­struc­ture invest­ments over the next decade, with $200 bil­lion com­ing from tax­pay­ers and the rest from the pri­vate sec­tor.

Mak­ing a Mega­fund

Sau­di Ara­bia is plan­ning to expand its sov­er­eign wealth fund into the world’s largest as part of its attempts to diver­si­fy away from oil after prices slumped. The king­dom will trans­fer own­er­ship of Sau­di Ara­bi­an Oil Co. to the PIF, as well as the pro­ceeds from the oil company’s ini­tial pub­lic offer­ing. The fund could even­tu­al­ly con­trol more than $2 tril­lion, Bin Salman has said.

Since last year, the PIF has fun­neled about $50 bil­lion of the kingdom’s reserves into invest­ments abroad, almost all of it into tech­nol­o­gy. It has said it will com­mit as much as $45 bil­lion to part­ner with Soft­Bank Group Corp. to set up a new $100 bil­lion vehi­cle to invest in glob­al tech­nol­o­gy. The fund also invest­ed $3.5 bil­lion in Uber Tech­nolo­gies Inc. last June.

Still, the Sau­di government’s eco­nom­ic reforms have caused push back at home as res­i­dents com­plained about slashed gov­ern­ment spend­ing and the sus­pen­sion of some allowances for state employ­ees. Bin Salman said this month that 50 per­cent to 70 per­cent of income from its ini­tial pub­lic offer­ing of Sau­di Aram­co, what may be the largest-ever list­ing, will be used on domes­tic invest­ments.

———-
“Saud­is to Boost U.S. Ties With $40 Bil­lion Invest­ment” by Dinesh Nair, Kei­th Camp­bell, and Matthew Mar­tin; Bloomberg Pol­i­tics; 05/12/2017

“The kingdom’s sov­er­eign wealth fund is set to announce plans to deploy as much as $40 bil­lion into U.S. infra­struc­ture, accord­ing to peo­ple famil­iar with the mat­ter. The invest­ment may be unveiled as ear­ly as next week to coin­cide with Trump’s vis­it to the king­dom, said the peo­ple, ask­ing not to be iden­ti­fied as the infor­ma­tion is pri­vate. No final deci­sions have been made and the announce­ment may still be delayed, they said.”

Do you enjoy the idea of the Sau­di gov­ern­ment get­ting rich off sell­ing you oil? If so, you’re going to love the idea of pay­ing the Sau­di gov­ern­ment for all sorts of oth­er pri­va­tized ser­vices. What’s it going to be? Toll roads? Util­i­ties? With $40 bil­lion in planned invest­ments it will prob­a­bly be a bit of every­thing, but keep in mind that this is just the planned US infra­struc­ture invest­ments from just one gov­ern­ment. Sure, it’s a gov­ern­ment with a mas­sive sov­er­eign wealth fund look­ing for things to invest in but it’s not like there aren’t plen­ty of oth­er gov­ern­ments or inter­na­tion­al investors that are poten­tial US infra­struc­ture investors. But only as long as the expect­ed returns on their invest­ments make it worth it (i.e. those tolls prob­a­bly aren’t going to be cheap).

So that’s one of the big domes­tic angles to Trump’s first big for­eign trip...he’s round­ing up for­eign investors for his big domes­tic pri­va­ti­za­tion plan. Start­ing with the Saud­is. Unless you’re an inter­na­tion­al investor.

It’s also not the only domes­tic eco­nom­ic stim­u­lus that’s sort of on Trump’s agen­da dur­ing this trip. Because let’s not for­get that Trump is going to try­ing to final­ize a mas­sive arms sale to the Saud­is too. So, you know, the eco­nom­ic stim­u­lus that comes from sell­ing the Saud­is up to $300 bil­lion in arms over the next decade is also sort of a domes­tic eco­nom­ic stim­u­lus plan. A plan to arm the heart­land of far-right reac­tionary Islamist extrem­ism. With lots and lots of high-tech weapon­ry. It’s not the most inspir­ing eco­nom­ic stim­u­lus pro­gram. But it’s on the agen­da:

Reuters

U.S. nears $100 bil­lion arms deal for Sau­di Ara­bia: White House offi­cial

By Steve Hol­land | WASHINGTON
Fri May 12, 2017 | 9:20pm EDT

The Unit­ed States is close to com­plet­ing a series of arms deals for Sau­di Ara­bia total­ing more than $100 bil­lion, a senior White House offi­cial said on Fri­day, a week ahead of Pres­i­dent Don­ald Trump’s planned vis­it to Riyadh.

The offi­cial, who spoke to Reuters on con­di­tion of anonymi­ty, said the arms pack­age could end up sur­pass­ing more than $300 bil­lion over a decade to help Sau­di Ara­bia boost its defen­sive capa­bil­i­ties while still main­tain­ing U.S. ally Israel’s qual­i­ta­tive mil­i­tary edge over its neigh­bors.

“We are in the final stages of a series of deals,” the offi­cial said. The pack­age is being devel­oped to coin­cide with Trump’s vis­it to Sau­di Ara­bia. Trump leaves for the king­dom on May 19, the first stop on his maid­en inter­na­tion­al trip.

Reuters report­ed last week that Wash­ing­ton was push­ing through con­tracts for tens of bil­lions of dol­lars in arms sales to Sau­di Ara­bia, some new, oth­ers already in the pipeline, ahead of Trump’s vis­it.

The Unit­ed States has been the main sup­pli­er for most Sau­di mil­i­tary needs, from F‑15 fight­er jets to com­mand and con­trol sys­tems worth tens of bil­lions of dol­lars in recent years. Trump has vowed to stim­u­late the U.S. econ­o­my by boost­ing man­u­fac­tur­ing jobs.

The pack­age includes Amer­i­can arms and main­te­nance, ships, air mis­sile defense and mar­itime secu­ri­ty, the offi­cial said. “We’ll see a very sub­stan­tial com­mit­ment ... In many ways it is intend­ed to build capa­bil­i­ties for the threats they face.”

The offi­cial added: “It’s good for the Amer­i­can econ­o­my but it will also be good in terms of build­ing a capa­bil­i­ty that is appro­pri­ate for the chal­lenges of the region. Israel would still main­tain an edge.”

...

A major part of the agen­da with Gulf lead­ers will be the Syr­i­an civ­il war amid calls for “de-esca­la­tion zones” in Syr­ia to pro­vide a safe haven for Syr­i­an refugees.

Besides Sau­di Ara­bia, Trump’s first for­eign trip will also include vis­its to Israel, the Vat­i­can, Brus­sels for a NATO sum­mit and Sici­ly for a Group of Sev­en sum­mit.

———-
“U.S. nears $100 bil­lion arms deal for Sau­di Ara­bia: White House offi­cial” by Steve Hol­land; Reuters; 05/12/2017:

“The offi­cial, who spoke to Reuters on con­di­tion of anonymi­ty, said the arms pack­age could end up sur­pass­ing more than $300 bil­lion over a decade to help Sau­di Ara­bia boost its defen­sive capa­bil­i­ties while still main­tain­ing U.S. ally Israel’s qual­i­ta­tive mil­i­tary edge over its neigh­bors.”

$300 bil­lion in weapons over a decade. That’s a lot of weapons. But, hey, that’s more mon­ey for the defense con­trac­tor indus­try so, you know, there’s prob­a­bly going to be some addi­tion­al jobs. Jobs for mak­ing weapons to sell to the heart­land of far-right reac­tionary Islamist extrem­ism. Woohoo! And that’s on top of what­ev­er jobs will be cre­at­ed from pri­va­tiz­ing the US’s infra­struc­ture for the ben­e­fit of for­eign investors. Like the Saud­is. Dou­ble woohoo!

And the stim­u­lus fun does­n’t stop there. Because it sounds like these twin ‘eco­nom­ic stim­u­lus’ pro­grams could be part of a pack­age deal, and the deal might include a lot more than just $40 bil­lion in invest­ments in pri­va­tized US infra­struc­ture projects. Per­haps up to $200 bil­lion, with a focus on the ‘rust-belt’ states like Ohio, Michi­gan, and Wis­con­sin that Trump bare­ly won in the 2016 elec­tion. Yep, those states that put so much hope in Trump rein­vig­o­rat­ing their economies might get some big infra­struc­ture invest­ments. Pri­va­tized infra­struc­ture invest­ments from the Saud­is. That’s appar­ent­ly the deal the Saud­is are offering...as long as Trump inks the arms deal which will include weapons the Oba­ma admin­is­tra­tion refused to sell:

Alter­Net
Gray­zone Project

In the Saud­is’ Den of Extrem­ism, Trump Trades Advanced Weapons for a $200 Bil­lion Invest­ment in Rust Belt Swing States
Trump’s pub­lic rela­tions bonan­za will fea­ture a speech on Islam com­posed by his most Islam­o­pho­bic aide.

By Max Blu­men­thal
May 18, 2017

Pres­i­dent Don­ald Trump’s nine-day-long “tol­er­ance tour” will con­tin­ue this Fri­day with a vis­it to Sau­di Ara­bia. The jun­ket offers Trump a brief respite from the suf­fo­cat­ing atmos­phere in Wash­ing­ton, where he faces a mount­ing cam­paign fueled by anony­mous leaks from intel­li­gence offi­cials that is aimed at noth­ing less than his impeach­ment and replace­ment by a more sup­pli­cant Repub­li­can.

Trump’s ties to Sau­di Ara­bia run deep. Dur­ing the cam­paign, even as Trump blamed the Sau­di roy­al fam­i­ly for the 9/11 attacks, he reg­is­tered eight com­pa­nies con­nect­ed to hotel inter­ests in the king­dom. Once Trump was inau­gu­rat­ed, the Saud­is returned the favor, pay­ing for rooms at his Wash­ing­ton, D.C., hotel through Qorvis MSLGroup, a Belt­way lob­by­ing firm. The rooms were reserved for a group of vet­er­ans flown into town by Qorvis to lob­by against the Jus­tice Against Spon­sors of Ter­ror­ism Act (JASTA) con­gres­sion­al leg­is­la­tion that would allow the bereaved fam­i­ly mem­bers of 9/11 vic­tims to sue the Sau­di gov­ern­ment for its alleged role in the attacks.

Many of the vet­er­ans had no idea they were act­ing on behalf of Sau­di Ara­bia, and some, like Tim Cord, staged an open revolt when they real­ized they had been deceived. “We’re sit­ting in a room full of retired gen­er­als, colonels, men who gave 25 years of their life to this coun­try and they’re being lied to by a bunch of young punks who are using the vet angle to make them­selves sym­pa­thet­ic. Why do you think a 60-year-old gen­er­al would want any­thing to do with the King­dom of Sau­di Ara­bia?” Cord, a vet­er­an of the Iraq war, com­plained to the web­site 28pages.com. “I mean, that’s a pret­ty heavy thing to assume we’re all going to be cool with.”

Through­out his chaot­ic tenure, Sau­di Ara­bia has proven to be Trump’s most durable for­eign ally, even pro­vid­ing him with polit­i­cal cov­er after the fall­out from his Mus­lim trav­el ban. Fol­low­ing a White House meet­ing this March with Trump and his nation­al secu­ri­ty team, Sau­di Crown Prince Mohammed Bin Salman hailed the pres­i­dent as “a true friend of Mus­lims who will serve the Mus­lim World in an unimag­in­able man­ner, oppo­site to the neg­a­tive por­trait of his Excel­len­cy that some have tried to pro­mote.”

Ahead of the White House meet­ing, the Saud­is hired a D.C.-based con­sult­ing group, Booz Allen Hamil­ton, to com­pose a spe­cial pre­sen­ta­tion for the pres­i­dent. Prince Salman walked Trump through the Pow­er­point slideshow the firm pre­pared, out­lin­ing a plan to invest at least $200 bil­lion in Amer­i­can infra­struc­ture and open up new busi­ness oppor­tu­ni­ties for U.S. com­pa­nies inside the king­dom. In exchange, Trump was asked to ink the largest weapons deal in his­to­ry, fork­ing over the advanced mis­sile defense sys­tems and heavy weapons the Oba­ma had admin­is­tra­tion had refused to sell. The weapons would then be used to pul­ver­ize Yemen.

Trump report­ed­ly accept­ed Salman’s pitch, but only on the con­di­tion that Saud­is plow their infra­struc­ture invest­ments into the Rust Belt swing states—Ohio, Michi­gan, and Wisconsin—that held the key to his 2020 pres­i­den­tial vic­to­ry. So far, Trump’s foes in the Demo­c­ra­t­ic Par­ty and the orga­nized lib­er­al “resis­tance” have shrugged at the reports of his col­lu­sion with a for­eign theoc­ra­cy to secure re-elec­tion, obsess­ing instead over neb­u­lous claims of his illic­it ties to Rus­sia.

When Trump arrives in Riyadh this week, he plans to deliv­er a speech that will “demon­strate America’s com­mit­ment to our Mus­lim part­ners,” accord­ing to his Nation­al Secu­ri­ty Coun­cil Direc­tor, Gen. H.R. McMas­ter. The address will like­ly have less to do with tol­er­ance than with inter­ests that con­verge around hos­til­i­ty to Iran, the dri­ve to destroy a gov­ern­ment in Yemen that is seen as its proxy, and sell­ing the tens of bil­lions in weapons the meat grinder oper­a­tion requires. The spec­ta­cle will nev­er­the­less give the pres­i­dent the chance to bask in the admir­ing glow of a Mus­lim ally, coun­ter­ing his image back home as a glow­er­ing big­ot.

...

———-
“In the Saud­is’ Den of Extrem­ism, Trump Trades Advanced Weapons for a $200 Bil­lion Invest­ment in Rust Belt Swing States” by Max Blu­men­thal; Alter­Net; 05/18/2017

“Ahead of the White House meet­ing, the Saud­is hired a D.C.-based con­sult­ing group, Booz Allen Hamil­ton, to com­pose a spe­cial pre­sen­ta­tion for the pres­i­dent. Prince Salman walked Trump through the Pow­er­point slideshow the firm pre­pared, out­lin­ing a plan to invest at least $200 bil­lion in Amer­i­can infra­struc­ture and open up new busi­ness oppor­tu­ni­ties for U.S. com­pa­nies inside the king­dom. In exchange, Trump was asked to ink the largest weapons deal in his­to­ry, fork­ing over the advanced mis­sile defense sys­tems and heavy weapons the Oba­ma had admin­is­tra­tion had refused to sell. The weapons would then be used to pul­ver­ize Yemen.”

It’s a fire sale! The kind of fire sale cen­tered on the pro­duc­tion and sale of a lot of things that cre­ate fire by blow­ing oth­er things up. Prob­a­bly things in Yemen. That’s what the Saud­is would like to final­ize dur­ing this trip. But Trump has catch:

...
Trump report­ed­ly accept­ed Salman’s pitch, but only on the con­di­tion that Saud­is plow their infra­struc­ture invest­ments into the Rust Belt swing states—Ohio, Michi­gan, and Wisconsin—that held the key to his 2020 pres­i­den­tial vic­to­ry. So far, Trump’s foes in the Demo­c­ra­t­ic Par­ty and the orga­nized lib­er­al “resis­tance” have shrugged at the reports of his col­lu­sion with a for­eign theoc­ra­cy to secure re-elec­tion, obsess­ing instead over neb­u­lous claims of his illic­it ties to Rus­sia.
...

Yep, if this deal is worked out, Ohio, Michi­gan, and Wis­con­sin will be the lucky states to get focused Sau­di invest­ments in a mas­sive $200 bil­lion plan. A plan to pri­va­tize pub­lic infra­struc­ture.

So let’s hope Trump’s arms-for-pri­va­ti­za­tion scheme (which is real­ly an arms-and-pri­va­ti­za­tion-for-real­ly-rich-guys scheme) gen­er­ates lots of new domes­tic jobs. Amer­i­cans are going to need the extra cash. That pri­va­tized infra­struc­ture isn’t going to be free.

Remem­ber how you could sort of dis­miss the notion that Trump’s big infra­struc­ture plan would actu­al­ly come to fruition because it was just a mass pri­va­ti­za­tion plan that lacked enough poten­tial pub­lic assets and new projects avail­able for pri­va­ti­za­tion on that scale...unless you decide to sell off high­ways and bridges en mass into an nation­al net­work of for-prof­it pri­vate toll roads...and there’s no way even the GOP would be crazy enough to do some­thing as polit­i­cal­ly sui­ci­dal as that. Well...:

The Wash­ing­ton Post

Trump advis­ers call for pri­va­tiz­ing some pub­lic assets to build new infra­struc­ture

By Michael Laris
May 23, 2017

The Trump admin­is­tra­tion, deter­mined to over­haul and mod­ern­ize the nation’s infra­struc­ture, is draft­ing plans to pri­va­tize some pub­lic assets such as air­ports, bridges, high­way rest stops and oth­er facil­i­ties, accord­ing to top offi­cials and advis­ers.

In his pro­posed bud­get released Tues­day, Pres­i­dent Trump called for spend­ing $200 bil­lion over 10 years to “incen­tivize” pri­vate, state and local spend­ing on infra­struc­ture.

Trump advis­ers said that to entice state and local gov­ern­ments to sell some of their assets, the admin­is­tra­tion is con­sid­er­ing pay­ing them a bonus. The pro­ceeds of the sales would then go to oth­er infra­struc­ture projects. Aus­tralia has pur­sued a sim­i­lar pol­i­cy, which it calls “asset recy­cling,” prompt­ing the 99-year lease of a state-owned elec­tri­cal grid to pay for improve­ments to the Syd­ney Metro, among oth­er projects.

In the Unit­ed States, Chica­go May­or Rahm Emanuel (D) explored pri­va­tiz­ing Mid­way Inter­na­tion­al Air­port sev­er­al years ago but dropped the idea in 2013, after a key bid­der backed away. Trans­porta­tion Sec­re­tary Elaine Chao says such projects should be encour­aged.

“You take the pro­ceeds from the air­port, from the sale of a gov­ern­ment asset, and put it into financ­ing infra­struc­ture,” Chao said. St. Louis is work­ing with fed­er­al offi­cials to try to pri­va­tize Lam­bert Inter­na­tion­al Air­port, she said.

Offi­cials are craft­ing Trump’s ini­tia­tive, and he has yet to decide which ideas will make the final cut. But two dri­ving themes are clear: Gov­ern­ment prac­tices are stalling the nation’s progress; and pri­vate com­pa­nies should fund, build and run more of the basic infra­struc­ture of Amer­i­can life.

A far-reach­ing pro­pos­al from the Trump admin­is­tra­tion ear­li­er this year to take the nation’s air-traf­fic con­trol sys­tem out of gov­ern­ment hands was fueled, in part, by frus­tra­tion at slug­gish efforts to mod­ern­ize tech­nol­o­gy.

To speed up infra­struc­ture projects, offi­cials are prepar­ing to over­haul the fed­er­al envi­ron­men­tal review and per­mit­ting sys­tem, which they blame for cost­ly delays. Trump asked advis­ers whether they could col­lapse that process, which he said takes at least 10 years, down to four months. “But we’ll be sat­is­fied with a year,” Trump said. “It won’t be more than a year.”

In a bid for broad­er sup­port, Trump and some of his advis­ers have also sig­naled an open­ness to rais­ing the gas tax to pay for need­ed projects. The 18.4‑cent-per-gallon levy is the fed­er­al government’s main source of high­way funds and was last raised in 1993.

The infra­struc­ture ini­tia­tive is being shaped by White House offi­cials and a task force rep­re­sent­ing 16 fed­er­al depart­ments and agen­cies. In addi­tion, there is a com­mit­tee of out­side advis­ers co-chaired by bil­lion­aire devel­op­er Richard LeFrak, a Trump friend.

LeFrak said the administration’s effort, which is being led by Gary Cohn, direc­tor of the Nation­al Eco­nom­ic Coun­cil, Chao and oth­ers, is a sweep­ing attempt to rethink how infra­struc­ture gets built. LeFrak said the issues are intense­ly per­son­al for Trump, who spent his career in real estate and sees this as an area where he can make a last­ing impact.

“He does think he’s the pres­i­dent to rebuild Amer­i­ca. He’s a builder. It’s just log­i­cal,” LeFrak said. “He’s high­ly enthu­si­as­tic about this idea and get­ting it done.”

Crit­ics said Trump and his advis­ers are putting ide­ol­o­gy ahead of the nation­al inter­est and over­sim­pli­fy­ing how the process works.

Pub­lic stew­ards should not be “try­ing to fig­ure out how to extract max­i­mum val­ue” by sell­ing off gov­ern­ment assets or “mak­ing huge, multi­bil­lion-dol­lar wagers” that span decades, said Kevin DeGood, direc­tor of infra­struc­ture pol­i­cy at the Cen­ter for Amer­i­can Progress, a lib­er­al advo­ca­cy group. “Build­ing infra­struc­ture faster and with­out ade­quate study or time for com­mu­ni­ty input may be good for devel­op­ers, but it’s lousy for every­one else.”

Still, there are bipar­ti­san con­cerns that impor­tant projects have been stymied by pol­i­tics and bureau­cra­cy, and that Wash­ing­ton has been unwill­ing to allo­cate the mon­ey for need­ed improve­ments. A civ­il-engi­neer­ing group in March tal­lied a “$2 tril­lion, 10-year invest­ment gap” in the nation’s roads, tran­sit sys­tems, bridges, water sys­tems, pow­er grids, parks, ports and schools.

In Feb­ru­ary, Trump told Con­gress that he would seek leg­is­la­tion “that pro­duces a $1 tril­lion invest­ment” in infra­struc­ture and cre­ates “mil­lions of new jobs.” Offi­cials have since said that the plan will prob­a­bly include $200 bil­lion in direct fed­er­al funds, which would be used to “lever­age” the larg­er fig­ure over a decade.. LeFrak sees the chance for a deal, not­ing that Sen­ate Minor­i­ty Leader Charles E. Schumer (D‑N.Y.) also “wants a tril­lion-dol­lar pro­gram.”

“So you’ve already got two impor­tant peo­ple — one very, very impor­tant per­son and one very impor­tant per­son — both from dif­fer­ent sides of the aisle, who come in favor of this,” LeFrak said.

But on Tues­day, when Trump’s bud­get pro­pos­al was released, Schumer con­demned the president’s “180-degree turn away from his repeat­ed promise of a tril­lion-dol­lar infra­struc­ture plan,” say­ing the bud­get con­tains deep cuts in spend­ing on roads, tran­sit projects, pub­lic hous­ing and more.

“The fuzzy math and sleight of hand can’t hide the fact that the President’s $200 bil­lion plan is more than wiped out by oth­er cuts to key infra­struc­ture pro­grams,” Schumer said in a state­ment.

Trump admin­is­tra­tion offi­cials dis­put­ed Schumer’s cal­cu­la­tions, say­ing they includ­ed bud­get items that should not be con­sid­ered cuts. They cit­ed a pro­ject­ed “drop-off” in fed­er­al high­way funds that could be elim­i­nat­ed as part of the broad­er infra­struc­ture agree­ment.

The bud­get places a heavy empha­sis on mar­ket solu­tions, such as mak­ing it eas­i­er for states to toll inter­states, say­ing that the fed­er­al gov­ern­ment has become “a com­pli­cat­ed, cost­ly mid­dle­man.” The bud­get also talks about leas­ing vacant space in Vet­er­ans Affairs facil­i­ties and sell­ing off major pow­er facil­i­ties as ways of “dis­pos­ing under­used cap­i­tal assets.”

Faster is always bet­ter

At a recent White House event, Trump stood along­side one of his top infra­struc­ture aides, DJ Grib­bin, who held up a sev­en-foot-long flow chart illus­trat­ing the high­way per­mit­ting process. The col­or­ful box­es and baf­fling array of criss­cross­ing lines were meant to dri­ve home a point about reg­u­la­to­ry over­reach.

The chart also could have been a graph­ic rep­re­sen­ta­tion of the dif­fi­cul­ty of craft­ing a $1 tril­lion pack­age capa­ble of mak­ing it through Con­gress at a time beset with polit­i­cal divi­sion.

Democ­rats, includ­ing Schumer, and some Repub­li­cans favor a heavy reliance on fed­er­al spend­ing, while oth­ers in the GOP want to cut that spend­ing and push more respon­si­bil­i­ty onto states. Agree­ing on ways to bet­ter man­age arcane state and fed­er­al reg­u­la­tions would be tough in even the most for­giv­ing of cli­mates.

Add in the pri­or­i­ties of numer­ous gov­ern­ment agen­cies, and the puz­zle becomes even more com­plex.

“This is a democ­ra­cy,” Chao said. “They’re not easy ques­tions.”

So Chao and oth­ers craft­ing the president’s plan have cut the prob­lem into small­er, more digestible pieces: reg­u­la­tion and per­mit­ting; gov­ern­ment pro­cure­ment, which Trump offi­cials say is too clunky and doesn’t make enough use of pri­vate options; gov­ern­ment rev­enue and pri­vate cap­i­tal; and lessons from abroad.

They also are try­ing to account for dizzy­ing tech­no­log­i­cal advances. How do you plan for a 10-year broad­band expan­sion, for exam­ple, when the tech­nol­o­gy could eas­i­ly shift in five years? Chao asked.

LeFrak, who co-chairs the advi­so­ry com­mit­tee with anoth­er Trump friend, Vor­na­do Real­ty Trust Chair­man Steven Roth, said they have also been wrestling with anoth­er challenge,the con­tro­ver­sy over high-speed rail, “which is one of the things peo­ple dream about.”

But he has seen stud­ies show­ing a much low­er per-mile cost for using dri­ver­less cars instead. So should the gov­ern­ment invest in rail, which takes pas­sen­gers sta­tion to sta­tion, or in “some kind of road net­work which is going to allow these cars to trav­el at rel­a­tive­ly high speeds” and take a pas­sen­ger door to door? he asked.

The administration’s focus on short­en­ing the envi­ron­men­tal-review process has con­cerned envi­ron­men­tal groups that point to Trump’s moves to reverse efforts to fight cli­mate change.

Trump’s advis­ers say it’s pos­si­ble to speed up projects that have clear sup­port and a good busi­ness case — while also doing more to pro­tect the envi­ron­ment. But Trump’s push for strict new dead­lines would require major changes to envi­ron­men­tal laws, which would face fierce oppo­si­tion.

“There’s no rea­son why the U.S. can­not func­tion as effi­cient­ly as oth­er West­ern-style democ­ra­cies in get­ting wor­thy projects through the sys­tem and per­mit­ted,” LeFrak said. “The math speaks for itself. What we’re doing in six years, sev­en years, eight years, 10 years, these oth­er coun­tries get done in a year or two.”

DeGood said Trump’s team is rely­ing on exag­ger­at­ed fig­ures and play­ing down recent reforms to speed approvals. Admin­is­tra­tion offi­cials cit­ed a report say­ing it took the Fed­er­al High­way Admin­is­tra­tion more than six years to approve major envi­ron­men­tal reviews for projects that need them. While that was true in 2011, DeGood said, that fig­ure has since dropped to 3.6 years.

Chao said that things still move too slow­ly and that many per­mit­ting process­es can be done simul­ta­ne­ous­ly rather than sequen­tial­ly. Offi­cials will cut “duplica­tive or waste­ful steps,” she said.

“If we can make these con­struc­tion projects come online faster with­out com­pro­mis­ing the envi­ron­men­tal con­cerns, it’s good for the qual­i­ty of life of a com­mu­ni­ty. ... It helps peo­ple. It cre­ates more jobs. It cre­ates less con­ges­tion,” Chao said. And faster approvals cre­ate less-risky, more-attrac­tive oppor­tu­ni­ties to invest in Amer­i­ca. “What I heard from the pri­vate sec­tor is there’s lots of mon­ey avail­able, but there are not enough projects.”

Part­ner­ship pros and cons

The admin­is­tra­tion plans to push states to use pub­lic-pri­vate part­ner­ships — P3s in indus­try jar­gon.

In such arrange­ments, a pri­vate firm might bring togeth­er investors and low-cost fed­er­al loans to expand a high­way, for exam­ple, then col­lect tolls from motorists to recoup costs and earn a prof­it. Com­pa­nies can more nim­bly tap tech­nol­o­gy and oth­er inno­va­tions in build­ing and main­tain­ing such projects, advo­cates say. Crit­ics say rely­ing on tolls will not work in rur­al or dis­tressed com­mu­ni­ties.

Some of those part­ner­ships have worked as intend­ed, such as the Wash­ing­ton region’s Inter­state 495 Express Lanes — 14 miles of toll and car­pool lanes that opened in 2012. Although the tolls are unpop­u­lar, the part­ner­ship gave dri­vers more options for faster trav­el. Maryland’s pro­posed Pur­ple Line light-rail sys­tem also would be built with a pub­lic-pri­vate part­ner­ship.

Oth­er such arrange­ments have failed, with ill-pre­pared gov­ern­ments sad­dling them­selves with bad deals. Chicago’s inspec­tor gen­er­al cit­ed the 75-year lease of city park­ing meters to a pri­vate firm for $1.16 bil­lion in 2008. Under the same terms, the city would have earned at least $974 mil­lion more by keep­ing the meters, the IG said.

...

Big-tick­et pos­si­bil­i­ties

That still leaves the ques­tion: How do you get to $1 tril­lion?

“Everything’s on the table,” Chao said.

Admin­is­tra­tion offi­cials are putting togeth­er a menu of options to hit that total, includ­ing big-tick­et pos­si­bil­i­ties such as “repa­tri­at­ing” funds parked over­seas by U.S. firms, and small­er ideas such as pri­va­tiz­ing high­way ser­vice plazas, Chao said.

Chao said con­gres­sion­al lead­ers — she is mar­ried to Sen­ate Major­i­ty Leader Mitch McConnell (R‑Ky.) — have made clear “the admin­is­tra­tion has to have a bill with pay-fors before they will accept it. So we under­stand that.”

LeFrak says that there is mon­ey lying around in gov­ern­ment assets that can be pri­va­tized, and that peo­ple can get “social­ized” to pay­ing tolls.He said uncol­lect­ed Inter­net sales tax­es could go to states to help pay the infra­struc­ture bill. He also thinks Wash­ing­ton should bor­row large sums at today’s low inter­est rates.

He also not­ed that the fed­er­al gas tax hasn’t been raised in near­ly a quar­ter-cen­tu­ry, and that more than 20 states have raised or indexed their gas tax­es since 2013. For fed­er­al offi­cials, that presents “a test in polit­i­cal courage,” LeFrak said.

...

———-

“Trump advis­ers call for pri­va­tiz­ing some pub­lic assets to build new infra­struc­ture” by Michael Laris; The Wash­ing­ton Post; 05/23/2017

“The bud­get places a heavy empha­sis on mar­ket solu­tions, such as mak­ing it eas­i­er for states to toll inter­states, say­ing that the fed­er­al gov­ern­ment has become “a com­pli­cat­ed, cost­ly mid­dle­man.” The bud­get also talks about leas­ing vacant space in Vet­er­ans Affairs facil­i­ties and sell­ing off major pow­er facil­i­ties as ways of “dis­pos­ing under­used cap­i­tal assets.””

We need to make it eas­i­er to set of high­way tolls. That’s going to get heav­i­ly empha­sized in Trump’s big infra­struc­ture pack­age. Is he even plan­ning on run­ning for re-elec­tion? Was the last elec­tion the last elec­tion? Or are Trump and the GOP seri­ous­ly plan­ning on proud­ly cham­pi­oning toll roads every­where on the cam­paign trail? We have to ask because it looks like Trump is going to be heav­i­ly advo­cat­ing sell­ing off high­ways and set­ting up toll roads every­where. Many of which will be owned by coun­tries like Sau­di Ara­bia. And tax pay­ers are going to sub­si­dize the toll-road-iza­tion of their high­ways with fed­er­al­ly sub­si­dized low-inter­est loans. That should be super pop­u­lar. Espe­cial­ly when it hap­pens all over the place in just a few years because the approval process is sud­den­ly col­lapsed to a year and the scale of pri­va­ti­za­tion to reach $1 tril­lion would be vast enough to be seen in most peo­ples day to day lives. And this will all hap­pen instead of rais­ing tax­es on the rich to pay for things and avoid­ing the whole ‘tolls every­where’ thing. Are they try­ing?

...

To speed up infra­struc­ture projects, offi­cials are prepar­ing to over­haul the fed­er­al envi­ron­men­tal review and per­mit­ting sys­tem, which they blame for cost­ly delays. Trump asked advis­ers whether they could col­lapse that process, which he said takes at least 10 years, down to four months. “But we’ll be sat­is­fied with a year,” Trump said. “It won’t be more than a year.”

In a bid for broad­er sup­port, Trump and some of his advis­ers have also sig­naled an open­ness to rais­ing the gas tax to pay for need­ed projects. The 18.4‑cent-per-gallon levy is the fed­er­al government’s main source of high­way funds and was last raised in 1993.

...

Part­ner­ship pros and cons

The admin­is­tra­tion plans to push states to use pub­lic-pri­vate part­ner­ships — P3s in indus­try jar­gon.

In such arrange­ments, a pri­vate firm might bring togeth­er investors and low-cost fed­er­al loans to expand a high­way, for exam­ple, then col­lect tolls from motorists to recoup costs and earn a prof­it. Com­pa­nies can more nim­bly tap tech­nol­o­gy and oth­er inno­va­tions in build­ing and main­tain­ing such projects, advo­cates say. Crit­ics say rely­ing on tolls will not work in rur­al or dis­tressed com­mu­ni­ties.

Some of those part­ner­ships have worked as intend­ed, such as the Wash­ing­ton region’s Inter­state 495 Express Lanes — 14 miles of toll and car­pool lanes that opened in 2012. Although the tolls are unpop­u­lar, the part­ner­ship gave dri­vers more options for faster trav­el. Maryland’s pro­posed Pur­ple Line light-rail sys­tem also would be built with a pub­lic-pri­vate part­ner­ship.

Oth­er such arrange­ments have failed, with ill-pre­pared gov­ern­ments sad­dling them­selves with bad deals. Chicago’s inspec­tor gen­er­al cit­ed the 75-year lease of city park­ing meters to a pri­vate firm for $1.16 bil­lion in 2008. Under the same terms, the city would have earned at least $974 mil­lion more by keep­ing the meters, the IG said.

...

Big-tick­et pos­si­bil­i­ties

That still leaves the ques­tion: How do you get to $1 tril­lion?

“Everything’s on the table,” Chao said.

Admin­is­tra­tion offi­cials are putting togeth­er a menu of options to hit that total, includ­ing big-tick­et pos­si­bil­i­ties such as “repa­tri­at­ing” funds parked over­seas by U.S. firms, and small­er ideas such as pri­va­tiz­ing high­way ser­vice plazas, Chao said.
...

Accord­ing to the Trans­porta­tion Sec­re­tary, “everything’s on the table.” Includ­ing a lot of roads and bridges. And pow­er facil­i­ties. And tolls. All over. Fast-tracked. And sub­si­dized by tax pay­ers. That’s report­ed­ly what the Trump team has in mind. Espe­cial­ly the part about tolls every­where. Yowza.

In what is undoubt­ed­ly an attempt to change the focus away from things like the big Jim Comey tes­ti­mo­ny this com­ing week, the Trump admin­is­tra­tion is plan­ning on declar­ing next week “Infra­struc­ture Week”. A week for Don­ald Trump to go on a road trip and tout his big new infra­struc­ture plan. And in terms of cre­at­ing a dis­trac­tion from his admin­is­tra­tion’s many woes, “Infra­struc­ture Week” does­n’t sound like a bad idea...in the sense that this infra­struc­ture plan could actu­al­ly be an effec­tive dis­trac­tion due to how bad an idea it is. And it could be an espe­cial­ly good dis­trac­tion for Trump’s vot­ing base in rur­al Amer­i­ca because, wow, is Trump’s infra­struc­ture plan (and larg­er bud­get pro­pos­al) a hor­ri­ble idea for rur­al Amer­i­ca. So it’s going to be extra inter­est­ing to see how Trump’s road trip goes in rur­al Amer­i­ca:

The Wash­ing­ton Post

Heavy cuts to rur­al devel­op­ment and infra­struc­ture in lat­est Trump bud­get

By Jose A. Del­Re­al
May 23, 2017

Rur­al Amer­i­cans stand to lose bil­lions of dol­lars in fed­er­al assis­tance to sup­port infra­struc­ture and eco­nom­ic devel­op­ment in their com­mu­ni­ties, accord­ing to an analy­sis of the Trump administration’s 2018 fed­er­al bud­get. Many of the pro­grams for elim­i­na­tion pro­vide direct ser­vices to rur­al areas where Trump is most pop­u­lar.

The White House would slash rur­al hous­ing sub­si­dies, mort­gage loan guar­an­tees, pro­grams that main­tain clean water and oth­er util­i­ties and inde­pen­dent agen­cies that sup­port job train­ing pro­grams. In many cas­es, states would be expect­ed to off­set spend­ing cuts to crit­i­cal infra­struc­ture, like sew­er repairs; but in oth­er cas­es, includ­ing devel­op­ment grants that revi­tal­ize neigh­bor­hoods or seed new local busi­ness­es, com­mu­ni­ties would like­ly have to turn to pri­vate orga­ni­za­tions for fund­ing or assis­tance.

...

The Rur­al Util­i­ties Ser­vice would lose bil­lions of dol­lars under the pro­posed bud­get for the U.S. Depart­ment of Agri­cul­ture, includ­ing more than $2 bil­lion used to keep pow­er lines, phones and Inter­net con­nec­tiv­i­ty work­ing in rur­al areas. Fund­ing for rur­al busi­ness own­ers also would be slashed, from near­ly $130 mil­lion in 2017 to $31 mil­lion.

“The 2018 bud­get elim­i­nates this pro­gram because it has not been able to show evi­dence of improved out­comes; such as eco­nom­ic growth and decreas­ing out-migra­tion,” the pro­pos­al says.

USDA’s Rur­al Hous­ing Ser­vice would also see bil­lions in cuts that vir­tu­al­ly elim­i­nate direct loans and mort­gage guar­an­tees for rur­al house­holds, poten­tial­ly mak­ing home­own­er­ship and revi­tal­iza­tion more dif­fi­cult. Under the administration’s pro­pos­als, there is no fund­ing for new hous­ing grants for rur­al fam­i­lies or farm labor­ers in the bud­get, nor for direct loan sub­si­dies.

The Rur­al Hous­ing Insur­ance Fund — which pro­vides mort­gages to rur­al home buy­ers and insures home loans — would cut the bud­get for its direct-loan pro­gram to $250 mil­lion in 2018, from near­ly $3.7 bil­lion in 2016. The bud­get does not detail the White House’s rea­son­ing for end­ing the pro­gram, but the con­ser­v­a­tive Her­itage Foun­da­tion — which has pro­vid­ed much of the ground­work for the administration’s bud­get pri­or­i­ties — has railed against the pro­gram in the past, say­ing that gov­ern­ment sub­si­dies deter pri­vate lenders from enter­ing the mar­ket.

The bud­get would also end hous­ing repair grants for very low-income peo­ple in non-metro areas, sav­ing $30 mil­lion from 2016 lev­els, and would end a pro­gram that pro­vides loans for rur­al hous­ing revi­tal­iza­tion, sav­ing anoth­er $20 mil­lion. The bud­get also shaves $30 mil­lion by end­ing a pro­gram that pro­vides guid­ance for peo­ple seek­ing to build their own homes in part­ner­ships with oth­er fam­i­lies.

The admin­is­tra­tion is also seek­ing to cut near­ly $50 mil­lion in sub­si­dies to renters in rur­al areas, reduc­ing fund­ing for that pro­gram to $1.3 bil­lion. The bud­get con­tin­ues to pro­vide about $1.3 bil­lion in fund­ing for such peo­ple.

Fund­ing for research meant to ben­e­fit rur­al and agri­cul­tur­al areas would also be great­ly dimin­ished by the new bud­get. The Agri­cul­tur­al Research Ser­vice — which funds sci­en­tif­ic research specif­i­cal­ly focused on issues relat­ed to farm­ing, live­stock, nutri­tion and food safe­ty — would see its dis­cre­tionary bud­get cut by $165 mil­lion.

The bud­get also calls for the ter­mi­na­tion of sev­er­al inde­pen­dent agen­cies that invest heav­i­ly in rur­al Amer­i­ca, includ­ing the Appalachi­an Region­al Com­mis­sion and the Delta Region­al Com­mis­sion. The ARC is par­tic­u­lar­ly pop­u­lar among politi­cians and com­mu­ni­ty lead­ers in Appalachia. Because many infra­struc­ture projects, such as sew­er sys­tem over­hauls and high­way repairs, are not high-pro­file, many Amer­i­cans who ben­e­fit from such fed­er­al fund­ing are unaware. In Ken­tucky, one pro­gram fund­ed by the ARC is help­ing retrain work­ers who have lost their jobs in com­put­er train­ing, includ­ing coal min­ers; oth­er fund­ing has gone toward cre­at­ing seniors cen­ters, com­mu­ni­ty kitchens, drug reha­bil­i­ta­tion spaces and edu­ca­tion­al pro­grams.

———-

“Heavy cuts to rur­al devel­op­ment and infra­struc­ture in lat­est Trump bud­get” by Jose A. Del­Re­al; The Wash­ing­ton Post; 05/23/2017

“The bud­get also calls for the ter­mi­na­tion of sev­er­al inde­pen­dent agen­cies that invest heav­i­ly in rur­al Amer­i­ca, includ­ing the Appalachi­an Region­al Com­mis­sion and the Delta Region­al Com­mis­sion. The ARC is par­tic­u­lar­ly pop­u­lar among politi­cians and com­mu­ni­ty lead­ers in Appalachia. Because many infra­struc­ture projects, such as sew­er sys­tem over­hauls and high­way repairs, are not high-pro­file, many Amer­i­cans who ben­e­fit from such fed­er­al fund­ing are unaware. In Ken­tucky, one pro­gram fund­ed by the ARC is help­ing retrain work­ers who have lost their jobs in com­put­er train­ing, includ­ing coal min­ers; oth­er fund­ing has gone toward cre­at­ing seniors cen­ters, com­mu­ni­ty kitchens, drug reha­bil­i­ta­tion spaces and edu­ca­tion­al pro­grams.”

Mas­sive cuts to an array of fed­er­al infra­struc­ture pro­grams for rur­al Amer­i­ca. #MAGA?

And note how ‘privatization/tolls every­where’ isn’t the only theme Trump’s pri­va­ti­za­tion plan. Like his Med­ic­aid ‘reform’ planz, the infra­struc­ture pri­va­ti­za­tion is paired with shift­ing costs from the fed­er­al gov­ern­ment to states:

...
The White House would slash rur­al hous­ing sub­si­dies, mort­gage loan guar­an­tees, pro­grams that main­tain clean water and oth­er util­i­ties and inde­pen­dent agen­cies that sup­port job train­ing pro­grams. In many cas­es, states would be expect­ed to off­set spend­ing cuts to crit­i­cal infra­struc­ture, like sew­er repairs; but in oth­er cas­es, includ­ing devel­op­ment grants that revi­tal­ize neigh­bor­hoods or seed new local busi­ness­es, com­mu­ni­ties would like­ly have to turn to pri­vate orga­ni­za­tions for fund­ing or assis­tance.
...

Shift­ing costs to states. And as the fol­low­ing arti­cle notes, the plan isn’t just to shift the costs onto states. Cities too. So get ready for a choice between tolls or high­er local tax­es for almost all infra­struc­ture going for­ward. All so fed­er­al infra­struc­ture spend­ing (which tends to be much more pro­gres­sive­ly finances than state and local spend­ing) can be cut. Just how many local roads will get tolls? We’ll find out, but the poor­er the com­mu­ni­ty the more pri­va­tized tol­l/fee-based infra­struc­ture you’re going to see. That should do won­ders for low-tax Repub­li­can-run states. Espe­cial­ly the rur­al ones. Tolls every­where or much high­er tax­es. It’ll be toll-rif­ic!

The New York Times

Trump Plans to Shift Infra­struc­ture Fund­ing to Cities, States and Busi­ness

By JULIE HIRSCHFELD DAVIS and KATE KELLY
JUNE 3, 2017

WASHINGTON — Pres­i­dent Trump will lay out a vision this com­ing week for sharply cur­tail­ing the fed­er­al government’s fund­ing of the nation’s infra­struc­ture and call­ing upon states, cities and cor­po­ra­tions to shoul­der most of the cost of rebuild­ing roads, bridges, rail­ways and water­ways.

He will also endorse a plan to pri­va­tize and mod­ern­ize the nation’s air-traf­fic con­trol sys­tem. That plan, which is to be intro­duced on Mon­day at the White House and the sub­ject of a major speech in the Mid­west two days lat­er, will be Mr. Trump’s first con­crete expla­na­tion of how he intends to ful­fill a cam­paign promise to lead $1 tril­lion in Unit­ed States infra­struc­ture projects. The goal is to cre­ate mil­lions of jobs while doing much-need­ed recon­struc­tion and updat­ing. But the actu­al details of the ini­tia­tive are unset­tled, and a more intri­cate blue­print is still weeks or even months from com­ple­tion.

What the pres­i­dent will offer instead over the com­ing days, his advis­ers said, are the con­tours of a plan. The fed­er­al gov­ern­ment would make only a frac­tion­al down pay­ment on rebuild­ing the nation’s aging infra­struc­ture. Mr. Trump would rely on a com­bi­na­tion of pri­vate indus­try, state and city tax mon­ey, and bor­rowed cash to finance the rest. It would be a stark depar­ture from ambi­tious infra­struc­ture pro­grams of the past, in which the gov­ern­ment played a major role and devot­ed sub­stan­tial resources to pay­ing the cost of large-scale projects.

“We like the tem­plate of not using tax­pay­er dol­lars to give tax­pay­ers wins,” said Gary Cohn, direc­tor of the Nation­al Eco­nom­ic Coun­cil and an archi­tect of the infra­struc­ture plan, in an inter­view Fri­day in his West Wing office.

His lan­guage evoked the cor­ri­dors of Wall Street, where he pre­vi­ous­ly worked. “We want to be in the part­ner­ship busi­ness,” Mr. Cohn said. “We want to be in the facil­i­ta­tion busi­ness, and we’re will­ing to pro­vide cap­i­tal wher­ev­er nec­es­sary to help cer­tain infra­struc­ture along.”

...

On Wednes­day, Mr. Cohn said, the pres­i­dent will trav­el to the banks of the Ohio Riv­er to deliv­er a speech about over­haul­ing the nation’s infra­struc­ture, includ­ing the inland water­ways that are in dire need of atten­tion.

The phi­los­o­phy under­gird­ing the speech, admin­is­tra­tion offi­cials said, is that meld­ing pub­lic and pri­vate forces to rebuild the nation’s phys­i­cal back­bone will vast­ly expand the resources avail­able to pay for doing it. The con­cept — a dis­cus­sion of which helped cement Mr. Cohn’s hir­ing by Mr. Trump late last year — has dri­ven infra­struc­ture pol­i­cy in the Unit­ed States for many years. But Mr. Trump is propos­ing a far small­er fed­er­al invest­ment than many Repub­li­cans and Democ­rats have long thought is nec­es­sary.

Mr. Trump is “try­ing to fig­ure out, How do I get the most infra­struc­ture improve­ments for the Amer­i­can cit­i­zens in the quick­est fash­ion I can with the best return on invest­ment for the U.S. tax­pay­ers,” said Mr. Cohn, a for­mer Gold­man Sachs exec­u­tive. “It’s sort of a businessman’s mod­el.”

...

On Thurs­day, Mr. Trump will hold lis­ten­ing ses­sions at the White House with a group of may­ors and gov­er­nors. On Fri­day, he plans to cap off what mem­bers of the admin­is­tra­tion are call­ing “infra­struc­ture week” with a vis­it to the Trans­porta­tion Depart­ment, where he will dis­cuss dras­ti­cal­ly reduc­ing the time it takes to obtain fed­er­al per­mits for projects.

The Trump admin­is­tra­tion clear­ly hopes the infra­struc­ture roll­out will pro­vide a sore­ly need­ed pol­i­cy vic­to­ry. Its first attempt to over­haul the Afford­able Care Act was so unpop­u­lar, even among Repub­li­cans, that House Speak­er Paul Ryan called off a planned vote and began a rewrite. Sen­ate Major­i­ty Leader Mitch McConnell recent­ly said he was uncer­tain whether he could find a major­i­ty to move a health care bill through his cham­ber.

The president’s prin­ci­ples for a “mas­sive” tax cut, encap­su­lat­ed in what appeared to be a hasti­ly writ­ten one-page doc­u­ment issued in April, were wide­ly ridiculed for a lack of specifics and their under­ly­ing eco­nom­ic-growth assump­tions, which many econ­o­mists and pol­i­cy experts con­sid­ered over­ly rosy. And Mr. Trump has been round­ly chas­tised for his recent deci­sion to with­draw from the Paris cli­mate agree­ment, a multi­na­tion­al plan to lim­it glob­al warm­ing through curbs on emis­sions that Mr. Cohn and many promi­nent cor­po­rate exec­u­tives sup­port­ed.

Despite the pub­lic push to pro­mote the infra­struc­ture pack­age, Mr. Cohn acknowl­edged that the White House did not have a detailed pro­pos­al ready to release. He said, for exam­ple, that no deci­sion had been made on whether the infra­struc­ture plan would ulti­mate­ly be mar­ried to a tax mea­sure. Repub­li­cans and Democ­rats tried such a step dur­ing the Oba­ma admin­is­tra­tion, in a plan that would have used rev­enue from repa­tri­at­ing cor­po­rate prof­its parked over­seas to finance projects to improve roads, bridges, water­ways, broad­band and oth­er areas.

“It’s unde­ter­mined yet,” Mr. Cohn said. “It may come before. It may come dur­ing. It may come after.”

Mr. Trump said in an inter­view with CBS News in April that his infra­struc­ture bill was “large­ly com­plet­ed, and we’ll be fil­ing over the next two or three weeks, maybe soon­er.”

Mr. Cohn blamed the delay on law­mak­ers, say­ing the White House was reluc­tant to send its pro­pos­al to Con­gress until progress had been made on the health care bill, a bud­get bill, leg­is­la­tion to raise the debt ceil­ing and the as-yet-unformed tax bill.

“If we thought it was the time to release an infra­struc­ture bill, we would release an infra­struc­ture bill,” Mr. Cohn said. “We just can’t keep throw­ing stuff on Con­gress. We actu­al­ly need them to get leg­is­la­tion done. And as they start get­ting leg­is­la­tion done, we’ll come back with infra­struc­ture.”

When that hap­pens, the pack­age is like­ly to meet with sub­stan­tial crit­i­cism from Democ­rats, who were heart­ened to hear Mr. Trump focus on infra­struc­ture spend­ing dur­ing his pres­i­den­tial cam­paign but crest­fall­en to see the bud­get he unveiled last month. The pro­posed spend­ing plan devot­ed only one-fifth of the mon­ey that he had spo­ken of for build­ing and improv­ing infra­struc­ture.

“When Trump talked dur­ing the cam­paign about $1 tril­lion for infra­struc­ture, peo­ple were tak­ing him at his word that it would be $1 tril­lion,” said Sarah Fein­berg, a for­mer senior offi­cial at the Trans­porta­tion Depart­ment in the Oba­ma admin­is­tra­tion. Mr. Trump’s bud­get pro­pos­al to spend $200 bil­lion in the next 10 years falls far short of what is need­ed, she said.

“The idea that this real­ly min­i­mal amount of fed­er­al invest­ment will spur that lev­el of pri­vate invest­ment is hope­ful but not real­is­tic,” Ms. Fein­berg said. “The real­i­ty is, the state of infra­struc­ture has become an exis­ten­tial threat to huge por­tions of the econ­o­my.”

...

———-

“Trump Plans to Shift Infra­struc­ture Fund­ing to Cities, States and Busi­ness” by JULIE HIRSCHFELD DAVIS and KATE KELLY; The New York Times; 06/03/2017

“What the pres­i­dent will offer instead over the com­ing days, his advis­ers said, are the con­tours of a plan. The fed­er­al gov­ern­ment would make only a frac­tion­al down pay­ment on rebuild­ing the nation’s aging infra­struc­ture. Mr. Trump would rely on a com­bi­na­tion of pri­vate indus­try, state and city tax mon­ey, and bor­rowed cash to finance the rest. It would be a stark depar­ture from ambi­tious infra­struc­ture pro­grams of the past, in which the gov­ern­ment played a major role and devot­ed sub­stan­tial resources to pay­ing the cost of large-scale projects.”

So long fed­er­al infra­struc­ture. That’s seri­ous­ly Trump’s big $1 Tril­lion infra­struc­ture plan. $200 bil­lion in fed­er­al spend­ing over 10 years (not near­ly what’s required) and a mas­sive recon­fig­u­ra­tion of how infra­struc­ture is done in the US going for­ward. A choice between state/local tax­es or pri­va­tized tol­l/fee-based infra­struc­ture.

And how are they going to sell it to the pub­lic? As some­thing for noth­ing:

...
“We like the tem­plate of not using tax­pay­er dol­lars to give tax­pay­ers wins,” said Gary Cohn, direc­tor of the Nation­al Eco­nom­ic Coun­cil and an archi­tect of the infra­struc­ture plan, in an inter­view Fri­day in his West Wing office.
...

“We like the tem­plate of not using tax­pay­er dol­lars to give tax­pay­ers wins”

By defed­er­al­iz­ing infra­struc­ture in Amer­i­ca, US tax­pay­ers win. Some­thing for noth­ing, yay (Plus tolls but let’s not men­tion that)! But it is a big win for fed­er­al tax pay­ers. And since fed­er­al tax­es are financed by bil­lion­aires much more than state and local tax­es, it’s a big win for bil­lion­aires. Who will pre­sum­ably have fly­ing cars soon to avoid the tolls. Or just live in neigh­bor­hoods wealthy enough to not have to pri­va­tize every­thing as costs are shift­ed to the local lev­el. But for every­one else, espe­cial­ly rur­al Amer­i­ca and Red States that are net ben­e­fi­cia­ries of fed­er­al spend­ing, infra­struc­ture is about to get a lot more expen­sive with a lot more tolls.

While details are still rel­a­tive­ly sparse on Trump’s over­all infra­struc­ture plan, the more we learn the bet­ter it sounds...as a Trumpian-league dis­trac­tion from the rest of Trump’s Trumpian-league dis­as­ters. And if this ever becomes law there’s going to be a lot more dis­tract from the fact that there’s sud­den­ly tolls and local tax hikes every­where. And all the oth­er prob­lems he’s going to cre­ate, like the prob­lems he’s try­ing to dis­tract us from now with “Infra­struc­ture Week”. Cre­at­ing prob­lems as a dis­trac­tion from prob­lems gen­er­al­ly isn’t a sus­tain­able solu­tion.

But in the short run, cre­at­ing new prob­lems turns out to be a real solu­tion for tak­ing atten­tion away from Trump’s exist­ing prob­lems. And he can do this at will. Trump has like a Midas touch, where every­thing turns into prob­lems for oth­ers while he makes mon­ey on the side. It’s kind of like a Mon­key’s Paw touch but Trump’s not impact­ed by the Mon­key’s Paw bad­ness. Just every­one else. Cre­at­ing prob­lems is a tried and test­ed solu­tion for Trump. His whole life. He’s good at it.

So we’ll see to what extent Trump can keep his present prob­lems away by cre­at­ing new ones to over­whelm us and under­mine the US’s psy­choso­cioe­co­nom­ic foun­da­tions. So far he’s off to an impres­sive start.

Behold! “Infra­struc­ture Week”!

*shud­der*

What was I pay­ing atten­tion to before?

*golf clap*

Now that “Infra­struc­ture Week” — a week for Don­ald Trump to trav­el around the coun­try tout­ing his infra­struc­ture mass pri­va­ti­za­tion plan — is com­ing to a close, it’s prob­a­bly worth not­ing that even if Trump man­ages to not get him­self removed from office and his plan to gen­er­ate $1 tril­lion dol­lars in infra­struc­ture spend­ing over the next decade actu­al­ly comes to fruition, that’s still less half the $2.5 tril­lion in spend­ing over the next decade that amount the Amer­i­can Soci­ety of Civ­il Engi­neers says the US needs. And it’s that urgent nation­al need for more infra­struc­ture spend­ing that’s the biggest sell­ing point for Trump’s plan. The sell­ing point isn’t the plan. The plan is awful. The sell­ing point is the infra­struc­ture need that the awful plan is sup­posed to address.

But since at least a few Democ­rats in the Sen­ate are going to be required for any infra­struc­ture plan to actu­al­ly become law and the plan is polit­i­cal­ly tox­ic since it basi­cal­ly pays pri­vate­ly devel­op­ers mas­sive amounts of mon­ey so they can build infra­struc­ture that the pub­lic gets charged to use, the odds of Trump’s plan hap­pen­ing at all are look­ing bleak (sor­ry “Infra­struc­ture Week”). And that means the $2.5 tril­lion in nation­al infra­struc­ture needs is prob­a­bly going to be much, much high­er once the Trump night­mare ends.

It’s a reminder that the next Pres­i­dent (or post-apoc­a­lyp­tic war­lord) is going to have a very com­pelling case to pass their infra­struc­ture plan (espe­cial­ly the post-apoc­a­lyp­tic war­lord), decent or inde­cent (don’t for­get Trump’s plan is basi­cal­ly a stan­dard GOP pri­va­ti­za­tion plan), assum­ing Trump’s inde­cent infra­struc­ture scheme fails like it rea­son­ably should (don’t for­get rea­son is appar­ent­ly out­dat­ed):

The Wash­ing­ton Post

Trump will nev­er get help from Democ­rats in pass­ing his infra­struc­ture plan. Here’s why.

By Paul Wald­man
June 5, 2017

The Trump admin­is­tra­tion is hop­ing to use this week to roll out its infra­struc­ture plan, which at the moment is a “plan” in the same sense that the White House has a health-care plan and a tax plan. That is to say, offi­cials have pro­duced a vague out­line that won’t take up more than a few pages of bul­let points.

But what’s there is more than dis­turb­ing enough.

When Pres­i­dent Trump was run­ning for the White House last year, his advo­ca­cy of a large invest­ment in infra­struc­ture was often cit­ed as evi­dence that he wasn’t a tra­di­tion­al Repub­li­can. After all, would some doc­tri­naire con­ser­v­a­tive pro­pose spend­ing a tril­lion dol­lars of tax­pay­er mon­ey on gov­ern­ment projects to shore up our roads, bridges and water sys­tems?

But there was a bait-and-switch going on, one that becomes more evi­dent as we get clos­er to see­ing the details.

Trump has said many times that he should be able to get Democ­rats to join with him to pass infra­struc­ture spend­ing, because it’s some­thing they sup­port. And the prob­lem is enor­mous and get­ting worse: The Amer­i­can Soci­ety of Civ­il Engi­neers esti­mates that we need to invest an addi­tion­al $2 tril­lion over the next 10 years in order to get our infra­struc­ture to a rea­son­able lev­el. Leav­ing these needs unmet impos­es a con­stant stream of costs on busi­ness­es, gov­ern­ments and indi­vid­u­als. When roads are in dis­re­pair, cars and trucks wear out more quick­ly and require more repairs, deliv­er­ies are slow­er, more gas is used, and goods and ser­vices cost con­sumers more. The ASCE says that fail­ing to make the required invest­ments would mean $3.9 tril­lion in low­ered GDP over that decade and 2.5 mil­lion few­er jobs. The longer we wait, the worse the prob­lems get and the more it costs to fix them.

The prob­lem with what the Trump admin­is­tra­tion pro­pos­es is that while the num­ber $1 tril­lion gets men­tioned a lot, that’s not actu­al­ly what it wants to spend. The bud­get pro­pos­al the White House released called for $200 bil­lion in new infra­struc­ture spend­ing, but Democ­rats noticed that it simul­ta­ne­ous­ly made over $200 bil­lion in cuts to exist­ing spend­ing. For the most part, the admin­is­tra­tion wants to pass costs on to state and local gov­ern­ments and hope that pri­vate investors come up with the rest of the mon­ey. As the Asso­ci­at­ed Press describes it, “Accord­ing to Trump’s bud­get pro­pos­al, the fund­ing would come from $200 bil­lion in tax breaks over nine years that would then — in the­o­ry — lever­age $1 tril­lion worth of con­struc­tion.”

That’s the biggest prob­lem of all. Not long ago the Cen­ter on Bud­get and Pol­i­cy Pri­or­i­ties suc­cinct­ly described the approach Trump wants to take:

Rather than pub­lic invest­ment — with the gov­ern­ment allo­cat­ing the mon­ey and direct­ing it to where it’s most need­ed — the Trump plan relies entire­ly on pri­vate projects through which investors (e.g., pri­vate con­trac­tors) would own the projects, get huge fed­er­al tax cred­its equal to a stun­ning 82 per­cent of their equi­ty invest­ment, and make prof­its from the tolls or fees they would charge to con­sumers.

That might save some mon­ey in the very short run, but it means that con­sumers keep pay­ing, basi­cal­ly for­ev­er. In the tra­di­tion­al approach, gov­ern­ment spends the mon­ey to build, say, a bridge, and then it’s built and it belongs to the tax­pay­ers. There are main­te­nance costs, but that’s it. In the Trump approach, the gov­ern­ment gives almost as much mon­ey in tax breaks as it would have spent build­ing the bridge, but it belongs to the devel­op­er, who charges tolls that every­one who uses the bridge has to keep pay­ing.

The oth­er big prob­lem with this method is that which projects get built is deter­mined by where pri­vate devel­op­ers think they can con­tin­ue to make prof­its, not where the need is great­est. But there are lots of nec­es­sary infra­struc­ture projects that might not be prof­it cen­ters. (If you want to see how lib­er­al Democ­rats would han­dle the infra­struc­ture chal­lenge, the Pro­gres­sive Cau­cus has a plan to devote $2 tril­lion in pub­lic spend­ing to it.)

...

But the broad­er infra­struc­ture plan faces the same basic prob­lem in pass­ing Con­gress that the admin­is­tra­tion faces when it comes to tax­es and health care. There are some Repub­li­cans who are uneasy about some parts of it, but any­thing the admin­is­tra­tion does to sat­is­fy them makes the prospect of get­ting any Demo­c­ra­t­ic votes high­ly unlike­ly. And if no Democ­rats join in the effort, it can’t over­come a fil­i­buster in the Sen­ate, even if Repub­li­cans can hold all their mem­bers and pass it through the House.

Democ­rats don’t like the idea of try­ing to fund infra­struc­ture only through tax breaks, but that’s not their only objec­tion. Will there be “pre­vail­ing wage” guar­an­tees that ensure that the peo­ple work­ing on these projects are paid ade­quate­ly? What about envi­ron­men­tal pro­tec­tions? Is an infra­struc­ture plan going to be a Tro­jan horse to attack those pro­tec­tions? It would be more appeal­ing to many Repub­li­cans if it were, but it would hard­en Democ­rats’ resolve against it.

But the biggest hur­dle is the basic struc­ture of the plan: hav­ing tax­pay­ers give a huge amount of mon­ey to pri­vate devel­op­ers, so that those devel­op­ers can then turn around and charge peo­ple even more to use the sys­tems that get built. If Trump thinks Democ­rats are going to go for that, he’s fool­ing him­self.

———-

“Trump will nev­er get help from Democ­rats in pass­ing his infra­struc­ture plan. Here’s why.” by Paul Wald­man; The Wash­ing­ton Post; 06/05/2017

“But the biggest hur­dle is the basic struc­ture of the plan: hav­ing tax­pay­ers give a huge amount of mon­ey to pri­vate devel­op­ers, so that those devel­op­ers can then turn around and charge peo­ple even more to use the sys­tems that get built. If Trump thinks Democ­rats are going to go for that, he’s fool­ing him­self.”

The infra­struc­ture bait-and-switch is so bad it’s the kind of scheme only a GOP elect­ed offi­cial could sup­port. With like­ly far less sup­port from GOP vot­ers. And every­one else. Includ­ing Demo­c­ra­t­ic elect­ed offi­cials. Which means the plan is fil­i­buster-guar­an­teed:

...
But the broad­er infra­struc­ture plan faces the same basic prob­lem in pass­ing Con­gress that the admin­is­tra­tion faces when it comes to tax­es and health care. There are some Repub­li­cans who are uneasy about some parts of it, but any­thing the admin­is­tra­tion does to sat­is­fy them makes the prospect of get­ting any Demo­c­ra­t­ic votes high­ly unlike­ly. And if no Democ­rats join in the effort, it can’t over­come a fil­i­buster in the Sen­ate, even if Repub­li­cans can hold all their mem­bers and pass it through the House.

...

And if the plan is fil­i­buster-guar­an­teed, the US just keeps dig­ging that $2.5 tril­lion hole of need:

...
When Pres­i­dent Trump was run­ning for the White House last year, his advo­ca­cy of a large invest­ment in infra­struc­ture was often cit­ed as evi­dence that he wasn’t a tra­di­tion­al Repub­li­can. After all, would some doc­tri­naire con­ser­v­a­tive pro­pose spend­ing a tril­lion dol­lars of tax­pay­er mon­ey on gov­ern­ment projects to shore up our roads, bridges and water sys­tems?

But there was a bait-and-switch going on, one that becomes more evi­dent as we get clos­er to see­ing the details.

Trump has said many times that he should be able to get Democ­rats to join with him to pass infra­struc­ture spend­ing, because it’s some­thing they sup­port. And the prob­lem is enor­mous and get­ting worse: The Amer­i­can Soci­ety of Civ­il Engi­neers esti­mates that we need to invest an addi­tion­al $2 tril­lion over the next 10 years in order to get our infra­struc­ture to a rea­son­able lev­el. Leav­ing these needs unmet impos­es a con­stant stream of costs on busi­ness­es, gov­ern­ments and indi­vid­u­als. When roads are in dis­re­pair, cars and trucks wear out more quick­ly and require more repairs, deliv­er­ies are slow­er, more gas is used, and goods and ser­vices cost con­sumers more. The ASCE says that fail­ing to make the required invest­ments would mean $3.9 tril­lion in low­ered GDP over that decade and 2.5 mil­lion few­er jobs. The longer we wait, the worse the prob­lems get and the more it costs to fix them.
...

So don’t for­get, when new­ly installed Pres­i­dent Mike Pence unveils his shiny new infra­struc­ture plan that’s basi­cal­ly the same, it’s going to be about as bad as Trump’s plan but with a much stronger sales pitch due to all the addi­tion­al need. A much stronger sale pitch:

The Wash­ing­ton Post

Mul­ti­ple tran­sit projects across U.S. at risk as White House infra­struc­ture plan fal­ters

By Dami­an Palet­ta and Mike DeBo­nis
June 9, 2017 at 6:24 PM

Dozens of pub­lic tran­sit projects around the coun­try are in dan­ger of stalling as the White House’s plan to boost U.S. infra­struc­ture fails to gain momen­tum — with thou­sands of jobs at risk.

The uncer­tain­ty over these projects has wors­ened in recent days as Pres­i­dent Trump — who had vowed to make the week’s focus infra­struc­ture — faced a series of dis­trac­tions, includ­ing a con­gres­sion­al hear­ing fea­tur­ing for­mer FBI direc­tor James B. Comey.

The pres­i­dent, who had called for $1 tril­lion in new infra­struc­ture pro­grams to cre­ate mil­lions of jobs, now faces an increas­ing prob­a­bil­i­ty that not only will his pro­pos­al fail in Con­gress, but also that exist­ing infra­struc­ture efforts will stum­ble.

The sit­u­a­tion has emerged because the Trump admin­is­tra­tion has sig­naled it wants to take an approach to infra­struc­ture spend­ing that is dif­fer­ent from the pre­vi­ous administration’s. Instead of fund­ing many of the exist­ing projects that depend on fed­er­al mon­ey — a prac­tice that offi­cials say they wor­ry is waste­ful — the admin­is­tra­tion says it wants to move toward a ver­sion of financ­ing projects that is based far more on pri­vate fund­ing.

The sud­den uncer­tain­ty has left local offi­cials who had long antic­i­pat­ed fed­er­al sup­port for their projects wor­ry­ing whether they will get it.

In pre­vi­ous­ly unre­port­ed let­ters, offi­cials at the Depart­ment of Trans­porta­tion last week told project man­agers for a bus cor­ri­dor in Pitts­burgh and rail projects in Phoenix and New York that the administration’s bud­get plan for next year “pro­pos­es no fund­ing for new projects” under an exist­ing fed­er­al pro­gram known as the Cap­i­tal Invest­ment Grant.

Robert Rubin­stein, who received the let­ter as exec­u­tive direc­tor of the Urban Rede­vel­op­ment Author­i­ty of Pitts­burgh, said the pro­posed can­cel­la­tion of fund­ing would effec­tive­ly kill the project, which has been in the works for 10 years. It would have cre­at­ed an elec­tric-bus cor­ri­dor between Pitts­burgh and near­by Oak­land, Pa.

“We don’t have enough resources local­ly to under­take the larg­er project,” Rubin­stein said. He said offi­cials had sought rough­ly $80 mil­lion in fed­er­al mon­ey to go toward the $224 mil­lion project. He said the sev­er­al mil­lion dol­lars already spent on stud­ies and engi­neer­ing reviews could be lost.

CIG fund­ing allo­cates $2.3 bil­lion each year to var­i­ous projects and was recent­ly autho­rized by law­mak­ers from both par­ties. Its projects include pub­lic trans­porta­tion projects such as rail, street­cars, and rapid bus sys­tems. The White House’s most recent bud­get has pro­posed phas­ing out CIG fund­ing, and the White House can block any new CIG projects even if there is con­gres­sion­al sup­port.

Andrew Brady, senior direc­tor of gov­ern­ment affairs at the Amer­i­can Pub­lic Trans­porta­tion Asso­ci­a­tion, said that more than 50 pub­lic tran­sit projects are at risk of being denied fed­er­al fund­ing because of Trump’s planned cuts to infra­struc­ture spend­ing.

“He’s say­ing a lot of good things on infra­struc­ture, but what he’s done is imple­ment very real cuts to infra­struc­ture pro­grams,” Brady said.

Capi­tol Hill aides close­ly track­ing infra­struc­ture fund­ing say that uncer­tain­ty over the administration’s infra­struc­ture plans is par­tic­u­lar­ly threat­en­ing to pro­grams that are far along and are depen­dent on fed­er­al fund­ing for com­ple­tion.

The projects that are most at risk, they said, include some that have moved through the fund­ing pipeline for years but are just short of final approval. Many are in states that Trump won last year, and they include a light-rail plat­form-length­en­ing project in Texas, a street­car line in Ari­zona, and a bus rapid-tran­sit line in Indi­ana.

Bryan Luellen, a spokesman for Indy­Go, said the agency is con­cerned about long-term fund­ing sta­bil­i­ty as it embarks on a major expan­sion of its sys­tem. The agency is expect­ing the CIG pro­gram to cov­er $75 mil­lion of the $96 mil­lion project, and it plans to seek fed­er­al fund­ing for two oth­er rapid tran­sit projects in the com­ing years.

“Obvi­ous­ly, the less fed­er­al sup­port we have, the less we can do over­all,” he said.

Besides the tran­sit pro­gram, Trump’s bud­get pro­pos­es end­ing the Trans­porta­tion Department’s TIGER grant pro­gram, which was cre­at­ed under the Oba­ma admin­is­tra­tion in the 2009 stim­u­lus bill and has since fund­ed $5 bil­lion worth of road, rail, port and bicy­cle projects.

Trump’s bud­get request said the pro­gram funds “projects with local­ized ben­e­fits” that often “do not rise to the lev­el of nation­al or region­al sig­nif­i­cance.”

Those projects, it said, would be bet­ter fund­ed through anoth­er DOT grant pro­gram, Nation­al­ly Sig­nif­i­cant Freight and High­way Projects, that is focused on roads and freight rail.

Speak­ing at the Depart­ment of Trans­porta­tion on Fri­day, Trump focused on his efforts to dis­man­tle reg­u­la­tions that he says stand in the way of new build­ing.

“The excru­ci­at­ing wait time for per­mit­ting has inflict­ed enor­mous finan­cial pain to cities and states all through­out our nation and has blocked many impor­tant projects from ever get­ting off the ground,” Trump said. “Many, many projects are long gone because they couldn’t get per­mits and there was no rea­son for it.”

...

White House offi­cials have said they are under­tak­ing an expan­sive review of infra­struc­ture spend­ing but argue that, in the mean­time, any promise of fed­er­al spend­ing could delay projects as local offi­cials await word. The White House has pro­posed spend­ing just $5 bil­lion toward its $1 tril­lion infra­struc­ture project next year.

In a state­ment, White House assis­tant press sec­re­tary Natal­ie Strom said of the CIG pro­gram in par­tic­u­lar that “there’s always been a great deal of uncer­tain­ty around the fund­ing of that pro­gram and as a mat­ter of fact uncer­tain­ty is one of the most sig­nif­i­cant imped­i­ments to infra­struc­ture, whether it’s fund­ed by the pub­lic or pri­vate sec­tor.”

“That’s why the Pres­i­dent is com­mit­ted to sim­pli­fy­ing and stream­lin­ing the process so that there is less uncer­tain­ty all around,” she said.

...

So far, Trump’s advis­ers have pub­licly iden­ti­fied projects to cut at a faster pace than they’ve iden­ti­fied projects to fund, lead­ing to wide­spread con­fu­sion about the administration’s intent.

Dan Slane, an Ohio devel­op­er who worked on the infra­struc­ture plan dur­ing Trump’s tran­si­tion, said he is still receiv­ing calls from state and local gov­ern­ments, frus­trat­ed with the slow pace of plan­ning and ask­ing him for details.

“They don’t want to pay for any­thing,” Slane said of the admin­is­tra­tion. “They want all infra­struc­ture to be pri­vate­ly financed or pri­vate­ly owned.”

...

———-

“Mul­ti­ple tran­sit projects across U.S. at risk as White House infra­struc­ture plan fal­ters” by Dami­an Palet­ta and Mike DeBo­nis; The Wash­ing­ton Post; 06/09/2017

“So far, Trump’s advis­ers have pub­licly iden­ti­fied projects to cut at a faster pace than they’ve iden­ti­fied projects to fund, lead­ing to wide­spread con­fu­sion about the administration’s intent.”

Yep, so far Trump’s infra­struc­ture plan has more declared cuts than new projects. But it’s not just cuts to exist­ing infra­struc­ture spend­ing. Thanks to all the con­fu­sion over whether or not the fed­er­al gov­ern­ment is even going to have a mean­ing­ful roll in financ­ing infra­struc­ture going for­ward (since that’s how extreme Trump’s plan is in terms of shift­ing fund­ing away from the fed­er­al gov­ern­ment), a whole bunch of new fed­er­al projects that have been in the approval pipeline for years and are about to get fed­er­al fund­ing aren’t get­ting that fund­ing:

...
Andrew Brady, senior direc­tor of gov­ern­ment affairs at the Amer­i­can Pub­lic Trans­porta­tion Asso­ci­a­tion, said that more than 50 pub­lic tran­sit projects are at risk of being denied fed­er­al fund­ing because of Trump’s planned cuts to infra­struc­ture spend­ing.

“He’s say­ing a lot of good things on infra­struc­ture, but what he’s done is imple­ment very real cuts to infra­struc­ture pro­grams,” Brady said.

Capi­tol Hill aides close­ly track­ing infra­struc­ture fund­ing say that uncer­tain­ty over the administration’s infra­struc­ture plans is par­tic­u­lar­ly threat­en­ing to pro­grams that are far along and are depen­dent on fed­er­al fund­ing for com­ple­tion.
...

So Trump’s infra­struc­ture plan is such a hor­ri­ble idea that it’s actu­al­ly halt­ing new infra­struc­ture spend­ing.

Of course, the fact that the rad­i­cal nature of Trump’s plan — a plan that brings the role of the fed­er­al gov­ern­ment in infra­struc­ture spend­ing into ques­tion — has led to a com­plete freeze of the projects that were near­ly about to get start­ed will just add to the urgency of the sit­u­a­tion and prob­a­bly be used by Trump as the GOP as a rea­son to make it law. And while there’s a good chance that won’t work and Trump does­n’t see his infra­struc­ture bill hap­pen, he’s still mak­ing Pres­i­dent Paul Ryan very sim­i­lar infra­struc­ture bill a lot more like­ly to pass sim­ply by adding to the urgency of the nation’s infra­struc­ture needs.

Because fail­ing upwards isn’t just a tac­tic, it’s a lifestyle.

Now that the GOP’s health care ‘reform’ dri­ve appears to have tem­porar­i­ly come to a halt and the Trump White House is falling back on the Steve Bannon/Stephen Miller play­book of tar­get­ing trans­gen­dered sol­diers and slash­ing legal immi­gra­tion in half to score a few easy polit­i­cal wins with Trump’s base, it’s worth not­ing that there’s at least one ele­ment of Ban­non­ism that real­ly could find broad bipar­ti­san sup­port across the Amer­i­can elec­torate and its actu­al­ly a step in the right direc­tion: In order to help pay for tax-cuts for the mid­dle-class, Steve Ban­non wants to raise tax­es on peo­ple make $5 mil­lion or more:

Bloomberg Pol­i­tics

Ban­non Calls for 44% Tax on Incomes Above $5 Mil­lion

* It’s unclear if Trump would sup­port rate for high­est earn­ers
* White House plan released in April called for 35% as top rate

By Mar­garet Talev
July 26, 2017, 6:31 PM CDT

White House chief strate­gist Steve Ban­non sup­ports pay­ing for mid­dle-class tax cuts with a new top rate of 44 per­cent for Amer­i­cans who make more than $5 mil­lion a year, accord­ing to a per­son famil­iar with his think­ing.

It’s unclear whether Pres­i­dent Don­ald Trump would sup­port the move, which would bring the top rate, cur­rent­ly 39.6 per­cent, to the high­est lev­el in 30 years. Trump has said he’s focused on tax changes that would help the mid­dle class, but an analy­sis this month of the tax out­line the White House released in April shows it would most­ly ben­e­fit top earn­ers.

That plan con­densed the sev­en exist­ing indi­vid­ual income tax rates to three, with a top rate of 35 per­cent. Income thresh­olds weren’t includ­ed in the out­line.

White House offi­cials and con­gres­sion­al lead­ers have been meet­ing week­ly to agree on a frame­work to rewrite the tax code. So far, they haven’t announced any deci­sions on how deeply to cut tax rates or whether the lost rev­enue should be off­set, and how.

It’s not the first time that kind of tax increase has been sug­gest­ed.

Dur­ing the 2016 pres­i­den­tial cam­paign, Demo­c­ra­t­ic nom­i­nee Hillary Clin­ton had pro­posed a 4 per­cent sur­charge on Amer­i­cans mak­ing more than $5 mil­lion annu­al­ly. It was part of a set of pro­pos­als that her cam­paign said would ensure the wealthy paid a high­er effec­tive tax rate than the mid­dle class.

...

———-

“Ban­non Calls for 44% Tax on Incomes Above $5 Mil­lion” by Mar­garet Talev; Bloomberg Pol­i­tics; 07/26/2017

“White House chief strate­gist Steve Ban­non sup­ports pay­ing for mid­dle-class tax cuts with a new top rate of 44 per­cent for Amer­i­cans who make more than $5 mil­lion a year, accord­ing to a per­son famil­iar with his think­ing.”

Tax hikes on the rich­est to pay for tax cuts for every­one else? Not only would be some pret­ty savvy polit­i­cal­ly speak­ing in an era when the wealth of the super-rich has explod­ed while the Amer­i­can mid­dle-class erod­ed, Ban­non’s pro­pos­al is just bet­ter pol­i­cy. So, of course, it’s not par­tic­u­lar­ly pop­u­lar with the rest of the GOP, includ­ing the rest of the Trump White House if Trump’s pre­vi­ous tax plan out­lines were any indi­ca­tion:

...
It’s unclear whether Pres­i­dent Don­ald Trump would sup­port the move, which would bring the top rate, cur­rent­ly 39.6 per­cent, to the high­est lev­el in 30 years. Trump has said he’s focused on tax changes that would help the mid­dle class, but an analy­sis this month of the tax out­line the White House released in April shows it would most­ly ben­e­fit top earn­ers.
...

And if that was­n’t a strong enough indi­ca­tion of a lack of GOP sup­port for Ban­non’s plan, we got a much stronger indi­ca­tion when the White House direc­tor of leg­isla­tive affairs just knocked down Ban­non’s pro­pos­al on Fox News:

Bloomberg Pol­i­tics

Bannon’s Pro­posed Tax Increase Isn’t on the Table, Anoth­er Trump Aide Says

* White House offi­cial Marc Short knocks down idea on Fox News
* Ban­non is said to sup­port that top rate for high earn­ers

By Jen­nifer Epstein
July 31, 2017, 7:50 AM CDT

A top income-tax rate of 44 per­cent for Amer­i­cans earn­ing more than $5 mil­lion per year isn’t under con­sid­er­a­tion, a White House offi­cial said Mon­day, knock­ing down a pro­pos­al said to be backed by top Trump advis­er Steve Ban­non.

“I don’t think that that’s on the table right now, to be hon­est with you,” White House direc­tor of leg­isla­tive affairs Marc Short said on Fox News. “We don’t believe that rais­ing tax­es is the way to encour­age growth.”

Ban­non backs that increased rate, a per­son famil­iar with the White House chief strategist’s think­ing said last week, as a way to pay for mid­dle-class tax cuts. While one con­ser­v­a­tive law­mak­er respond­ed by say­ing some con­gres­sion­al Repub­li­cans might sup­port a rate increase as part of a broad­er tax over­haul, Short is the third key play­er to dis­miss the idea.

...

House Speak­er Paul Ryan on Sun­day declined to com­ment direct­ly on the Ban­non report but said he sup­ports the out­line released by the Trump admin­is­tra­tion in April, which caps the top rate at 35 per­cent. “We’re not in the busi­ness of rais­ing tax rates,” Ryan said on “Sun­day Morn­ing Futures.”

The White House is also get­ting sup­port for its tax-cut plan from the polit­i­cal net­work of bil­lion­aire broth­ers Charles Koch and David Koch, who didn’t sup­port Pres­i­dent Don­ald Trump dur­ing his 2016 cam­paign. Short and Trea­sury Sec­re­tary Steven Mnuchin are set to appear on a tax pan­el host­ed by two Koch-fund­ed groups Mon­day in Wash­ing­ton.

———-

“Bannon’s Pro­posed Tax Increase Isn’t on the Table, Anoth­er Trump Aide Says” by Jen­nifer Epstein; Bloomberg Pol­i­tics; 07/31/2017

““I don’t think that that’s on the table right now, to be hon­est with you,” White House direc­tor of leg­isla­tive affairs Marc Short said on Fox News. “We don’t believe that rais­ing tax­es is the way to encour­age growth.””

Ouch. Well, there goes one of the only pos­i­tive sug­ges­tions Steve Ban­non has ever made. Appar­ent­ly pay­ing for mid­dle-class tax cuts isn’t a very high pri­or­i­ty for the GOP. Or the Koch Broth­ers (sur­prise!):

...
The White House is also get­ting sup­port for its tax-cut plan from the polit­i­cal net­work of bil­lion­aire broth­ers Charles Koch and David Koch, who didn’t sup­port Pres­i­dent Don­ald Trump dur­ing his 2016 cam­paign. Short and Trea­sury Sec­re­tary Steven Mnuchin are set to appear on a tax pan­el host­ed by two Koch-fund­ed groups Mon­day in Wash­ing­ton.

So if tax hikes on peo­ple mak­ing over $5 mil­lion is out of the ques­tion, how about just no tax cuts for the rich or any­thing that adds to the deficit. Would the GOP be open to that idea?

And what if the Democ­rats pledged to pro­vide bipar­ti­san sup­port for such a tax plan that cuts tax­es for the bot­tom 99 per­cent sim­ply freezes them for the top 1 per­cent? Tax cuts for the 99 per­cent and no addi­tion­al deficits...is that an option the GOP can get behind? Because that’s what the Democ­rats just offered the GOP a day after Ban­non’s idea was knocked down:

Asso­ci­at­ed Press

Sen­ate Dems spell out con­di­tions on bipar­ti­san tax reform

By Andrew Tay­lor,

WASHINGTON — Aug 1, 2017, 1:26 PM ET

Sen­ate Democ­rats and inde­pen­dents said Tues­day that upcom­ing leg­is­la­tion to rewrite the nation’s tax code should ensure the mid­dle class does­n’t pay more and the top 1 per­cent does­n’t pay less.

In a let­ter to Repub­li­can lead­ers, includ­ing Pres­i­dent Don­ald Trump, 45 of the 48 Sen­ate Demo­c­ra­t­ic cau­cus mem­bers said they won’t sup­port any upcom­ing GOP effort to over­haul the tax sys­tem that deliv­ers cuts to the top 1 per­cent or adds to the gov­ern­men­t’s $20 tril­lion debt.

Repub­li­cans con­trol­ling Con­gress are gear­ing up to advance their tax mea­sure this fall, promis­ing to low­er rates on busi­ness­es and indi­vid­u­als, while clear­ing out many tax breaks and deduc­tions.

The let­ter says that Democ­rats hope to work with Repub­li­cans to pro­mote invest­ment and mod­ern­ize the out­dat­ed tax code, but the terms laid out by Democ­rats are unlike­ly to tempt Repub­li­cans, who are plan­ning to use a fil­i­buster-proof Sen­ate pro­ce­dure to advance the leg­is­la­tion with­out their help.

“Any tax reform effort should not ben­e­fit the wealth­i­est indi­vid­u­als, who have already seen out­sized ben­e­fits from recent eco­nom­ic gains,” said the let­ter, authored by Minor­i­ty Leader Chuck Schumer, D‑N.Y., and oth­ers and pro­vid­ed to the media. “Tax reform can­not be a cov­er sto­ry for deliv­er­ing tax cuts to the wealth­i­est.”

The con­tours of the GOP tax plan are fuzzy at best, but House Speak­er Paul Ryan, R‑Wis., says he’s not press­ing for a large, deficit-financed tax mea­sure. But keep­ing GOP promis­es for large rate cuts won’t be easy under those con­di­tions, giv­en the dif­fi­cul­ty in elim­i­nat­ing pop­u­lar deduc­tions and tax breaks.

The most recent suc­cess­ful tax reform effort was in 1986 and required a bipar­ti­san push to over­come oppo­si­tion from pow­er­ful inter­est groups.

Sen. Roy Blunt, R‑Mo., a mem­ber of the GOP lead­er­ship team, said after the col­lapse on health care, law­mak­ers need to “see if we can’t put some wins on the board and cer­tain­ly tax reform, infra­struc­ture are the kinds of things we ought to be look­ing at.”

He argued that tax reform would be eas­i­er “because it’s about rev­enue but there’s noth­ing wrong with look­ing at what the options are in terms of a long-term per­ma­nent tax cut as opposed to a short term if that’s pos­si­ble.”

GOP lead­ers also intend to reject anoth­er Demo­c­ra­t­ic demand: advanc­ing the mea­sure under reg­u­lar leg­isla­tive pro­ce­dures instead of through the planned fast-track path.

Three Democ­rats from states eas­i­ly car­ried by Pres­i­dent Don­ald Trump — Joe Manchin of West Vir­ginia, Joe Don­nel­ly of Indi­ana, and Hei­di Heitkamp of North Dako­ta — did not sign the let­ter. Each of the three is up for re-elec­tion.

In Tues­day floor remarks, Schumer said that tax reform should focus on increas­ing “wages for work­ing fam­i­lies, improv­ing mid­dle class job growth, pro­mot­ing domes­tic invest­ment while mod­ern­iz­ing our out­dat­ed busi­ness and inter­na­tion­al tax sys­tem.”

Added Schumer: “From what we’ve heard from the White House so far, their plan would­n’t do any of that.”

...

———-

“Sen­ate Dems spell out con­di­tions on bipar­ti­san tax reform” by Andrew Tay­lor, Asso­ci­at­ed Press; 08/01/2017

“In a let­ter to Repub­li­can lead­ers, includ­ing Pres­i­dent Don­ald Trump, 45 of the 48 Sen­ate Demo­c­ra­t­ic cau­cus mem­bers said they won’t sup­port any upcom­ing GOP effort to over­haul the tax sys­tem that deliv­ers cuts to the top 1 per­cent or adds to the gov­ern­men­t’s $20 tril­lion debt.”

So will the par­ty of ‘fis­cal­ly con­ser­vatism’ *LOL* accept the offer for bipar­ti­san tax reform that’s deficit neu­tral and focused on the mid­dle-class? Hmm­mm...*dou­ble LOL**dou­ble LOL*...that does­n’t seem very like­ly:

New York Mag­a­zine

For­get ‘Tax Reform.’ Repub­li­cans Will Set­tle for Tax Cuts for the Rich.

By Ed Kil­go­re

August 4, 2017 5:10 pm

To vet­er­ans of the fis­cal wars in Wash­ing­ton, there’s some­thing extreme­ly famil­iar about the dynam­ics of Repub­li­can think­ing when it comes to the “tax reform” bill that has been on the agen­da all year. Tax reform — the idea of tax cuts “paid for” by clos­ing “tax loop­holes” — is quick­ly turn­ing into sim­ple tax cuts. To the extent there is inter­est in “pay­ing for” tax cuts, most GOP law­mak­ers favor domes­tic-spend­ing cuts, and espe­cial­ly the ever-pop­u­lar-among-con­ser­v­a­tives, ever-unpop­u­lar-among-Amer­i­cans enti­tle­ment cuts. If spend­ing cuts cause too much polit­i­cal heat, even­tu­al­ly Repub­li­cans choose unpaid-for tax cuts, even as they hand con­ser­v­a­tive-base vot­ers an IOU for future spend­ing cuts.

...

This cycle has been repeat­ing itself lit­er­al­ly for more than three decades. In 1981, when Ronald Reagan’s bud­get direc­tor, David Stock­man, stum­bled on the leg­isla­tive pack­ag­ing device known as “bud­get rec­on­cil­i­a­tion” and crammed the new administration’s entire agen­da into two bills, he start­ed off hop­ing for a mod­est tax-cut bill with loop­hole-clos­ing reforms off­set­ting some of the low­er rates. His hopes were soon dashed, and he famous­ly con­ced­ed that “the hogs were real­ly feed­ing” when it came time to enact a rev­enue bill. Alarmed by the deficit impli­ca­tions of the tax bill, Stock­man hoped Repub­li­cans would have the courage to pay for the tax cuts with spend­ing reduc­tion. And he was ulti­mate­ly dis­ap­point­ed when the GOP couldn’t sum­mon the polit­i­cal will to seri­ous­ly mess with Social Secu­ri­ty, Medicare, farm sub­si­dies, and oth­er big spend­ing items.

The next big les­son about GOP fis­cal pri­or­i­ties occurred in 1990, when George H. W. Bush imper­iled his polit­i­cal future and moti­vat­ed a whole gen­er­a­tion of con­ser­v­a­tive insur­gents by sign­ing a bud­get deal aimed at reduc­ing unprece­dent­ed bud­get deficits via tax increas­es, vio­lat­ing a famous 1988 cam­paign pledge nev­er to sup­port high­er tax­es. So by the time the next Repub­li­can pres­i­dent, Poppy’s son, took office, tax increas­es were com­plete­ly off the table in terms of deficit-reduc­tion mea­sures. This is why the 2001 and 2003 Bush tax cuts were passed with no pre­tense they would do any­thing oth­er than wors­en the fis­cal sit­u­a­tion.

A par­al­lel lega­cy of the George W. Bush years was that the GOP for­mu­lat­ed a the­o­ry to ratio­nal­ize pur­su­ing tax cuts with­out any off­set­ting them, called “starve the beast.” As Bruce Bartlett explained in 2007:

Instead of being viewed as the height of fis­cal irre­spon­si­bil­i­ty, cut­ting tax­es with­out any cor­re­spond­ing effort to cut spend­ing was now seen as the epit­o­me of con­ser­v­a­tive fis­cal pol­i­cy. Try­ing to cut spend­ing in iso­la­tion was both doomed to fail­ure and coun­ter­pro­duc­tive because focus­ing atten­tion on the deficit was more like­ly to lead to increas­ing tax­es and thus expand­ing the size of gov­ern­ment. The only way off the tread­mill of high­er spend­ing lead­ing to high­er tax­es lead­ing to still more spend­ing was to refuse to play the game. Just cut tax­es, the con­ser­v­a­tive intel­li­gentsia now argued, and con­cern about deficits will be chan­neled into low­er spend­ing.

I once described the polit­i­cal allure of “starve the beast” as offer­ing con­ser­v­a­tives the fis­cal equiv­a­lent of a bot­tom­less crack pipe, giv­ing them the incen­tive to pro­mote tax cuts with­out any respon­si­bil­i­ty to pay for them via rev­enue mea­sures or spend­ing cuts. A sim­i­lar temp­ta­tion could be devel­op­ing today as Repub­li­cans begin with talk of deficit-neu­tral tax reform but could end up with pure tax cuts.

Now it is true that once — exact­ly once — in all the mod­ern his­to­ry of GOP tax-cut­ting mea­sures has there been a gen­uine tax-reform effort aimed at broad­en­ing the tax base by elim­i­nat­ing loop­holes and using the sav­ings to low­er rates. That was the bipar­ti­san tax-reform mir­a­cle of 1986, enact­ed by a Demo­c­ra­t­ic House and a Repub­li­can Sen­ate and signed by Rea­gan. But as my col­league Jonathan Chait has explained, con­ser­v­a­tives spent the sub­se­quent 20 years try­ing with con­sid­er­able suc­cess to undo that mir­a­cle since it raised effec­tive tax rates on the wealthy.

This check­ered his­to­ry is why it is so sig­nif­i­cant that Repub­li­cans man­i­fest­ly intend to enact tax leg­is­la­tion this year not via the bipar­ti­san path of 1986 but via the same bud­get-rec­on­cil­i­a­tion process they relied on in 1981 and in 2001, designed to out­law fil­i­busters and side­line Democ­rats. Indeed, Mitch McConnell made the impli­ca­tions for “tax reform” clear, say­ing “I don’t think this is going to be 1986, when you had a bipar­ti­san effort to scrub the code.”

Instead, Repub­li­cans will use the bud­get process to “set up” a tax bill, which dri­ves the dis­cus­sion in two very impor­tant ways. First, Repub­li­cans will need all but two of their sen­a­tors on board, which makes any loop­hole-clos­ing mea­sures that are con­tro­ver­sial (and most are con­tro­ver­sial) polit­i­cal­ly unfea­si­ble, since loop­hole-defend­ing lob­by­ists need only find three GOP sen­a­tors to shut it all down. And sec­ond, the bud­get process makes it much more fea­si­ble to go for domes­tic-spend­ing cuts — which have a 24/7 con­stituen­cy among con­ser­v­a­tives in both con­gres­sion­al cham­bers — rather than any rev­enue mea­sures to mit­i­gate the dam­age to the nation’s fis­cal health. The appetite for going after enti­tle­ment pro­grams is more intense than ever after the fail­ure to enact a Med­ic­aid per capi­ta cap as part of the GOP health-care bill (a spend­ing cut that nev­er had a thing to do with Oba­macare).

And as we’ve learned again and again, if the polit­i­cal cli­mate is too hot for con­tro­ver­sial spend­ing cuts, then Repub­li­cans can always try once again to “starve the beast” by pass­ing unpaid-for tax cuts and kick­ing the deficit-reduc­tion can on down the road. So don’t let the talk of tax reform — or even pay­ing for tax cuts — fool you. In the end, only the tax cuts mat­ter to the GOP.

———-

“For­get ‘Tax Reform.’ Repub­li­cans Will Set­tle for Tax Cuts for the Rich.” by Ed Kil­go­re; New York Mag­a­zine; 08/04/2017

“And as we’ve learned again and again, if the polit­i­cal cli­mate is too hot for con­tro­ver­sial spend­ing cuts, then Repub­li­cans can always try once again to “starve the beast” by pass­ing unpaid-for tax cuts and kick­ing the deficit-reduc­tion can on down the road. So don’t let the talk of tax reform — or even pay­ing for tax cuts — fool you. In the end, only the tax cuts mat­ter to the GOP.”

Yep, the GOP isn’t gear­ing up for a round of ‘tax reform’. It’s gear­ing up for a round of tax-cuts for the rich and ‘starv­ing the beast’ by first spik­ing the deficit with tax cuts for the rich and then using those spiked deficits to lat­er argue for cut­ting things like enti­tle­ments. Because any­thing that under­mines the abil­i­ty of gov­ern­ment to pro­vide use­ful ser­vices to the rab­ble is seen as fis­cal­ly respon­si­ble in the eyes of the con­tem­po­rary GOP:

...
A par­al­lel lega­cy of the George W. Bush years was that the GOP for­mu­lat­ed a the­o­ry to ratio­nal­ize pur­su­ing tax cuts with­out any off­set­ting them, called “starve the beast.” As Bruce Bartlett explained in 2007:

Instead of being viewed as the height of fis­cal irre­spon­si­bil­i­ty, cut­ting tax­es with­out any cor­re­spond­ing effort to cut spend­ing was now seen as the epit­o­me of con­ser­v­a­tive fis­cal pol­i­cy. Try­ing to cut spend­ing in iso­la­tion was both doomed to fail­ure and coun­ter­pro­duc­tive because focus­ing atten­tion on the deficit was more like­ly to lead to increas­ing tax­es and thus expand­ing the size of gov­ern­ment. The only way off the tread­mill of high­er spend­ing lead­ing to high­er tax­es lead­ing to still more spend­ing was to refuse to play the game. Just cut tax­es, the con­ser­v­a­tive intel­li­gentsia now argued, and con­cern about deficits will be chan­neled into low­er spend­ing.

I once described the polit­i­cal allure of “starve the beast” as offer­ing con­ser­v­a­tives the fis­cal equiv­a­lent of a bot­tom­less crack pipe, giv­ing them the incen­tive to pro­mote tax cuts with­out any respon­si­bil­i­ty to pay for them via rev­enue mea­sures or spend­ing cuts. A sim­i­lar temp­ta­tion could be devel­op­ing today as Repub­li­cans begin with talk of deficit-neu­tral tax reform but could end up with pure tax cuts.
...

So after the his­toric unpop­u­lar­i­ty of ‘Trump­care’ and gut­ting of Med­ic­aid helped sink the GOP’s health care ‘reform’ ambi­tions, it sounds like the next awe­some idea from the GOP is to first ignore the one good idea we’ve heard from Steve Ban­non and instead blow up the deficit to give the Koch broth­ers a tax cut. But it’s not just a plan for tax cut for the rich. It’s also a plan for cre­at­ing the kind of future fis­cal cri­sis that can be used to jus­ti­fy things like gut­ting Med­ic­aid in the future. When Vice Pres­i­dent Mike Pence declares that the GOP’s health care ‘reform’ ambi­tions aren’t “by a long-shot”, it’s one instance when he’s not deceiv­ing the Amer­i­can peo­ple.

One of the more fas­ci­nat­ing aspects of this first year of the Trump admin­is­tra­tion is how the fail­ure to pass any sig­nif­i­cant leg­is­la­tion due to the extreme unpop­u­lar­i­ty of the pro­pos­als — pri­mar­i­ly the three fail­ures to pass Trump­care due to the extreme unpop­u­lar­i­ty of Trump­care’s actu­al details lead­ing to a few mod­er­ate-ish GOP­ers reject­ing the leg­is­la­tion — is lead­ing to grow­ing frus­tra­tion with the GOP over the inabil­i­ty of the par­ty to pass any­thing and those frus­tra­tions are result­ing in some­one like Roy Moore, Alaba­ma’s theo­crat­ic state supreme court jus­tice, win­ning the GOP Sen­ate pri­ma­ry race for the spe­cial elec­tion to fill in Jeff Ses­sion­s’s old seat. And Steve Ban­non and the Mer­cers appear to be total­ly behind stok­ing these sen­ti­ments in the hopes of get­ting more peo­ple elect­ed that won’t hes­i­tate to pass the Trump agenda...an agen­da that’s prov­ing to be iden­ti­cal to the clas­si­cal ‘Estab­lish­ment’ when it comes to the vast major­i­ty of pol­i­cy com­bined with the open white nation­al­ism Trump is known for and much of the base loves. But that same base real­ly does hate the rest of the Estab­lish­men­t’s pro-oli­garch agen­da so the Trump expe­ri­ence for much of the Trump base involves the bit­ter sweet real­iza­tion that Trump isn’t going to actu­al dump the pro-oli­garch Koch broth­ers agen­da for the vast major­i­ty of pol­i­cy. Includ­ing health care pol­i­cy. And now tax pol­i­cy. And the base responds by embrac­ing the extra crazy string of GOP pol­i­tics.

It’s a fas­ci­nat­ing dynam­ic. Despite Trump, the GOP’s ‘anti-Estab­lish­ment’ can­di­date of choice for 2016, win­ning the pres­i­den­cy, the GOP base still clear­ly does not like the health care options it was offered and the tax cuts for the rich look like they’re going to be anoth­er pub­lic rela­tions dis­as­ter. So the base is guar­an­teed to get more pissed at the par­ty going for­ward as the incom­ing tax cut deba­cle unfolds and that dynam­ic is only going to con­tin­ue as the GOP agen­da of dis­man­tling gov­ern­ment pro­grams even GOP vot­ers sup­port and cut­ting tax­es for the rich steadi­ly unfolds head­ing into the mid-term elec­tions of 2018. And in response to those GOP base frus­tra­tions we’re see­ing a GOP vot­er back­lash against not just Sen­ate Major­i­ty Leader Mitch McConnell and House Speak­er Paul Ryan but appar­ent­ly any GOP elect­ed offi­cial who is per­ceived as not be opposed to McConnell and Ryan. The base appears to be seri­ous­ly dis­ap­point­ed and pissed and that’s get­ting chan­neled into vot­ing for peo­ple like Roy Moore in Alaba­ma. And Kel­li Ward in Ari­zona. And a host of yet-to-be deter­mined poten­tial­ly nut jobs in quite for more states in the mid-terms next year. It’s remark­able because the GOP only has 8 Sen­ate seats to defend and those races could become hit with major pri­ma­ry chal­lenges that man­age to unseat the mod­er­ate-ish GOP incum­bents and replace them with open nut jobs who won the pri­ma­ry because pri­ma­ry vot­ers were seek­ing out open nut jobs as part of of their anti-Estab­lish­ment fer­vor. And Steve Ban­non is fan­ning these exact flames.

So it appears that we have the answer the ques­tion of what’s going to hap­pen if the GOP gets all the pow­er it needs to pass leg­is­la­tion and the base dis­cov­er that the GOP’s actu­al pol­i­cy agen­da and moral­ly and intel­lec­tu­al­ly bank­rupt: The base its going to demand an even cra­zier set of GOP­ers who won’t hes­i­tate to pass that intel­lec­tu­al­ly and moral­ly bank­rupt agen­da next time around. It’s like cut­ting off the nose to spite the face in a fit of blind mad­ness. That’s the response we’re get­ting from the GOP base when faced with the mad­ness and betray­al of the GOP offi­cials. And that GOP base back­lash is part of Steve Ban­non’s grand plans.

It’s a grim­ly fas­ci­nat­ing dynam­ic. Grim­ly for the GOP and grim­ly for every­one else because the GOP’s mad­ness appears to be dri­ving the par­ty more insane:

The New York Times

Roy Moore’s Alaba­ma Vic­to­ry Sets Off Talk of a G.O.P. Insur­rec­tion

By ALEXANDER BURNS and JONATHAN MARTIN

SEPT. 27, 2017

BIRMINGHAM, Ala. — Repub­li­cans are con­fronting an insur­rec­tion on the right that is angry enough to imper­il their grip on Con­gress, and senior par­ty strate­gists have con­clud­ed that the con­ser­v­a­tive base now loathes its lead­ers in Wash­ing­ton the same way it detest­ed Pres­i­dent Barack Oba­ma.

The defeat of Sen­a­tor Luther Strange, Repub­li­can of Alaba­ma, in a pri­ma­ry elec­tion on Tues­day night appears to have ush­ered in a sea­son of sav­age nom­i­na­tion fights and activist-led attacks on par­ty lead­ers, espe­cial­ly on Sen­a­tor Mitch McConnell of Ken­tucky, the major­i­ty leader. Despite enjoy­ing the strong back­ing of Pres­i­dent Trump, Mr. Strange lost by a wide mar­gin to Roy Moore, a fire­brand reli­gious activist and for­mer judge, who denounced Mr. Strange as a pup­pet of the Sen­ate leader.

Mr. Strange’s demise, senior par­ty strate­gists and con­ser­v­a­tive activists said Wednes­day, makes it like­li­er that Repub­li­can incum­bents in the House and Sen­ate will face seri­ous pri­ma­ry chal­lenges in 2018, fueled by anger at the party’s appar­ent inep­ti­tude at wield­ing pow­er in Wash­ing­ton. Stephen K. Ban­non, Mr. Trump’s for­mer chief strate­gist and a vehe­ment antag­o­nist of the par­ty estab­lish­ment, said on Tues­day night that he intends to tar­get Repub­li­can sen­a­tors in Mis­sis­sip­pi, Ari­zona and Neva­da for defeat.

And that rebel­lion could spread.

Trent Lott, a for­mer Sen­ate Repub­li­can leader, was blunt: “Every Repub­li­can sen­a­tor had bet­ter get pre­pared for a chal­lenge from the far right.”

If noth­ing else, divi­sive intra­party bat­tles could cost par­ty donors tens of mil­lions of dol­lars and weak­en Repub­li­cans’ posi­tion in a year when Democ­rats were already poised to make gains, at least in the House. They could also reshape the party’s agen­da, dri­ving it fur­ther in the direc­tion of Mr. Trump’s strain of nation­al­ism rather than the more con­ven­tion­al, busi­ness-ori­ent­ed agen­da espoused by Mr. McConnell and Speak­er Paul D. Ryan of Wis­con­sin.

Repub­li­cans increas­ing­ly wor­ry that their base’s con­tempt for Mr. McConnell is more potent than its love for Mr. Trump. Mr. McConnell could be an anchor around incum­bents in the same fash­ion as Rep­re­sen­ta­tive Nan­cy Pelosi, the House Demo­c­ra­t­ic leader, who is rou­tine­ly used to under­mine Demo­c­ra­t­ic can­di­dates. The loud­est applause Mr. Moore received dur­ing an elec­tion-eve ral­ly came when he declared, “Mitch McConnell needs to be replaced.”

In a memo about the Alaba­ma elec­tion that cir­cu­lat­ed among Repub­li­can donors, Steven Law, pres­i­dent of the Sen­ate Lead­er­ship Fund, a “super PAC” close­ly allied with Mr. McConnell, said pri­ma­ry vot­ers were intense­ly angry and inclined to blame Repub­li­cans for dys­func­tion in Wash­ing­ton.

“The Repub­li­can Con­gress has replaced Pres­i­dent Oba­ma as the bogey­man for con­ser­v­a­tive G.O.P. pri­ma­ry vot­ers,” Mr. Law wrote, cau­tion­ing that the pres­i­dent was help­ing to ampli­fy that point of view: “This nar­ra­tive is dri­ven by Trump him­self, and it res­onates with pri­ma­ry vot­ers who believe the Repub­li­can Con­gress ‘isn’t doing enough’ (as we fre­quent­ly heard in focus groups) to advance the president’s agen­da.”

Mr. Law, whose group spent more than $10 mil­lion to prop up Mr. Strange, said in the memo that Repub­li­cans had been dam­aged by “the Oba­macare repeal fias­co,” and said they should expect to fight hard-right pri­ma­ry can­di­dates in Mis­sis­sip­pi and Neva­da, among oth­er states. Mr. Law derid­ed Mr. Ban­non for being focused main­ly on “pro­mot­ing his own brand,” and dis­count­ed him as a major force in Alaba­ma.

The con­vul­sive mood on the right has con­sid­er­ably reshaped the polit­i­cal map for 2018, mak­ing a favor­able list of Sen­ate races some­what less hos­pitable to Repub­li­cans. Two Repub­li­can sen­a­tors, Dean Heller of Neva­da and Jeff Flake of Ari­zona, have seen their poll num­bers col­lapse after clash­ing with Mr. Trump and embrac­ing unpop­u­lar leg­is­la­tion to repeal the Afford­able Care Act.

In Ten­nessee, Sen­a­tor Bob Cork­er, a well-liked law­mak­er from a tra­di­tion­al Repub­li­can mold, on Tues­day became the first Sen­ate Repub­li­can to announce that he would not seek re-elec­tion in 2018. His depar­ture is like­ly to yield a con­tentious Repub­li­can pri­ma­ry, much like the one just con­clud­ed in Alaba­ma.

The Alaba­ma race “is going to inspire a lot of peo­ple,” Mr. Ban­non said in an inter­view in Mont­gomery on Tues­day night.

Mr. Ban­non said he had held dis­cus­sions about the Ten­nessee race with Mark E. Green, a state sen­a­tor who was nom­i­nat­ed to be Mr. Trump’s Army sec­re­tary before after fac­ing scruti­ny for his past state­ments about gay and trans­gen­der peo­ple. Ten­nessee could be the site of the next major pop­ulist-ver­sus-estab­lish­ment con­fla­gra­tion if Gov. Bill Haslam responds to entreaties to enter the race.

Mr. Ban­non also said he aimed to oust Mr. Heller, Mr. Flake and Sen­a­tor Roger Wick­er of Mis­sis­sip­pi. Ed Mar­tin, a for­mer chair­man of the Mis­souri Repub­li­can Par­ty, said Mr. Ban­non had also inquired about the state’s Sen­ate race, in which the Repub­li­can estab­lish­ment has ral­lied around Josh Haw­ley, the state attor­ney gen­er­al, as an oppo­nent for Sen­a­tor Claire McCaskill, a Demo­c­rat.

After leav­ing the White House last month, Mr. Ban­non returned to his perch at Bre­it­bart News, and has been using the hard-right web­site and his close ties to the Mer­cer fam­i­ly, New York-based con­ser­v­a­tive donors, to cre­ate a new, insur­gent pow­er base.

It remains unlike­ly that Repub­li­cans will lose con­trol of the Sen­ate next year, because the play­ing field of races is tilt­ed so strong­ly in their direc­tion. The par­ty is defend­ing just eight seats, most­ly in strong­ly con­ser­v­a­tive states, com­pared with 25 seats held by Democ­rats or inde­pen­dents who cau­cus with them.

Yet the pit­falls Repub­li­cans have encoun­tered so far have cre­at­ed unex­pect­ed oppor­tu­ni­ties for Democ­rats, and the par­ty is assess­ing even long-shot races where there is the pos­si­bil­i­ty of an upset. In Ten­nessee, a solid­ly Repub­li­can state, sev­er­al new Democ­rats are con­sid­er­ing the race for Mr. Corker’s seat: May­or Andy Berke of Chat­tanooga said in a state­ment that he would explore a bid “in the com­ing weeks,” and State Sen­a­tor Jeff Yarbro, a Nashville leg­is­la­tor, is also eye­ing the race. One Demo­c­rat, James Mack­ler, a lawyer and Iraq war vet­er­an, is already run­ning.

And in con­ser­v­a­tive Alaba­ma, both Democ­rats and Repub­li­cans believe Mr. Moore’s nom­i­na­tion may put the seat at risk in a Dec. 12 gen­er­al elec­tion, when he faces Doug Jones, a for­mer fed­er­al pros­e­cu­tor who is the Demo­c­ra­t­ic nom­i­nee.

Mr. Jones is sched­uled to cam­paign with for­mer Vice Pres­i­dent Joseph R. Biden Jr. next week, and said in an inter­view on Tues­day that he would seek sup­port from Repub­li­can and inde­pen­dent vot­ers who may be repelled by Mr. Moore, who was removed from the bench for defy­ing Supreme Court rul­ings and has called in the past for ban­ning homo­sex­u­al­i­ty.

In a sign of Mr. Moore’s vul­ner­a­bil­i­ty, Mr. Law’s memo described him as off-putting to “busi­ness-ori­ent­ed Repub­li­cans,” who “recoil at Moore’s grand­stand­ing.”

It is not only Repub­li­can sen­a­tors who could find them­selves cast out by con­ser­v­a­tive chal­lengers next year. A parade of can­di­dates, align­ing them­selves explic­it­ly with Mr. Trump, is lin­ing up to take on House Repub­li­cans whom they view as insuf­fi­cient­ly loy­al to the pres­i­dent. If enough Repub­li­can law­mak­ers are oust­ed in pri­maries, or forced to spend mil­lions just to secure renom­i­na­tion, it could give Democ­rats a bet­ter chance to pick up the two dozen seats they need to take a major­i­ty.

“I think incum­bents are extreme­ly vul­ner­a­ble,” said Bar­ry Moore, an Alaba­ma state rep­re­sen­ta­tive chal­leng­ing Rep­re­sen­ta­tive Martha Roby, a Repub­li­can who called on Mr. Trump to with­draw from the pres­i­den­tial race late last fall. “The Amer­i­can peo­ple are send­ing a mes­sage that there’s noth­ing get­ting done in D.C., and we’re going to have to replace a lot of those peo­ple.”

A spokesman for Ms. Roby, Todd Sta­cy, not­ed that she and “her House col­leagues have vot­ed to repeal Oba­macare, roll back Oba­ma reg­u­la­tions, repeal Dodd-Frank, fund bor­der wall con­struc­tion, rebuild the mil­i­tary, reform the V.A. and tax reform got rolled out today.”

Still, the alarm is most acute in the Sen­ate. Par­ty strate­gists have seen pri­vate polling in a num­ber of states that shows Mr. McConnell deeply unpop­u­lar with his fel­low Repub­li­cans. In Ari­zona they have found Mr. Flake trail­ing his pri­ma­ry chal­lenger, Kel­li Ward, a for­mer state sen­a­tor, by a sig­nif­i­cant mar­gin.

This month, Sen­a­tor John McCain, Mr. Flake’s Ari­zona col­league, staged some­thing of a gen­tle inter­ven­tion, urg­ing Mr. Flake to move more aggres­sive­ly to repair his stand­ing in the par­ty, accord­ing to two Repub­li­cans briefed on the con­ver­sa­tion.

Mr. Ban­non taunt­ed Mr. Flake on Tues­day night, sug­gest­ing that if the Ari­zona sen­a­tor “doesn’t get a bet­ter poll in the next 30 days, you’re going to see him step down or the estab­lish­ment is going to make him” — a pos­si­bil­i­ty Mr. Flake’s cam­paign spokesman dis­count­ed.

...

In Mis­sis­sip­pi, Mr. Wick­er, a for­mer chair­man of the Nation­al Repub­li­can Sen­a­to­r­i­al Com­mit­tee, has been gear­ing up ear­ly in antic­i­pa­tion of a revolt on the right, hir­ing a vet­er­an cam­paign man­ag­er, Justin Brasell, and brand­ing him­self on social media as a fierce ally of Mr. Trump.

But Chris McDaniel, a Mis­sis­sip­pi state sen­a­tor who near­ly top­pled Mr. Wicker’s col­league, Thad Cochran, in a 2014 pri­ma­ry, said that Mr. Moore’s vic­to­ry made a chal­lenge against Mr. Wick­er “more com­pelling” and that he would decide by the end of Octo­ber. He said he had spo­ken mul­ti­ple times with the Mer­cers in recent months and had received assur­ances of sup­port.

Mr. Wick­er, he charged, had become “Mitch McConnell’s yes-man.”

———-

“Roy Moore’s Alaba­ma Vic­to­ry Sets Off Talk of a G.O.P. Insur­rec­tion” by ALEXANDER BURNS and JONATHAN MARTIN; The New York Times; 09/27/2017

“Mr. Ban­non also said he aimed to oust Mr. Heller, Mr. Flake and Sen­a­tor Roger Wick­er of Mis­sis­sip­pi. Ed Mar­tin, a for­mer chair­man of the Mis­souri Repub­li­can Par­ty, said Mr. Ban­non had also inquired about the state’s Sen­ate race, in which the Repub­li­can estab­lish­ment has ral­lied around Josh Haw­ley, the state attor­ney gen­er­al, as an oppo­nent for Sen­a­tor Claire McCaskill, a Demo­c­rat.”

Ban­non is going to cre­ate a Trumpian rebel­lion inside the GOP in the 2018 and use his Bri­et­bart media empire to run pri­ma­ry chal­lenges against all the “Estab­lish­ment” Repub­li­cans up next year. The GOP goes full Bri­et­bart, which pre­sum­ably means the same old lunatic eco­nom­ic poli­cies as today’s “Estab­lish­ment” GOP but with extra Trumpian white nation­al­ism. Going full-Ban­non could be how the GOP base responds the par­ty’s fail­ures.

And it’s not just in the Sen­ate. The House is going to face a num­ber of Ban­non-style pri­ma­ry chal­lenges:

...
It is not only Repub­li­can sen­a­tors who could find them­selves cast out by con­ser­v­a­tive chal­lengers next year. A parade of can­di­dates, align­ing them­selves explic­it­ly with Mr. Trump, is lin­ing up to take on House Repub­li­cans whom they view as insuf­fi­cient­ly loy­al to the pres­i­dent. If enough Repub­li­can law­mak­ers are oust­ed in pri­maries, or forced to spend mil­lions just to secure renom­i­na­tion, it could give Democ­rats a bet­ter chance to pick up the two dozen seats they need to take a major­i­ty.
...

So we might be on the cusp of a Bannon=led pow­er grab, which pre­sum­ably will be done in coor­di­na­tion with Rober Mer­cer. It’s a big depress­ing devel­op­ment in the GOP’s ongo­ing race to the bot­tom.

Giv­en this emerg­ing dynam­ic, where the unpalat­able nature the GOP’s pol­i­cy tor­pe­do the leg­is­la­tion and leave Trump and the GOP Con­gress with few ‘wins’, it’s prob­a­bly not too soon to start ask­ing how the fail­ure of Trump’s tax ‘reform’ pro­pos­al is going to affect Ban­non’s insur­gency. Will more mod­er­ates be put at risk if there’s a mod­er­ate fac­tion that blocks pas­sage of a night­mare bill? Because it’s look­ing like it’s very pos­si­ble Trump­tax is going to go down in flames. It’s just that bad. No one but the super rich will like it. And the plan pun­ish­es high­er tax states (blue states) dis­pro­por­tion­ate­ly by remov­ing the fed­er­al deduc­tion for state and local (SALT) tax­es. And that’s exact­ly the kind of thing that should lead to a very pissed off GOP base that’s put­ty in Ban­non’s hands:

The New York Times
The Con­science of a Lib­er­al

Shifts Get Real: Under­stand­ing the GOP’s Pol­i­cy Quag­mire

Paul Krug­man
Sep­tem­ber 30, 2017 11:39 am

Right now it looks as if tax “reform” — actu­al­ly it’s just cuts — may go the way of Oba­macare repeal. Ini­tial assess­ments of the plan are bru­tal, and admin­is­tra­tion attempts to spin things in a pos­i­tive direc­tion will suf­fer from loss of cred­i­bil­i­ty on mul­ti­ple fronts, from obvi­ous lies about the plan itself, to spread­ing cor­rup­tion scan­dals, to the spec­ta­cle of the tweet­er-in-chief golf­ing while Puer­to Rico drowns.

Now, it ain’t over until the port­ly golfer sings. But still, it’s worth spend­ing a few min­utes on why a fresh deba­cle seems like­ly.

The impor­tant point is that there are cru­cial links between the health care face­plant and the bad news (for the GOP) on tax­es — links both causal and, you might say, cul­tur­al.

Repub­li­cans took pow­er in Jan­u­ary deter­mined to cut tax­es on the wealthy, bigly. That has, after all, been the GOP establishment’s over­rid­ing pri­or­i­ty for four decades; it’s what donors demand.

But they’re some­what con­strained by con­cerns about deficits. It’s not that they them­selves care about red ink: nobody with influ­ence in the GOP has ever cared about fed­er­al debt, least of all the deficit pea­cocks who preened and posed as apos­tles of fis­cal respon­si­bil­i­ty. But all that pos­tur­ing makes bud­get-bust­ing tax cuts awk­ward. And pro­ce­dur­al issues in the Sen­ate also make it hard to do too much bud­get-bust­ing with­out 60 seats.

One impor­tant goal of ACA repeal was to loosen those con­straints, by repeal­ing the high-end tax hikes that paid for Oba­macare, hence giv­ing a big break to the donor class. Hav­ing failed to do that, Rs are under even more pres­sure to deliv­er the goods to the wealthy through tax cuts.

But deficits are a con­straint, even if not a hard one. Now, Repub­li­cans have always claimed that they can cut tax rates with­out los­ing rev­enue by clos­ing loop­holes. But they’ve always avoid­ed say­ing any­thing about which loop­holes they’d close; they promised to shift the tax bur­den away from their donors onto [TK], some mys­tery group. It was mag­ic aster­isk city; it was “Don’t tax you, don’t tax me, tax that fel­low behind the tree” on steroids.

But as they sidle up toward actu­al leg­is­la­tion, they need to start get­ting spe­cif­ic: the shifts need to get real. So where will the mon­ey come from?

The bright answer in Trump­cuts is, end the deduc­tion for state and local tax­es (SALT). This prob­a­bly sound­ed like a good idea: hey, it will pun­ish blue states, which fool­ish­ly col­lect a lot of tax­es to do things like feed peo­ple and treat their ill­ness­es.

But there are a lot of Repub­li­can vot­ers in blue states, and even a sig­nif­i­cant num­ber of Repub­li­can Con­gress­men. And who are these vot­ers? By and large, afflu­ent but not super-rich house­holds — hence with rel­a­tive­ly high mar­gin­al tax rates — for whom deductibil­i­ty of SALT is a big deal. As the details of the plan sink in, these peo­ple will scream bloody mur­der, and their rep­re­sen­ta­tives will become a big prob­lem for the lead­er­ship.

So what were they think­ing? My guess is that they weren’t think­ing. What we learned from health care was that after 8 years, Repub­li­cans had nev­er both­ered to learn any­thing about the issues. There’s every rea­son to believe that the same is true for the dis­tri­b­u­tion of tax changes, which Paul Ryan called a “ridicu­lous” issue and pre­sum­ably nobody in his par­ty ever tried to under­stand.

So now the lies and will­ful igno­rance are catch­ing up with them — again.

———-

“Shifts Get Real: Under­stand­ing the GOP’s Pol­i­cy Quag­mire” by Paul Krug­man; The New York Times; 09/30/2017

“>But as they sidle up toward actu­al leg­is­la­tion, they need to start get­ting spe­cif­ic: the shifts need to get real. So where will the mon­ey come from?”

That’s the big ques­tion that’s going to derail Trump­tax: where is the mon­ey going to come from to pay for the tax cuts for the rich? From the poor and mid­dle-class, espe­cial­ly in blue states because end the SALT deduc­tions is a prime source for pay­ing for those tax cuts for the rich:

...
The bright answer in Trump­cuts is, end the deduc­tion for state and local tax­es (SALT). This prob­a­bly sound­ed like a good idea: hey, it will pun­ish blue states, which fool­ish­ly col­lect a lot of tax­es to do things like feed peo­ple and treat their ill­ness­es.

But there are a lot of Repub­li­can vot­ers in blue states, and even a sig­nif­i­cant num­ber of Repub­li­can Con­gress­men. And who are these vot­ers? By and large, afflu­ent but not super-rich house­holds — hence with rel­a­tive­ly high mar­gin­al tax rates — for whom deductibil­i­ty of SALT is a big deal. As the details of the plan sink in, these peo­ple will scream bloody mur­der, and their rep­re­sen­ta­tives will become a big prob­lem for the lead­er­ship.
...

So are any Blue state GOP­ers going to stand up to the GOP lead­er­ship and demand an end to the SALT deduc­tion cuts? Yep, 20 House GOP­ers are ask­ing for the SALT deduc­tion to be left alone (which pre­sum­ably means those 20 House blue state GOP­ers are open to a chal­lenge by Ban­non and Mer­cer):

New York Mag­a­zine

A Look at Trump’s Tril­lion-Dol­lar Blue-State Tax Hike

By Ed Kil­go­re

Sep­tem­ber 29, 2017 8:00 am

How bad­ly do Repub­li­cans want to cut busi­ness and top indi­vid­ual tax­es and elim­i­nate estate tax­es? Bad­ly enough that they are will­ing to risk very large bud­get deficits, to be sure. But also bad­ly enough that they are will­ing to pro­pose one “off­set” to tax cuts that adds up to a $1.3 tril­lion tax increase for cer­tain tax­pay­ers, large­ly the kind of upper-mid­dle class folk you would expect to be treat­ed as con­stituents by the GOP. That’s what is at stake in the Trump/GOP pro­pos­al to elim­i­nate the fed­er­al income-tax deduc­tion for state and local tax­es (SALT).

The deduc­tion, which sur­vived the mid-1980s “tax reform” effort and has not been seri­ous­ly threat­ened since then, most­ly helps those who item­ize their tax­es in high-tax, high-income states. It has not for a moment been lost on Repub­li­can politi­cians that these are most­ly “blue states.” The top ten in terms of the val­ue of the deduc­tion as a per­cent­age of adjust­ed gross income, in order, are New York, New Jer­sey, Con­necti­cut, Cal­i­for­nia, Mary­land, Ore­gon, Rhode Island, Mass­a­chu­setts, Min­neso­ta, and (tied) Illinois/Wisconsin. All but Wis­con­sin were car­ried by Hillary Clin­ton in 2016.

So GOP tax strate­gists may sim­ply believe killing the SALT deduc­tion pun­ish­es the right states, and also removes an incen­tive for high­er state and local tax­es. They also some­times argue that the deduc­tion sub­si­dizes wealthy tax­pay­ers in high-tax states at the expense of low­er-income tax­pay­ers in low-tax states.

...

Com­plaints about sub­si­dies for New York and Cal­i­for­nia, more­over, should be bal­anced against the fact that these states (along with New Jer­sey, Mass­a­chu­setts, Con­necti­cut, and Min­neso­ta) are among those most short­changed in the fed­er­al ben­e­fits they and their cit­i­zens draw as com­pared to the fed­er­al tax­es they con­tribute. And for those affect­ed, elim­i­nat­ing the deduc­tion could rep­re­sent a big hit on tax day. The aver­age SALT deduc­tion for Man­hat­tan tax­pay­ers in 2014 was near­ly $25,000.

Twen­ty House Repub­li­cans, all from blue states, signed onto a let­ter to Trea­sury Sec­re­tary Mnuchin ear­li­er this year oppos­ing elim­i­na­tion of the SALT deduc­tion. Pro­po­nents of the change will argue that the least afflu­ent ben­e­fi­cia­ries of the deduc­tion may be shel­tered by the GOP plan to increase the stan­dard deduc­tion, which will reduce the num­ber of item­iz­ers. And the more afflu­ent may ben­e­fit from rate reduc­tion and/or elim­i­na­tion of the Alter­na­tive Min­i­mum Tax.

But all in all, it’s tough to sup­port a tax increase tar­get­ed at one’s own state or local­i­ty, and going to the mats for killing the SALT deduc­tion will cost the GOP not only some bad­ly need­ed House Repub­li­cans, but also any real shot at bipar­ti­san sup­port for the pack­age. Odds are the tax bill will reduce rather than kill the deduc­tion. And that’s only if the whole unwieldy pro­pos­al doesn’t suf­fer the same fate as the GOP’s health-care leg­is­la­tion so far this year.

———-

“A Look at Trump’s Tril­lion-Dol­lar Blue-State Tax Hike” by Ed Kil­go­re; New York Mag­a­zine; 09/29/2017

“Twen­ty House Repub­li­cans, all from blue states, signed onto a let­ter to Trea­sury Sec­re­tary Mnuchin ear­li­er this year oppos­ing elim­i­na­tion of the SALT deduc­tion. Pro­po­nents of the change will argue that the least afflu­ent ben­e­fi­cia­ries of the deduc­tion may be shel­tered by the GOP plan to increase the stan­dard deduc­tion, which will reduce the num­ber of item­iz­ers. And the more afflu­ent may ben­e­fit from rate reduc­tion and/or elim­i­na­tion of the Alter­na­tive Min­i­mum Tax.”

Oh look at that, the blue state GOP­ers aren’t in favor of tax reform that total­ly screws their con­stituents selec­tive­ly. And that means we could end up see­ing a sur­pris­ing amount of resis­tance to Trump­tax because it’s look­ing like the kind of plan only a bil­lion­aire could love. An unpa­tri­ot­ic bil­lion­aire.

So is Steve Ban­non going to launch an assault on all the blue state GOP­ers after they vote against Trump­tax? If so, that’s a pret­ty sneaky. Bannon/Mercer strikes again. It will be inter­est­ing to see who they por­tray as the new Establi­ah­ment once they get done tak­ing over the exist­ing one.

Now that the GOP appears to be in the midst of revolt of the base, as evi­denced by the recent selec­tion of ‘anti-estab­lish­ment’ theo­crat Roy Moore as the GOP Sen­ate nom­i­nee (who pledged to back the Trump agen­da), it’s worth not­ing that Vice Pres­i­dent Mike Pence’s chief of staff issued a rather stun­ning mes­sage to a room full of GOP mega-donors. Mega-donors who are, of course, “the Estab­lish­ment”. The real “Estab­lish­ment” in the truest sense.

So what was that mes­sage? It was a call to purge the GOP of any hold outs who don’t sup­port the Trump pol­i­cy agen­da. And the mega-donors need to play a role in that purge by issu­ing a threat to any way­ward GOP­ers to get behind the Trump/Establishment agen­da on things like Trump­care and tax cuts (direct­ed at the mega-donors), and also get behind the agen­da of chang­ing the Con­gres­sion­al lead­er­ship (some­thing Steve Ban­non has recent­ly stat­ed is a goal), or those GOP­ers should get ready for these mega-donors to cut off all funds and finance a pri­ma­ry chal­lenger. That was the mes­sage from Mike Pence’s chief of staff Nick Ayers.

And yes, if these mega-donors make good on this threat, the pri­ma­ry chal­lengers they back will almost cer­tain­ly be like Roy Moore and brand them­selves as ‘anti-Estab­lish­ment’ while simul­ta­ne­ous­ly pledg­ing to ful­ly back the Trump/Establishment agen­da. Mitch McConnel, Paul Ryan, and the hand­ful of GOP hold­outs Sen­a­tors like Susan Collins and Lisa Murkows­ki will be brand­ed “the Estab­lish­ment” and pri­maried by mega-donor-backed ‘anti-Estab­lish­ment’ peo­ple who ready and will­ing to pass any leg­is­la­tion these mega-donors put before them regard­less of how unpop­u­lar and harm­ful it might actu­al­ly be. That’s the kind of ‘anti-Estab­lish­ment’ wave Nick Ayers appears to have in mind and he report­ed­ly got quite a bit of applause from his mega-donor audi­ence.

But Ayers had an addi­tion­al mes­sage to these donors in the form of a warn­ing: if the GOP con­gress does­n’t pass any of its big sig­na­ture leg­is­la­tion before 2018 the par­ty could get crushed in the mid-terms.

To some extent that’s a rea­son­able warn­ing since a GOP base that gets demor­al­ized from the GOP con­gress not pass­ing any­thing is a real threat to the par­ty. But when you con­sid­er how wild­ly unpop­u­lar the pro-oli­garch agen­da ends up being with the GOP base (Trump­care was wide­ly loathed and Trump­tax­cuts prob­a­bly are look­ing like a dis­as­ter), the real ques­tion for the GOP strate­gists at this point is whether or not it’s more dam­ag­ing for the par­ty’s prospects to fail to pass wild­ly unpop­u­lar leg­is­la­tion and risk demor­al­iz­ing the base or actu­al­ly pass the wild­ly unpop­u­lar leg­is­la­tion and risk enrag­ing almost the entire elec­torate. They already know the pro-oli­garch part of the GOP agen­da can’t even be sold to the GOP base but also know that this very same base is get­ting pissed about the GOP’s repeat­ed high pro­file leg­isla­tive fail­ures. They need to pass an agen­da the base does­n’t hate and that’s prov­ing to be impos­si­ble.

From a polit­i­cal stand­point It’s very unclear what the GOP should do oth­er than drop the pro-oli­garch agen­da. But that’s not an option. So now we have Mike Pence’s chief of staff telling the GOP’s mega-donors that they need to engi­neer a anoth­er GOP puri­ty purge if the par­ty is going to be ‘pure’ enough to drink all of that mega-donor poi­son:

Politi­co

Pence’s chief of staff floats ‘purge’ of anti-Trump Repub­li­cans to wealthy donors

Nick Ayers urges donors to ‘form a coali­tion’ to take on GOP lead­ers and mem­bers who don’t back the pres­i­dent.

By ANDREW RESTUCCIA and MATTHEW NUSSBAUM

10/03/2017 02:23 PM EDT

Vice Pres­i­dent Mike Pence’s chief of staff railed against con­gres­sion­al lead­ers in closed-door remarks to wealthy donors and called for a “purge” if GOP law­mak­ers don’t quick­ly ral­ly behind Pres­i­dent Don­ald Trump’s agen­da.

In remarks at a Repub­li­can Nation­al Com­mit­tee event at the St. Reg­is Hotel in Wash­ing­ton on Tues­day morn­ing, Nick Ayers also warned that Repub­li­cans are “on track to get shel­lacked” in next year’s midterm elec­tions if GOP law­mak­ers don’t pass Trump’s leg­isla­tive pri­or­i­ties.

But Ayers reserved his harsh­est crit­i­cism for con­gres­sion­al lead­ers and mem­bers who have not offered full-throat­ed sup­port for the pres­i­dent.

“Just imag­ine the pos­si­bil­i­ties of what can hap­pen if our entire par­ty uni­fies behind him? If — and this sounds crass — we can purge the hand­ful of peo­ple who con­tin­ue to work to defeat him,” Ayers said, accord­ing to an audio record­ing of the remarks obtained by POLITICO.

One attendee lat­er asked how the donors could “ral­ly the con­gres­sion­al del­e­ga­tion that does sup­port the pres­i­dent and vice pres­i­dent, and ral­ly them and push them to change the cur­rent lead­er­ship in both the Sen­ate and the House.”

“I’m not speak­ing on behalf of the pres­i­dent or vice pres­i­dent when I say this,” Ayers respond­ed. “But if I were you, I would not only stop donat­ing, I would form a coali­tion of all the oth­er major donors, and just say two things. We’re def­i­nite­ly not giv­ing to you, No. 1. And No. 2, if you don’t have this done by Dec. 31, we’re going out, we’re recruit­ing oppo­nents, we’re max­ing out to their cam­paigns, and we’re fund­ing super PACs to defeat all of you.”

He con­tin­ued, “Because, look, if we’re going to be in the minor­i­ty again, we might as well have a minor­i­ty who are with us as opposed to the minor­i­ty who helped us become a minor­i­ty.”

The crowd laughed and burst into applause.

The remarks are some of the most exten­sive to emerge from Ayers, who joined the White House over the sum­mer after ini­tial­ly opt­ing to remain on the out­side. A long­time advis­er to Pence and a top aide on the 2016 cam­paign, he’s wide­ly respect­ed in Repub­li­can cir­cles as a sharp-elbowed and strate­gic oper­a­tive.

The com­ments also offer a stark depar­ture in tone from Pence’s team, with the vice pres­i­dent hav­ing often served the role of sooth­ing ten­sions between the White House and Capi­tol Hill. The remarks reveal both a deep frus­tra­tion with­in the White House with con­gres­sion­al lead­er­ship and a polit­i­cal tac­tic of plac­ing the onus on Con­gress to advance the agen­da on health care, tax reform and oth­er leg­isla­tive pri­or­i­ties that have failed to gain momen­tum.

The approach has echoes of right-wing fire­brand and for­mer White House chief strate­gist Steve Bannon’s pre­ferred meth­ods. Ban­non has repeat­ed­ly railed against con­gres­sion­al lead­ers and accused them of being the main stum­bling block to Trump’s agen­da. And he has tak­en his show on the road, speak­ing out against incum­bent Repub­li­cans.

The White House and the vice president’s office declined to com­ment on Ayers’ remarks. Ayers also declined to com­ment. Speak­er Paul Ryan’s office and Sen. Mitch McConnell’s office did not imme­di­ate­ly respond to requests for com­ment.

Ayers warned that the Repub­li­can Par­ty is on track for a repeat of the mas­sive elec­toral back­lash that came after Pres­i­dent Barack Oba­ma was elect­ed and the GOP took con­trol of Con­gress and state­hous­es across the coun­try.

“Not because any­thing that the pres­i­dent or the vice pres­i­dent has done or hasn’t done, but we’re on track to get shel­lacked next year,” Ayers said. “On a year where we could be total­ly on offense because of how favor­able the Sen­ate map is to us — at best it’s going to be a wash.”

Ayers raised the pos­si­bil­i­ty of “a gigan­tic loss” in 2018 if Repub­li­cans are not able to make tan­gi­ble progress on their leg­isla­tive agen­da. He said pol­i­cy out­comes “will deter­mine about 75 per­cent of whether or not we suc­ceed in the midterms, miss a big oppor­tu­ni­ty in the midterms or get destroyed in the midterms.”

“If we do what we’ve told the Amer­i­can peo­ple for almost a decade we’re going to do on Oba­macare, and if we pass tax cuts, we’re going to have a gov­ern­ing major­i­ty for a very long time,” he said. “If we fail to do those two things, peo­ple who say, ‘Well we can’t lose the Sen­ate, it’s way too favor­able,’ I dis­agree with that. I total­ly dis­agree with that.”

It’s unclear the degree to which Ayers is express­ing true fears about the prospects for 2018 or whether his dire talk was large­ly a fundrais­ing pitch.

Though Repub­li­cans are weight­ed down by their stalled agen­da and Trump’s unpop­u­lar­i­ty, the Sen­ate land­scape is still tilt­ed heav­i­ly in their favor in 2018. The GOP is defend­ing just eight seats vs. 23 Demo­c­ra­t­ic-held seats that are up next year. Democ­rats are try­ing to pro­tect 10 seats rep­re­sent­ing states that Trump car­ried in 2016, includ­ing five that he won by 20 points or more.

Democ­rats have a bet­ter shot at tak­ing the House, where they need to flip 24 seats to win con­trol of the cham­ber.

Ayers on Tues­day morn­ing also expressed pes­simism about the prospect of pass­ing tax reform, the administration’s top leg­isla­tive pri­or­i­ty. He was asked how the GOP is going to get through the treach­er­ous path to expan­sive tax reform.

“The hon­est answer is, I’m not sure we’re on track to do that,” he respond­ed. “I think the White House, I think the pres­i­dent and the vice pres­i­dent have shown extra­or­di­nary lead­er­ship. They’ve been incred­i­bly clear on the frame­work that was agreed upon. … It was frankly much bold­er than the path that we were head­ed down.”

But, Ayers added, “here’s my skep­ti­cism. They had already passed health care bills to repeal and replace Oba­macare in both cham­bers mul­ti­ple times and couldn’t get that done. So, while there is a great frame­work in place, that will con­tin­ue to grow the boom­ing econ­o­my thanks to the president’s poli­cies, I would ask them that ques­tion.”

“Hear those answers from the speak­er and, more impor­tant­ly, from the major­i­ty leader,” Ayers urged.

Ayers was also pressed on why Trump and Pence have been unable to win over the “hand­ful” of Repub­li­cans in Con­gress who have resist­ed the president’s agen­da.

“Great ques­tion,” Ayers quipped. “It’s hard to do when they all main­tain their com­mit­tee chair­man­ships.”

“They’re all still com­mit­tee chair­men,” he added after a pause. “There’s only one oth­er option, and then let’s see if that option works.”

The 2018 midterms, Ayers said, will be a “ref­er­en­dum on the president’s poli­cies.”

“Don’t we want to give all the upside of actu­al­ly pass­ing his poli­cies? Because what all of us know and believe is that they’ll work,” he said. He called it a “sui­cide mis­sion” to enter the midterms with­out hav­ing passed some of the major leg­isla­tive pri­or­i­ties.

Ayers was pressed again on the inabil­i­ty to pass health care reform. He stressed that the prob­lem was “two or three sen­a­tors.”

“I’m not being pas­sive-aggres­sive against Leader McConnell,” Ayers added. “Look, he deliv­ered Judge [Neil] Gor­such. That was trans­for­ma­tion­al what he was will­ing to do; he had a plan and he exe­cut­ed it. We just have to have the same aggres­sion and effort and focus on the rest of the [agen­da].”

...

As the meet­ing came to a close, one female attendee asked whether she under­stood Ayers’ mes­sage cor­rect­ly, say­ing: “Are we all will­ing, in order to get the tax bill passed, to con­tact all the peo­ple we donate mon­ey to — which is a long list — and tell them the mon­ey stops com­ing if they don’t get some­thing done!”

The room burst into applause.

“If there’s one excep­tion to that, that’s the RNC,” Ayers added. “But yes.”

———-

“Pence’s chief of staff floats ‘purge’ of anti-Trump Repub­li­cans to wealthy donors” by ANDREW RESTUCCIA and MATTHEW NUSSBAUM; Politi­co; 10/03/2017

““Just imag­ine the pos­si­bil­i­ties of what can hap­pen if our entire par­ty uni­fies behind him? f — and this sounds crass — we can purge the hand­ful of peo­ple who con­tin­ue to work to defeat him,” Ayers said, accord­ing to an audio record­ing of the remarks obtained by POLITICO.”

And those peo­ple “work­ing to defeat” Trump, accord­ing to the Vice Pres­i­den­t’s chief of staff, include Sen­ate major­i­ty leader Mitch McConnell and House Speak­er Paul Ryan.

...
One attendee lat­er asked how the donors could “ral­ly the con­gres­sion­al del­e­ga­tion that does sup­port the pres­i­dent and vice pres­i­dent, and ral­ly them and push them to change the cur­rent lead­er­ship in both the Sen­ate and the House.”

“I’m not speak­ing on behalf of the pres­i­dent or vice pres­i­dent when I say this,” Ayers respond­ed. “But if I were you, I would not only stop donat­ing, I would form a coali­tion of all the oth­er major donors, and just say two things. We’re def­i­nite­ly not giv­ing to you, No. 1. And No. 2, if you don’t have this done by Dec. 31, we’re going out, we’re recruit­ing oppo­nents, we’re max­ing out to their cam­paigns, and we’re fund­ing super PACs to defeat all of you.”

He con­tin­ued, “Because, look, if we’re going to be in the minor­i­ty again, we might as well have a minor­i­ty who are with us as opposed to the minor­i­ty who helped us become a minor­i­ty.”

The crowd laughed and burst into applause.
...

The crowd of mega-donors laughed and burst into applause at the idea of los­ing con­gress but at least hav­ing the sat­is­fac­tion of installing par­ty lead­ers “who are with us as opposed to the minor­i­ty who helped us become a minor­i­ty.” It’s the kind of applause line that’s rather omi­nous for McConnell and Ryan.

But it’s near­ly as omi­nous as the oth­er applause line, which was most­ly omi­nous for every­one but the bil­lion­aires: the pur­pose of these threats isn’t just to puri­fy the GOP. It’s to get that insane tax cut passed:

...
As the meet­ing came to a close, one female attendee asked whether she under­stood Ayers’ mes­sage cor­rect­ly, say­ing: “Are we all will­ing, in order to get the tax bill passed, to con­tact all the peo­ple we donate mon­ey to — which is a long list — and tell them the mon­ey stops com­ing if they don’t get some­thing done!”

The room burst into applause.
...

“The room burst into applause.” Pre­sum­ably accom­pa­nied by laugh­ter. And it’s that report­ed­ly enthu­si­as­tic response from this mega-donor audi­ence, i.e. the Estab­lish­ment, that makes it sound like this puri­ty purge could become a real thing. At least it’s a real threat.And that means we might be about to see Mitch McConnell and Paul Ryan get turned into sac­ri­fi­cial lambs in some sort of puri­ty purge rit­u­al that’s guar­an­teed to make the par­ty even cra­zier.

Which rais­es a fas­ci­nat­ing ques­tion about the GOP’s puri­ty purge dynam­ic: can a par­ty that’s con­stant­ly get­ting cra­zier with each round of puri­ty purg­ing ever tru­ly com­plete its puri­ty purge cycle? A cycle of fail­ure to pass its extrem­ist agen­da that ends up dri­ving the par­ty even more extreme. Can that cycle ever real­ly end?

Look at today’s sit­u­a­tion: there might be some GOP­ers in the House and Sen­ate who have been loy­al votes for the Trump/GOP agen­da, but just bare­ly because it’s so insane. What’s going to hap­pen if this lat­est round of GOP puri­ty purg­ing becomes a real­i­ty and the par­ty gets even more extreme (it’s pos­si­ble) after ther 2018 mid-terms, yet still some­how bare­ly hangs on to the House and Sen­ate, and comes up with even cra­zier, less polit­i­cal­ly palat­able ver­sions of Trump­care and Trump­tax next year? Will there be new hold­outs that save the GOP from itself by once again sink­ing the Trump/Establishment agen­da? And will there be new sub­se­quent calls for puri­ty purges?

Don’t for­get, today’s ‘mod­er­ate’ GOP­er would have been con­sid­ered a mem­ber of the nut job wing a gen­er­a­tion ago. The puri­ty purge cycle is the his­tor­i­cal real­i­ty of the last gen­er­a­tion of the Repub­li­can Par­ty. It’s what’s been hap­pen­ing for decades. The puri­ty purge cycle of doom and despair isn’t just a the­o­ret­i­cal self-inflict­ed trap. It’s an ongo­ing open ques­tion. An ongo­ing open ques­tion that just became a lot more poignant after those mul­ti­ple rounds of mega-donor applause at the idea of anoth­er GOP pro-oli­garch puri­ty purge.

The GOP’s bud­get-bust­ing tax cuts for the rich just took anoth­er step clos­er to becom­ing a real­i­ty: The Sen­ate just man­aged to pass a bud­get plan designed to facil­i­tate the GOP’s bud­get-bust­ing tax cut pro­pos­al by basi­cal­ly pledg­ing to enact mas­sive spend­ing cuts in the future in order (par­tial­ly) off­set the mas­sive tax cuts. Spend­ing cuts that include $1 tril­lion from Medicare and $470 bil­lion from Med­ic­aid over the next decade. And this is being done so the GOP can pass its cuts through the Sen­ate with just 51 votes instead of 60. So it’s look­ing like the tax cut plan real­ly could become real­i­ty, giv­ing the GOP its lone big leg­isla­tive ‘win’. An unam­bigu­ous­ly mas­sive win for the GOP donor class, but the kind of win that’s prob­a­bly going to be being incred­i­bly unpop­u­lar with the broad­er pub­lic once they real­ize that it’s basi­cal­ly only ben­e­fit­ing the the super-wealthy and it comes at the cost of slash­ing enti­tle­ments.

So while Trump and the GOP­ers in Con­gress might feel com­pelled to pass these tax cuts no mat­ter what the cost just so they can declare at least one ‘win’ dur­ing their upcom­ing elec­tions, they must also be at least some­what aware of the poten­tial dan­gers. They real­ly are in a damned-if-you-do-damned-if-you-don’t sit­u­a­tion of their own mak­ing and it’s pret­ty obvi­ous.

But one of the more inter­est­ing ques­tions relat­ed to all this is whether or not Pres­i­dent Trump is aware of the dan­gers that this tax cut pro­pos­al presents exclu­sive­ly to him. As the fol­low­ing arti­cle by for­mer George W. Bush speech­writer Matt Latimer reminds us, the GOP estab­lish­ment, in par­tic­u­lar the Koch net­work of wealth donors, does­n’t actu­al­ly like Trump. Yes, they like hav­ing a Repub­li­can in the White House, but they’d much pre­fer have some­one like House Speak­er Paul Ryan or Vice Pres­i­dent Mike Pence. So once Trump signs this mas­sive tax cut into law his per­ceived use­ful­ness to the GOP estab­lish­ment and donor class could sud­den­ly evap­o­rate along with their will­ing­ness to put up with this giant train­wreck in the face of one self-inflict­ed scan­dal and con­tro­ver­sy after anoth­er. And that giant train­wreck in the face of one self-inflict­ed scan­dal and con­tro­ver­sy after anoth­er presents a great oppor­tu­ni­ty to get rid of Trump an replace him with a more docile and favored pup­pet like Mike Pence.

Once those tax cuts become real­i­ty, Trump is basi­cal­ly ‘spent’. There will be no more giant good­ies for the donor class to hold out for but the guar­an­tee of end­less Trumpian headaches. And it’s not like there’s a short­age of poten­tial rea­sons to have Trump removed from office. Even if the ongo­ing Mueller inves­ti­ga­tion ends with­out deliv­er­ing a fatal blow the Team Trump there’s still the grow­ing con­cerns about his men­tal fit­ness and that’s the kind of strat­e­gy for remov­ing Trump that could be trig­gered at basi­cal­ly any point as long as the GOP estab­lish­ment gets behind.

Giv­en all this, you have to won­der if Trump even real­izes that his first big leg­isla­tive ‘win’ might be his last:

Politi­co
Mag­a­zine

Why Trump Will Regret Pass­ing Tax Reform
What else is keep­ing the GOP estab­lish­ment in line behind him?

By MATT LATIMER
Octo­ber 18, 2017

Meet­ing with his Cab­i­net on Mon­day, the pres­i­dent of the Unit­ed States, ever a believ­er in the axiom “over­promise and under­de­liv­er,” vowed to sign “the largest tax cut in the his­to­ry of our coun­try.” Just as they told the pres­i­dent that Oba­macare repeal was a bril­liant, slam-dunk first move for his admin­is­tra­tion, so too his advis­ers are telling him that tax reform is anoth­er no-brain­er. A polit­i­cal mas­ter­stroke.

They are wrong about that. At least, when it comes to Trump.

Since Con­gress appears unable or unwill­ing to move on almost any­thing, any tax cut bill—let alone the biggest and best in the his­to­ry of the world, as the pres­i­dent envisions—will have to over­come seri­ous chal­lenges. But the real prob­lem for Trump is not anoth­er leg­isla­tive fail­ure, but a vic­to­ry. To para­phrase the immor­tal words of Admi­ral Ack­bar, the tax cut bill is a trap. If Trump actu­al­ly does sign it into law, he might as well be sign­ing his polit­i­cal death war­rant.

I say this not because tax cuts are a bad idea, or unpop­u­lar. Nor because tax relief will be invari­ably char­ac­ter­ized, as it always is by lib­er­als, as a give­away to the rich. The rea­son the tax cut bill is a dan­ger to Trump is that it’s the one last thing keep­ing the bulk of his own par­ty in line behind him.

One of the most curi­ous sto­ry­lines in Sea­son One of The Pres­i­dent Trump Show is that so many Wash­ing­ton Repub­li­cans, inside and out­side Con­gress, are still on board, pub­licly at least, with a pres­i­dent they clear­ly den­i­grate and despise. His own sec­re­tary of state may or may not have called his boss a moron. A respect­ed Repub­li­can sen­a­tor pub­licly ques­tioned Trump’s com­pe­tence and sta­bil­i­ty and said he was mov­ing Amer­i­ca to the brink of World War III. A spe­cial coun­sel is aggres­sive­ly pur­su­ing alle­ga­tions of cor­rup­tion and col­lu­sion that could go all the way to the Oval Office. Trump’s poll rat­ings are, to bor­row a word, sad. He has repeat­ed­ly insult­ed the Repub­li­can Sen­ate leader and his col­leagues.

Faced with all that, espe­cial­ly after Char­lottesville and Puer­to Rico and end­less Twit­ter feuds and casu­al false­hoods, you might think any num­ber of GOP­ers, who noto­ri­ous­ly place a pri­or­i­ty on their own rep­u­ta­tions and careers, would have jumped ship by now—even call­ing the pres­i­dent unfit to serve in office. Many of them assured­ly think that, but none of them has gone as far as to say so pub­licly. Not yet.

There’s a good rea­son for this—and it’s not that they are gut­less won­ders, though some undoubt­ed­ly are. Trump still has one cru­cial final task before he can be thrown to the wolves: He must sign a tax reform bill. After that, the wolves can have their quar­ry.

...

I’m not an oppo­nent of tax cuts, and I tend to believe that tax relief can help any num­ber of Amer­i­cans. But it’s not lost on any­one that among the ben­e­fi­cia­ries are large cor­po­ra­tions and wealthy Americans—many of whom have hired expen­sive lob­by­ists to get this bill passed. Once signed into law, the Repub­li­can tax cut plan will give bil­lions of dol­lars back to near­ly every mem­ber and sup­port­er of the GOP estab­lish­ment. To D.C. Repub­li­cans, that’s well worth endur­ing a crazy tweet every now and again, or mouthing sup­port for a wall that will nev­er be built, or nod­ding agree­ment about a trade war that will nev­er come to pass, or even stand­ing wit­ness to scary games of one-upman­ship with crazy dic­ta­tors. That’s why every cor­po­rate spe­cial inter­est in Wash­ing­ton, every lob­by­ist and near­ly every con­sul­tant is hold­ing their fire, and their breath, in the era of Trump. They want to get their piece of the tax cut pie, and get­ting in fights with the pres­i­dent would only be a harm­ful dis­trac­tion.

But once Trump signs that bill, he faces his great­est dan­ger: Repub­li­cans will final­ly have an achieve­ment to run on as they seek reelec­tion in 2018. Their donors and sup­port­ers will have a prize that elud­ed them through eight years of Oba­ma, who reversed the Bush-era tax cuts and made them feel like Scrooges who wrecked the glob­al econ­o­my. Sim­ply put, they won’t need the pres­i­dent any­more. After that, the inves­tiga­tive team assem­bled by spe­cial coun­sel Robert Mueller can do its worst. Mueller would actu­al­ly be doing GOP lead­ers a favor.

With a tax bill behind them, the big­ger the bet­ter, you will see more Repub­li­can mem­bers of Con­gress pub­licly denounc­ing the pres­i­dent, and show­ing far less patience for time-con­sum­ing fights with a celebri­ty sports fig­ure who rubs Trump the wrong way or attacks on the president’s dis­fa­vored Repub­li­can of the moment. You won’t see lead­ers watch­ing qui­et­ly as Trump encour­ages divi­sive pri­ma­ry chal­lenges against incum­bents. What you will like­ly see is real move­ment toward a well-fund­ed alter­na­tive in 2020, should the pres­i­dent even make it that far. And if Mueller does show any evi­dence of malfea­sance on the part of Trump or his team, don’t look for a crowd of Repub­li­cans to jump to the president’s defense. Iron­i­cal­ly, in an admin­is­tra­tion filled with ironies, the president’s first chance at enact­ing a piece of major leg­is­la­tion might also be his last.

———-

“Why Trump Will Regret Pass­ing Tax Reform” by MATT LATIMER; Politi­co Mag­a­zine; 10/18/2017

“Iron­i­cal­ly, in an admin­is­tra­tion filled with ironies, the president’s first chance at enact­ing a piece of major leg­is­la­tion might also be his last”

Yep, once they get their tax cuts it’s entire­ly pos­si­ble the GOP donor class (the real “Estab­lish­ment”) will con­clude that Trump sim­ply isn’t worth the has­sle. And if that’s the case, the fate of the Trump admin­is­tra­tion real­ly could hinge on what the Mueller inves­ti­ga­tion ulti­mate­ly con­cludes:

...
But once Trump signs that bill, he faces his great­est dan­ger: Repub­li­cans will final­ly have an achieve­ment to run on as they seek reelec­tion in 2018. Their donors and sup­port­ers will have a prize that elud­ed them through eight years of Oba­ma, who reversed the Bush-era tax cuts and made them feel like Scrooges who wrecked the glob­al econ­o­my. Sim­ply put, they won’t need the pres­i­dent any­more. After that, the inves­tiga­tive team assem­bled by spe­cial coun­sel Robert Mueller can do its worst. Mueller would actu­al­ly be doing GOP lead­ers a favor.
...

And don’t for­get that Mueller team won’t nec­es­sar­i­ly need to find proof of Russ­ian col­lu­sion in order to put Trump in the kind of sit­u­a­tion where he might he forced out of office. They just need to find some­thing scan­dalous. It could be any­thing that makes Trump black­mail-able to a for­eign inter­est. Mon­ey-laun­der­ing. Maybe the ‘pee tapes’ or some oth­er com­pro­mis­ing mate­r­i­al in the ‘Steele Dossier’ can be proven to actu­al­ly exist? If so, that alone could be enough to impeach Trump with or with­out evi­dence of col­lu­sion.

But there’s almost no chance Trump will actu­al­ly be impeached no mat­ter what the Mueller inves­ti­ga­tion con­cludes and no mat­ter how crazy he acts as long as the GOP donor class con­cludes that hav­ing Trump in office makes tax cuts more like­ly to hap­pen than hav­ing him removed and try­ing to pass them with Pres­i­dent Pence or Ryan.

So with all that in mind, it’s worth not­ing that the New York­er just pub­lished a mas­sive new piece on the polit­i­cal rise of Vice Pres­i­dent Mike Pence. It coves his fam­i­ly back­ground, pre-polit­i­cal career as a right-wing radio host, and his time in pol­i­tics. And there are a few clear threads through­out the piece:

1. Mike Pence real­ly does appear to be gen­uine reli­gious zealot, and a gen­uine­ly dan­ger­ous one at that, in part because he’s a typ­i­cal hyp­o­crit­i­cal reli­gious zealot who appears to ignore all the parts in the Bible about being nice and embraces all the hor­ri­ble parts.

2. Mike Pence REALLY hates gay peo­ple. Intense­ly. Even Trump report­ed­ly cracked jokes about how Pence wants to hang all the gays.

3. Pence REALLY wants to be pres­i­dent, and has held that ambi­tion since child­hood.

4. The Koch broth­ers LOVE Pence. They love him so much that he was basi­cal­ly their pre­ferred can­di­date to run for pres­i­dent in 2016. But that could­n’t hap­pen after Pence’s dis­as­trous term as Indi­ana gov­ern­ment that left him so polit­i­cal­ly weak­ened that it was­n’t even clear if he was going to get reelect­ed.

So with Trump and the GOP poised to get their big tax cut ‘win’, a win that threat­ens to make Trump effec­tive expend­able and sud­den­ly very impeach­able, it’s worth keep­ing in mind that the vice pres­i­dent is a guy who has want­ed to be pres­i­dent his entire life and the guy the Koch broth­ers want to be pres­i­dent too:

The New York­er

The Dan­ger of Pres­i­dent Pence
Trump’s crit­ics yearn for his exit. But Mike Pence, the cor­po­rate right’s inside man, pos­es his own risks.

By Jane May­er
Octo­ber 23, 2017 Issue

On Sep­tem­ber 14th, the right-wing pun­dit Ann Coul­ter, who last year pub­lished a book titled “In Trump We Trust,” expressed what a grow­ing num­ber of Amer­i­cans, includ­ing con­ser­v­a­tives, have been feel­ing since the 2016 elec­tion. The pre­vi­ous day, Pres­i­dent Trump had dined with Demo­c­ra­t­ic lead­ers at the White House, and had impetu­ous­ly agreed to a major pol­i­cy rever­sal, grant­i­ng pro­vi­sion­al res­i­den­cy to undoc­u­ment­ed immi­grants who came to Amer­i­ca as chil­dren. Repub­li­can leg­is­la­tors were blind­sided. With­in hours, Trump dis­avowed the deal, then reaf­firmed it. Coul­ter tweet­ed, “At this point, who doesn’t want Trump impeached?” She soon added, “If we’re not get­ting a wall, I’d pre­fer Pres­i­dent Pence.”

Trump’s swerve did the unthinkable—uniting Coul­ter and lib­er­al com­men­ta­tors. After Trump threat­ened to “total­ly destroy” North Korea, Gail Collins, the Times colum­nist, praised Vice-Pres­i­dent Mike Pence as some­one who at least “seems less like­ly to get the plan­et blown up.” This sum­mer, an opin­ion col­umn by Dana Mil­bank, of the Wash­ing­ton Post, appeared under the head­line “ ‘Pres­i­dent Pence’ is Sound­ing Bet­ter and Bet­ter.”

Pence, who has duti­ful­ly stood by the Pres­i­dent, mus­ter­ing a devo­tion­al gaze rarely seen since the days of Nan­cy Rea­gan, serves as a dai­ly reminder that the Con­sti­tu­tion offers an alter­na­tive to Trump. The worse the Pres­i­dent looks, the more desir­able his under­study seems. The more Trump is mired in scan­dal, the more like­ly Pence’s ele­va­tion to the Oval Office becomes, unless he ends up legal­ly entan­gled as well.

Pence’s odds of becom­ing Pres­i­dent are long but not pro­hib­i­tive. Of his forty-sev­en pre­de­ces­sors, nine even­tu­al­ly assumed the Pres­i­den­cy, because of a death or a res­ig­na­tion. After Lyn­don John­son decid­ed to join the tick­et with John F. Kennedy, he cal­cu­lat­ed his odds of ascen­sion to be approx­i­mate­ly one in four, and is said to have told Clare Boothe Luce, “I’m a gam­bling man, dar­ling, and this is the only chance I’ve got.”

If the job is a gam­ble for Pence, he him­self is some­thing of a gam­ble for the coun­try. Dur­ing the tumul­tuous 2016 Pres­i­den­tial cam­paign, rel­a­tive­ly lit­tle atten­tion was paid to how Pence was cho­sen, or to his polit­i­cal record. And, with all the infight­ing in the new Admin­is­tra­tion, few have focussed on Pence’s pow­er with­in the White House. Newt Gin­grich told me recent­ly that the three peo­ple with the most pol­i­cy influ­ence in the Admin­is­tra­tion are Trump, Chief of Staff John Kel­ly, and Pence. Gin­grich went on, “Oth­ers have some influ­ence, such as Jared Kush­n­er and Gary Cohn. But look at the sched­ule. Pence has lunch­es with the Pres­i­dent. He’s in the nation­al-secu­ri­ty brief­in­gs.” More­over, and cru­cial­ly, Pence is the only offi­cial in the White House who can’t be fired.

Pence, who declined requests for an inter­view, is also one of the few with whom Trump hasn’t overt­ly feud­ed. “The Pres­i­dent con­sid­ers him one of his best deci­sions,” Tony Fab­rizio, a poll­ster for Trump, told me. Even so, they are almost com­i­cal­ly mis­matched. “You end up with an odd pair of throw­backs from fifties cast­ing,” the for­mer White House strate­gist Stephen Ban­non joked, com­par­ing them to Dean Mar­tin, the bad boy of the Rat Pack, and “the dad on ‘Leave It to Beaver.’ ”

Trump and Pence are mis­aligned polit­i­cal­ly, too. Trump cam­paigned as an unortho­dox out­sider, but Pence is a doc­tri­naire ide­o­logue. Kellyanne Con­way, the White House coun­sel­lor, who became a poll­ster for Pence in 2009, describes him as “a full-spec­trum con­ser­v­a­tive” on social, moral, eco­nom­ic, and defense issues. Pence leans so far to the right that he has occa­sion­al­ly echoed A.C.L.U. argu­ments against gov­ern­ment over­reach; he has, for instance, sup­port­ed a fed­er­al shield law that would pro­tect jour­nal­ists from hav­ing to iden­ti­fy whis­tle-blow­ers. Accord­ing to Ban­non, Pence is “the out­reach guy, the con­nec­tive tis­sue” between the Trump Admin­is­tra­tion and the most con­ser­v­a­tive wing of the Repub­li­can estab­lish­ment. “Trump’s got the pop­ulist nation­al­ists,” Ban­non said. “But Pence is the base. With­out Pence, you don’t win.”

Pence has tak­en care to appear extra­or­di­nar­i­ly loy­al to Trump, so much so that Joel K. Gold­stein, a his­to­ri­an and an expert on Vice-Pres­i­dents who teach­es law at St. Louis Uni­ver­si­ty, refers to him as the “Syco­phant-in-Chief.” But Pence has the polit­i­cal expe­ri­ence, the con­nec­tions, the dis­ci­pline, and the ide­o­log­i­cal moor­ing that Trump lacks. He also has a close rela­tion­ship with the con­ser­v­a­tive bil­lion­aire donors who have cap­tured the Repub­li­can Party’s agen­da in recent years.

Dur­ing the 2016 cam­paign, Trump char­ac­ter­ized the Repub­li­can Party’s big spenders as “high­ly sophis­ti­cat­ed killers” whose dona­tions allowed them to con­trol politi­cians. When he declared his can­di­da­cy, he claimed that, because of his real-estate for­tune, he did not need sup­port from “rich donors,” and he denounced super pacs, their depos­i­to­ries of unlim­it­ed cam­paign con­tri­bu­tions, as “cor­rupt.” Pence’s polit­i­cal career, though, has been spon­sored at almost every turn by the donors whom Trump has assailed. Pence is the inside man of the con­ser­v­a­tive mon­ey machine.

On Elec­tion Night, the dis­so­nance between Trump’s pop­ulist sup­port­ers and Pence’s bil­lion­aire spon­sors was qui­et­ly evi­dent. When Trump gave his accep­tance speech, in the ball­room of the Hilton Hotel in mid­town Man­hat­tan, he vowed to serve “the for­got­ten men and women of our coun­try,” and promised to “rebuild our high­ways, bridges, tun­nels, air­ports, schools, and hos­pi­tals.” Upstairs, in a room reserved for Par­ty élites, sev­er­al of the rich­est and most con­ser­v­a­tive donors, all of whom sup­port dras­tic reduc­tions in gov­ern­ment spend­ing, were cel­e­brat­ing. Doug Dea­son, a Texas busi­ness­man and a polit­i­cal donor, recalled to me, “It was amaz­ing. In the V.I.P. recep­tion area, there was an even more V.I.P. room, and I count­ed at least eight or nine bil­lion­aires.”

Deason’s father, Dar­win, found­ed a data-pro­cess­ing com­pa­ny, Affil­i­at­ed Com­put­er Ser­vices, and in 2010 he sold it to Xerox for $6.4 bil­lion. A.C.S. was noto­ri­ous for out­sourc­ing U.S. office work to cheap­er for­eign-labor mar­kets. Trump cam­paigned against out­sourc­ing, but the Dea­sons became Trump back­ers nonethe­less, donat­ing a mil­lion dol­lars to his cam­paign. Doug Dea­son was enlist­ed, in part, by Pence, whom he had known and sup­port­ed for years. “Mike and I are pret­ty good friends,” Dea­son said, adding, “He’s real­ly the con­tact to the big donors.” Since the elec­tion, Dea­son has attend­ed two din­ners for wealthy back­ers at the Vice-Pres­i­den­tial res­i­dence.

Among the bil­lion­aires who gath­ered in the room at the Hilton, Dea­son recalled, were the financier Wilbur Ross, whom Trump lat­er appoint­ed his Sec­re­tary of Com­merce; the cor­po­rate investor Carl Icahn, who became a top advis­er to Trump but resigned eight months lat­er, when alle­ga­tions of finan­cial impro­pri­ety were pub­lished by The New York­er; Harold Hamm, the founder and chair­man of Con­ti­nen­tal Resources, an Okla­homa-based oil-and-gas com­pa­ny that has made bil­lions of dol­lars through frack­ing; and David Koch, the rich­est res­i­dent of New York City.

Koch’s pres­ence was espe­cial­ly unex­pect­ed. He and his broth­er Charles are lib­er­tar­i­ans who object to most gov­ern­ment spend­ing, includ­ing invest­ments in infra­struc­ture. They co-own vir­tu­al­ly all of Koch Indus­tries, the sec­ond-largest pri­vate com­pa­ny in the Unit­ed States, and have long tapped their com­bined fortune—currently nine­ty bil­lion dollars—to finance can­di­dates, think tanks, pres­sure groups, and polit­i­cal oper­a­tives who sup­port an anti-tax and anti-reg­u­la­to­ry agen­da, which dove­tails with their finan­cial inter­ests.

Dur­ing the cam­paign, Trump said that Repub­li­can rivals who attend­ed secre­tive donor sum­mits spon­sored by the Kochs were “pup­pets.” The Kochs, along with sev­er­al hun­dred allied donors, had amassed near­ly nine hun­dred mil­lion dol­lars to spend on the Pres­i­den­tial elec­tion, but declined to sup­port Trump’s can­di­da­cy. At one point, Charles Koch described the choice between Trump and Hillary Clin­ton as one between “can­cer or heart attack.”

Marc Short, the head of leg­isla­tive affairs in the Trump White House, cred­its Pence for the Kochs’ rap­proche­ment with Trump. “The Kochs were very excit­ed about the Vice-Pres­i­den­tial pick,” Short told me. “There are areas where they dif­fer from the Admin­is­tra­tion, but now there are many areas they’re part­ner­ing with us on.” Sen­a­tor Shel­don White­house, a Demo­c­rat from Rhode Island, who has accused the Kochs of buy­ing undue influ­ence, par­tic­u­lar­ly on envi­ron­men­tal policy—Koch Indus­tries has a long his­to­ry of pollution—is less enthu­si­as­tic about their alliance with Pence. “If Pence were to become Pres­i­dent for any rea­son, the gov­ern­ment would be run by the Koch brothers—period. He’s been their tool for years,” he said. Ban­non is equal­ly alarmed at the prospect of a Pence Pres­i­den­cy. He told me, “I’m con­cerned he’d be a Pres­i­dent that the Kochs would own.”

This sum­mer, I vis­it­ed Pence’s home town of Colum­bus, Indi­ana. Har­ry McCaw­ley, a retired edi­tor at the Repub­lic, the local news­pa­per, told me, “Mike Pence want­ed to be Pres­i­dent prac­ti­cal­ly since he popped out of the womb.” Pence exudes a low-key humil­i­ty, but, McCaw­ley told me, “he’s very ambi­tious, even cal­cu­lat­ing, about the steps he’ll take toward that goal.”

McCaw­ley, who died, of can­cer, in Sep­tem­ber, knew the Pence fam­i­ly well, in part because the Vice-President’s moth­er, Nan­cy Pence Fritsch, wrote a chat­ty col­umn for the news­pa­per for sev­er­al years (“mem­o­ries blos­som with arrival of spring”). Eighty-four and ener­getic, Fritsch met me for cof­fee this sum­mer, along with her eldest son, Gre­go­ry, who is in the antiques busi­ness in the Colum­bus area. Like the Vice-Pres­i­dent, they are good-look­ing, with chis­elled fea­tures, and have an unpre­ten­tious, ami­able man­ner. They ribbed each oth­er as they rem­i­nisced about the years when the Pences’ six chil­dren lived with their par­ents in a series of mod­est hous­es. There was so lit­tle to do in the way of enter­tain­ment, Gre­go­ry Pence recalled, that “we some­times got in the car with our par­ents on Fri­day nights and fol­lowed after the fire truck.” All the boys had nick­names. “My name was Gen­er­al Harass­ment,” Gre­go­ry said. “Michael’s was Bub­bles, because he was chub­by and fun­ny.”

...

Edward, Jr., like his father, was a tough dis­ci­pli­nar­i­an. Gre­go­ry recalled, “If you lied to him, you’d be tak­en upstairs, have a con­ver­sa­tion, and then he’d whack you with a belt.” He expect­ed his chil­dren to stand up when­ev­er an adult entered the room. “He’d grab you if you didn’t,” Gre­go­ry said. At din­ner, the kids were for­bid­den to speak.

While Gre­go­ry was in col­lege, he was sleep­ing late on a vis­it home when his father pulled the cov­ers off him and told him to get up for church. “I said he couldn’t tell me what to do any­more, because he was only pay­ing half my col­lege tuition,” Gre­go­ry said. His father stopped pay­ing his tuition alto­geth­er. “He was black and white,” Gre­go­ry said. “You were nev­er con­fused where you stood. My brother’s a lot like him.”

Colum­bus, which has a pop­u­la­tion of forty-five thou­sand, was dom­i­nat­ed by a major engine man­u­fac­tur­er, Cum­mins, and escaped the eco­nom­ic woes that afflict­ed many oth­er parts of the region. But McCaw­ley, the news­pa­per edi­tor, told me that, while Pence was grow­ing up, Colum­bus, “like many Indi­ana com­mu­ni­ties, still had ves­tiges of the Ku Klux Klan.” The group had ruled the state’s gov­ern­ment in the twen­ties, and then gone under­ground. In Colum­bus, land­lords refused to rent or sell homes to African-Amer­i­cans until Cummins’s own­ers demand­ed that they do so. Gre­go­ry Pence insist­ed that the town “was not racist,” but con­tend­ed that there had been anti-Catholic prej­u­dice. Protes­tant kids had thrown stones at him, he recalled. “We were dis­crim­i­nat­ed against,” Pence’s moth­er added.

The Pence chil­dren attend­ed St. Colum­ba Catholic School through eighth grade. Mike dis­cov­ered a tal­ent for pub­lic speak­ing that made him a favorite with the nuns. In fifth grade, he won a local ora­to­ry con­test, defeat­ing kids sev­er­al years old­er. “When it came his turn, his voice just boomed out over the audi­ence,” his moth­er told the news­pa­per. “He just blew every­body away.” In high school, Pence won third place in a nation­al con­test. When his moth­er recalled Mike as “a good stu­dent,” Gre­go­ry said, “Not a fab­u­lous one. I don’t think he stood out. He was class pres­i­dent, but that wasn’t cool.” Nonethe­less, by senior year, Mike was talk­ing to class­mates about becom­ing Pres­i­dent of the Unit­ed States.

Mike Pence attend­ed Hanover Col­lege, a lib­er­al-arts school in south­east Indi­ana. On a vis­it home, he told his father that he was think­ing of either join­ing the priest­hood or attend­ing law school. His father sug­gest­ed he start with law; he could always join the priest­hood lat­er. Short­ly there­after, to his family’s sur­prise, Pence became an evan­gel­i­cal Chris­t­ian. His moth­er said that “col­lege gave him a dif­fer­ent view­point.” The sto­ry Pence tells is that he was in a fra­ter­ni­ty, and when he admired anoth­er member’s gold cross he was told, “You have to wear it in your heart before you wear it around your neck.” Soon after­ward, Pence has said, he attend­ed a Chris­t­ian music fes­ti­val in Ken­tucky and “gave my life to Jesus.”

His con­ver­sion was part of a larg­er move­ment. In 1979, dur­ing Pence’s junior year in col­lege, Jer­ry Fal­well found­ed the Moral Major­i­ty, to mobi­lize Chris­t­ian vot­ers as a polit­i­cal force. Pence vot­ed for Jim­my Carter in 1980, but he soon joined the march of many Chris­tians toward the Repub­li­can Par­ty. The Moral Majority’s co-founder, Paul Weyrich, a Mid­west­ern Catholic, estab­lished numer­ous insti­tu­tions of the con­ser­v­a­tive move­ment, includ­ing the Her­itage Foun­da­tion and the Repub­li­can Study Com­mit­tee, a cau­cus of far-right con­gres­sion­al mem­bers, which Pence even­tu­al­ly led. Weyrich con­demned homo­sex­u­al­i­ty, fem­i­nism, abor­tion, and gov­ern­ment-imposed racial inte­gra­tion, and he part­nered with some con­tro­ver­sial fig­ures, includ­ing Las­z­lo Pasz­tor, a for­mer mem­ber of a pro-Nazi par­ty in Hun­gary. When Weyrich died, in 2008, Pence praised him as a “friend and men­tor” and a “found­ing father of the mod­ern con­ser­v­a­tive move­ment,” from whom he had “ben­e­fit­ted immea­sur­ably.”

...

In 1987, a year after Pence grad­u­at­ed from law school, LeClerc, his old friend, was asked by a mutu­al acquain­tance, “Guess who’s run­ning for Con­gress?” He drew a blank. Pence’s deci­sion, at the age of twen­ty-nine, to chal­lenge a pop­u­lar incum­bent Demo­c­ra­t­ic con­gress­man sur­prised many peo­ple, includ­ing his father, Edward, who thought that it was sil­ly, giv­en that Mike was a young new­ly­wed with no steady job. But after Mike entered the race Edward became his biggest boost­er, help­ing him raise mon­ey and put up lawn signs. Then, just a few weeks before the Repub­li­can pri­ma­ry, Edward, who was fifty-eight, had a heart attack and died. Mike won the pri­ma­ry, but the Demo­c­ra­t­ic incum­bent, Phil Sharp, was reëlect­ed.

...

Pence took a job at a law firm in Indi­anapo­lis, where he han­dled main­ly small-claims and fam­i­ly cas­es, and start­ed each day by pray­ing with col­leagues. An Indi­ana attor­ney recalled, “He was a big, joc­u­lar, friend­ly guy who would put his arm around you at the local pub. He prob­a­bly weighed a hun­dred pounds more than today.” There was a clear hier­ar­chy in the Indi­anapo­lis legal world, and Pence was far from its top rungs, rely­ing on refer­rals for work. “There were dozens of guys like that,” the lawyer said. “But the great Amer­i­can sto­ry is that a guy like Mike Pence is now Vice-Pres­i­dent.”

Gre­go­ry said of his broth­er, “Law wasn’t real­ly his thing,” adding, “He’s com­plete­ly unmo­ti­vat­ed by mon­ey. I don’t think he would think for one sec­ond about it, if it weren’t for Karen.”

“Ser­vice is his moti­va­tion,” Pence’s moth­er said.

“And, of course, pop­u­lar­i­ty,” his broth­er added. “He had ambi­tions.”

Pence was thrown a life­line in 1991, when he was offered a job as pres­i­dent of the Indi­ana Pol­i­cy Review Foun­da­tion, a tiny new think tank that pro­mot­ed free-mar­ket poli­cies. Pence joked that some peo­ple called the foun­da­tion “an old-folks home for unsuc­cess­ful can­di­dates,” but it gave him a steady pay­check and valu­able expo­sure to the bur­geon­ing uni­verse of busi­ness-fund­ed con­ser­v­a­tive non­prof­it groups. The foun­da­tion was part of the State Pol­i­cy Net­work, a nation­al web of orga­ni­za­tions that had been launched at Ronald Reagan’s sug­ges­tion. It was designed to repli­cate at a more local lev­el the Her­itage Foundation’s suc­cess­ful pro­mo­tion of con­ser­v­a­tive poli­cies. One of the State Pol­i­cy Network’s founders, Thomas Roe, a con­struc­tion mag­nate with strong anti-union views, was said to have told a Her­itage board mem­ber, “You cap­ture the Sovi­et Union—I’m going to cap­ture the states.”

In a 2008 speech, Pence described him­self as “part of what we called the seed corn Her­itage Foun­da­tion was spread­ing around the coun­try in the state think-tank move­ment.” It isn’t ful­ly clear whose mon­ey was behind the Indi­ana Pol­i­cy Review Foun­da­tion, because think tanks, as non­prof­its, don’t have to dis­close their donors. But the ear­ly fun­ders of the Her­itage Foun­da­tion includ­ed some For­tune 500 com­pa­nies, in fields such as oil, chem­i­cals, and tobac­co, that opposed health, safe­ty, and envi­ron­men­tal reg­u­la­tions.

Cecil Bohanon, one of two adjunct schol­ars at Pence’s think tank, had a his­to­ry of finan­cial ties to tobac­co-com­pa­ny front groups, and in 2000 Pence echoed indus­try talk­ing points in an essay that argued, “Smok­ing doesn’t kill. In fact, two out of every three smok­ers doesn’t die from a smok­ing-relat­ed ill­ness.” A greater “scourge” than cig­a­rettes, he argued, was “big gov­ern­ment dis­guised as do-good­er, health­care rhetoric.” Bohanon, who still writes for the think tank’s pub­li­ca­tion, also has ties to the Kochs. Last year, John Hardin, the head of uni­ver­si­ty rela­tions for the Charles Koch Foun­da­tion, told an Indi­ana news­pa­per that the Kochs had been fund­ing Bohanon’s work as a pro­fes­sor of free-mar­ket eco­nom­ics at Ball State Uni­ver­si­ty “for years.”

Even as Pence argued for less gov­ern­ment inter­fer­ence in busi­ness, he pushed for poli­cies that intrud­ed on people’s pri­vate lives. In the ear­ly nineties, he joined the board of the Indi­ana Fam­i­ly Insti­tute, a far-right group that sup­port­ed the crim­i­nal­iza­tion of abor­tion and cam­paigned against equal rights for homo­sex­u­als. And, while Pence ran the Indi­ana Pol­i­cy Review Foun­da­tion, it pub­lished an essay argu­ing that unmar­ried women should be denied access to birth con­trol. “What these peo­ple are real­ly after is con­tra­cep­tives,” Vi Simp­son, the for­mer Demo­c­ra­t­ic minor­i­ty leader of the Indi­ana State Sen­ate, told me. In 2012, after serv­ing twen­ty-eight years in the leg­is­la­ture, she ran for lieu­tenant gov­er­nor on a tick­et with the guber­na­to­r­i­al can­di­date John R. Gregg, who lost the elec­tion to Pence. Simp­son believes that Pence wants to reverse women’s eco­nom­ic and polit­i­cal advances. “He’s on a mis­sion,” she said.

Pence’s true gift was not as a thinker but as a talk­er. In 1992, he became a host on con­ser­v­a­tive talk radio, which had been boom­ing since the F.C.C., in 1987, repealed the Fair­ness Doc­trine and stopped requir­ing broad­cast­ers to pro­vide all sides of con­tro­ver­sial issues. At a time when bom­bas­tic, angry voic­es pro­lif­er­at­ed, Pence was dif­fer­ent. Like Rea­gan, who had become his polit­i­cal hero, he could present even extreme posi­tions in genial, non­threat­en­ing terms. “I’m a con­ser­v­a­tive, but I’m not mad about it,” he liked to say. He wel­comed guests of all polit­i­cal stripes, and called him­self “Rush Lim­baugh on decaf.”

“His radio career gave him great statewide name recog­ni­tion,” Jeff Smulyan, the C.E.O. of Emmis Com­mu­ni­ca­tions, on whose radio sta­tions Pence’s pro­gram aired, said. “He’s lik­able, and a great self-pro­mot­er.” Smulyan, a Demo­c­rat, added, “I’m not sure how he’d fare in a detailed pol­i­cy debate, but Mike knows what Mike believes.” In 1994, Pence was on eigh­teen Emmis sta­tions, five days a week. By then, he’d lost weight and had three chil­dren; he’d also amassed a Rolodex full of con­ser­v­a­tive con­nec­tions and estab­lished a nation­al net­work of wealthy fun­ders. In 2000, when a Repub­li­can con­gress­man in north­ern Indi­ana vacat­ed his seat, Pence ran as the Par­ty favorite, on a plat­form that includ­ed a promise to oppose “any effort to rec­og­nize homo­sex­u­als as a dis­crete and insu­lar minor­i­ty enti­tled to the pro­tec­tion of anti-dis­crim­i­na­tion laws.” He won, by a twelve-point mar­gin.

Once Pence got to Wash­ing­ton, Con­way said, his back­ground “in the think-tank-slash-media axis real­ly equipped him to defend and explain an argu­ment in a full-throat­ed way.” Pence was in demand on the con­ser­v­a­tive speak­ing cir­cuit, and fre­quent­ly appeared on Sun­day talk shows. “He was invit­ed to Her­itage, gun own­ers’ groups, prop­er­ty-rights groups, pro-life groups, and pro-Israel groups,” Con­way recalled. “Peo­ple start­ed to see an authen­tic, affa­ble con­ser­v­a­tive who was not in a bad mood about it.” Michael Lep­pert, a Demo­c­ra­t­ic lob­by­ist in Indi­ana, saw Pence dif­fer­ent­ly. “His pol­i­tics were always way out­side the main­stream,” Lep­pert said. “He just does it with a smile on his face instead of a snarl.”

Pence served twelve years in Con­gress, but nev­er authored a sin­gle suc­cess­ful bill. His sights, accord­ing to Lep­pert, were always “on the nation­al tick­et.” He gained atten­tion by chal­leng­ing his own party’s lead­ers, both in Con­gress and in the George W. Bush Admin­is­tra­tion, from the right. He broke with the vast major­i­ty of his Repub­li­can peers by oppos­ing Bush’s expan­sion of Med­ic­aid cov­er­age for pre­scrip­tion drugs, along with the No Child Left Behind ini­tia­tive and the Trou­bled Asset Relief Pro­gram, the government’s emer­gency bailout of banks. Con­way calls him “a rebel with a cause.” In 2004, the House’s most con­ser­v­a­tive mem­bers elect­ed him to head their cau­cus, the Repub­li­can Study Com­mit­tee. Pence joked that the group was so alien to the Party’s main­stream that run­ning it was like lead­ing a “Star Trek” con­ven­tion. “He was as far right as you could go with­out falling off the earth,” Mike Lof­gren, a for­mer Repub­li­can con­gres­sion­al staff mem­ber, who has become a Trump crit­ic, told me. “But he nev­er real­ly put a foot wrong polit­i­cal­ly. Beneath the Bible-thump­ing earnest­ness was a cal­cu­lat­ing and ambi­tious pol.”

In 2006, Pence bold­ly chal­lenged the House Minor­i­ty Leader at the time, John Boehn­er, a more cen­trist Repub­li­can from Ohio, for his post. Pence got wiped out, but in 2008 Boehner—perhaps try­ing to con­tain Pence’s ambition—asked him to serve as the Repub­li­can Con­fer­ence chair, the Party’s third-high­est-rank­ing post in the House. The chair pre­sides over week­ly meet­ings in which Repub­li­can House mem­bers dis­cuss pol­i­cy and leg­isla­tive goals. Pence used the plat­form to set the Party’s mes­sage on a right­ward course, raise mon­ey, and raise his pro­file.

After Barack Oba­ma was elect­ed Pres­i­dent, Pence became an ear­ly voice of the Tea Par­ty move­ment, which opposed tax­es and gov­ern­ment spend­ing with an angry edge. Pence’s tone grew more mil­i­tant, too. In 2011, he made the evening news by threat­en­ing to shut down the fed­er­al gov­ern­ment unless it defund­ed Planned Par­ent­hood. Some Hoosiers were unnerved to see footage of Pence stand­ing amid row­dy pro­test­ers at a Tea Par­ty ral­ly and yelling, “Shut it down!” His rad­i­cal­ism, how­ev­er, only boost­ed his nation­al pro­file. Pence became best known for fierce­ly oppos­ing abor­tion. He backed “per­son­hood” leg­is­la­tion that would ban it under all cir­cum­stances, includ­ing rape and incest, unless a woman’s life was at stake. He spon­sored an unsuc­cess­ful amend­ment to the Afford­able Care Act that would have made it legal for gov­ern­ment-fund­ed hos­pi­tals to turn away a dying woman who need­ed an abor­tion. (Lat­er, as gov­er­nor of Indi­ana, he signed a bill bar­ring women from abort­ing a phys­i­cal­ly abnor­mal fetus; the bill also required fetal bur­ial or cre­ma­tion, includ­ing after a mis­car­riage. A fed­er­al judge recent­ly found the law uncon­sti­tu­tion­al.)

Pence’s close rela­tion­ship with dozens of con­ser­v­a­tive groups, includ­ing Amer­i­cans for Pros­per­i­ty, the Kochs’ top polit­i­cal orga­ni­za­tion, was cru­cial to his rise. A key link to these groups was pro­vid­ed by Marc Short, the cur­rent White House offi­cial, who in 2008 became Pence’s chief of staff at the Repub­li­can Con­fer­ence. Short had grown up in mon­eyed con­ser­v­a­tive cir­cles in Vir­ginia, where his father had helped finance the growth of the Repub­li­can Par­ty, and he had run a group for con­ser­v­a­tive stu­dents, Young America’s Foun­da­tion, and spent sev­er­al years as a Repub­li­can Sen­ate aide before join­ing Pence’s staff. His wife, as it hap­pened, worked for the Charles Koch Foun­da­tion, and he admired the broth­ers’ anti-gov­ern­ment ide­ol­o­gy. A for­mer White House col­league described Short to me as “a pod per­son” who “real­ly deliv­ered Pence to the Kochs.”

In June, 2009, Short bro­kered Pence’s first invi­ta­tion to address a Koch “sem­i­nar,” as the broth­ers call their secre­tive semi-annu­al fund-rais­ing ses­sions for top con­ser­v­a­tive donors. The theme of the gath­er­ing, in Aspen, Col­orado, was “Under­stand­ing and Address­ing Threats to Amer­i­can Free Enter­prise and Pros­per­i­ty.” Pence’s speech was a hit. Short told me, “I’ve nev­er seen some­one who can take a com­plex sub­ject and dis­till it in a heart­beat like he can.” He’d also nev­er seen “any­one who is as ded­i­cat­ed a pub­lic ser­vant, and lives their faith as Mike does.” Short, who is a devout Chris­t­ian, said, “Peo­ple often pro­fess faith that’s not lived out, but with him it’s lived out each and every day. It guides him. It’s his core.”

The Kochs, who are not reli­gious, may have been focussed more on pock­et­book issues than on Pence’s faith. Accord­ing to Scott Peter­son, the exec­u­tive direc­tor of the Checks & Bal­ances Project, a watch­dog group that mon­i­tors attempts to influ­ence envi­ron­men­tal pol­i­cy, Pence was invit­ed to the Koch sem­i­nar only after he did the broth­ers a major polit­i­cal favor. By the spring of 2009, Koch Indus­tries, like oth­er fos­sil-fuel com­pa­nies, felt threat­ened by grow­ing sup­port in Con­gress for curb­ing car­bon emis­sions, the pri­ma­ry cause of cli­mate change. Amer­i­cans for Pros­per­i­ty devised a ““No Cli­mate Tax” pledge” pledge for can­di­dates to sign, promis­ing not to spend any gov­ern­ment funds on lim­it­ing car­bon pol­lu­tion. At first, the cam­paign lan­guished, attract­ing only four­teen sig­na­tures. The House, mean­while, was mov­ing toward pas­sage of a “cap and trade” bill, which would charge com­pa­nies for car­bon pol­lu­tion. If the bill were enact­ed, the costs could be cat­a­stroph­ic to Koch Indus­tries, which releas­es some twen­ty-four mil­lion tons of car­bon diox­ide into the atmos­phere a year, and owns mil­lions of acres of untapped oil reserves in Cana­da, plus coal-fired pow­er plants and oil refiner­ies.

Pence, who had called glob­al warm­ing “a myth” cre­at­ed by envi­ron­men­tal­ists in their “lat­est Chick­en Lit­tle attempt to raise tax­es,” took up the Kochs’ cause. He not only signed their pledge but urged oth­ers to do so as well. He gave speech­es denounc­ing the cap-and-trade bill—which passed the House but got held up in the Senate—as a “dec­la­ra­tion of war on the Mid­west.” His lan­guage echoed that of the Koch groups. Amer­i­cans for Pros­per­i­ty called the bill “the largest excise tax in his­to­ry,” and Pence called it “the largest tax increase in Amer­i­can his­to­ry.” (Nei­ther state­ment was true.) He used a map cre­at­ed by the Her­itage Foun­da­tion, which the Kochs sup­port­ed, to make his case, and he urged House Repub­li­cans to hold “ener­gy sum­mits” oppos­ing the leg­is­la­tion in their dis­tricts, send­ing them home over the sum­mer recess with kits to bol­ster their pre­sen­ta­tions.

Accord­ing to the Inves­tiga­tive Report­ing Work­shop at Amer­i­can Uni­ver­si­ty, after Pence began pro­mot­ing the Kochs’ pledge the num­ber of sig­na­to­ries in the House soared, reach­ing a hun­dred and fifty-six. James Val­vo, the pol­i­cy direc­tor for Amer­i­cans for Pros­per­i­ty, who spear­head­ed the pledge, told the Report­ing Work­shop that sup­port from Pence and oth­er Repub­li­cans helped “a scrap­py out­lier” become “the estab­lished posi­tion.” The cap-and-trade bill died in the Sen­ate.

Short said that he “didn’t recall the Kochs ever ask­ing for help on the issue,” adding, “The Repub­li­can Con­fer­ence believed it was a win­ning issue because of the impact that the bill would have had on jobs.” In any event, the pledge marked a piv­otal turn in the cli­mate-change debate, cement­ing Repub­li­can oppo­si­tion to address­ing the envi­ron­men­tal cri­sis.

Peter­son said that the Checks & Bal­ances Project hadn’t detect­ed “much mon­ey going from the Kochs to Pence before he pro­mot­ed the ‘No Cli­mate Tax’ pledge.” After­ward, “he was the Kochs’ guy, and they’ve been show­er­ing him with mon­ey ever since.” Peter­son went on, “He could see a path­way to the Pres­i­den­cy with them behind him.”

Indeed, by 2011 Pence had report­ed­ly become Charles Koch’s favorite poten­tial can­di­date for Pres­i­dent in 2012. Andrew Downs, a polit­i­cal sci­en­tist who directs the non­par­ti­san Mike Downs Cen­ter for Indi­ana Pol­i­tics, in Fort Wayne, said, “Peo­ple thought Pence was gear­ing up for a Pres­i­den­tial run.” Downs point­ed out that when Pence was in Con­gress “he prob­a­bly had a shot at becom­ing Speak­er of the House.” Downs con­tin­ued, “Instead, he spoke at a lot of engage­ments with a nation­al focus, and vis­it­ed places like Iowa and New Hamp­shire. Run­ning for Pres­i­dent isn’t an idea that just occurred to Mike Pence when he joined the tick­et in 2016. It goes back a long way.”

But the House of Rep­re­sen­ta­tives is a tough plat­form from which to get elect­ed Pres­i­dent. And so, in 2012, after mulling over his nation­al prospects, Pence ran instead for gov­er­nor of Indi­ana. “The con­ven­tion­al wis­dom is that he ran for gov­er­nor so he could check that box, get some exec­u­tive expe­ri­ence, and then run for Pres­i­dent,” Downs said. Pence won the governor’s race, but with only forty-nine per cent of the vote. “He was scary to the cen­ter,” Bill Oester­le, a co-founder of Angie’s List, an Indi­ana com­pa­ny that col­lates user reviews of local con­trac­tors, said. Oester­le, a Repub­li­can, con­tributed a hun­dred and fifty thou­sand dol­lars to Pence’s cam­paign. David Koch con­tributed two hun­dred thou­sand dol­lars.

Pence’s com­mit­ment to the Kochs was now iron­clad. Short, his for­mer chief of staff, had become a top oper­a­tive for the Kochs, earn­ing upward of a mil­lion dol­lars a year as pres­i­dent of the Free­dom Part­ners Cham­ber of Com­merce, the broth­ers’ Vir­ginia-based mem­ber­ship group for big con­ser­v­a­tive donors. It served as a dark-mon­ey bank, enabling donors to stay anony­mous while dis­trib­ut­ing funds to favored cam­paigns and polit­i­cal orga­ni­za­tions. (Dur­ing the past decade, the group has pooled an esti­mat­ed bil­lion and a half dol­lars in con­tri­bu­tions.) The Kochs’ nation­al polit­i­cal net­work, which had offices in near­ly every state, became the most pow­er­ful and best-financed pri­vate polit­i­cal machine in the coun­try. At least four oth­er for­mer Pence staffers fol­lowed Short’s lead and joined the Koch net­work, includ­ing Emi­ly Sei­del, who joined Free­dom Part­ners, and Matt Lloyd, who became a Koch Indus­tries spokesman. In 2014, a Repub­li­can strate­gist told Politi­co that “the whole Koch oper­a­tion” had become “the shad­ow head­quar­ters of Pence for Pres­i­dent.”

Pence’s tenure as gov­er­nor near­ly destroyed his polit­i­cal career. He had promised Oester­le and oth­er mem­bers of the state’s Repub­li­can busi­ness estab­lish­ment that he would con­tin­ue in the path of his pre­de­ces­sor, Mitch Daniels, a well-liked fis­cal con­ser­v­a­tive who had called for a “truce” on divi­sive social issues. “Pence was very accom­mo­dat­ing,” Oester­le said. But after he was elect­ed he began tak­ing con­tro­ver­sial far-right stands that, crit­ics believed, were geared more toward build­ing his nation­al pro­file than toward serv­ing Indi­ana vot­ers.

...

Polit­i­cal hand­i­cap­pers noticed that Pence was spend­ing a lot of time tak­ing trips to states with impor­tant Pres­i­den­tial pri­maries and min­gling with big out-of-state donors. In the sum­mer of 2014, Pence spoke at an Amer­i­cans for Pros­per­i­ty sum­mit in Dal­las. At the event, he stood by Short’s side and declared him­self “grate­ful to have enjoyed” David Koch’s sup­port. That fall, Pence reached out to Nick Ayers, a young, sharp-elbowed polit­i­cal con­sul­tant, to see if he would help him in a 2016 Pres­i­den­tial run. Noth­ing came of it, but Pence clear­ly had White House ambi­tions.

In the spring of 2015, Pence signed a bill called the Reli­gious Free­dom Restora­tion Act, which he pre­sent­ed as innocu­ous. “He said it pro­tect­ed reli­gious free­dom, and who’s against that?” Oester­le recalled. But then a pho­to­graph of the closed sign­ing ses­sion sur­faced. It showed Pence sur­round­ed by monks and nuns, along with three of the most vir­u­lent­ly anti-gay activists in the state. The image went viral. Indi­ana res­i­dents began exam­in­ing the law more close­ly, and dis­cov­ered that it essen­tial­ly legal­ized dis­crim­i­na­tion against homo­sex­u­als by busi­ness­es in the state.

“The No. 1 chal­lenge we face in Indi­ana is the abil­i­ty to attract and retain tal­ent­ed peo­ple,” Oester­le said. “If the state is seen as big­ot­ed to cer­tain mem­bers of the com­mu­ni­ty, it makes the job mon­u­men­tal­ly hard­er.” The Reli­gious Free­dom Restora­tion Act, Oester­le said, “was not an issue of Pence’s creation”—it had “gur­gled out” of the far-right fringe of the Indi­ana leg­is­la­ture. But, he added, “there was a lack of lead­er­ship.” In his view, Pence should have pre­vent­ed it and oth­er extreme bills from mov­ing for­ward. “You can see it hap­pen­ing in Wash­ing­ton now,” Oester­le said. “He’s not that effec­tive a leader, or admin­is­tra­tor. Extrem­ists grabbed the ini­tia­tive.”

The out­cry over the Reli­gious Free­dom Restora­tion Act was enor­mous. Gay-rights groups con­demned the bill and urged boy­cotts of the state. Pete Buttigieg, the young gay may­or of South Bend, who is a ris­ing fig­ure in the Demo­c­ra­t­ic Par­ty, told me that he tried to talk to Pence about the leg­is­la­tion, which he felt would cause major eco­nom­ic dam­age to Indi­ana. “But he got this look in his eye,” Buttigieg recalled. “He just inhab­its a dif­fer­ent real­i­ty. It’s very dif­fi­cult for him to lay aside the social agen­da. He’s a zealot.”

In an effort to quell crit­i­cism, Pence con­sent­ed, against the advice of his staff, to be inter­viewed by George Stephanopou­los on his Sun­day-morn­ing show on ABC. Stephanopou­los asked him five times if it was now legal in Indi­ana for busi­ness­es to dis­crim­i­nate against homo­sex­u­als, and each time Pence was eva­sive. Pence also side­stepped when Stephanopou­los asked him if he per­son­al­ly sup­port­ed dis­crim­i­na­tion against gays. “What killed him was his unwill­ing­ness to take a clear posi­tion,” Oester­le said. “You saw the con­flict between his ide­ol­o­gy and his ambi­tion. If he’d just said, ‘Look, I think peo­ple should have the right to fire gay peo­ple,’ he would have been labelled a rigid ide­o­logue, but he wouldn’t have been mocked.”

Smulyan, the broad­cast­ing exec­u­tive, began get­ting calls from acquain­tances all over the coun­try, ask­ing what was wrong with Indi­ana. The hash­tag #Boy­cottIn­di­ana appeared on Twitter’s list of trend­ing top­ics, and remained there for days. Alarmed busi­ness exec­u­tives from many of the state’s most promi­nent com­pa­nies, includ­ing Cum­mins, Eli Lil­ly, Sales­force, and Anthem, joined civic lead­ers in express­ing dis­ap­proval. Com­pa­nies began can­celling con­ven­tions, and threat­en­ing to reverse plans to expand in the state. The Indi­ana busi­ness com­mu­ni­ty fore­saw mil­lions of dol­lars in loss­es. When the N.C.A.A., which is based in Indi­anapo­lis, declared its oppo­si­tion to the leg­is­la­tion, the pres­sure became intol­er­a­ble. Even the Repub­li­can estab­lish­ment turned on Pence. A head­line in the Star, pub­lished the Tues­day after the Stephanopou­los inter­view, demand­ed, “fix this now.”

With­in days, the leg­is­la­ture had pushed through a less dis­crim­i­na­to­ry ver­sion of the bill, and Pence signed it, before hasti­ly leav­ing town for the week­end. But he clear­ly had not antic­i­pat­ed the out­rage he’d trig­gered, and then he had tried to save his career at the expense of his pro­fessed prin­ci­ples. Steve Deace, an influ­en­tial con­ser­v­a­tive radio host, told me that Pence’s rever­sal was “almost the worst con­ser­v­a­tive betray­al I’ve wit­nessed in my career.” He added, “He had no chance at nation­al office after that, oth­er than get­ting on the Trump tick­et.” Sim­i­lar­ly, Michael Mau­r­er, the own­er of the Indi­anapo­lis Busi­ness Jour­nal, who is a Repub­li­can but not a hard-line social con­ser­v­a­tive, said, “It just explod­ed in his face. His polls were ter­ri­ble. I bet he’d nev­er get elect­ed again in Indi­ana. But he went from being a like­ly los­er as an incum­bent gov­er­nor to Vice-Pres­i­dent of the Unit­ed States. We’re still reel­ing!”

Pence loy­al­ists rushed in to help. Matt Lloyd, Pence’s for­mer con­gres­sion­al staffer, left his com­mu­ni­ca­tions job with Koch Indus­tries to work with him in Indi­ana. Ayers, the polit­i­cal oper­a­tive whom Pence had con­sult­ed in 2011 about a Pres­i­den­tial run, became an out­side advis­er. The state also signed a sev­en-hun­dred-and-fifty-thou­sand-dol­lar con­tract with a pub­lic-rela­tions firm, Porter Nov­el­li, which pro­posed run­ning ads fea­tur­ing gay and les­bian cou­ples pos­ing in front of Indi­ana land­marks. But Pence’s mis­take could not be air­brushed away. Lawn signs say­ing “Fire Pence!” began appear­ing across the state.

“His tenure in Indi­ana was char­ac­ter­ized by a lot of mis­steps,” Buttigieg said. “He was always decent to me, but over all there was a sense that every few months some­thing got bun­gled. He’s def­i­nite­ly not the mas­ter­mind behind the cur­tain that some peo­ple sus­pect.”

In 2015, Ed Clere, a Repub­li­can state leg­is­la­tor who chaired the House Com­mit­tee on Pub­lic Health, became aware of a spike in the num­ber of H.I.V. cas­es in south­ern Indi­ana. The prob­lem appeared to be caused by the shar­ing of nee­dles among opi­oid abusers in Scott Coun­ty, which sits across the Ohio Riv­er from Louisville, Ken­tucky. In a place like Scott Coun­ty, Clere said, “typ­i­cal­ly you’d have no cas­es, or maybe one a year.” Now they were get­ting up to twen­ty a week. The area was poor, and woe­ful­ly unpre­pared for a health cri­sis. (Pence’s cam­paign against Planned Par­ent­hood had con­tributed to the clo­sure of five clin­ics in the region; none had per­formed abor­tions, but all had offered H.I.V. test­ing.) That same year, the state health com­mis­sion­er called Indiana’s H.I.V. out­break a pub­lic-health emer­gency.

Clere came of age dur­ing the AIDS cri­sis, and had read Randy Shilts’s best-sell­ing account, “And the Band Played On.” He tried to get the leg­is­la­ture to study the pos­si­bil­i­ty of legal­iz­ing a syringe exchange, which he felt “was a mat­ter of life and death,” and could “save lives quick­ly and inex­pen­sive­ly.”

But con­ser­v­a­tives blocked the idea, and Pence threat­ened to veto any such leg­is­la­tion. “With Pence, you need to look at the frame­work, which is absti­nence,” Clere said. “It’s the same as with giv­ing teen-agers con­doms. Con­ser­v­a­tives think it pro­motes the behav­ior, even though it’s a sci­en­tif­i­cal­ly proven harm-reduc­tion strat­e­gy.” In March, 2015, Clere staged a huge pub­lic hear­ing, in which dozens of experts and suf­fer­ers tes­ti­fied about the cri­sis. Caught flat-foot­ed, Pence sched­uled his own event, where he announced that he would pray about the syringe-exchange issue. The next day, he said that he sup­port­ed allow­ing an exchange pro­gram as an emer­gency mea­sure, but only on a tem­po­rary basis and only in Scott Coun­ty, with no state fund­ing. Clere told me that he spent “every last dime of my polit­i­cal cap­i­tal” to get the bill through. After Scott Coun­ty imple­ment­ed the syringe exchange, the num­ber of new H.I.V. cas­es fell. But Repub­li­can lead­ers lat­er stripped Clere of his com­mit­tee chair­man­ship, a high­ly unusu­al event. “I com­mend Rep­re­sen­ta­tive Clere for the efforts to help the state deal with this,” Kevin Burke, the health offi­cer in neigh­bor­ing Clark Coun­ty, told me. “But he paid a price for it.”

Clere remains bit­ter about Pence. “It was all part of his pat­tern of polit­i­cal expe­di­en­cy,” he said. “He was stri­dent­ly against it until it became polit­i­cal­ly expe­di­ent to sup­port it.” Clere, a Chris­t­ian who oppos­es abor­tion, told me that he now finds Pence’s piety hyp­o­crit­i­cal. “He says he’s ‘pro-life,’ ” Clere said. “But peo­ple were dying.” When Clere was asked whom he would rather have as President—Trump or Pence—he replied, “I’d take Trump every day of the week, and twice on Sun­day.”

Pence likes to say of him­self, “I am a Chris­t­ian, a con­ser­v­a­tive, and a Repub­li­can, in that order.” But Clere is not alone in ques­tion­ing Pence’s polit­i­cal puri­ty. After the Novem­ber, 2015, ter­ror­ist attacks in Paris, Pence, like sev­er­al oth­er U.S. gov­er­nors, issued a con­tro­ver­sial exec­u­tive order bar­ring the reset­tle­ment of Syr­i­an refugees in the state. The Arch­dio­cese of Indi­ana had long been deeply involved in reset­tling refugees, includ­ing Syr­i­ans, and was about to wel­come a new Syr­i­an fam­i­ly. In the hope of revers­ing Pence’s ban, Joseph Tobin, the bish­op of Indi­anapo­lis, request­ed a meet­ing.

Tobin, who has since been ele­vat­ed to car­di­nal and become the arch­bish­op of Newark, New Jer­sey, told me that he empha­sized to Pence that the Syr­i­an fam­i­ly was flee­ing vio­lence and ter­ror, and had been vet­ted for near­ly two years while liv­ing in a Jor­dan­ian refugee camp. He also explained that the fam­i­ly had rel­a­tives in the area. Tobin brought along a for­mer refugee who now had a good job at an Indi­ana hotel, as an exam­ple of how suc­cess­ful the reset­tle­ment process was. Tobin is revered in the Catholic com­mu­ni­ty of Indi­ana in which Pence grew up. “I real­ly think he thought it over,” Tobin said. “There was some anguish.” But in the end Pence told him, “I need to pro­tect the peo­ple of the state.”

“I respect that,” Tobin replied. “But this isn’t a threat.” Pence didn’t change his mind. Lat­er that week, the Syr­i­an fam­i­ly was sent to Con­necti­cut. Even­tu­al­ly, fed­er­al courts struck down Pence’s exec­u­tive order as dis­crim­i­na­to­ry. I asked Car­di­nal Tobin if there was a Chris­t­ian argu­ment in sup­port of turn­ing the refugees away. After a pause, he qui­et­ly said, “No.”

Pence has also been crit­i­cized for his treat­ment of Kei­th Coop­er, a for­mer res­i­dent of Elkhart, Indi­ana, who spent nine years in prison for an armed rob­bery that he didn’t com­mit. He was released in 2006, but on the con­di­tion that he admit guilt, which made it impos­si­ble for him to get a decent job. The pros­e­cu­tor and the Indi­ana Parole Board, cit­ing DNA evi­dence and vic­tim recan­ta­tions, urged Gov­er­nor Pence to par­don him imme­di­ate­ly. But Pence dragged out the process for years. “He didn’t do a thing to help me,” Coop­er told me. Pence final­ly left the deci­sion to his suc­ces­sor, Gov­er­nor Eric Hol­comb, who is also a Repub­li­can. Hol­comb grant­ed Coop­er a par­don with­in weeks of tak­ing office. It was the first time in Indi­ana that a par­don was grant­ed on the basis of inno­cence, rather than clemen­cy.

“It was all about Pence’s polit­i­cal career,” Coop­er said. “As a Chris­t­ian, he’s a hyp­ocrite. He wouldn’t see me or speak with me. God doesn’t turn his back on the truth, but Pence just walked away from the truth. I couldn’t move for­ward in life. I was stuck in a dead-end job.” Coop­er, who was oper­at­ing a fork­lift at the time, now cares for his grand­chil­dren. He has become friend­ly with the rob­bery vic­tims who mis­tak­en­ly iden­ti­fied him in a police line­up; they sup­port­ed his bid for a par­don. “I for­give them,” he said. “They stood up for me.” He went on, “I for­give the pros­e­cu­tor. He wrote a let­ter. And the parole board? They saw that jus­tice hap­pened. But I don’t for­give Mike Pence, and nev­er will. He talks all this God stuff, but he’s biased. He hates Mus­lims, he hates gay peo­ple, and he hates minori­ties. He didn’t want to be the first white man in Indi­ana to par­don an inno­cent black man.”

A spokesman for Pence, who declined to be quot­ed, said Pence believed that Coop­er need­ed to go back to court and face a retri­al, instead of seek­ing a par­don.

Pence, see­ing his poll num­bers plum­met, gave up on run­ning for Pres­i­dent, and decid­ed to seek a sec­ond term as gov­er­nor. Vic­to­ry was far from assured. Once again, he faced John Gregg, a folksy Demo­c­ra­t­ic lawyer. In the spring of 2016, polls showed the two in a dead heat.

The nation­al elec­tion, mean­while, was con­found­ing expec­ta­tions. As Trump picked up momen­tum in the Repub­li­can pri­maries, the Koch net­work became unex­pect­ed­ly par­a­lyzed. Marc Short pressed the broth­ers to ded­i­cate their resources to stop­ping Trump and pro­mot­ing his rivals. But exec­u­tives at Koch Indus­tries con­sid­ered the strat­e­gy risky, and the broth­ers stayed out of the Pres­i­den­tial race. Frus­trat­ed, Short quit his job at Free­dom Part­ners and signed on to Mar­co Rubio’s cam­paign.

...

In 2016, the largest donor to Pence’s guber­na­to­r­i­al cam­paign was the Repub­li­can Gov­er­nors Asso­ci­a­tion, and some of its major donors were casi­no com­pa­nies. An L.L.C. con­nect­ed to Cen­taur con­tributed two hun­dred thou­sand dol­lars to the R.G.A. that year. The casi­no oper­a­tor Shel­don Adel­son con­tributed a mil­lion dol­lars. But the sin­gle largest donor to the R.G.A. in 2016 was Koch Indus­tries, which con­tributed more than two mil­lion dol­lars. Near­ly all this cash, and much more, was divid­ed between just two guber­na­to­r­i­al races that year, one of which was Indiana’s. That spring, David Koch also invit­ed Pence to be a fea­tured guest at a fund-rais­er at his Palm Beach man­sion, attend­ed by about sev­en­ty of the Repub­li­can Party’s biggest donors.

Trump hand­i­ly won the Indi­ana pri­ma­ry. Pence, who had tepid­ly endorsed Ted Cruz, switched to Trump. Pence’s his­to­ry with Trump, how­ev­er, was strained. In 2011, Pence had gone to Trump Tow­er in Man­hat­tan, seek­ing a cam­paign dona­tion. Trump brought up some gossip—the wife of Mitch Daniels, the out­go­ing gov­er­nor of Indi­ana, had report­ed­ly left him for anoth­er man, then reunit­ed with her hus­band. Accord­ing to the Times, Trump announced that he’d nev­er take back a wife who had been unfaith­ful. Pence react­ed stiffly, and their con­ver­sa­tion grew awk­ward. Trump gave Pence a small con­tri­bu­tion, but the coarse New York bil­lion­aire and the prim Indi­ana evan­gel­i­cal appeared to be on dif­fer­ent wave­lengths.

Nev­er­the­less, in 2016, polit­i­cal insid­ers in Indi­ana began hear­ing that Pence would wel­come a spot on the Trump tick­et. “There was no doubt he’d say yes,” Tony Samuel, the vice-chair of the Trump cam­paign in the state, who was a lob­by­ist for Cen­taur and oth­er com­pa­nies, told me. Paul Man­afort, who was Trump’s cam­paign chair­man at that point, arranged for Trump to meet Pence, and urged Trump to pick him. Pence was seen as a bridge to Chris­t­ian con­ser­v­a­tives, an asset in the Mid­west, and a con­nec­tion to the pow­er­ful Koch net­work. Kellyanne Con­way, who had done polling work for the Kochs, pushed for Pence, too, as did Stephen Ban­non, although pri­vate e‑mails recent­ly obtained by Buz­zFeed indi­cate that he con­sid­ered the choice a Faus­t­ian bargain—“an unfor­tu­nate neces­si­ty.”

Still, Trump remained wary. Accord­ing to a for­mer cam­paign aide, he was dis­ap­prov­ing when he learned how lit­tle mon­ey Pence had. In 2004, the oil firm that Pence’s father had part­ly owned had filed for bank­rupt­cy. Mike Pence’s shares of the company’s stock, which he had val­ued at up to a quar­ter of a mil­lion dol­lars, became worth­less. In 2016, accord­ing to a cam­paign-finance dis­clo­sure form, Pence had one bank account, which held less than fif­teen thou­sand dol­lars.

...

By July 14th, Trump’s aides had leaked that he was about to pick Pence, who had flown to New York for the announce­ment. But that night, as CNN report­ed, Trump called his aides to see if he could back out of his deci­sion. The next morn­ing, Trump called Christie and said, “They’re telling me I have to pick him. It’s cen­tral cast­ing. He looks like a Vice-Pres­i­dent.” A few hours lat­er, Trump announced Pence as his run­ning mate.

Sev­er­al days lat­er, at the Repub­li­can Nation­al Con­ven­tion, Newt Gin­grich, who had also been passed over for the Vice-Pres­i­den­cy, found him­self back­stage next to Trump while Pence was giv­ing his accep­tance speech. “Isn’t he just per­fect?” Trump asked Gin­grich. “Straight from cen­tral cast­ing.”

The awk­ward­ness between Pence and Trump didn’t entire­ly dis­si­pate. When the “Access Hol­ly­wood” tape sur­faced, reveal­ing Trump’s boast about grab­bing women “by the pussy,” Karen Pence was hor­ri­fied. Accord­ing to a for­mer cam­paign aide, Pence refused to take Trump’s calls and sent him a let­ter say­ing that he and Karen, as Chris­tians, were deeply offend­ed by his actions and need­ed to make an “assess­ment” about whether to remain with the cam­paign. They urged Trump to pray. When Trump and Pence final­ly did talk, Pence told him that his wife still had “huge prob­lems” with his behav­ior. But in pub­lic Pence was for­giv­ing, say­ing, “I am grate­ful that he has expressed remorse and apol­o­gized to the Amer­i­can peo­ple.” (A Pence spokesman has denied that there was any fric­tion over the inci­dent.)

Pence exceed­ed expec­ta­tions in the Vice-Pres­i­den­tial debate, and tra­versed the Mid­west tire­less­ly. “He did an amaz­ing job,” Ban­non said. “Lots of con­ser­v­a­tive groups had ques­tions about Trump. He answered those ques­tions.” The Kochs were delight­ed that one of their favorite politi­cians had joined the tick­et, although, because of Trump’s stance against wealthy donors, Pence and the Kochs agreed to can­cel a speech that he had been sched­uled to give at their donor sum­mit that August. The Kochs con­tin­ued to with­hold finan­cial sup­port from Trump, but Short, the for­mer Koch oper­a­tive, became a top advis­er to Pence on the cam­paign. Some bil­lion­aires in the Kochs’ donor network—such as the hedge-fund man­ag­er Robert Mer­cer, who has also financed Bannon’s ventures—began back­ing Trump.

The Koch net­work gained even fur­ther sway after Trump won the Pres­i­den­cy. Three days after the elec­tion, Trump pushed aside Christie, who had been over­see­ing his tran­si­tion team, and put Pence in charge, with Short as a top deputy. Trump had promised to “drain the swamp” in Wash­ing­ton, but he had no expe­ri­ence gov­ern­ing, and few polit­i­cal con­tacts. He was also super­sti­tious, and dur­ing his cam­paign he had deflect­ed dis­cus­sions about post-elec­tion staffing, fear­ing that it would bring bad luck. Christie’s team had been qui­et­ly gath­er­ing résumés and mak­ing plans for months, but Pence’s team threw out the research, dump­ing thir­ty binders of mate­r­i­al into the trash. “Don­ald Trump ran against the estab­lish­ment, but there was a vac­u­um,” a mem­ber of the ear­li­er tran­si­tion team said. “Move­ment con­ser­v­a­tives jumped in. There was strong think-tank par­tic­i­pa­tion from Her­itage and oth­ers who saw the oppor­tu­ni­ty.”

Trump began to appoint an extra­or­di­nary num­ber of offi­cials with ties to the Kochs and to Pence, espe­cial­ly in posi­tions that affect­ed Koch Indus­tries finan­cial­ly, such as those deal­ing with reg­u­la­to­ry, envi­ron­men­tal, and fis­cal pol­i­cy. Short, who a few months ear­li­er had tried to enlist the Kochs to stop Trump, joined the White House as its direc­tor of leg­isla­tive affairs. Scott Pruitt, the mil­i­tant­ly anti-reg­u­la­to­ry attor­ney gen­er­al of Okla­homa, who had been heav­i­ly sup­port­ed by the Kochs, was appoint­ed direc­tor of the Envi­ron­men­tal Pro­tec­tion Agency. Pruitt, in turn, placed Patrick Tray­lor, a lawyer for Koch Indus­tries and oth­er fos­sil-fuel com­pa­nies, in charge of the E.P.A.’s enforce­ment of key anti-pol­lu­tion laws. As the Times has report­ed, a doc­u­ment called “A Roadmap to Repeal,” writ­ten by Koch oper­a­tives, has guid­ed the E.P.A.’s rever­sal of Oba­ma Admin­is­tra­tion clean-air and cli­mate reg­u­la­tions. Don McGahn, who had done legal work for Free­dom Part­ners, became White House coun­sel. Bet­sy DeVos, a bil­lion­aire heiress, who had been a major mem­ber of the Kochs’ donor net­work and a sup­port­er of Pence, was named Sec­re­tary of Edu­ca­tion. The new direc­tor of the C.I.A. was Mike Pom­peo, the con­gress­man who rep­re­sent­ed Charles Koch’s dis­trict, in Wichi­ta, Kansas; before Pom­peo ran for office, the Kochs had invest­ed in his aero­space busi­ness. Pom­peo, the for­mer tran­si­tion-team mem­ber said, “wasn’t even on Trump’s radar, but he was brought in to meet him and got appoint­ed, like, the next day.” A recent analy­sis by the Checks & Bal­ances Project found that six­teen high-rank­ing offi­cials in the Trump White House had ties to the Kochs. The pat­tern con­tin­ued among low­er-lev­el polit­i­cal appointees, includ­ing in Pence’s office, which was stocked with Koch alum­ni. Pence report­ed­ly con­sult­ed with Charles Koch before hir­ing his speech­writer, Stephen Ford, who pre­vi­ous­ly worked at Free­dom Part­ners.

Sen­a­tor White­house, the Rhode Island Demo­c­rat, believes that the Kochs “will stick one hun­dred of their own peo­ple into the government—and Trump will nev­er notice.” As a result, he said, “the signs of a rap­proche­ment are every­where.” White­house con­tin­ued, “One by one, all the things that Trump cam­paigned on that annoyed the Koch broth­ers are being thrown over­board. And one by one the Koch broth­ers’ pri­or­i­ties are mov­ing up the list.” Trump’s pop­ulist, nation­al­ist agen­da has large­ly been replaced by the agen­da of the cor­po­rate right. Trump has made lit­tle effort at infra­struc­ture reform, and he aban­doned his sup­port for a “bor­der-adjust­ment tax” after the Koch net­work spent months cam­paign­ing against it, and after Pence and Short dis­cussed it pri­vate­ly with Charles Koch at a meet­ing in Col­orado Springs this sum­mer. Bannon’s pro­pos­al to cre­ate a high­er tax brack­et for cit­i­zens earn­ing upward of five mil­lion dol­lars was dropped. The Kochs enthu­si­as­ti­cal­ly sup­port the White House’s pro­posed tax-cut pack­age, which, accord­ing to most non­par­ti­san analy­ses, will dis­pro­por­tion­ate­ly ben­e­fit the super-rich. (The pro­posed elim­i­na­tion of the estate tax alone would give the Koch broth­ers’ heirs a wind­fall of bil­lions of dol­lars.)

Amer­i­cans for Pros­per­i­ty recent­ly announced plans to spend four and a half mil­lion dol­lars on ads that will press three Demo­c­ra­t­ic sen­a­tors in red states to sup­port the tax cuts. On Sep­tem­ber 25th, Trump dined at the White House with Tim Phillips, the head of Amer­i­cans for Pros­per­i­ty, along with Short and a hand­ful of oth­er con­ser­v­a­tive activists. After keep­ing a care­ful dis­tance from one anoth­er dur­ing the cam­paign, Pence and the Kochs reunit­ed open­ly for the first time on Octo­ber 13th, when Pence attend­ed a sum­mit of Koch donors in New York. “They’re aligned on tax reform,” Ban­non said. “The Kochs are a hun­dred per cent with you, so long as it means cut­ting tax­es for the Kochs. Any­thing that will help the mid­dle-class peo­ple? For­get it.”

...

Unlike most Vice-Pres­i­dents, Pence has been giv­en no par­tic­u­lar port­fo­lio of issues or projects. He’s con­tin­ued to serve as the key con­tact for con­ser­v­a­tive groups and cam­paign donors, and he has tried to help Trump con­tend with Con­gress. But Pence was pub­licly humil­i­at­ed in July when John McCain, the Repub­li­can sen­a­tor from Ari­zona, stood on the floor of the Sen­ate, where Pence had been plead­ing for his vote, and gave a thumbs-down, killing Trump’s health-care plan. White House offi­cials had mis­cal­cu­lat­ed, believ­ing that McCain was on their side.

...

Mark Knoller, who has cov­ered the White House for CBS since Ger­ald Ford’s Pres­i­den­cy, said of Pence, “He’s the most pub­licly def­er­en­tial to his Pres­i­dent of any V.P. I can remem­ber.” At Trump’s first full Cab­i­net meet­ing, Pence said, “This is the great­est priv­i­lege of my life, to serve as Vice-Pres­i­dent to a Pres­i­dent who’s keep­ing his word to the Amer­i­can peo­ple.” Pence read­i­ly com­plied when Trump asked him to stage a protest at an N.F.L. game in Indi­anapo­lis on Octo­ber 8th, by leav­ing the sta­di­um when some play­ers refused to stand for the nation­al anthem. (Pence’s trip report­ed­ly cost tax­pay­ers hun­dreds of thou­sands of dol­lars.)

In pri­vate, how­ev­er, Pence has become a back chan­nel for gov­ern­ment fig­ures who are frus­trat­ed by the impul­sive­ness and inat­ten­tion of a Pres­i­dent who won’t read more than a page or two of bul­let points. Erick Erick­son, a con­ser­v­a­tive com­men­ta­tor who admires Pence, told me, “Every­one knows that Mike Pence can get the job done, and the Pres­i­dent can’t, but no one can say it.” Accord­ing to NBC, Sec­re­tary of State Rex Tiller­son recent­ly became so enraged by the President’s incom­pe­tence that he called him “a fuc king moron” in front of oth­ers, and threat­ened to quit. In an effort to calm Tiller­son, and pre­vent yet anoth­er high-lev­el res­ig­na­tion, Pence report­ed­ly “coun­selled” the Sec­re­tary of State on how to man­age Trump, sug­gest­ing that he crit­i­cize him only pri­vate­ly.

“Trump thinks Pence is great,” Ban­non told me. But, accord­ing to a long­time asso­ciate, Trump also likes to “let Pence know who’s boss.” A staff mem­ber from Trump’s cam­paign recalls him mock­ing Pence’s reli­gios­i­ty. He said that, when peo­ple met with Trump after stop­ping by Pence’s office, Trump would ask them, “Did Mike make you pray?” Two sources also recalled Trump needling Pence about his views on abor­tion and homo­sex­u­al­i­ty. Dur­ing a meet­ing with a legal schol­ar, Trump belit­tled Pence’s deter­mi­na­tion to over­turn Roe v. Wade. The legal schol­ar had said that, if the Supreme Court did so, many states would like­ly legal­ize abor­tion on their own. “You see?” Trump asked Pence. “You’ve wast­ed all this time and ener­gy on it, and it’s not going to end abor­tion any­way.” When the con­ver­sa­tion turned to gay rights, Trump motioned toward Pence and joked, “Don’t ask that guy—he wants to hang them all!”

There have been oth­er evan­gel­i­cal Chris­tians in the White House, includ­ing Carter and George W. Bush, but Pence’s fun­da­men­tal­ism exceeds theirs. In 2002, he declared that “edu­ca­tors around Amer­i­ca must teach evo­lu­tion not as fact but as the­o­ry,” along­side such the­o­ries as intel­li­gent design, which argues that life on Earth is too com­plex to have emerged through ran­dom muta­tion. Pence has described intel­li­gent design as the only “remote­ly ratio­nal expla­na­tion for the known uni­verse.” At the White House, Pence has been host­ing a Bible-study group for Cab­i­net offi­cers, led by an evan­gel­i­cal pas­tor named Ralph Drollinger. In 2004, Drollinger, whose orga­ni­za­tion, Capi­tol Min­istries, spe­cial­izes in pros­e­ly­tiz­ing to elect­ed offi­cials, stirred protests from female leg­is­la­tors in Cal­i­for­nia, where he was then preach­ing, after he wrote, “Women with chil­dren at home, who either serve in pub­lic office, or are employed on the out­side, pur­sue a path that con­tra­dicts God’s revealed design for them. It is a sin.” Drollinger describes Catholi­cism as “a false reli­gion,” calls homo­sex­u­al­i­ty “a sin,” and believes that a wife must “sub­mit” to her hus­band. Sev­er­al Trump Cab­i­net offi­cials have report­ed­ly attend­ed the Bible-study group, includ­ing DeVos, Pom­peo, and Attor­ney Gen­er­al Jeff Ses­sions. In a recent inter­view with the Chris­t­ian Broad­cast Net­work, Drollinger said that Pence “has uncom­pro­mis­ing Bib­li­cal tenac­i­ty” and “brings real val­ue to the head of the nation.”

Many Amer­i­cans have debat­ed whether the coun­try would be bet­ter off with Pence as Pres­i­dent. From a pure­ly par­ti­san view­point, Harold Ick­es, a long­time Demo­c­ra­t­ic oper­a­tive, argues that—putting aside the fear that Trump might start a nuclear war—“Democrats should hope Trump stays in office,” because he makes a bet­ter foil, and because Pence might work more effec­tive­ly with Con­gress and be more suc­cess­ful at advanc­ing the far right’s agen­da. Newt Gin­grich pre­dicts that Pence will prob­a­bly get a chance to do so. “I think he’s the most like­ly Repub­li­can nom­i­nee in 2024,” he said. Ron Klain, who was chief of staff to the for­mer Vice-Pres­i­dent Joe Biden, is skep­ti­cal of this, giv­en Trump’s accu­mu­lat­ing bag­gage. “There is no suc­cess for Mike Pence unless Trump works—he can­not run far enough or fast enough to not get hit by the falling tree,” Klain said. “But he may think he can.” Evi­dent­ly, the next chap­ter is on Pence’s mind. Over the fire­place in the Vice-President’s res­i­dence, he has hung a plaque with a pas­sage from the Bible: “ ‘For I know the plans I have for you,’ declares the lord, ‘Plans to pros­per you and not to harm you, plans to give you hope and a future.’ ”

———-

“The Dan­ger of Pres­i­dent Pence” by Jane May­er; The New York­er; 10/23/2017

“Pence has tak­en care to appear extra­or­di­nar­i­ly loy­al to Trump, so much so that Joel K. Gold­stein, a his­to­ri­an and an expert on Vice-Pres­i­dents who teach­es law at St. Louis Uni­ver­si­ty, refers to him as the “Syco­phant-in-Chief.” But Pence has the polit­i­cal expe­ri­ence, the con­nec­tions, the dis­ci­pline, and the ide­o­log­i­cal moor­ing that Trump lacks. He also has a close rela­tion­ship with the con­ser­v­a­tive bil­lion­aire donors who have cap­tured the Repub­li­can Party’s agen­da in recent years.”

And that right there is why Don­ald Trump should be so freaked out about becom­ing expend­able: despite Pence’s suc­cess and play­ing the role of Syco­phant-in-Chief, his polit­i­cal his­to­ry makes it clear that he is fun­da­men­tal­ly a crea­ture of the Koch net­work. And it’s the Koch net­work, and their pref­er­ence for just about any GOP­er over Trump, that Trump real­ly needs to be wor­ry­ing about right now. It’s a remark­able sit­u­a­tion.

And what did Mike Pence need to do to get this kind of Koch enthu­si­asm? Lead the charge against “cap and trade” cli­mate change leg­is­la­tion back in 2009. It was the start of the Pence/Koch love affair that just grew and grew:

...
In June, 2009, Short bro­kered Pence’s first invi­ta­tion to address a Koch “sem­i­nar,” as the broth­ers call their secre­tive semi-annu­al fund-rais­ing ses­sions for top con­ser­v­a­tive donors. The theme of the gath­er­ing, in Aspen, Col­orado, was “Under­stand­ing and Address­ing Threats to Amer­i­can Free Enter­prise and Pros­per­i­ty.” Pence’s speech was a hit. Short told me, “I’ve nev­er seen some­one who can take a com­plex sub­ject and dis­till it in a heart­beat like he can.” He’d also nev­er seen “any­one who is as ded­i­cat­ed a pub­lic ser­vant, and lives their faith as Mike does.” Short, who is a devout Chris­t­ian, said, “Peo­ple often pro­fess faith that’s not lived out, but with him it’s lived out each and every day. It guides him. It’s his core.”

The Kochs, who are not reli­gious, may have been focussed more on pock­et­book issues than on Pence’s faith. Accord­ing to Scott Peter­son, the exec­u­tive direc­tor of the Checks & Bal­ances Project, a watch­dog group that mon­i­tors attempts to influ­ence envi­ron­men­tal pol­i­cy, Pence was invit­ed to the Koch sem­i­nar only after he did the broth­ers a major polit­i­cal favor. By the spring of 2009, Koch Indus­tries, like oth­er fos­sil-fuel com­pa­nies, felt threat­ened by grow­ing sup­port in Con­gress for curb­ing car­bon emis­sions, the pri­ma­ry cause of cli­mate change. Amer­i­cans for Pros­per­i­ty devised a ““No Cli­mate Tax” pledge” pledge for can­di­dates to sign, promis­ing not to spend any gov­ern­ment funds on lim­it­ing car­bon pol­lu­tion. At first, the cam­paign lan­guished, attract­ing only four­teen sig­na­tures. The House, mean­while, was mov­ing toward pas­sage of a “cap and trade” bill, which would charge com­pa­nies for car­bon pol­lu­tion. If the bill were enact­ed, the costs could be cat­a­stroph­ic to Koch Indus­tries, which releas­es some twen­ty-four mil­lion tons of car­bon diox­ide into the atmos­phere a year, and owns mil­lions of acres of untapped oil reserves in Cana­da, plus coal-fired pow­er plants and oil refiner­ies.

Pence, who had called glob­al warm­ing “a myth” cre­at­ed by envi­ron­men­tal­ists in their “lat­est Chick­en Lit­tle attempt to raise tax­es,” took up the Kochs’ cause. He not only signed their pledge but urged oth­ers to do so as well. He gave speech­es denounc­ing the cap-and-trade bill—which passed the House but got held up in the Senate—as a “dec­la­ra­tion of war on the Mid­west.” His lan­guage echoed that of the Koch groups. Amer­i­cans for Pros­per­i­ty called the bill “the largest excise tax in his­to­ry,” and Pence called it “the largest tax increase in Amer­i­can his­to­ry.” (Nei­ther state­ment was true.) He used a map cre­at­ed by the Her­itage Foun­da­tion, which the Kochs sup­port­ed, to make his case, and he urged House Repub­li­cans to hold “ener­gy sum­mits” oppos­ing the leg­is­la­tion in their dis­tricts, send­ing them home over the sum­mer recess with kits to bol­ster their pre­sen­ta­tions.

Accord­ing to the Inves­tiga­tive Report­ing Work­shop at Amer­i­can Uni­ver­si­ty, after Pence began pro­mot­ing the Kochs’ pledge the num­ber of sig­na­to­ries in the House soared, reach­ing a hun­dred and fifty-six. James Val­vo, the pol­i­cy direc­tor for Amer­i­cans for Pros­per­i­ty, who spear­head­ed the pledge, told the Report­ing Work­shop that sup­port from Pence and oth­er Repub­li­cans helped “a scrap­py out­lier” become “the estab­lished posi­tion.” The cap-and-trade bill died in the Sen­ate.

Short said that he “didn’t recall the Kochs ever ask­ing for help on the issue,” adding, “The Repub­li­can Con­fer­ence believed it was a win­ning issue because of the impact that the bill would have had on jobs.” In any event, the pledge marked a piv­otal turn in the cli­mate-change debate, cement­ing Repub­li­can oppo­si­tion to address­ing the envi­ron­men­tal cri­sis.
...

And after that love affair start­ed it was only a cou­ple years until Pence was the Kochs’ favorite for the 2012 pres­i­den­tial race, but he decid­ed run for gov­er­nor of Indi­ana that year instead in order to make a future pres­i­den­tial run like­li­er to suc­ceed by ‘check­ing off that box’. And it was dur­ing this time as Indi­ana’s gov­er­nor that a num­ber of Pence’s staffers end­ed up join­ing Koch orga­ni­za­tion, deep­en­ing the Pence-Koch ties in ways that con­tin­ue to this day:

...
Peter­son said that the Checks & Bal­ances Project hadn’t detect­ed “much mon­ey going from the Kochs to Pence before he pro­mot­ed the ‘No Cli­mate Tax’ pledge.” After­ward, “he was the Kochs’ guy, and they’ve been show­er­ing him with mon­ey ever since.” Peter­son went on, “He could see a path­way to the Pres­i­den­cy with them behind him.”

Indeed, by 2011 Pence had report­ed­ly become Charles Koch’s favorite poten­tial can­di­date for Pres­i­dent in 2012. Andrew Downs, a polit­i­cal sci­en­tist who directs the non­par­ti­san Mike Downs Cen­ter for Indi­ana Pol­i­tics, in Fort Wayne, said, “Peo­ple thought Pence was gear­ing up for a Pres­i­den­tial run.” Downs point­ed out that when Pence was in Con­gress “he prob­a­bly had a shot at becom­ing Speak­er of the House.” Downs con­tin­ued, “Instead, he spoke at a lot of engage­ments with a nation­al focus, and vis­it­ed places like Iowa and New Hamp­shire. Run­ning for Pres­i­dent isn’t an idea that just occurred to Mike Pence when he joined the tick­et in 2016. It goes back a long way.”

But the House of Rep­re­sen­ta­tives is a tough plat­form from which to get elect­ed Pres­i­dent. And so, in 2012, after mulling over his nation­al prospects, Pence ran instead for gov­er­nor of Indi­ana. “The con­ven­tion­al wis­dom is that he ran for gov­er­nor so he could check that box, get some exec­u­tive expe­ri­ence, and then run for Pres­i­dent,” Downs said. Pence won the governor’s race, but with only forty-nine per cent of the vote. “He was scary to the cen­ter,” Bill Oester­le, a co-founder of Angie’s List, an Indi­ana com­pa­ny that col­lates user reviews of local con­trac­tors, said. Oester­le, a Repub­li­can, con­tributed a hun­dred and fifty thou­sand dol­lars to Pence’s cam­paign. David Koch con­tributed two hun­dred thou­sand dol­lars.

Pence’s com­mit­ment to the Kochs was now iron­clad. Short, his for­mer chief of staff, had become a top oper­a­tive for the Kochs, earn­ing upward of a mil­lion dol­lars a year as pres­i­dent of the Free­dom Part­ners Cham­ber of Com­merce, the broth­ers’ Vir­ginia-based mem­ber­ship group for big con­ser­v­a­tive donors. It served as a dark-mon­ey bank, enabling donors to stay anony­mous while dis­trib­ut­ing funds to favored cam­paigns and polit­i­cal orga­ni­za­tions. (Dur­ing the past decade, the group has pooled an esti­mat­ed bil­lion and a half dol­lars in con­tri­bu­tions.) The Kochs’ nation­al polit­i­cal net­work, which had offices in near­ly every state, became the most pow­er­ful and best-financed pri­vate polit­i­cal machine in the coun­try. At least four oth­er for­mer Pence staffers fol­lowed Short’s lead and joined the Koch net­work, includ­ing Emi­ly Sei­del, who joined Free­dom Part­ners, and Matt Lloyd, who became a Koch Indus­tries spokesman. In 2014, a Repub­li­can strate­gist told Politi­co that “the whole Koch oper­a­tion” had become “the shad­ow head­quar­ters of Pence for Pres­i­dent.”
...

“In 2014, a Repub­li­can strate­gist told Politi­co that “the whole Koch oper­a­tion” had become “the shad­ow head­quar­ters of Pence for Pres­i­dent.””

But, alas, Pence’s 2016 pres­i­den­tial run was not meant to be giv­en his unpop­u­lar­i­ty in his home state. So he decid­ed to run for gov­er­nor a sec­ond time in 2016:

...
Pence, see­ing his poll num­bers plum­met, gave up on run­ning for Pres­i­dent, and decid­ed to seek a sec­ond term as gov­er­nor. Vic­to­ry was far from assured. Once again, he faced John Gregg, a folksy Demo­c­ra­t­ic lawyer. In the spring of 2016, polls showed the two in a dead heat.
...

Of course, that sec­ond guber­na­to­r­i­al run nev­er hap­pened after he was select­ed to be Trump’s run­ning mate.

And here we are, with Vice Pres­i­dent Pence almost pres­i­dent. A goal he’s appar­ent­ly had since child­hood:

...
This sum­mer, I vis­it­ed Pence’s home town of Colum­bus, Indi­ana. Har­ry McCaw­ley, a retired edi­tor at the Repub­lic, the local news­pa­per, told me, “Mike Pence want­ed to be Pres­i­dent prac­ti­cal­ly since he popped out of the womb.” Pence exudes a low-key humil­i­ty, but, McCaw­ley told me, “he’s very ambi­tious, even cal­cu­lat­ing, about the steps he’ll take toward that goal.”
...

So with the GOP get­ting ready to make the big tax cuts a real­i­ty while it simul­ta­ne­ous­ly wres­tles with the real­i­ty that Pres­i­dent Trump is a grow­ing lia­bil­i­ty for the par­ty, you have to won­der just how tempt­ed Mike Pence is to final­ly achieve his dream of becom­ing pres­i­dent a real­i­ty by mak­ing Trump’s impeach­ment a real­i­ty. He has to be at least some­what tempt­ed. After all, he appears to have 2024 ambi­tions, and yet it’s grow­ing increas­ing­ly like­ly that the Trump taint will make Pence une­lec­table on the nation­al stage:

...
Many Amer­i­cans have debat­ed whether the coun­try would be bet­ter off with Pence as Pres­i­dent. From a pure­ly par­ti­san view­point, Harold Ick­es, a long­time Demo­c­ra­t­ic oper­a­tive, argues that—putting aside the fear that Trump might start a nuclear war—“Democrats should hope Trump stays in office,” because he makes a bet­ter foil, and because Pence might work more effec­tive­ly with Con­gress and be more suc­cess­ful at advanc­ing the far right’s agen­da. Newt Gin­grich pre­dicts that Pence will prob­a­bly get a chance to do so. “I think he’s the most like­ly Repub­li­can nom­i­nee in 2024,” he said. Ron Klain, who was chief of staff to the for­mer Vice-Pres­i­dent Joe Biden, is skep­ti­cal of this, giv­en Trump’s accu­mu­lat­ing bag­gage. “There is no suc­cess for Mike Pence unless Trump works—he can­not run far enough or fast enough to not get hit by the falling tree,” Klain said. “But he may think he can.” Evi­dent­ly, the next chap­ter is on Pence’s mind. Over the fire­place in the Vice-President’s res­i­dence, he has hung a plaque with a pas­sage from the Bible: “ ‘For I know the plans I have for you,’ declares the lord, ‘Plans to pros­per you and not to harm you, plans to give you hope and a future.’ ”

“Evi­dent­ly, the next chap­ter is on Pence’s mind. Over the fire­place in the Vice-President’s res­i­dence, he has hung a plaque with a pas­sage from the Bible: “ ‘For I know the plans I have for you,’ declares the lord, ‘Plans to pros­per you and not to harm you, plans to give you hope and a future.’ ””

Pence clear­ly, des­per­ate­ly wants to become pres­i­dent, but by agree­ing to be Trump’s vice pres­i­dent he may have killed that life­long ambi­tion. At least, he may have killed the life­long ambi­tion of being elect­ed pres­i­dent. But he’s very well posi­tioned to become pres­i­dent if Trump leaves office.

At the same time, the man­ner in which Trump leaves office could mat­ters. If Trump resigns under a cloud of ‘Russ­ian col­lu­sion’ fol­low­ing the final Mueller report that could clear­ly take down Pence too. Maybe. It depends on the par­tic­u­lars of the charges. But if, on the oth­er hand, Trump is sim­ply declared men­tal­ly unfit for office and impeached under the 25th amend­ment it’s unclear how or why Pence would­n’t be the new pres­i­dent. And per­haps the best sce­nario for Pence is if Trump isn’t impeached but sim­ply resigns after he finds out that being pres­i­dent is a hor­ri­ble job that he’s hor­ri­bly unqual­i­fied for.

And all of these sce­nario become MUCH more like­ly if Trump and the GOP actu­al­ly score the big tax cuts ‘win’. All in all, you have to won­der of Trump is aware of any of these dynam­ics at this point. If not, you have to won­der who’s going to tell him? There are a num­ber of pos­si­ble peo­ple but, as we just saw, it prob­a­bly won’t be Pence.

Well isn’t this an inter­est­ing bun­dle of con­tra­dic­tions: Pres­i­dent Trump is report­ed­ly con­sid­er­ing Her­man Cain for one of the two open posi­tions on the Fed­er­al Reserve Board of Gov­er­nors. This would­n’t be an entire­ly new job Cain. He served as the direc­tor, deputy chair­man and then chair­man of the Fed­er­al Reserve Bank of Kansas City from 1992–1996.

So on the sur­face Cain might seem some­what qual­i­fied for the job. And maybe he was qual­i­fied back then. But, of course, Her­man Cain went on to become a a politi­cian, and a far right nut job politi­cian at that, with a his­to­ry of advo­cat­ing the kinds of posi­tions that should make him gross­ly unqual­i­fied for this job. In par­tic­u­lar, when he was run­ning for pres­i­dent in 2012, Cain called for a return to the gold stan­dard.

Scratch the sur­face and Cain appears to be a bizarre and dis­as­trous pick for the Fed. But let’s not for­get that bizarre and dis­as­trous deci­sions are kind of Trump’s brand. So in that sense, Cain would be a high­ly Trumpian choice. Or at least he would be a high­ly Trumpian choice if Trump had­n’t repeat­ed­ly attacked the Fed over the past year for hik­ing rates and was­n’t report­ed­ly con­sid­er­ing fir­ing Fed chair­man Jerome Pow­ell back in Decem­ber over those rate hikes. And as the fol­low­ing arti­cle points out, Cain also defend­ed the Fed rais­ing rates back in Decem­ber of 2017.

Is Trump actu­al­ly open to a Fed gov­er­nor who wants a return to the gold stan­dard and sup­ports high­er rates? Well, not if you lis­ten to what Trump’s top eco­nom­ic advis­er, Lar­ry Kud­low (who is also a long-time advo­cate of the gold stan­dard), said last week when Kud­low explained that Trump wants to appoint Fed gov­er­nors “who under­stand that you can have strong eco­nom­ic growth with­out high­er infla­tion.” That kind of lan­guage Kud­low used is code for “some­one who will pri­or­i­tize eco­nom­ic growth over putting a lid on infla­tion and not raise rates despite the cur­rent­ly strong eco­nom­ic envi­ron­ment” and a ref­er­ence to the Fed’s dual man­date. The twin man­dates of con­tain­ing infla­tion to around 2 per­cent while also push­ing the econ­o­my towards full employ­ment which are often at odds with each oth­er. Kud­low was say­ing Trump want­ed to find some­one who pri­or­i­tizes the the eco­nom­ic growth (low­er Fed rates) man­date over the infla­tion con­tain­ment (high­er Fed rates) man­date. So Cain’s pre­vi­ous voic­ing of a high­er rates sounds exact­ly like the kind of per­son Trump should not want any­where near the Fed board at this point from a Fed pol­i­cy stand­point.

Except it sounds like Cain has sud­den­ly changed his mind about the top­ic and told Bloomberg in the fol­low­ing inter­view that he’s actu­al­ly con­cerned the Fed was over­ly aggres­sive with inter­est rate increas­es in the last year. In oth­er words, Cain just sig­naled to Trump that he’ll be a Team Trumper on the Fed board, which at this point makes him a low­er inter­est rate guy. Cain is fine with low­er rates now.

Iron­i­cal­ly, Cain’s pol­i­cy pli­a­bil­i­ty and will­ing­ness to reverse his posi­tions to fit Trump’s agen­da is prob­a­bly for the best at this point sim­ply because we don’t need a hawk­ish Fed giv­en the var­i­ous reces­sion­ary warn­ing signs rever­ber­at­ing across the glob­al econ­o­my. And that means Her­man Cain’s appar­ent cor­rupt­ibil­i­ty is sort of com­ing in handy at this point which is nice for a change:

Bloomberg

Trump Con­sid­er­ing Her­man Cain for Fed­er­al Reserve Board, Sources Say

By Jen­nifer Jacobs
Jan­u­ary 31, 2019, 10:30 AM CST Updat­ed on Jan­u­ary 31, 2019, 2:01 PM CST

* Pres­i­dent inter­viewed for­mer Godfather’s CEO on Wednes­day
* Cain’s pres­i­den­tial run end­ed in sex­u­al mis­con­duct scan­dal

Her­man Cain, the for­mer piz­za com­pa­ny exec­u­tive who ran for the 2012 Repub­li­can pres­i­den­tial nom­i­na­tion, is being con­sid­ered by Pres­i­dent Don­ald Trump for a seat on the Fed­er­al Reserve Board.

Cain, 73, was in the White House on Wednes­day, accord­ing to peo­ple famil­iar with the mat­ter. Two seats on the Fed board are vacant, but nom­i­nat­ing Cain rais­es the prospect of a Sen­ate con­fir­ma­tion hear­ing focused on the sex­u­al harass­ment and infi­deli­ty accu­sa­tions that end­ed his pres­i­den­tial cam­paign.

The peo­ple asked not to be iden­ti­fied dis­cussing Trump’s pri­vate delib­er­a­tions. Cain was also under con­sid­er­a­tion for oth­er unspec­i­fied senior gov­ern­ment posts, they said.

The president’s top eco­nom­ic advis­er, Lar­ry Kud­low, said last week that the White House wants Fed gov­er­nors “who under­stand that you can have strong eco­nom­ic growth with­out high­er infla­tion.”

Cain in Sep­tem­ber co-found­ed a pro-Trump super PAC, Amer­i­ca Fight­ing Back PAC, which fea­tures a pho­to of the pres­i­dent on its web­site and says: “We must pro­tect Don­ald Trump and his agen­da from impeach­ment.”

Cain had a long cor­po­rate career and is also famil­iar with the Fed­er­al Reserve sys­tem. From 1992 to 1996, he served as a direc­tor of the Fed­er­al Reserve Bank of Kansas City, as well as deputy chair­man and then chair­man. He advo­cat­ed for the U.S. to return to the gold stan­dard dur­ing his pres­i­den­tial cam­paign and as recent­ly as Decem­ber 2017 defend­ed high­er inter­est rates, a posi­tion that con­trasts with Trump’s repeat­ed crit­i­cisms of the Fed last year.

“The first year of the Trump Admin­is­tra­tion has not pro­duced every­thing we want­ed, but the over­all eco­nom­ic per­for­mance has been tri­umphant, and we’re just get­ting start­ed,” Cain wrote in a col­umn pub­lished online. “That’s why inter­est rates are ris­ing, and that’s why you should under­stand it’s very good news.”

Cain declined to com­ment on whether Trump is con­sid­er­ing him for a job. He told Bloomberg News in an inter­view that he’s con­cerned the Fed was over­ly aggres­sive with inter­est rate increas­es in the last year, but didn’t respond to fol­low-up ques­tions about his col­umn defend­ing high­er rates.

“I am not as afraid of infla­tion as I am of defla­tion,” he said. “You can stop infla­tion faster than you can decel­er­ate in defla­tion mode.”

Trump has repeat­ed­ly attacked U.S. Fed­er­al Reserve Chair­man Jerome Pow­ell for rais­ing inter­est rates, and Bloomberg News report­ed last month that the pres­i­dent had even dis­cussed fir­ing him. One way the pres­i­dent can direct­ly influ­ence mon­e­tary pol­i­cy is through nom­i­na­tions to the Fed board, though any­one he picks must be con­firmed by the Sen­ate.

America’s cen­tral bankers find them­selves at a piv­otal moment. They con­clud­ed their quar­ter­ly meet­ing on Wednes­day with a sig­nal that they were paus­ing rate hikes, and expressed more flex­i­bil­i­ty to alter their bal­ance sheet runoff plans, which have been crit­i­cized by Trump. The pol­i­cy rate was left unchanged.

At his press con­fer­ence fol­low­ing the meet­ing, Pow­ell said the Amer­i­can econ­o­my will grow at a “sol­id pace’’ this year, though he cit­ed “cross-cur­rents and con­flict­ing sig­nals’’ about the out­look as rea­sons for cau­tion.

Cain, the for­mer chief exec­u­tive of Godfather’s Piz­za Inc. and an ordained Bap­tist min­is­ter, attract­ed nation­al atten­tion when he turned a forum on health care reform into a debate with Pres­i­dent Bill Clin­ton in 1994. He’s a grad­u­ate of More­house Col­lege and received a master’s degree from Pur­due.

Cain ran for the 2012 Repub­li­can pres­i­den­tial nom­i­na­tion but dropped out in late 2011 after alle­ga­tions he engaged in sex­u­al harass­ment when he led the Nation­al Restau­rant Asso­ci­a­tion in the 1990s. An Atlanta woman said she had had an extra­mar­i­tal affair with Cain for more than 13 years.

He called the alle­ga­tions false but said he had “made mis­takes in my life.” Although his can­di­da­cy was con­sid­ered a long shot, he had led in some nation­al polls.

He built the cam­paign around his per­son­al­i­ty — even trade­mark­ing the phrase “The Her­mana­tor Expe­ri­ence” — and pol­i­cy pro­pos­als like his “9–9‑9” tax plan. That would have replaced the U.S. tax sys­tem with flat 9 per­cent busi­ness and income tax­es and a 9 per­cent nation­al sales tax.

Kud­low said last week that the Fed board has “a cou­ple open seats,” sug­gest­ing Trump won’t renom­i­nate econ­o­mist Mar­vin Good­friend. Trump’s oth­er pre­vi­ous nom­i­nee, for­mer Fed econ­o­mist Nel­lie Liang, removed her­self from con­sid­er­a­tion ear­li­er this month.

Good­friend didn’t appear on a list of dozens of renom­i­na­tions the White House sub­mit­ted to the Sen­ate ear­li­er this month.

...

———-

“Trump Con­sid­er­ing Her­man Cain for Fed­er­al Reserve Board, Sources Say” by Jen­nifer Jacobs; Bloomberg; 01/31/2019

“The president’s top eco­nom­ic advis­er, Lar­ry Kud­low, said last week that the White House wants Fed gov­er­nors “who under­stand that you can have strong eco­nom­ic growth with­out high­er infla­tion.””

Kud­low sent out the code words for the kinds of can­di­dates it want to fill in those two Fed seats. Some­one who will pri­or­i­tize eco­nom­ic growth over keep­ing a lid on infla­tion which is a call for a bias towards low­er rather than high­er inter­est rates. Let the US econ­o­my run hot and accept some wage infla­tion.

And while it’s obvi­ous­ly self-serv­ing for Trump to advo­cate for such a Fed pol­i­cy stance, it’s impor­tant to note that this is one of those rare instances where the Trump admin­is­tra­tion is large­ly get­ting it right on pol­i­cy. The Fed real­ly should be get­ting dovish replace­ments at this point giv­en the shak­i­ness of the glob­al econ­o­my. It’s a rare non-insane Trump pol­i­cy moment to savor. But then there’s the Her­man Cain angle, which makes it insane again. Fit­ting­ly.

It’s also impor­tant to note just how rad­i­cal­ly bad Cain’s advo­ca­cy for return­ing to the gold stan­dard dur­ing his 2012 pres­i­den­tial run is as a pol­i­cy. That’s just about the worst pol­i­cy back­ground some­one could have for a Fed gov­er­nor seat. But also keep in mind he was a Fed chair­man in Kansas City from 1992–1996. So Cain at least under­stands Fed pol­i­cy, and he’s just a polit­i­cal huck­ster who was will­ing to back the gold stan­dard for polit­i­cal style points in the GOP pri­ma­ry. It could be worse:

...
Cain in Sep­tem­ber co-found­ed a pro-Trump super PAC, Amer­i­ca Fight­ing Back PAC, which fea­tures a pho­to of the pres­i­dent on its web­site and says: “We must pro­tect Don­ald Trump and his agen­da from impeach­ment.”

Cain had a long cor­po­rate career and is also famil­iar with the Fed­er­al Reserve sys­tem. From 1992 to 1996, he served as a direc­tor of the Fed­er­al Reserve Bank of Kansas City, as well as deputy chair­man and then chair­man. He advo­cat­ed for the U.S. to return to the gold stan­dard dur­ing his pres­i­den­tial cam­paign and as recent­ly as Decem­ber 2017 defend­ed high­er inter­est rates, a posi­tion that con­trasts with Trump’s repeat­ed crit­i­cisms of the Fed last year.

“The first year of the Trump Admin­is­tra­tion has not pro­duced every­thing we want­ed, but the over­all eco­nom­ic per­for­mance has been tri­umphant, and we’re just get­ting start­ed,” Cain wrote in a col­umn pub­lished online. “That’s why inter­est rates are ris­ing, and that’s why you should under­stand it’s very good news.”
...

Keep in mind that the col­umn Cain wrote in Decem­ber of 2017 where he cheered the rate hikes of 2017 can sort of be defend­ed since he was argu­ing that it was good the Fed was rais­ing rates because it reflect­ed a strong Trump US econ­o­my in 2017. And, again, that’s not an out­ra­geous way to spin it although it real­ly would have been Oba­ma’s econ­o­my that Trump inher­it­ed in 2017. The US did­n’t become Trump’s real­ly until 2018, and that’s the year the Trump/GOP pol­i­cy blun­ders and Trump’s chaot­ic lead­er­ship start­ed cracks start­ed derail­ing things the ques­tion of Fed hikes became much more ques­tion­able. So when Cain tells Bloomberg he was con­cerned about over­ly aggres­sive Fed hikes in 2018 it’s not real­ly a big con­tra­dic­tion. Trump and the GOP just screwed every­thing up in a year and the econ­o­my start­ed soft­en­ing to the point where the rate hikes are on ‘pause’. In the con­text of the great GOP fes­ti­val of pol­i­cy blun­ders in the first two years of the Trump admin­is­tra­tion, includ­ing a tax cut at the end of 2017 that bare­ly helped aver­age peo­ple and did­n’t actu­al­ly stim­u­late busi­ness invest­ment, it’s quite rea­son­able for Cain to have shift­ed pol­i­cy posi­tions between 2017 and 2018:

...
Cain declined to com­ment on whether Trump is con­sid­er­ing him for a job. He told Bloomberg News in an inter­view that he’s con­cerned the Fed was over­ly aggres­sive with inter­est rate increas­es in the last year, but didn’t respond to fol­low-up ques­tions about his col­umn defend­ing high­er rates.

“I am not as afraid of infla­tion as I am of defla­tion,” he said. “You can stop infla­tion faster than you can decel­er­ate in defla­tion mode.”
...

Also keep in mind that Cain’s 9–9‑9 plan (replace the US fed­er­al tax code with a flat 9 per­cent busi­ness, income, and sales tax) is one of those ‘flat tax’ scams that would bank­rupt the Fed­er­al gov­ern­ment and neces­si­tate mass cuts to pro­grams. Which Cain no doubt real­izes:

...
He built the cam­paign around his per­son­al­i­ty — even trade­mark­ing the phrase “The Her­mana­tor Expe­ri­ence” — and pol­i­cy pro­pos­als like his “9–9‑9” tax plan. That would have replaced the U.S. tax sys­tem with flat 9 per­cent busi­ness and income tax­es and a 9 per­cent nation­al sales tax.
...

And note how Cain might still be under con­sid­er­a­tion for a dif­fer­ent post if he does­n’t get a Fed post:

...
The peo­ple asked not to be iden­ti­fied dis­cussing Trump’s pri­vate delib­er­a­tions. Cain was also under con­sid­er­a­tion for oth­er unspec­i­fied senior gov­ern­ment posts, they said.
...

So it sounds like Trump has made up his mind about Her­man Cain. He’s enter­ing the Trump admin­is­tra­tion one way or anoth­er. And as we can see, he’s both capa­ble of under­stand­ing pol­i­cy in a mean­ing­ful way and also will­ing to ped­dle com­plete pol­i­cy non­sense if it polit­i­cal­ly suits him. But at this point it actu­al­ly polit­i­cal­ly suits him to advo­cate for rea­son­able Fed pol­i­cy so it could be worse. For now. It might become worse lat­er if that’s polit­i­cal­ly con­ve­nient. Which is still pret­ty awful.

It’s also impor­tant to point out that Cain’s huck­ster­ism and ped­dling of poli­cies (like gold stan­dards) he like­ly knows is garbage is pret­ty much par the course for mod­ern day GOP­ers. And as the fol­low­ing Paul Krug­man col­umn points out, a broad range of con­ser­v­a­tive econ­o­mists who, for years, have been staunch advo­cates of high­er rates and strong­ly against Fed stim­u­lus poli­cies (even dur­ing the 2008 finan­cial cri­sis) have sud­den­ly changed their tune just like Cain:

The New York Times
Opin­ion

Hard-Mon­ey Men, Sud­den­ly Going Soft

Trump­ism trumps every­thing, even Ayn Rand.

By Paul Krug­man

Opin­ion Colum­nist
Dec. 20, 2018

I have a con­fes­sion to make: I have been insuf­fi­cient­ly cyn­i­cal about mod­ern con­ser­v­a­tive eco­nom­ics.

Long­time read­ers may find this hard to believe. After all, I declared Paul Ryan a “flim­flam man” back when all the cool kids were gush­ing about his courage and hon­esty, giv­ing him awards for fis­cal respon­si­bil­i­ty. (Events have set­tled the issue: Yes, he was and is a flim­flam man.) I pre­dict­ed ear­ly and often that Repub­li­can cries about the evils of debt would van­ish as soon as they held the White House; sure enough, after forc­ing the U.S. into job-destroy­ing aus­ter­i­ty when the econ­o­my was weak, once in pow­er they blew up the bud­get deficit with a tax cut for cor­po­ra­tions and the wealthy, despite low unem­ploy­ment.

But while I yield to nobody in my appre­ci­a­tion of the right’s fis­cal fraud­u­lence, I took its mon­e­tary hawk­ish­ness seri­ous­ly. I thought that all those dire warn­ings about the infla­tion­ary con­se­quences of the Fed­er­al Reserve’s efforts to fight high unem­ploy­ment, the con­stant harp­ing on the evils of print­ing mon­ey, were ground­ed in gen­uine — stu­pid, but gen­uine — con­cern.

Sil­ly me.

It’s no sur­prise that Individual‑1, who lam­bast­ed the Fed for keep­ing inter­est rates low while Barack Oba­ma was pres­i­dent, is demand­ing that it keep rates low now that he’s in the White House. After all, nobody has ever accused Don­ald Trump of hav­ing con­sis­tent, prin­ci­pled views about mon­e­tary pol­i­cy (or any­thing else).

But it is a shock to see so many con­ser­v­a­tive voic­es — includ­ing, incred­i­bly, the edi­to­r­i­al page of The Wall Street Jour­nal — echo­ing Trump’s demands.

It’s hard to over­state just how con­sis­tent and intense The Jour­nal and oth­ers of like mind used to be in their attacks on easy mon­ey. Many com­men­ta­tors have not­ed that three years ago The Jour­nal declared that low inter­est rates are bad for the econ­o­my. But that was minor com­pared with the newspaper’s pro­nounce­ments dur­ing the finan­cial cri­sis. For exam­ple, it attacked and ridiculed Ben Bernanke for cut­ting inter­est rates in Decem­ber 2008 — that is, at a time when the econ­o­my was in free fall, and des­per­ate­ly need­ed all the sup­port it could get.

Now, you might say that the expla­na­tion for the right’s about-face on mon­e­tary pol­i­cy is the same as the expla­na­tion of its about-face on deficits. That is, Repub­li­cans want pain and suf­fer­ing when there’s a Demo­c­ra­t­ic pres­i­dent, but a non­stop par­ty when one of their own sits in the White House. And that is indeed how it looks now. But I used to think there was some­thing more to the sto­ry.

You see, as a pun­dit who, well, gets a lot of hate mail, I’ve learned that the issue of whether it some­times makes sense to print mon­ey stirs more vis­cer­al emo­tions on the right than any­thing else. Declare that Trump is a cor­rupt Russ­ian pup­pet, and you get a fair bit of blow­back, but noth­ing like what you get if you say that return­ing to the gold stan­dard would be a bad idea, or that mon­e­tary eas­ing isn’t nec­es­sar­i­ly infla­tion­ary. A lot of peo­ple on the right just go crazy at any sug­ges­tion that mon­ey is some­thing to be man­aged, not treat­ed as a sacred trust with which mor­tals must not med­dle.

...

And the right’s emo­tion­al response to Fed pol­i­cy — its hatred for using the print­ing press to boost the econ­o­my, no mat­ter what the cir­cum­stances — always seemed real to me. I nev­er believed that Paul Ryan real­ly cared about the deficit, but I did believe his asser­tion that his views on mon­e­tary pol­i­cy were derived from the denun­ci­a­tion of paper mon­ey as a form of loot­ing in Ayn Rand’s “Atlas Shrugged.”

Fur­ther­more, the view that print­ing mon­ey is always a ter­ri­ble thing seemed extreme­ly durable, despite an unin­ter­rupt­ed track record of pre­dic­tive fail­ure. Peo­ple who warned about loom­ing infla­tion in 2009 con­tin­ued to warn about it year after year, even as it kept not hap­pen­ing.

Then Trump decid­ed to pres­sure the Fed, and many of the erst­while hard-mon­ey men became easy-mon­ey men overnight. I mean that more or less lit­er­al­ly. Con­sid­er the case of Kevin Warsh, a for­mer mem­ber of the Fed­er­al Reserve Board who was for a time con­sid­ered a like­ly Fed chair­man. Up until two months ago he was always for high­er inter­est rates — but this week he sud­den­ly wrote an op-ed arti­cle call­ing on the Fed to stop rate hikes.

There is, by the way, a rea­son­able case (which I accept) that the Fed should, indeed, pause its cam­paign of rais­ing rates, and even that this week’s hike was a mis­take. But this case should be made on the basis of fun­da­men­tal eco­nom­ic prin­ci­ples, not in pur­suit of short-term polit­i­cal advan­tage, and least of all because it’s what Don­ald Trump wants.

Yet that’s how it’s going. These days the G.O.P. is all about pow­er; there are no prin­ci­ples it will adhere to if they involve any polit­i­cal cost. And it’s a par­ty that belongs to Trump: What he says is the par­ty line, on any and every issue.

Trump­ism, it turns out, trumps every­thing else — even Ayn Rand.

———–

“Hard-Mon­ey Men, Sud­den­ly Going Soft” by Paul Krug­man; The New York Times; 12/20/2018

“Trump­ism, it turns out, trumps every­thing else — even Ayn Rand.”

Even the Ayn Rand fac­tion is suc­cumb­ing to Trump’s soft-mon­ey pol­i­cy. The acolytes of the eco­nom­ic hard mon­ey the­ol­o­gy are becom­ing Trumpian soft-mon­ey apos­tates one by one. Good. But wow. And that’s why Krug­man appears to be legit­i­mate­ly sur­prised by all of these recent soft-mon­ey con­verts. They’ve been keep­ing up the act until now. Until Trump. And it’s been quite an act:

...
I have a con­fes­sion to make: I have been insuf­fi­cient­ly cyn­i­cal about mod­ern con­ser­v­a­tive eco­nom­ics.

Long­time read­ers may find this hard to believe. After all, I declared Paul Ryan a “flim­flam man” back when all the cool kids were gush­ing about his courage and hon­esty, giv­ing him awards for fis­cal respon­si­bil­i­ty. (Events have set­tled the issue: Yes, he was and is a flim­flam man.) I pre­dict­ed ear­ly and often that Repub­li­can cries about the evils of debt would van­ish as soon as they held the White House; sure enough, after forc­ing the U.S. into job-destroy­ing aus­ter­i­ty when the econ­o­my was weak, once in pow­er they blew up the bud­get deficit with a tax cut for cor­po­ra­tions and the wealthy, despite low unem­ploy­ment.

But while I yield to nobody in my appre­ci­a­tion of the right’s fis­cal fraud­u­lence, I took its mon­e­tary hawk­ish­ness seri­ous­ly. I thought that all those dire warn­ings about the infla­tion­ary con­se­quences of the Fed­er­al Reserve’s efforts to fight high unem­ploy­ment, the con­stant harp­ing on the evils of print­ing mon­ey, were ground­ed in gen­uine — stu­pid, but gen­uine — con­cern.

Sil­ly me.

...

You see, as a pun­dit who, well, gets a lot of hate mail, I’ve learned that the issue of whether it some­times makes sense to print mon­ey stirs more vis­cer­al emo­tions on the right than any­thing else. Declare that Trump is a cor­rupt Russ­ian pup­pet, and you get a fair bit of blow­back, but noth­ing like what you get if you say that return­ing to the gold stan­dard would be a bad idea, or that mon­e­tary eas­ing isn’t nec­es­sar­i­ly infla­tion­ary. A lot of peo­ple on the right just go crazy at any sug­ges­tion that mon­ey is some­thing to be man­aged, not treat­ed as a sacred trust with which mor­tals must not med­dle.
...

The Wall Street Jour­nal edi­to­r­i­al board even scoffed at Ben Bernanke low­er rates in Decem­ber of 2008, right at the height of the finan­cial cri­sis. That’s how nuts they’ve con­sis­tent­ly been about Fed pol­i­cy. Until now:

...
It’s hard to over­state just how con­sis­tent and intense The Jour­nal and oth­ers of like mind used to be in their attacks on easy mon­ey. Many com­men­ta­tors have not­ed that three years ago The Jour­nal declared that low inter­est rates are bad for the econ­o­my. But that was minor com­pared with the newspaper’s pro­nounce­ments dur­ing the finan­cial cri­sis. For exam­ple, it attacked and ridiculed Ben Bernanke for cut­ting inter­est rates in Decem­ber 2008 — that is, at a time when the econ­o­my was in free fall, and des­per­ate­ly need­ed all the sup­port it could get.
...

And as Krug­man point­ed out, there real­ly is a rea­son­able case, which he agrees with, that a pause in the rate ris­es is appro­pri­ate. But as he also points out, is just real­ly unfor­tu­nate that this appro­pri­ate pol­i­cy is being arrived at in the pur­suit of short-term polit­i­cal advan­tage. In this case, the short-term polit­i­cal advan­tage of not dis­agree with Trump and the fact that sound pol­i­cy helps Trump:

...
There is, by the way, a rea­son­able case (which I accept) that the Fed should, indeed, pause its cam­paign of rais­ing rates, and even that this week’s hike was a mis­take. But this case should be made on the basis of fun­da­men­tal eco­nom­ic prin­ci­ples, not in pur­suit of short-term polit­i­cal advan­tage, and least of all because it’s what Don­ald Trump wants.

Yet that’s how it’s going. These days the G.O.P. is all about pow­er; there are no prin­ci­ples it will adhere to if they involve any polit­i­cal cost. And it’s a par­ty that belongs to Trump: What he says is the par­ty line, on any and every issue.

...

And these con­ver­sions to soft-mon­ey poli­cies can hap­pen seem­ing­ly overnight, like for­mer mem­ber of the Fed­er­al Reserve Board Kevin Warsh, who always for high­er inter­est rates until Trump start­ed open­ly bul­ly­ing the Fed in Decem­ber, at which point Warsh sud­den­ly wrote an op-ed arti­cle call­ing on the Fed to stop rate hikes. Trump is tru­ly soft­en­ing the hard mon­ey com­mu­ni­ty’s resolve:

...
Then Trump decid­ed to pres­sure the Fed, and many of the erst­while hard-mon­ey men became easy-mon­ey men overnight. I mean that more or less lit­er­al­ly. Con­sid­er the case of Kevin Warsh, a for­mer mem­ber of the Fed­er­al Reserve Board who was for a time con­sid­ered a like­ly Fed chair­man. Up until two months ago he was always for high­er inter­est rates — but this week he sud­den­ly wrote an op-ed arti­cle call­ing on the Fed to stop rate hikes.
...

So as we can see, under the right con­di­tions the right-wing eco­nom­ic com­mu­ni­ty can be brought around to a qua­si-sane pol­i­cy stance. In this case those con­di­tions are Trump act­ing in a self-inter­est­ed man­ner and want­i­ng the strongest econ­o­my pos­si­ble and sus­tained wage gains that could come with low­er Fed rate pol­i­cy. Trump’s will­ing­ness to ignore right-wing eco­nom­ic ortho­doxy for his own self-inter­est is lead­ing the way towards a san­er soft-mon­ey Fed pol­i­cy approach across the con­ser­v­a­tive move­ment and Kevin Warsh, Her­man Cain, and the Wall Street Jour­nal are fol­low­ing. Trump’s lack of Repub­li­can prin­ci­ple is lead­ing the Repub­li­can Par­ty in the right direc­tion. It could be worse. Although not much worse because this huck­ster par­ty sit­u­a­tion is real­ly a bad.

Con­cerns about the prospects of a Trump 2020 reelec­tion have spiked fol­low­ing the ‘no col­lu­sion’ con­clu­sion of the Mueller report. They’re under­stand­able con­cerns giv­en the like­ly pro­pa­gan­da val­ue such a find­ing will like­ly have in terms of allow­ing Pres­i­dent Trump to dis­miss charges of ‘Russ­ian col­lu­sion’ as being part of a ‘witch hunt’ going into the 2020 elec­tion cycle.

But how about charges that, for instances, the Trump admin­is­tra­tion’s eco­nom­ic pol­i­cy is dan­ger­ous­ly incom­pe­tent and just a giant give­away to his fel­low bil­lion­aires. Will ‘no col­lu­sion’ be an effec­tive shield against those kinds of inevitable polit­i­cal cri­tiques? There should­n’t real­ly be any log­i­cal rea­son why a ‘no col­lu­sion’ find­ing should shield Trump from crit­i­cism of his eco­nom­ic poli­cies but US pol­i­tics isn’t exact­ly log­i­cal.

So that remains a very open and omi­nous ques­tion. And not just omi­nous for the Democ­rats. It’s omi­nous for Trump. Because as the fol­low­ing arti­cle reminds us, Trump’s eco­nom­ic pol­i­cy real­ly is remark­ably atro­cious. So if he can’t turn ‘no col­lu­sion’ into a gen­er­al ‘no crit­i­cism’ shield that applies to all of his crazy poli­cies he’s still going to be wild­ly vul­ner­a­ble to one legit­i­mate attack after anoth­er. For instance, remem­ber how Trump was actu­al­ly con­sid­er­ing nom­i­nat­ing a polit­i­cal like Her­man Cain to the Fed­er­al Reserve board of gov­er­nors? Well, it turns out Trump went with some­one else. Some­one even more unqual­i­fied than Cain. Much more unqual­i­fied. At least Cain pre­vi­ous­ly worked for the Fed and basi­cal­ly under­stands macro­eco­nom­ic pol­i­cy.

So who did Trump nom­i­nate instead of Cain? Stephen Moore, the right-wing eco­nom­ic crank who built a career pro­mot­ing sup­ply-side tax cuts for the wealthy and big busi­ness as an eco­nom­ic cure-all. Recall how Moore com­plete­ly aban­doned his long-time stance of inton­ing against the dan­gers of gov­ern­ment debt when he ful­ly embraced the Trump tax cut and sud­den­ly argued that the spikes in US bud­get deficit were an accept­able price to pay for the high­er long-term growth that the sup­ply-side tax cuts would pro­duce. Sure, those tax cuts already appear to have failed at sow­ing the seeds of that long-term growth and have already explod­ed the deficit but that clear­ly has­n’t soured Moore on them. And it’s that loy­al­ty to Trump that appears to be the pri­ma­ry attribute Moore brings to the job of being on the Fed­er­al Reserve board.

But Moore isn’t just some hack econ­o­mist that Trump select­ed to the Fed due to his loy­al­ty to Trump. No, Moore is a hack econ­o­mist who admits he does­n’t actu­al­ly under­stand macro­eco­nom­ic pol­i­cy and his going to have to do a lot of study­ing just to get up to speed that Trump select­ed to the Fed due to his loy­al­ty to Trump. Greg Mankiw, a Har­vard pro­fes­sor who was chair­man of the White House Coun­cil of Eco­nom­ic Advis­ers under George W. Bush, actu­al­ly declared that, “He does not have the intel­lec­tu­al grav­i­tas for this impor­tant job...It is time for sen­a­tors to do their job. Mr. Moore should not be con­firmed.” That’s how unqual­i­fied Moore is for this impor­tant job:

Bloomberg

Swift Push­back on Stephen Moore, Trump’s Lat­est Pick for the Fed

By Bren­dan Mur­ray
March 24, 2019, 11:36 AM CDT

* Pres­i­dent plans to nom­i­nate Her­itage Foun­da­tion econ­o­mist
* One for­mer Bush aide urges Sen­ate to block the nom­i­na­tion

Stephen Moore drew swift and unusu­al­ly point­ed crit­i­cism after Pres­i­dent Don­ald Trump picked him to be a gov­er­nor of the U.S. Fed­er­al Reserve, with at least one promi­nent Repub­li­can econ­o­mist call­ing on the Sen­ate to block the appoint­ment.

“He does not have the intel­lec­tu­al grav­i­tas for this impor­tant job,” Greg Mankiw, a Har­vard pro­fes­sor who was chair­man of the White House Coun­cil of Eco­nom­ic Advis­ers under Pres­i­dent George W. Bush, wrote in a blog post on Fri­day. “It is time for sen­a­tors to do their job. Mr. Moore should not be con­firmed.”

Moore’s selec­tion is sub­ject to Sen­ate approval. He’s Trump’s sixth nom­i­na­tion to the nation’s mon­e­tary author­i­ty, which has a sev­en-seat board of gov­er­nors that typ­i­cal­ly is filled with trained econ­o­mists, for­mer finan­cial-indus­try exec­u­tives and bank reg­u­la­tors. There are cur­rent­ly two vacant seats.

Two pre­vi­ous Trump nom­i­nees, Nel­lie Liang and Mar­vin Good­friend, failed to advance in the Sen­ate in 2018. Unlike Moore, nei­ther faced accu­sa­tions that they were unqual­i­fied.

Puz­zling Pick

Some pri­vate-sec­tor econ­o­mists who’ve gen­er­al­ly sup­port­ed Trump’s efforts to accel­er­ate growth with low­er tax­es, less reg­u­la­tion and fair­er trade deals were non­plussed by the selec­tion of Moore, an offi­cial at the con­ser­v­a­tive Her­itage Foun­da­tion think-tank and an eco­nom­ic advis­er to Trump’s 2016 cam­paign.

“The fact that Stephen Moore gets nom­i­nat­ed and has a plau­si­ble path to con­fir­ma­tion but Peter Dia­mond didn’t is tru­ly detestable,” said Neil Dut­ta, head of eco­nom­ics at Renais­sance Macro Research. He was refer­ring to Dia­mond, a Nobel Prize-win­ning econ­o­mist whom Pres­i­dent Barack Oba­ma nom­i­nat­ed to the Fed but end­ed up with­draw­ing from con­sid­er­a­tion in June 2011 in the face of Repub­li­can oppo­si­tion.

“The upshot is that Stephen Moore will not have much influ­ence if he sat around the table,” Dut­ta said.

While most pres­i­den­tial nom­i­nees keep a low pub­lic pro­file until they’re con­sid­ered by the Sen­ate, out of respect for the demo­c­ra­t­ic process, Moore took to the air­waves hours after Trump announced his nom­i­na­tion two days ago. In a Bloomberg Tele­vi­sion inter­view he called the Fed’s Decem­ber rate increase, which was approved in a unan­i­mous vote, “a very sub­stan­tial mis­take.”

Moore acknowl­edged he has a “long road ahead” that includ­ed Sen­ate con­fir­ma­tion. Known along with Arthur Laf­fer as a sup­ply-side sup­port­er of tax cuts to unleash faster eco­nom­ic growth, he also said he has a lot to learn about mon­e­tary pol­i­cy.

‘Steep Learn­ing Curve’

“I’m kind of new to this game, frankly, so I’m going to be on a steep learn­ing curve myself about how the Fed oper­ates, how the Fed­er­al Reserve makes its deci­sions,” Moore, 59, said on BTV. “It’s hard for me to say even what my role will be there, assum­ing I get con­firmed.”

He also tweet­ed on Fri­day, thank­ing Trump “for the oppor­tu­ni­ty to serve & for your zeal­ous com­mit­ment to free­ing the Amer­i­can eco­nom­ic engine from gov­ern­ment over­reach & oppres­sive tax­a­tion!”

Thanky­ou @realDonaldTrump for the oppor­tu­ni­ty to serve & for your zeal­ous com­mit­ment to free­ing the Amer­i­can eco­nom­ic engine from gov­ern­ment over­reach & oppres­sive tax­a­tion! https://t.co/pBOoxqo9mO
— Stephen Moore (@StephenMoore) March 22, 2019

It’s not unheard-of for a U.S. pres­i­dent to pick a like-mind­ed advis­er, or even a polit­i­cal donor, to serve on the Fed Board.

Alice Rivlin, a direc­tor of Pres­i­dent Bill Clinton’s Office of Man­age­ment and Bud­get, was his nom­i­nee to be Fed vice chair­man in 1996. Ben Bernanke led the White House Coun­cil of Eco­nom­ic Advis­ers before Bush chose him to be chair­man of the cen­tral bank in 2006. And cur­rent Fed Gov­er­nor Lael Brainard, select­ed by Oba­ma in 2014, donat­ed to Hillary Clinton’s 2016 elec­tion cam­paign.

Janet Yellen had an oppo­site tra­jec­to­ry, serv­ing as a Fed gov­er­nor from 1994 to 1997 before join­ing the Clin­ton admin­is­tra­tion as CEA chair. She returned to Wash­ing­ton as Fed vice-chair after a stint as San Fran­cis­co Fed pres­i­dent, and was lat­er appoint­ed by Oba­ma as the Fed’s first woman chair.

The dif­fer­ence is they’re all respect­ed Ph.D. econ­o­mists, so con­cerns about politi­ciz­ing the Fed didn’t become a much of a fac­tor in their Sen­ate con­fir­ma­tion hear­ings.

Moore, who has a mas­ter of arts in eco­nom­ics from George Mason Uni­ver­si­ty in Vir­ginia, is bet­ter known for help­ing pro­mote a fis­cal agen­da than he is for mon­e­tary-pol­i­cy exper­tise. He co-wrote, with Laf­fer, a 2018 book on Trump’s eco­nom­ic strat­e­gy enti­tled “Trumpo­nom­ics: Inside the Amer­i­ca First Plan to Revive Our Econ­o­my.”

He also for­mer­ly wrote on the econ­o­my and pub­lic pol­i­cy for the Wall Street Jour­nal and is on his sec­ond stint at the Her­itage Foun­da­tion.

Response to Mankiw

“Moore focus­es on advanc­ing pub­lic poli­cies that increase the rate of eco­nom­ic growth to help the Unit­ed States retain its posi­tion as the glob­al eco­nom­ic super­pow­er,” accord­ing to his biog­ra­phy on the Her­itage Foun­da­tion web­site. “He also works on bud­get, fis­cal and mon­e­tary pol­i­cy and show­cas­es states that get fis­cal hous­es in order.”

...

“I don’t know why Greg Mankiw is attack­ing me,” he said in an email on Sat­ur­day. “One pos­si­ble rea­son is that in his text­book he calls sup­ply-siders like Laf­fer ‘char­la­tans and cranks.’ He then removed that sec­tion from the book — because he got so much flak for it when he went into the Bush admin­is­tra­tion.”

Asked for a response, Mankiw said he doesn’t believe Moore’s “back­ground makes him a good fit for the job of Fed gov­er­nor.” The pro­fes­sor also dis­put­ed Moore’s facts.

“The pas­sage he refers to was removed in the sec­ond edi­tion of my book,” Mankiw said. “That edi­tion was com­plet­ed in July 2000, four months before Pres­i­dent Bush was elect­ed and 2 1/2 years before I joined the admin­is­tra­tion.”

———-

“Swift Push­back on Stephen Moore, Trump’s Lat­est Pick for the Fed” by Bren­dan Mur­ray; Bloomberg; 03/24/2019

““He does not have the intel­lec­tu­al grav­i­tas for this impor­tant job,” Greg Mankiw, a Har­vard pro­fes­sor who was chair­man of the White House Coun­cil of Eco­nom­ic Advis­ers under Pres­i­dent George W. Bush, wrote in a blog post on Fri­day. “It is time for sen­a­tors to do their job. Mr. Moore should not be con­firmed.””

He does not have the intel­lec­tu­al grav­i­tas for this impor­tant job. And that’s not accord­ing to a left-wing econ­o­mist like Paul Krug­man. No, that’s accord­ing to Greg Mankow, George W. Bush’s White House Coun­cil of Eco­nom­ic Advis­ers chair­man.

But biggest con­dem­na­tion of Moore’s qual­i­fi­ca­tion remark­ably comes from Moore him­self. Upon learn­ing about Trump’s selec­tion, Moore vol­un­teered to Bloomberg TV that “I’m kind of new to this game” and that “I’m going to be on a steep learn­ing curve myself about how the Fed oper­ates, how the Fed­er­al Reserve makes its deci­sions”. The guy lit­er­al­ly admit­ted he needs to learn about how the Fed oper­ates and that’s who Trump just nom­i­nat­ed to the Fed board:

...
While most pres­i­den­tial nom­i­nees keep a low pub­lic pro­file until they’re con­sid­ered by the Sen­ate, out of respect for the demo­c­ra­t­ic process, Moore took to the air­waves hours after Trump announced his nom­i­na­tion two days ago. In a Bloomberg Tele­vi­sion inter­view he called the Fed’s Decem­ber rate increase, which was approved in a unan­i­mous vote, “a very sub­stan­tial mis­take.”

Moore acknowl­edged he has a “long road ahead” that includ­ed Sen­ate con­fir­ma­tion. Known along with Arthur Laf­fer as a sup­ply-side sup­port­er of tax cuts to unleash faster eco­nom­ic growth, he also said he has a lot to learn about mon­e­tary pol­i­cy.

‘Steep Learn­ing Curve’

“I’m kind of new to this game, frankly, so I’m going to be on a steep learn­ing curve myself about how the Fed oper­ates, how the Fed­er­al Reserve makes its deci­sions,” Moore, 59, said on BTV. “It’s hard for me to say even what my role will be there, assum­ing I get con­firmed.”

...

Moore, who has a mas­ter of arts in eco­nom­ics from George Mason Uni­ver­si­ty in Vir­ginia, is bet­ter known for help­ing pro­mote a fis­cal agen­da than he is for mon­e­tary-pol­i­cy exper­tise. He co-wrote, with Laf­fer, a 2018 book on Trump’s eco­nom­ic strat­e­gy enti­tled “Trumpo­nom­ics: Inside the Amer­i­ca First Plan to Revive Our Econ­o­my.”

He also for­mer­ly wrote on the econ­o­my and pub­lic pol­i­cy for the Wall Street Jour­nal and is on his sec­ond stint at the Her­itage Foun­da­tion.
...

And note that while it is true that Moore is bet­ter known for help­ing pro­mote a fis­cal agen­da than he is for mon­e­tary-pol­i­cy exper­tise, it would be more accu­rate to say that he is bet­ter known for help­ing pro­mote a bud­get-bust­ing fis­cal agen­da of tax cuts for the rich that will inevitably lead to much high­er fed­er­al debt lev­els. He just does­n’t nor­mal­ly have to jus­ti­fy the high­er bud­get deficits that inevitably result from the fail­ure of his rec­om­mend­ed sup­ply-side poli­cies.
His­tor­i­cal­ly, Moore was the kind of right-wing crank con­stant­ly call­ing for mas­sive spend­ing cuts and ‘enti­tle­ment reform’ (gut­ting Social Secu­ri­ty, Medicare, and Med­ic­aid).

For exam­ple, in April of 2014, Moore actu­al­ly wrote a col­umn in the Nation­al Review where he cheered the then-falling fed­er­al bud­get deficits that had plumet­ted to pre-2008 lev­els for the first time since the 2008 finan­cial cri­sis. Deficits were at half the peak of 2009. Moore claimed the unsung hero was the “sequester” spend­ing cuts/caps that were put in place in 2011 as a result of August 2011 Bud­get Con­trol Act. Moore’s col­umn does­n’t men­tion the role of the eco­nom­ic recov­ery over­whelm­ing­ly played. And Moore clear­ly ignored the real­i­ty that you get a lot of ‘bang for your buck’ when the stim­u­lus spend­ing is in the mid­dle of a deep reces­sion. That’s exact­ly when you want to a lot of gov­ern­ment spend­ing. So, yes, the GOP demands that result­ed in sequester cuts did cer­tain­ly con­tribute some to the shrink­ing deficits in 2014 but those were the kinds of cuts that weren’t real­ly worth it. The gov­ern­ment spend­ing was more help­ful at that point in the eco­nom­ic recov­ery than a low­er deficit would have been.

And there’s one sec­tion of the col­umn that demon­strates just how dan­ger­ous Stephen Moore can be to the pub­lic good. Moore laments the lack of enti­tle­ment reform and says the path to that is forc­ing the Democ­rats into enti­tle­ment reform by drain­ing funds from every­thing else:

The Nation­al Review

Who Shrank the Deficit?

By Stephen Moore
April 17, 2014 8:00 AM

...

Many con­ser­v­a­tives don’t appre­ci­ate how much spend­ing has actu­al­ly fall­en. It hit near­ly 25 per­cent of GDP in the first year of the Oba­ma stim­u­lus but is now close to 21 per­cent. More than half of that cut came out of defense, but the pro­grams that lib­er­als care about — green-ener­gy sub­si­dies, for­eign aid, job train­ing, and tran­sit grants — have also been whacked.

Enti­tle­ments haven’t been touched, of course, and Oba­macare is the biggest expan­sion of the enti­tle­ment state since the 1960s. But the best way to force Democ­rats to mod­ern­ize these pro­grams is by drain­ing fund­ing for every­thing else.

The key now, as Mr. Boehn­er tells me, “is to hold the line on those spend­ing caps and don’t let Barack Oba­ma slip out of them. It’s our best lever­age right now.” Oba­ma wants a $100-bil­lion-plus infra­struc­ture bank, but, sor­ry, Mr. Pres­i­dent, the spend­ing caps you agreed to make that a non-starter.

...

———-

“Who Shrank the Deficit?” by Stephen Moore; The Nation­al Review; 04/17/2014

“Enti­tle­ments haven’t been touched, of course, and Oba­macare is the biggest expan­sion of the enti­tle­ment state since the 1960s. But the best way to force Democ­rats to mod­ern­ize these pro­grams is by drain­ing fund­ing for every­thing else.”

The best way to force Democ­rats to ‘mod­ern­ize’ (dras­ti­cal­ly cut) enti­tle­ments is by drain­ing fund­ing for every­thing else. That was Stephen Moore in 2014.

But now that he’s a Trump eco­nom­ic advis­er he’s become much more open to the eco­nom­ic stim­u­lus val­ue of high­er deficit spend­ing. And much like with Her­man Cain, this ‘flex­i­bil­i­ty’ in prin­ci­ple that Moore demon­strates does con­ve­nient­ly bode well in the short-run if Moore real­ly does join the Fed sim­ply because Moore is like­ly to sup­port low­er rates like Trump wants and that’s what he real­ly should do at the moment.

But we can’t ignore the fact that, pre-Trump, Moore all cer­tain­ly would be in favor or high­er rates in gen­er­al. And we also can’t ignore the fact that high­er rates will be a great way to effec­tive­ly starve funds from all the oth­er pro­grams by divert­ing more fed­er­al spend­ing towards inter­est pay­ments on the debt. Rais­ing the rates ‘starves the beast’.

Moore is one of those fig­ures who will have one set of poli­cies (high­er rates, pro-aus­ter­i­ty) when a Demo­c­rat is in office and anoth­er (low­er-rates, more accom­moda­tive to growth) when a Repub­li­can is in office. He’s going to be reli­ably for low­er rates until 2020 and that point it will depend on who wins the White House. That’s going to be cru­cial to keep in mind as Moore under­goes Sen­ate review for a Fed board posi­tion. The kind is a par­ti­san hack. That and the fact that lead­ing con­ser­v­a­tive econ­o­mists open­ly say Moore is unfit for the job and he appears to kind of agree.

One of the more inter­est­ing quirks of the Trump admin­is­tra­tion’s seem­ing­ly end­less parade of pol­i­cy deba­cles has been the fact that, thus far, those deba­cles haven’t includ­ed the Fed­er­al Reserve. When it comes to the appoint­ments Trump has made thus far he’s been kind of sane. It’s actu­al­ly quite remark­able. And then we got to 2019. In late Jan­u­ary, we learned that Trump was con­sid­er­ing right-wing hack Her­man Cain for one of the open spots on the Fed board. And then last month it was revealed that Trump is also plan­ning on nom­i­nat­ing Stephen Moore for an open seat. Whether or not Moore is a big­ger right-wing hack than Cain is open to debate. Either way, it’s clear that Trump’s peri­od of Fed-relat­ed rel­a­tive san­i­ty is com­ing to an end.

And keep in mind that there are two open seats on the board right now so it’s entire­ly pos­si­ble that both Moore and Cain will be join­ing the board. Might that actu­al­ly hap­pen? Or is Trump basi­cal­ly try­ing to pres­sure the exist­ing Fed board mem­bers into tak­ing a ‘loos­er’ (low­er rate) stance by threat­en­ing to stack the board with bla­tant hacks? Well, if this is all a pres­sure play by Trump he just upped the pres­sure because it’s look­ing a lot more like­ly that Trump is seri­ous about stack­ing the Fed board with syco­phants after Trump just reit­er­at­ed that he’s plan­ning on pick­ing Cain for one of those open slots

The New York Times

Trump Says He Wants Her­man Cain, For­mer Piz­za Exec­u­tive, for Fed Board

By Alan Rappe­port, Neil Irwin and Mag­gie Haber­man

April 4, 2019

WASHINGTON — Pres­i­dent Trump said on Thurs­day that he planned to nom­i­nate Her­man Cain, who aban­doned his 2012 pres­i­den­tial bid in the face of esca­lat­ing accu­sa­tions of sex­u­al mis­con­duct, for a seat on the Fed­er­al Reserve Board.

Mr. Trump, speak­ing from the Oval Office, called Mr. Cain, the for­mer chief exec­u­tive of Godfather’s Piz­za, “a tru­ly out­stand­ing indi­vid­ual” and said, “I’ve told my folks that’s the man.”

The deci­sion to con­sid­er Mr. Cain is the sec­ond time in weeks that the pres­i­dent has float­ed can­di­dates with deeply held polit­i­cal views and past eth­i­cal issues to fill a seat on the Fed, sig­nal­ing his intent to put allies on a tra­di­tion­al­ly inde­pen­dent body. It comes as Mr. Trump has con­tin­ued to attack the Fed and his hand­picked chair­man, Jerome H. Pow­ell, for rais­ing inter­est rates in 2018, say­ing those moves slowed eco­nom­ic growth.

Last month, Mr. Trump said he planned to nom­i­nate Stephen Moore, a con­ser­v­a­tive econ­o­mist who advised his pres­i­den­tial cam­paign and has become a vocal crit­ic of the cen­tral bank’s recent rate increas­es, as a Fed gov­er­nor.

Mr. Trump has staked his pres­i­den­cy on a boom­ing econ­o­my and his re-elec­tion could hinge on whether it con­tin­ues to surge or fal­ter. The Fed, which has the abil­i­ty to stim­u­late the econ­o­my by low­er­ing inter­est rates and using oth­er tools at its dis­pos­al, will play a cru­cial role in the economy’s tra­jec­to­ry.

While pres­i­dents have long stocked reg­u­la­to­ry agen­cies with par­ti­san appointees in pur­suit of ide­o­log­i­cal goals, the Fed’s sev­en-mem­ber board of gov­er­nors has large­ly been an excep­tion giv­en the role it plays in the Unit­ed States econ­o­my. The Fed’s pri­ma­ry job is to guide the econ­o­my, typ­i­cal­ly by adjust­ing inter­est rates. It aims for sus­tain­able growth, max­i­mum employ­ment and sta­ble prices. It also reg­u­lates banks and over­sees the plumb­ing of the finan­cial sys­tem.

Most devel­oped nations have grant­ed their cen­tral banks con­sid­er­able auton­o­my over pol­i­cy­mak­ing pre­cise­ly because of con­cerns that politi­cians would seek to increase short-term growth at the expense of infla­tion and insta­bil­i­ty. Some mod­ern pres­i­dents have opined open­ly about what the Fed should do, includ­ing Pres­i­dent George Bush, who declared in a State of the Union address that the cen­tral bank should keep rates low.

But in recent decades, the vol­ume of pub­lic com­men­tary great­ly dimin­ished as politi­cians con­clud­ed that pres­sur­ing the Fed was coun­ter­pro­duc­tive.

The pres­i­dent has large­ly aban­doned that tra­di­tion. Last year, as inter­est rates rose and the stock mar­ket declined, Mr. Trump repeat­ed­ly attacked Fed pol­i­cy as “crazy,” “wild” and “loco.” He asked aides whether he could replace the chair­man and lament­ed pri­vate­ly that Mr. Powell’s appoint­ment was one of his biggest regrets.

The Fed, which raised rates for five con­sec­u­tive quar­ters amid a roar­ing econ­o­my with the low­est unem­ploy­ment rate in near­ly two decades, has since paused its cam­paign. Mr. Pow­ell has repeat­ed­ly rebuffed any sug­ges­tion that the cen­tral bank is being influ­enced by Mr. Trump’s broad­sides, say­ing it is adopt­ing a more “patient” approach to inter­est rates giv­en signs of eco­nom­ic weak­ness in the Unit­ed States and abroad.

With two open seats on the sev­en-mem­ber Fed, Mr. Trump has the abil­i­ty to dras­ti­cal­ly shape the cen­tral bank for the fore­see­able future. The pres­i­dent has already appoint­ed four of the Fed’s cur­rent gov­er­nors, who car­ry 14-year terms. One gov­er­nor, Lael Brainard, is a holdover from the Oba­ma admin­is­tra­tion.

The appoint­ment and con­fir­ma­tion of Mr. Moore and Mr. Cain could put the Fed in unchart­ed ter­ri­to­ry. While the insti­tu­tion has strong­ly root­ed val­ues around tech­ni­cal com­pe­tence and apo­lit­i­cal debate, Mr. Trump’s lat­est choic­es have been polit­i­cal actors rather than in-the-weeds experts in any of the main areas in which the Fed makes pol­i­cy.

Two gov­er­nors alone can­not entire­ly shape Fed pol­i­cy, but they can have an effect on deci­sions. The Fed­er­al Open Mar­ket Com­mit­tee, which sets inter­est rates, con­sists of 12 vot­ing mem­bers, includ­ing the sev­en gov­er­nors, the pres­i­dent of the Fed­er­al Reserve Bank of New York and four region­al Fed­er­al Reserve Bank pres­i­dents, who serve one-year terms on a rotat­ing basis. Changes to inter­est rates must be approved by a major­i­ty of the vot­ing mem­bers.

Both Mr. Moore and Mr. Cain are under­go­ing back­ground checks, and if nom­i­nat­ed, must be con­firmed by the Sen­ate.

The choice of such can­di­dates to fill two of the most pow­er­ful jobs in eco­nom­ic pol­i­cy is rais­ing fears among some Fed vet­er­ans that the pres­i­dent is installing polit­i­cal allies at the cen­tral bank to do his bid­ding.

“It’s one thing to put cronies into the exec­u­tive branch, but I think the cen­tral bank is anoth­er kind of insti­tu­tion that it’s so crit­i­cal in that it holds the reins sole­ly to mon­e­tary pol­i­cy,” said Sarah Bloom Raskin, who served on the Fed’s board of gov­er­nors from 2010 to 2014. “It has the poten­tial to under­mine the cred­i­bil­i­ty of mon­e­tary pol­i­cy.”

Mr. Cain’s nom­i­na­tion is being sup­port­ed by Lar­ry Kud­low, who heads the Nation­al Eco­nom­ic Coun­cil and also rec­om­mend­ed Mr. Moore for a Fed seat, accord­ing to a per­son famil­iar with the dis­cus­sions.

While he heaped praise on his “friend” Mr. Cain, Mr. Trump ear­li­er in the day con­tin­ued his assault on the “destruc­tive actions” tak­en by the Fed and said on Twit­ter that the econ­o­my was very strong despite the cen­tral bank’s efforts.

The selec­tion of Mr. Moore and Mr. Cain appeared to be a coun­ter­weight to Mr. Pow­ell. But while Mr. Moore has been pub­licly crit­i­cal of the Fed and called for Mr. Pow­ell to resign, Mr. Cain’s views are less clear.

As a pres­i­den­tial can­di­date, Mr. Cain rode a brief surge in pop­u­lar­i­ty to the top of the polls on the back of his “9–9‑9” eco­nom­ic plan. The pro­pos­al called for scrap­ping the exist­ing tax code and replac­ing it with a flat 9 per­cent income tax, a 9 per­cent busi­ness tax and a 9 per­cent nation­al retail sales tax. The con­cept was hailed by some for its sim­plic­i­ty, but it ulti­mate­ly fiz­zled with his cam­paign.

On mon­e­tary pol­i­cy, his views are equal­ly unortho­dox. In a 2012 op-ed in The Wall Street Jour­nal, Mr. Cain accused the cen­tral bank of manip­u­lat­ing the val­ue of the dol­lar by rais­ing and low­er­ing inter­est rates by whim and called for a return to the gold stan­dard, which was aban­doned in 1971.

“For the last 40 years in Wash­ing­ton, reg­u­late has meant manip­u­late, with the Fed­er­al Reserve rais­ing and low­er­ing inter­est rates and buy­ing and sell­ing assets at its own dis­cre­tion,” Mr. Cain wrote, argu­ing that a com­plex soci­ety needs fixed stan­dards. “A dol­lar should be defined — as it was pri­or to 1971 under the post­war Bret­ton Woods sys­tem — as a fixed quan­ti­ty of gold.”

Mr. Cain is also a for­mer chair­man of the Fed­er­al Reserve Bank of Kansas City, a role that is often giv­en to local busi­ness lead­ers. In a 2011 2011 inter­view with The Atlantic, Drue Jen­nings, who served with Mr. Cain on the board, said that Mr. Cain was an “infla­tion hawk” when it came to mon­e­tary pol­i­cy, a moniker attrib­uted to those who view ris­ing prices as a threat to eco­nom­ic growth and favor high­er inter­est rates to keep infla­tion in check.

Mr. Trump has made clear he has no inter­est in a Fed gov­er­nor who wants to raise rates but, more recent­ly, Mr. Cain has shown that he has evolved on the sub­ject.

“If I were offered the job, I would try to encour­age the Fed not to make infla­tion a fear fac­tor because defla­tion, as Stephen Moore had point­ed out in a great arti­cle that he wrote along with anoth­er econ­o­mist, defla­tion is more of a fear fac­tor than infla­tion,” Mr. Cain said in a Feb­ru­ary inter­view with the Fox Busi­ness Net­work.

Per­haps most impor­tant to Mr. Trump, Mr. Cain has shown that he is loy­al to the pres­i­dent. In Sep­tem­ber, Mr. Cain formed the Amer­i­ca Fight­ing Back PAC, which has a mis­sion of pub­licly rebut­ting what he believes is mis­in­for­ma­tion about Mr. Trump.

...

It is unclear whether Mr. Cain will clear the back­ground check. His pres­i­den­tial cam­paign came to a screech­ing halt after sev­er­al women came for­ward with accu­sa­tions of sex­u­al harass­ment or improp­er behav­ior.

The selec­tion of Mr. Cain drew back­lash on Thurs­day from some of those women.

Gin­ger White, who pub­licly said in 2011 that she and Mr. Cain had had an affair, said that he should not be reward­ed for such actions. Ms. White said that the affair was on and off for 13 years and that Mr. Cain denied it because he was seek­ing the Repub­li­can nom­i­na­tion for pres­i­dent.

“We need hon­esty and integri­ty in those who are appoint­ed to pub­lic office,” Ms. White said in a state­ment released by her lawyer, Glo­ria Allred. “Her­man Cain should not be reward­ed for his bad behav­ior. In my opin­ion, he lacks what should be required for appoint­ment to the Fed­er­al Reserve or any pub­lic office.”

In some ways, Mr. Cain, who pre­ferred news inter­views to inten­sive retail cam­paign­ing, pre­saged Mr. Trump’s own out­sider cam­paign four years lat­er. But unlike the president’s pres­i­den­tial bid, Mr. Cain’s was fatal­ly wound­ed when he faced charges of sex­u­al mis­con­duct.

In Octo­ber 2011, Politi­co report­ed that Mr. Cain, as head of the Nation­al Restau­rant Asso­ci­a­tion, had been accused of sex­u­al­ly harass­ing two women, who left the trade group after receiv­ing finan­cial pay­outs and sign­ing nondis­clo­sure agree­ments. One of the women, who was from Chica­go, said that Mr. Cain made an unwant­ed and rough phys­i­cal advance.

Con­front­ed with the claims, Mr. Cain ini­tial­ly did not deny them. He lat­er pro­claimed his inno­cence and sought to cast blame on polit­i­cal rivals and the news media for what he called a smear cam­paign.

Oth­er women emerged soon after to say that they, too, had been sex­u­al­ly harassed by Mr. Cain. By that Decem­ber, he dropped out of the pres­i­den­tial race.

———–

“Trump Says He Wants Her­man Cain, For­mer Piz­za Exec­u­tive, for Fed Board” by Alan Rappe­port, Neil Irwin and Mag­gie Haber­man; The New York Times; 04/04/2019

“The deci­sion to con­sid­er Mr. Cain is the sec­ond time in weeks that the pres­i­dent has float­ed can­di­dates with deeply held polit­i­cal views and past eth­i­cal issues to fill a seat on the Fed, sig­nal­ing his intent to put allies on a tra­di­tion­al­ly inde­pen­dent body. It comes as Mr. Trump has con­tin­ued to attack the Fed and his hand­picked chair­man, Jerome H. Pow­ell, for rais­ing inter­est rates in 2018, say­ing those moves slowed eco­nom­ic growth.”

Stack­ing the Fed with cor­rupt cronies. And this is fol­low­ing Trump’s open heck­ling of the Fed and Chair­man Pow­ell. So open pres­i­den­tial heck­ling of the Fed and stack­ing the board with cor­rupt cronies is a thing now:

...
While pres­i­dents have long stocked reg­u­la­to­ry agen­cies with par­ti­san appointees in pur­suit of ide­o­log­i­cal goals, the Fed’s sev­en-mem­ber board of gov­er­nors has large­ly been an excep­tion giv­en the role it plays in the Unit­ed States econ­o­my. The Fed’s pri­ma­ry job is to guide the econ­o­my, typ­i­cal­ly by adjust­ing inter­est rates. It aims for sus­tain­able growth, max­i­mum employ­ment and sta­ble prices. It also reg­u­lates banks and over­sees the plumb­ing of the finan­cial sys­tem.

Most devel­oped nations have grant­ed their cen­tral banks con­sid­er­able auton­o­my over pol­i­cy­mak­ing pre­cise­ly because of con­cerns that politi­cians would seek to increase short-term growth at the expense of infla­tion and insta­bil­i­ty. Some mod­ern pres­i­dents have opined open­ly about what the Fed should do, includ­ing Pres­i­dent George Bush, who declared in a State of the Union address that the cen­tral bank should keep rates low.

But in recent decades, the vol­ume of pub­lic com­men­tary great­ly dimin­ished as politi­cians con­clud­ed that pres­sur­ing the Fed was coun­ter­pro­duc­tive.

The pres­i­dent has large­ly aban­doned that tra­di­tion. Last year, as inter­est rates rose and the stock mar­ket declined, Mr. Trump repeat­ed­ly attacked Fed pol­i­cy as “crazy,” “wild” and “loco.” He asked aides whether he could replace the chair­man and lament­ed pri­vate­ly that Mr. Powell’s appoint­ment was one of his biggest regrets.
...

Crit­i­cal­ly, it’s impor­tant to keep in mind that the dam­age Cain and Moore can do won’t be lim­it­ed to being Trump’s cronies on the Fed because these are 14 year appoint­ments. Long after Trump is gone these two will still be sit­ting on the Fed board. And there’s only sev­en seats on the board so these two only will con­sti­tute a sub­stan­tial ‘eco­nom­ic-quack’ fac­tion of the board. And that points towards one area where their appoint­ments could have a sig­nif­i­cant impact: under­min­ing the cred­i­bil­i­ty of the Fed’s mon­e­tary pol­i­cy. Because don’t for­get that a major tool in any cen­tral bank’s tool­box is the abil­i­ty to set expec­ta­tions for the broad­er mar­ket and that’s going to become a lot hard­er when 2/7 board mem­bers are bla­tant par­ti­san hacks:

...
With two open seats on the sev­en-mem­ber Fed, Mr. Trump has the abil­i­ty to dras­ti­cal­ly shape the cen­tral bank for the fore­see­able future. The pres­i­dent has already appoint­ed four of the Fed’s cur­rent gov­er­nors, who car­ry 14-year terms. One gov­er­nor, Lael Brainard, is a holdover from the Oba­ma admin­is­tra­tion.

The appoint­ment and con­fir­ma­tion of Mr. Moore and Mr. Cain could put the Fed in unchart­ed ter­ri­to­ry. While the insti­tu­tion has strong­ly root­ed val­ues around tech­ni­cal com­pe­tence and apo­lit­i­cal debate, Mr. Trump’s lat­est choic­es have been polit­i­cal actors rather than in-the-weeds experts in any of the main areas in which the Fed makes pol­i­cy.

Two gov­er­nors alone can­not entire­ly shape Fed pol­i­cy, but they can have an effect on deci­sions. The Fed­er­al Open Mar­ket Com­mit­tee, which sets inter­est rates, con­sists of 12 vot­ing mem­bers, includ­ing the sev­en gov­er­nors, the pres­i­dent of the Fed­er­al Reserve Bank of New York and four region­al Fed­er­al Reserve Bank pres­i­dents, who serve one-year terms on a rotat­ing basis. Changes to inter­est rates must be approved by a major­i­ty of the vot­ing mem­bers.

...

“It’s one thing to put cronies into the exec­u­tive branch, but I think the cen­tral bank is anoth­er kind of insti­tu­tion that it’s so crit­i­cal in that it holds the reins sole­ly to mon­e­tary pol­i­cy,” said Sarah Bloom Raskin, who served on the Fed’s board of gov­er­nors from 2010 to 2014. “It has the poten­tial to under­mine the cred­i­bil­i­ty of mon­e­tary pol­i­cy.”
...

And that prospect of 14 year terms for polit­i­cal hacks com­bined with the risk of their par­ti­san hack sta­tus under­min­ing Fed pol­i­cy is a big rea­son the com­plete lack of integri­ty by these two is poten­tial­ly such a big deal. Because, sure, while Trump is in office it’s a safe bet that these two would sup­port a loos­er pol­i­cy of low­er rates in gen­er­al. But once Trump is gone, it’s a safe bet that Caine and Moore will revert back to their pre-Trump sta­tus. For Cain, that pre-Trump sta­tus was one of being a mon­e­tary ‘hawk’ and an advo­cate of return­ing to the gold stan­dard:

...
The selec­tion of Mr. Moore and Mr. Cain appeared to be a coun­ter­weight to Mr. Pow­ell. But while Mr. Moore has been pub­licly crit­i­cal of the Fed and called for Mr. Pow­ell to resign, Mr. Cain’s views are less clear.

As a pres­i­den­tial can­di­date, Mr. Cain rode a brief surge in pop­u­lar­i­ty to the top of the polls on the back of his “9–9‑9” eco­nom­ic plan. The pro­pos­al called for scrap­ping the exist­ing tax code and replac­ing it with a flat 9 per­cent income tax, a 9 per­cent busi­ness tax and a 9 per­cent nation­al retail sales tax. The con­cept was hailed by some for its sim­plic­i­ty, but it ulti­mate­ly fiz­zled with his cam­paign.

On mon­e­tary pol­i­cy, his views are equal­ly unortho­dox. In a 2012 op-ed in The Wall Street Jour­nal, Mr. Cain accused the cen­tral bank of manip­u­lat­ing the val­ue of the dol­lar by rais­ing and low­er­ing inter­est rates by whim and called for a return to the gold stan­dard, which was aban­doned in 1971.

“For the last 40 years in Wash­ing­ton, reg­u­late has meant manip­u­late, with the Fed­er­al Reserve rais­ing and low­er­ing inter­est rates and buy­ing and sell­ing assets at its own dis­cre­tion,” Mr. Cain wrote, argu­ing that a com­plex soci­ety needs fixed stan­dards. “A dol­lar should be defined — as it was pri­or to 1971 under the post­war Bret­ton Woods sys­tem — as a fixed quan­ti­ty of gold.”

Mr. Cain is also a for­mer chair­man of the Fed­er­al Reserve Bank of Kansas City, a role that is often giv­en to local busi­ness lead­ers. In a 2011 2011 inter­view with The Atlantic, Drue Jen­nings, who served with Mr. Cain on the board, said that Mr. Cain was an “infla­tion hawk” when it came to mon­e­tary pol­i­cy, a moniker attrib­uted to those who view ris­ing prices as a threat to eco­nom­ic growth and favor high­er inter­est rates to keep infla­tion in check.

Mr. Trump has made clear he has no inter­est in a Fed gov­er­nor who wants to raise rates but, more recent­ly, Mr. Cain has shown that he has evolved on the sub­ject.

“If I were offered the job, I would try to encour­age the Fed not to make infla­tion a fear fac­tor because defla­tion, as Stephen Moore had point­ed out in a great arti­cle that he wrote along with anoth­er econ­o­mist, defla­tion is more of a fear fac­tor than infla­tion,” Mr. Cain said in a Feb­ru­ary inter­view with the Fox Busi­ness Net­work.

Per­haps most impor­tant to Mr. Trump, Mr. Cain has shown that he is loy­al to the pres­i­dent. In Sep­tem­ber, Mr. Cain formed the Amer­i­ca Fight­ing Back PAC, which has a mis­sion of pub­licly rebut­ting what he believes is mis­in­for­ma­tion about Mr. Trump.
...

“Per­haps most impor­tant to Mr. Trump, Mr. Cain has shown that he is loy­al to the pres­i­dent. In Sep­tem­ber, Mr. Cain formed the Amer­i­ca Fight­ing Back PAC, which has a mis­sion of pub­licly rebut­ting what he believes is mis­in­for­ma­tion about Mr. Trump.”

Yes, for Trump, the most impor­tant qual­i­ty of Her­man Cain is that Cain has demon­strat­ed his loy­al­ty to Trump. But after Trump leaves, it’s pret­ty clear that Cain is going to be loy­al to that polit­i­cal impulse of his that led him to be a mon­e­tary hawk while he was serv­ing on the Kansas Fed in the 90’s, then sud­den­ly becom­ing a gold bug in 2012 when he was run­ning for pres­i­dent, and final­ly flip-flop­ping entire­ly and turn­ing into a ‘dove’ after Trump is elect­ed. In oth­er words, Cain’s track record is one of being loy­al to Cain’s own polit­i­cal incli­na­tions at the moment. So if a Repub­li­can is in office the mar­kets can expect a ‘dovish’ Cain and when a Demo­c­rat is in office the mar­kets can expect a ‘hawk­ish’ Cain. Same with Moore. And when mar­kets can rea­son­ably expect 2 out of 7 Fed board mem­bers to shift in a pre­dictably par­ti­san man­ner that’s exact­ly the kind of sce­nario that destroys the mon­e­tary pol­i­cy cred­i­bil­i­ty, espe­cial­ly dur­ing pres­i­den­tial elec­tion years.

So enjoy the cur­rent peri­od of rel­a­tive Fed-relat­ed san­i­ty from the Trump admin­is­tra­tion because it looks like we’re about to revert to the norm. The Trumpian norm of unprece­dent­ed irre­spon­si­bil­i­ty.

In light of the fact that Pres­i­dent Trump appears to have made the deci­sion to stack the Fed board with par­ti­san hacks Stephen Moore and Her­man Cain who are promis­ing to keep rates low for Trump and the fact that Trump is still open­ly rhetor­i­cal­ly pres­sur­ing the Fed to keep rates low, it’s worth not­ing a rather remark­able fun fact about one of the Trump’s pre­vi­ous nom­i­nees who did­n’t make it through the Sen­ate nom­i­na­tion process: Mar­vin Good­friend — a con­ser­v­a­tive aca­d­e­m­ic who Trump nom­i­nat­ed to the Fed board in 2017 but found his nom­i­na­tion lan­guish­ing in the Sen­ate until the Trump admin­is­tra­tion neglect­ed to renom­i­nate him in 2019 — is a notable infla­tion hawk and a lead­ing aca­d­e­m­ic pro­po­nent of the argu­ment that the Fed should focus in infla­tion alone and not the health of the econ­o­my. Recall that the Fed has a dual man­date of both con­trol­ling infla­tion but also push­ing the econ­o­my towards full employ­ment and its the lat­ter part of that dual man­date that right-wing econ­o­mist tend to hate. So when Good­friend talks about ‘focus­ing on infla­tion’, that’s basi­cal­ly an attack on the dual man­date which is a very right-wing (and com­mon) view on Fed pol­i­cy.

Adding to those dual man­date con­cerns about Good­friend is the fact that he was a par­tic­u­lar­ly out­spo­ken oppo­nent of the Fed’s quan­ti­ta­tive eas­ing poli­cies fol­low­ing the 2008 finan­cial cri­sis. Good­friend prefers neg­a­tive inter­est rates instead of poli­cies like quan­ti­ta­tive eas­ing. The rea­son for his stalled nom­i­na­tion in the Repub­li­can con­trolled Sen­ate had to do with Good­friend’s enthu­si­asm for neg­a­tive inter­est rates. Sen­a­tor Rand Paul point­ed to a 2000 paper where Good­friend sug­gest­ed putting mag­net­ic strips on cash as part of scheme to enable the impo­si­tion of neg­a­tive inter­est rates on cash if that was nec­es­sary to encour­age spend­ing dur­ing a reces­sion. It’s a fas­ci­nat­ing rea­son for Good­friend’s nom­i­na­tion to go down because some­one who opposed the Fed’s stim­u­lus poli­cies fol­low­ing 2008 would­n’t be expect­ed to have backed neg­a­tive inter­est on cash as a stim­u­lus pol­i­cy. That’s a pret­ty aggres­sive pol­i­cy. Good­friend no longer backs the mag­net­ic strip idea although he still sup­ports efforts to cre­ate neg­a­tive inter­est rate con­di­tions, which makes his oppo­si­tion to the Fed’s cri­sis stim­u­lus poli­cies more bewil­der­ing. But his past sup­port for the mag­net­ic strips was the expla­na­tion Paul gave for his con­cerns that end­ed up sink­ing Good­friend’s nom­i­na­tion. Oth­er­wise Good­friend sounds like the kind of nom­i­nee Paul would nor­mal­ly get behind.

Keep in mind that Paul shot down Good­friend in Feb­ru­ary of 2018, which is before Trump was real­ly get­ting wor­ried about Fed rate hikes. So Trump real­ly owes Paul for block­ing Good­friend because now that seat was left open for a flunky for Her­man Cain or Stephen Moore.

It’s also worth not­ing that one of Good­friend’s core argu­ments against the Fed’s emer­gency actions in the 2008 cri­sis was that it would lead to infla­tion down the line and that infla­tion nev­er mate­ri­al­ized.

Keep in mind that Moore and Cain also both appeared to his­to­ry be Fed ‘hawks’ before they came out as Trump flunkies who were will­ing to pledge loy­al­ty to Trump. But unlike Moore and Caine, Good­friend nev­er sent Trump those sig­nals about sud­den­ly becom­ing dovish. So Trump must real­ly be glad Good­friend did­n’t get his nom­i­na­tion approved and Trump got to nom­i­na­tion Moore instead. An open flunky has to be way more fun.

Also keep in mind that Nel­lie Liang, who Trump nom­i­nat­ed to the Fed in Sep­tem­ber of 2018, was actu­al­ly a strong sup­port­er of the Fed’s post-2008 cri­sis response and gen­er­al­ly seen as a prag­ma­tist. Liang with­drew her nom­i­na­tion in Jan­u­ary after it also stalled in the Sen­ate, leav­ing open one of the slots for Moore and Cain. So when Trump nom­i­nat­ed Liang in Sep­tem­ber of 2018 he was already make a move towards a more dovish Fed. Trump clear­ly has fears about a slow­ing econ­o­my today that he did­n’t have in Novem­ber of 2017 when Trump first nom­i­nat­ed Good­friend. Note that Novem­ber of 2017 was the month before the pas­sage of GOP tax bill, so it’s pos­si­ble that Trump was expect­ing such an over­heat­ed econ­o­my fol­low­ing the tax cut that he was ok with nom­i­nat­ing some­one like Good­friend at the time. And then the tax cut turned out to be a giant waste and sud­den­ly Trump was very con­cerned about over­ly-hawk­ish Fed poli­cies. So while Trump’s nom­i­na­tions of Moore and Cain are notable for being selec­tions of two bla­tant­ly par­ti­san hacks, they were also notable for rep­re­sent­ing a pret­ty mas­sive hawk-to-dove shift in Trump’s selec­tions over the last year.

So Paul shoots down Good­friend in Feb­ru­ary of 2018 and in Jan­u­ary of 2019 Good­friend’s name does­n’t show up on the list of nom­i­nees. It was a stroke of luck for Trump that Paul did what he did because it left Good­friend’s seat open and that’s one less Hawk on the Fed and one more open flunky instead:

The New York Times

Unex­pect­ed Oppo­si­tion Imper­ils Fed­er­al Reserve Nom­i­nee

By Binyamin Appel­baum
Feb. 9, 2018

WASHINGTON — The Trump admin­is­tra­tion is strug­gling to muster the nec­es­sary Sen­ate votes to put the con­ser­v­a­tive econ­o­mist Mar­vin Good­friend onto the Fed­er­al Reserve’s board of gov­er­nors.

Sen­a­tor Rand Paul, Repub­li­can of Ken­tucky, said Thurs­day that he would vote against Mr. Good­friend, who has also yet to attract any sup­port from Demo­c­ra­t­ic sen­a­tors.

In the nar­row­ly divid­ed Sen­ate, that could be enough to sink Mr. Goodfriend’s con­fir­ma­tion.

The unex­pect­ed oppo­si­tion is a set­back for the Trump admin­is­tra­tion, which has strug­gled to pick qual­i­fied can­di­dates for the Fed’s board. The cen­tral bank, which sets mon­e­tary pol­i­cy and plays a lead­ing role in finan­cial reg­u­la­tion, now has just three gov­er­nors on its sev­en-seat board, the fewest in the Fed’s mod­ern his­to­ry.

“Three is real­ly thin,” said Ian Katz, a finan­cial pol­i­cy ana­lyst at Cap­i­tal Alpha Part­ners, a research firm for investors.

Mr. Katz not­ed that the Fed under its new chair­man, Jerome H. Pow­ell, was con­duct­ing a wide-rang­ing review of reg­u­la­tions, part of the Trump administration’s effort to give greater lee­way to finan­cial insti­tu­tions. It also must wres­tle with the impli­ca­tions of recent finan­cial mar­ket volatil­i­ty.

“Fed gov­er­nors have even more on their plates and minds than just a week ago,” he said.

Mr. Good­friend is a pro­fes­sor at Carnegie Mel­lon Uni­ver­si­ty and a for­mer mon­e­tary pol­i­cy advis­er to the Fed­er­al Reserve Bank of Rich­mond, Va. He is wide­ly regard­ed as a lead­ing aca­d­e­m­ic pro­po­nent of the views that the Fed should focus on con­trol­ling infla­tion and min­i­mize its inter­fer­ence with finan­cial mar­kets, both pop­u­lar posi­tions among con­ser­v­a­tive Repub­li­cans.

Those views and his stum­bling per­for­mance at his Jan­u­ary con­fir­ma­tion hear­ing, in which he strug­gled to explain why his infla­tion pre­dic­tions after the eco­nom­ic cri­sis a decade ago were wrong, have solid­i­fied Demo­c­ra­t­ic oppo­si­tion. Sen­a­tor Sher­rod Brown, Demo­c­rat of Ohio, said he was vot­ing against Mr. Good­friend because he ques­tioned his com­mit­ment to the Fed’s dual man­date, which requires the cen­tral bank to pur­sue max­i­mum employ­ment in addi­tion to sta­bi­liz­ing infla­tion.

He said Mr. Good­friend, who repeat­ed­ly crit­i­cized the Fed’s post-cri­sis eco­nom­ic stim­u­lus cam­paign, had a record of “pri­or­i­tiz­ing hypo­thet­i­cal infla­tion over real peo­ple los­ing jobs.”

Sen­a­tor Jon Tester, a Mon­tana Demo­c­rat who has often vot­ed for the Trump administration’s nom­i­nees, said he opposed Mr. Good­friend because of his com­ments at the hear­ing that there was no need for the fed­er­al gov­ern­ment to guar­an­tee 30-year fixed-rate mort­gage loans.

Mr. Tester said Mr. Good­friend was “unqual­i­fied for a lead­er­ship role at the Fed.”

Mr. Paul’s oppo­si­tion has very dif­fer­ent roots. He said Thurs­day that he was con­cerned about a paper Mr. Good­friend wrote in 2000 propos­ing that the gov­ern­ment put mag­net­ic strips on mon­ey so it could, under cer­tain cir­cum­stances, impose a tax on cash. The pro­pos­al was intend­ed to help the gov­ern­ment encour­age spend­ing dur­ing peri­ods of low infla­tion and low inter­est rates.

“That doesn’t sound very excit­ing to me,” Mr. Paul, a lib­er­tar­i­an, said Thurs­day.

Mr. Good­friend has since aban­doned the spe­cif­ic pro­pos­al, but in his aca­d­e­m­ic writ­ings he has con­tin­ued to advo­cate oth­er forms of “neg­a­tive inter­est rates” — poli­cies that make it expen­sive to hold mon­ey when the gov­ern­ment wants to encour­age spend­ing.

Repub­li­cans have a 51-vote Sen­ate major­i­ty, and Vice Pres­i­dent Mike Pence is avail­able to break ties. If Mr. Paul remains opposed, Mr. Goodfriend’s chances could rest on Sen­a­tor John McCain, Repub­li­can of Ari­zona, who is in his home state under­go­ing treat­ment for can­cer.

The White House said in a state­ment that it con­tin­ued to sup­port Mr. Good­friend.

“The pres­i­dent stands behind his nom­i­na­tion of Mar­vin Good­friend, who is incred­i­bly qual­i­fied for the Fed­er­al Reserve board of gov­er­nors,” it said. “We hope the Sen­ate con­firms Mr. Good­friend swift­ly giv­en the impor­tance of the Fed­er­al Reserve to the Amer­i­can econ­o­my.”

The Sen­ate Bank­ing Com­mit­tee approved Mr. Goodfriend’s nom­i­na­tion in a 13-to-12 par­ty-line vote on Thurs­day. Repub­li­cans have not yet sched­uled a final vote by the full Sen­ate.

The polit­i­cal polar­iza­tion of the Sen­ate has made it increas­ing­ly dif­fi­cult for pres­i­dents to secure the con­fir­ma­tion of their Fed nom­i­nees. Democ­rats in 2008 refused to vote on a pair of Pres­i­dent George W. Bush’s nom­i­nees. Repub­li­cans respond­ed two years lat­er by block­ing the con­fir­ma­tion of Peter Dia­mond, who won a Nobel Prize in eco­nom­ics while he was wait­ing for a Sen­ate vote. Sen­a­tor Richard Shel­by, the Alaba­ma Repub­li­can who chaired the Bank­ing Com­mit­tee at the time, said after the prize was announced that Mr. Dia­mond was still unqual­i­fied.

...

———-

“Unex­pect­ed Oppo­si­tion Imper­ils Fed­er­al Reserve Nom­i­nee” by Binyamin Appel­baum; The New York Times; 02/09/2018

“Mr. Good­friend is a pro­fes­sor at Carnegie Mel­lon Uni­ver­si­ty and a for­mer mon­e­tary pol­i­cy advis­er to the Fed­er­al Reserve Bank of Rich­mond, Va. He is wide­ly regard­ed as a lead­ing aca­d­e­m­ic pro­po­nent of the views that the Fed should focus on con­trol­ling infla­tion and min­i­mize its inter­fer­ence with finan­cial mar­kets, both pop­u­lar posi­tions among con­ser­v­a­tive Repub­li­cans.”

A lead­ing aca­d­e­m­ic pro­po­nent of very con­ser­v­a­tive hawk­ish views on the Fed. That’s that kind of nom­i­nee Trump select­ed in Novem­ber of 2017, a month before the giant GOP tax cut that end­ed up being an eco­nom­ic fiz­zle. So Trump was going in a hawk­ish direc­tion at that point in in pres­i­den­cy. But Good­friend nev­er had his nom­i­na­tion approved in the Sen­ate, in part because Democ­rats ques­tion his com­mit­ment to the Fed’s dual man­date, which is a valid con­cern giv­en Good­friend’s pro­fessed views and oppo­si­tion to the Fed’s post-2008 cri­sis poli­cies.

And it’s quite notable that Trump has joined the Democ­rats and is now a big dual man­date fan. He may not put it that way, but when Trump is call­ing for low­er rates he’s effec­tive­ly call­ing for the Fed to pri­or­i­tize the man­date to sup­port full employ­ment over the man­date to con­trol infla­tion. Trump has long been all over the map in terms of his pro­fessed views on Fed pol­i­cy. He was all over the map before becom­ing pres­i­dent and has man­aged to be all over the map with­in the first two years of his term. So to some extent it’s not actu­al­ly that notable that Trump now shares the Democ­rats’ con­cerns over Good­friend’s comitt­ment to the dual man­date because Trump has nev­er had con­sis­tent views on the Fed. And pre­vi­ous Repub­li­can pres­i­dents also pre­ferred low­er rates. But it’s notable that Trump nom­i­nat­ed a hawk like Good­friend in Novem­ber of 2017 and then became an open dove in 2018:

...
Those views and his stum­bling per­for­mance at his Jan­u­ary con­fir­ma­tion hear­ing, in which he strug­gled to explain why his infla­tion pre­dic­tions after the eco­nom­ic cri­sis a decade ago were wrong, have solid­i­fied Demo­c­ra­t­ic oppo­si­tion. Sen­a­tor Sher­rod Brown, Demo­c­rat of Ohio, said he was vot­ing against Mr. Good­friend because he ques­tioned his com­mit­ment to the Fed’s dual man­date, which requires the cen­tral bank to pur­sue max­i­mum employ­ment in addi­tion to sta­bi­liz­ing infla­tion.

He said Mr. Good­friend, who repeat­ed­ly crit­i­cized the Fed’s post-cri­sis eco­nom­ic stim­u­lus cam­paign, had a record of “pri­or­i­tiz­ing hypo­thet­i­cal infla­tion over real peo­ple los­ing jobs.”

Sen­a­tor Jon Tester, a Mon­tana Demo­c­rat who has often vot­ed for the Trump administration’s nom­i­nees, said he opposed Mr. Good­friend because of his com­ments at the hear­ing that there was no need for the fed­er­al gov­ern­ment to guar­an­tee 30-year fixed-rate mort­gage loans.

Mr. Tester said Mr. Good­friend was “unqual­i­fied for a lead­er­ship role at the Fed.”
...

And Rand Paul’s rea­sons for oppos­ing Good­friend had more to do with con­cerns over the mag­net­ic strips on mon­ey for neg­a­tive inter­est rates idea that Good­friend once backed. Good­friend seems like the type of econ­o­mist Paul would nor­mal­ly get behind so he must have real­ly hates the mag­net­ic strip idea:

...
Mr. Paul’s oppo­si­tion has very dif­fer­ent roots. He said Thurs­day that he was con­cerned about a paper Mr. Good­friend wrote in 2000 propos­ing that the gov­ern­ment put mag­net­ic strips on mon­ey so it could, under cer­tain cir­cum­stances, impose a tax on cash. The pro­pos­al was intend­ed to help the gov­ern­ment encour­age spend­ing dur­ing peri­ods of low infla­tion and low inter­est rates.

“That doesn’t sound very excit­ing to me,” Mr. Paul, a lib­er­tar­i­an, said Thurs­day.

Mr. Good­friend has since aban­doned the spe­cif­ic pro­pos­al, but in his aca­d­e­m­ic writ­ings he has con­tin­ued to advo­cate oth­er forms of “neg­a­tive inter­est rates” — poli­cies that make it expen­sive to hold mon­ey when the gov­ern­ment wants to encour­age spend­ing.
...

So Trump gets lucky with Paul shoot­ing down his nom­i­nee in ear­ly 2018 leav­ing the seat open for a flunky like Moore or Cain. But as the fol­low­ing Jan­u­ary 2018 col­umn by Paul Krug­man notes, while Good­friend may be an aca­d­e­m­ic who has far greater qual­i­fi­ca­tions for a Fed posi­tion than some­one like Moore, it’s still the case that Good­friend was very wrong in his pre­dic­tions in the post-cri­sis years with­out real­ly mod­i­fy­ing his views so he still qual­i­fies as a hack:

The New York Times
Opin­ion

The Dura­bil­i­ty of Infla­tion Derp

By Paul Krug­man
Jan. 23, 2018

The years imme­di­ate­ly fol­low­ing the 2008 finan­cial cri­sis were a gold­en age of infla­tion derp, at var­i­ous lev­els. There were the Glenn Beck/Ron Paul froth­ing-at-the-mouth Aus­tri­an types pre­dict­ing hyper­in­fla­tion just around the cor­ner. But there were also the seem­ing­ly respectable mon­e­tary “experts,” from Alan Greenspan to Allan Meltzer to John Tay­lor, who kept pre­dict­ing high infla­tion from deficits and/or quan­ti­ta­tive eas­ing.

It’s not hard to see why they were pre­dict­ing infla­tion: there was a huge increase in the mon­e­tary base (cur­ren­cy plus bank reserves), which you would expect to cause a lot of infla­tion – unless, that is, you under­stood that the game changes when inter­est rates are near zero, and had stud­ied the expe­ri­ence of Japan.

Of course, quite a few econ­o­mists did under­stand all that: Ben Bernanke, Olivi­er Blan­chard, and yours tru­ly, among oth­ers. And we cor­rect­ly pre­dict­ed that the mas­sive rise in the mon­e­tary base would have no dis­cernible effect on infla­tion:
[see plot of mon­e­tary base vs infla­tion over from 2008–2018]

OK, so some econ­o­mists got it wrong. That hap­pens to every­one, unless you’re too cow­ard­ly to make any testable pre­dic­tions at all. But what you’re sup­posed to do when things don’t play out as you pre­dict­ed is (a) acknowl­edge the mis­take (b) try to under­stand what went wrong © revise your frame­work in an attempt to avoid mak­ing the same mis­take again. I think I can fair­ly claim to have fol­lowed these rules.

What’s strik­ing about the econ­o­mists who pre­dict­ed run­away infla­tion in 2009–2011 is that as far as I can tell none of them has even got­ten to step (a), acknowl­edg­ing their mis­take. They kept say­ing the same wrong thing year after year (which is what makes it derp), and even those who even­tu­al­ly stopped say­ing the same thing nev­er admit­ted past mis­takes.

...

Why this dura­bil­i­ty of unre­pen­tant, unpro­fes­sion­al derp? Sure­ly at least part of it is polit­i­cal: pre­dict­ing doom from mon­ey-print­ing appeals to pow­er­ful forces on the right, is indeed a sort of cre­den­tial that guar­an­tees favor, no mat­ter how wrong the pre­dic­tion. And let’s face it: the eco­nom­ics pro­fes­sion is essen­tial­ly craven on such mat­ters. There are no costs to unpro­fes­sion­al behav­ior that serves right-wing ide­ol­o­gy; you’ll still get invit­ed to all the meet­ings, get treat­ed with respect, even get let­ters from lib­er­al and mod­er­ate col­leagues sup­port­ing your nom­i­na­tion to high office.

And so today we have Mar­vin Good­friend, nom­i­nat­ed to the Fed board, sim­ply refus­ing to answer ques­tions about why he thought infla­tion was about to explode and reduc­ing unem­ploy­ment was impos­si­ble:

After the cri­sis, Mr. Good­friend repeat­ed­ly crit­i­cized the Fed’s stim­u­lus cam­paign as like­ly to gen­er­ate infla­tion rather than eco­nom­ic revival. He told Bloomberg in 2012 it was “real­ly doubt­ful” the Fed could reduce unem­ploy­ment, which was then hov­er­ing above 8 per­cent, to 7 per­cent. Fur­ther­more, he said, even if the Fed suc­ceed­ed in doing so, “it would give rise to ris­ing infla­tion in the next few years, which would be dis­as­trous for the econ­o­my.”

Infla­tion derp endures. In fact, it’s good for your career.

———-

“The Dura­bil­i­ty of Infla­tion Derp” by Paul Krug­man; The New York Times; 01/23/2018

“What’s strik­ing about the econ­o­mists who pre­dict­ed run­away infla­tion in 2009–2011 is that as far as I can tell none of them has even got­ten to step (a), acknowl­edg­ing their mis­take. They kept say­ing the same wrong thing year after year (which is what makes it derp), and even those who even­tu­al­ly stopped say­ing the same thing nev­er admit­ted past mis­takes.”

Paul Krug­man can’t think of any econ­o­mist who got the finan­cial cri­sis wrong and changed their views in response. Because it does­n’t seem to mat­ter if you get it wrong. It’s quite a state­ment about the field of eco­nom­ics, espe­cial­ly in the con­text of some­one like Good­friend who was con­sis­tent­ly wrong get­ting com­i­nat­ed to the Fed board:

...
Why this dura­bil­i­ty of unre­pen­tant, unpro­fes­sion­al derp? Sure­ly at least part of it is polit­i­cal: pre­dict­ing doom from mon­ey-print­ing appeals to pow­er­ful forces on the right, is indeed a sort of cre­den­tial that guar­an­tees favor, no mat­ter how wrong the pre­dic­tion. And let’s face it: the eco­nom­ics pro­fes­sion is essen­tial­ly craven on such mat­ters. There are no costs to unpro­fes­sion­al behav­ior that serves right-wing ide­ol­o­gy; you’ll still get invit­ed to all the meet­ings, get treat­ed with respect, even get let­ters from lib­er­al and mod­er­ate col­leagues sup­port­ing your nom­i­na­tion to high office.

And so today we have Mar­vin Good­friend, nom­i­nat­ed to the Fed board, sim­ply refus­ing to answer ques­tions about why he thought infla­tion was about to explode and reduc­ing unem­ploy­ment was impos­si­ble:

After the cri­sis, Mr. Good­friend repeat­ed­ly crit­i­cized the Fed’s stim­u­lus cam­paign as like­ly to gen­er­ate infla­tion rather than eco­nom­ic revival. He told Bloomberg in 2012 it was “real­ly doubt­ful” the Fed could reduce unem­ploy­ment, which was then hov­er­ing above 8 per­cent, to 7 per­cent. Fur­ther­more, he said, even if the Fed suc­ceed­ed in doing so, “it would give rise to ris­ing infla­tion in the next few years, which would be dis­as­trous for the econ­o­my.”

Infla­tion derp endures. In fact, it’s good for your career.
...

So Good­friend was a big enough aca­d­e­m­ic hack for Krug­man to call him out for it in Jan­u­ary of 2018. But Good­friend was still not as big a hack as Moore or Cain. As always with Trump, it was bad and then got worse. It’s all con­sis­tent with one of the most endur­ing themes of the Trump expe­ri­ence which is that if it can get worse it will. It’s like Trumpian entropy.

But at least, for now, Trump is a big Fed dove and wants Doves on the Fed board which is actu­al­ly the more sen­si­ble pol­i­cy. It could be worse. But those Doves are Moore and Cain, who are Hawks pre­tend­ing to be Doves. So it will get worse. Don’t for­get these are 14 year terms so there’s going to be lots of time for things to get worse. Behold, Trumpian entropy at work.

Here’s a typ­i­cal­ly dis­turb­ing set of updates on Trump’s push to stack the Fed­er­al Reserve board with loy­al hack cronies: Ever since Trump sig­naled that he was going to nom­i­nate both Her­man Cain and Stephen Moore to the Fed board there’s been an open ques­tion as to whether or not even the GOP-con­trolled Sen­ate would be irre­spon­si­ble enough to place two bla­tant right-wing hack polit­i­cal flunkies on the Fed board, the kind of move that could have sig­nif­i­cant reper­cus­sions for the reserve sta­tus of the dol­lar in the long run. These are 14 year terms.

Remark­ably, as of last week, it was start­ing to look like, yes, even the GOP could­n’t entire­ly get some­one as bla­tant­ly unqual­i­fied as Her­man Cain for a posi­tion tha impor­tant. Four Repub­li­can Sen­a­tors — Mitt Rom­ney, Lisa Murkows­ki, Cory Gard­ner, and Kevin Cramer — came out against Cain’s nom­i­na­tion and word was that Cain was going to with­draw.

It’s also notable that the appar­ent the rea­son for their dis­com­fort with Cain was over his crit­i­cism of the Fed’s rate hikes last year, crit­i­cism that are shared by Pres­i­dent Trump. Since it’s wide­ly assumed that Trump is nom­i­nat­ing Cain specif­i­cal­ly because he knows Cain will be a polit­i­cal flunky who fol­lows Trump’s whims, it’s unclear whether or not the four GOP sen­a­tors were opposed to Cain because he appears to be fol­low­ing Trump’s orders and politi­ciz­ing Fed pol­i­cy or if they were express­ing infla­tion-hawk views and were pri­mar­i­ly opposed to calls for low­er rates. The alle­ga­tions of sex­u­al harass­ment against Cain in the past are also a fac­tor in his loss of sup­port. So it’s unclear if it’s more the alle­ga­tions or the lack of qual­i­fi­ca­tions that led to these four Repub­li­can Sen­a­tors com­ing out against Cain’s nom­i­na­tion, but regard­less of the rea­sons four GOP Sen­a­tors is more than enough to sink Cain’s nom­i­na­tion in the Sen­ate so it’s look like his nom­i­na­tion is sunk at this point:

ABC News

Her­man Cain expect­ed to with­draw from Fed Reserve Board of Gov­er­nors con­sid­er­a­tion
He is expect­ed to announce his with­draw­al from con­sid­er­a­tion in the com­ing days.

By Tara Palmeri and Kather­ine Faul­ders
Apr 12, 2019 2:58 AM

Her­man Cain is expect­ed to with­draw his name from con­sid­er­a­tion for the Fed­er­al Reserve’s Board of Gov­er­nors, amid grow­ing pres­sure from Repub­li­can sen­a­tors on the White House to remove him from con­sid­er­a­tion, accord­ing to mul­ti­ple sources famil­iar with the mat­ter.

Pres­i­dent Don­ald Trump announced last week his inten­tion to nom­i­nate Cain, a polit­i­cal ally and for­mer 2012 Repub­li­can pres­i­den­tial front run­ner. Trump has also nom­i­nat­ed con­ser­v­a­tive econ­o­mist Stephen Moore to the Fed­er­al Reserve’s board of gov­er­nors.

Sen­a­tors Mitt Rom­ney, R‑Utah, Lisa Murkows­ki, R‑Alaska, Cory Gard­ner, R‑Colo., and Sen. Kevin Cramer, R‑N.D., have come out in oppo­si­tion to Cain’s appoint­ment, like­ly sink­ing his chances of con­fir­ma­tion by the Sen­ate, since it’s unlike­ly that he will get the sup­port of Sen­ate democ­rats.

Since Cain has yet to be for­mal­ly nom­i­nat­ed, he is expect­ed to announce his deci­sion to with­draw his name from con­sid­er­a­tion in the com­ing days, accord­ing to an admin­is­tra­tion offi­cial and a source famil­iar with the mat­ter.

ABC News has reached out to Cain for response.

Some Sen­ate Repub­li­cans have voiced con­cerns over Cain’s sup­port for slash­ing inter­est rates, echo­ing a call by Trump. There is also con­cern that Cain’s back­ground check will res­ur­rect past sex­u­al harass­ment and mis­con­duct alle­ga­tions that sur­faced dur­ing the 2012 pres­i­den­tial cam­paign. Cain denied the claims.

...

White House eco­nom­ic coun­cil direc­tor Lar­ry Kud­low said on Thurs­day that the pres­i­dent was stick­ing by his deci­sion to nom­i­nate Cain “at the moment.”

When asked by reporters on Wednes­day if Cain’s nom­i­na­tion is safe, Trump sug­gest­ed Cain will decide if he steps aside.

“Well, I like Her­man Cain. And Her­man will make that deter­mi­na­tion,” Trump said.

———-

“Her­man Cain expect­ed to with­draw from Fed Reserve Board of Gov­er­nors con­sid­er­a­tion” by Tara Palmeri and Kather­ine Faul­ders; ABC News; 04/12/2019

“Some Sen­ate Repub­li­cans have voiced con­cerns over Cain’s sup­port for slash­ing inter­est rates, echo­ing a call by Trump. There is also con­cern that Cain’s back­ground check will res­ur­rect past sex­u­al harass­ment and mis­con­duct alle­ga­tions that sur­faced dur­ing the 2012 pres­i­den­tial cam­paign. Cain denied the claims.”

Can Cain win back the sup­port of those four Repub­li­can Sen­a­tors? It’s unclear how he’ll do it, but the Trump admin­is­tra­tion appears to be will­ing to give Cain a chance:

...
White House eco­nom­ic coun­cil direc­tor Lar­ry Kud­low said on Thurs­day that the pres­i­dent was stick­ing by his deci­sion to nom­i­nate Cain “at the moment.”

When asked by reporters on Wednes­day if Cain’s nom­i­na­tion is safe, Trump sug­gest­ed Cain will decide if he steps aside.

“Well, I like Her­man Cain. And Her­man will make that deter­mi­na­tion,” Trump said.
...

And that’s exact­ly what Cain had sig­naled he’s going to do: Cain just wrote an op-ed in the Wall Street Jour­nal sig­nal­ing that he’s going to fight for his nom­i­na­tion. What are Cain’s argu­ments? Well, the op-ed is titled “The Fed and the Pro­fes­sor Stan­dard” and Cain appears to be argu­ing that the Fed is dom­i­nat­ed by aca­d­e­mics and needs a “new voice”. In the col­umn, Cain argues that the so-called “pro­fes­sor stan­dard” is the rea­son the Fed­er­al Reserve raised rates last year. The way Cain describes it, the deci­sion to raise rates was based on unem­ploy­ment sta­tis­tics and wage growth alone and not tak­ing the mar­kets into account, result­ing in income stag­na­tion. Cain would instead focus on sta­bi­liz­ing the dol­lar.

So, true to form, while Cain is right to cri­tique infla­tion-hawk poli­cies, the actu­al argu­ments he’s mak­ing are based on the bizarre notion that infla­tion hawks don’t ‘take the mar­kets into account’ and that some­one focus­ing on ‘sta­bi­liz­ing the dol­lar’ will lead to more dovish rate pol­i­cy stances. That’s basi­cal­ly an inver­sion of real­i­ty. Nor­mal­ly, cri­tiques about the Fed tak­ing an over­ly hawk­ish pol­i­cy stance are root­ed in the idea that hawks are being over­ly focused on ‘the mar­ket’ and ‘sta­bi­liz­ing the dol­lar’ and using those con­cerns as rea­sons for rais­ing rates in order to avoid infla­tion pres­sures from ris­ing wages.

Also, there is no “pro­fes­sor stan­dard” that man­dates infla­tion hawk stances. Instead, that slo­gan appears to be used to frame Cain’s nom­i­na­tion in pop­ulist terms, with Cain play­ing the role of the every­man fight­ing against snooty pro­fes­sors for high­er wages and his oppo­nents are mem­bers of ‘the aca­d­e­m­ic elite’ who want to keep the com­mon man down. So in a way it makes sense for him to argue against the idea of aca­d­e­mics on the Fed board giv­en that his argu­ments about pol­i­cy would­n’t pass muster in the class­room. But it’s still pret­ty dis­turb­ing that Cain isn’t just plan­ning on fight­ing for his nom­i­na­tion using non­sense argu­ments about Fed pol­i­cy divorced from real­i­ty, he’s fram­ing it as a bizarro-pop­ulist fight for the lit­tle guy and against aca­d­e­mics:

Politi­co

Cain says he won’t with­draw from Fed con­sid­er­a­tion despite Sen­ate objec­tions

By CAITLIN OPRYSKO

04/18/2019 07:42 AM EDT

Her­man Cain said Wednes­day that he will not with­draw his name from con­sid­er­a­tion to join the board of the Fed­er­al Reserve even though sen­a­tors have already sig­naled they like­ly would reject his nom­i­na­tion.

Cain, a for­mer piz­za exec­u­tive and 2012 GOP pres­i­den­tial can­di­date, told The Wall Street Jour­nal in an inter­view Wednes­day that he is “very com­mit­ted” to stick­ing to his poten­tial nom­i­na­tion, say­ing, “I hap­pen to believe that you need some new voic­es on the Fed­er­al Reserve.”

Last week, no few­er than four GOP sen­a­tors sig­naled they would vote against Cain’s nom­i­na­tion to the board of the cen­tral bank — enough that he would not have the votes to be con­firmed unless he won the sup­port of some Democ­rats or inde­pen­dents. Cain’s poten­tial selec­tion — Trump has yet to for­mal­ly nom­i­nate him, although the pres­i­dent announced Cain as his pick ear­li­er this month — has been ham­pered by the sex­u­al harass­ment alle­ga­tions, which tanked his 2012 pres­i­den­tial cam­paign, and his out­spo­ken­ness on con­ser­v­a­tive issues.

But Cain stood firm, telling the Jour­nal on Wednes­day: “I don’t quit because of neg­a­tive crit­i­cism. I don’t quit because of neg­a­tive attacks. And I don’t quit because sev­er­al sen­a­tors have expressed reser­va­tions about my qual­i­fi­ca­tions.”

...

On Tues­day, Kud­low told reporters that the White House was con­tin­u­ing to con­sid­er alter­na­tive options to Cain. But he cau­tioned that such back­up plan­ning was com­mon­place and not spe­cif­ic to Cain. Kud­low also said it was up to Cain whether he remained in the process.

Cain said he was will­ing to remain “in the fight,” telling the Jour­nal the White House had been in touch with his aides on a near-dai­ly basis.

“What Kud­low was doing was giv­ing me an out, and I appre­ci­ate that, but I don’t want an out,” Cain said. “You know that the pres­i­dent is a fight­er, and Kud­low is a fight­er. They might be get­ting a lot of blow­back from some folks, I don’t know. But I don’t think they’re get­ting uncom­fort­able with it.”

Cain also penned an op-ed for the Jour­nal on Wednes­day, echo­ing his asser­tion that the Fed needs “new voic­es,” a nod to Trump’s dis­sat­is­fac­tion with the cen­tral bank.

Rip­ping what he called the Fed’s reliance on aca­d­e­mics, he argued that the so-called pro­fes­sor stan­dard was to blame for the bank hik­ing inter­est rates based on unem­ploy­ment sta­tis­tics and wage growth alone and not tak­ing the mar­kets into account, result­ing in income stag­na­tion. He said his approach would be to instead focus on sta­bi­liz­ing the dol­lar.

“The pro­fes­sor stan­dard will not chal­lenge itself—that much has been proved. That’s why my voice is need­ed at the Fed,” he wrote.

Cain assert­ed that though he aligned with Trump on the idea that the Fed was wrong to raise inter­est rates, he under­stood the bank was meant to be free of polit­i­cal influ­ence but would still con­sid­er Trump’s input.

“I wouldn’t total­ly tune it out because they may be say­ing some­thing that might cause you to ask some dif­fer­ent ques­tions, but not do what they are say­ing polit­i­cal­ly,” he told the Jour­nal. “The Fed is not and should not become a polit­i­cal machine.”

———–

“Cain says he won’t with­draw from Fed con­sid­er­a­tion despite Sen­ate objec­tions” by CAITLIN OPRYSKO; Politi­co; 04/18/2019

“Cain also penned an op-ed for the Jour­nal on Wednes­day, echo­ing his asser­tion that the Fed needs “new voic­es,” a nod to Trump’s dis­sat­is­fac­tion with the cen­tral bank.”

Cain has a bat­tle plan. He penned a whole op-ed about it. And that plan is appar­ent­ly to frame this all as a fight about the influ­ence of aca­d­e­mics in Fed pol­i­cy-mak­ing. Cain argues that his voice is need­ed to coun­ter­act the Fed’s reliance on aca­d­e­mics. Because their aca­d­e­m­ic approach to Fed pol­i­cy leads them to do things like hike rates with­out “tak­ing the mar­kets into account”, lead­ing to income stag­na­tion. Yes, this is non­sense, but that’s kind of beside the point. The point of Cain’s argu­ment is to frame this as his fight for high­er wages against snooty aca­d­e­mics. It’s a stun­ning­ly cyn­i­cal approach but by today’s GOP stan­dards it’s hard to say this is over­ly sur­pris­ing:

...
Rip­ping what he called the Fed’s reliance on aca­d­e­mics, he argued that the so-called pro­fes­sor stan­dard was to blame for the bank hik­ing inter­est rates based on unem­ploy­ment sta­tis­tics and wage growth alone and not tak­ing the mar­kets into account, result­ing in income stag­na­tion. He said his approach would be to instead focus on sta­bi­liz­ing the dol­lar.

“The pro­fes­sor stan­dard will not chal­lenge itself—that much has been proved. That’s why my voice is need­ed at the Fed,” he wrote.
...

So Her­man Cain’s nom­i­na­tion is look­ing like a typ­i­cal­ly Trump nom­i­na­tion: Their appoint­ment is so irre­spon­si­ble it actu­al­ly does dam­age to civ­il insti­tu­tions.

And that brings us to Stephen Moore’s nom­i­na­tion. Unlike Cain, Moore does­n’t have a sin­gle Repub­li­can oppos­ing his nom­i­na­tion yet. Should we inter­pret that as a stamp of approval from the Sen­ate Repub­li­cans? We’ll see. But as the fol­low­ing arti­cle notes, we should­n’t be too sur­prised if Moore does find the sup­port he needs because the views he has are large­ly stan­dard mod­ern Repub­li­can ortho­doxy. Unfor­tu­nate­ly, that includes Moore’s views on top­ics like democ­ra­cy vs cap­i­tal­ism, where Moore has views that are typ­i­cal­ly Repub­li­can and extreme­ly anti-pop­ulist:

CNBC

The GOP is attack­ing social­ism, but Trump Fed pick Stephen Moore pits cap­i­tal­ism against democ­ra­cy

* “Cap­i­tal­ism ver­sus social­ism,” reads the Repub­li­can 2020 bumper stick­er. Now one of Pres­i­dent Don­ald Trump’s Fed­er­al Reserve picks has writ­ten an alter­na­tive Democ­rats like bet­ter.
* That new frame­work is “cap­i­tal­ism ver­sus democ­ra­cy.” Whether or not he ever takes a Fed board seat, Stephen Moore has brought that less-flat­ter­ing trade-off into focus.

John Har­wood
Pub­lished Thu, Apr 18 2019 • 9:15 AM EDT
Updat­ed Thu, Apr 18 2019 • 10:04 AM EDT

“Cap­i­tal­ism ver­sus social­ism,” reads the Repub­li­can 2020 bumper stick­er. Now, one of Pres­i­dent Don­ald Trump’s Fed­er­al Reserve picks has writ­ten an alter­na­tive Democ­rats like bet­ter.

That new frame­work is “cap­i­tal­ism ver­sus democ­ra­cy.” Whether or not he ever takes a Fed board seat, Stephen Moore has brought that less-flat­ter­ing trade-off into focus.

Moore, after years with the Her­itage Foun­da­tion, Cato Insti­tute, Club for Growth and Wall Street Jour­nal edi­to­r­i­al board, rep­re­sents main­stream Repub­li­can eco­nom­ic think­ing. As he awaits for­mal nom­i­na­tion by the White House, no GOP sen­a­tor has opposed him.

But the scruti­ny under­way since Trump tweet­ed his intent to nom­i­nate Moore high­lights a theme Repub­li­cans rarely empha­size: That democ­ra­cy, rather than being the well-spring of the Amer­i­can sys­tem, can be a used as weapon for strug­gling have-nots to prey on the afflu­ent by seiz­ing their wealth.

“Cap­i­tal­ism is a lot more impor­tant than democ­ra­cy,” Moore once told a doc­u­men­tary film­mak­er. “I’m not even a big believ­er in democ­ra­cy. I always say that democ­ra­cy can be two wolves and a sheep decid­ing what to have for din­ner.”

Repub­li­cans have long invoked the specter of “social­ism” in oppos­ing Demo­c­ra­t­ic pro­pos­als to expand gov­ern­ment by levy­ing tax­es to finance ben­e­fit pro­grams. They used that ratio­nale to oppose the cre­ation of Social Secu­ri­ty in the 1930s, Medicare and Med­ic­aid in the 1960s, and Oba­macare a decade ago.

Late­ly, a few promi­nent Democ­rats have made that charge eas­i­er to make. The front-run­ner among declared 2020 pres­i­den­tial can­di­dates, Sen. Bernie Sanders of Ver­mont, calls him­self a demo­c­ra­t­ic social­ist; so does fiery first-term Rep. Alexan­dria Oca­sio-Cortez of New York, which explains why con­ser­v­a­tives show­er her with atten­tion.

In real­i­ty, both par­ties tra­di­tion­al­ly have sup­port­ed nei­ther social­ism nor unreg­u­lat­ed cap­i­tal­ism. Instead they back the “mixed econ­o­my” that exists through­out West­ern soci­eties — Democ­rats pre­fer­ring more gov­ern­ment reg­u­la­tions and ser­vices to tem­per mar­ket out­comes, Repub­li­cans few­er.

But the ris­ing influ­ence of unal­loyed con­ser­vatism since the Rea­gan era has increas­ing­ly placed GOP eco­nom­ic poli­cies at odds with the pref­er­ences of the elec­torate.

Vot­ers want to pre­serve major ben­e­fit pro­grams while rais­ing tax­es on major cor­po­ra­tions and wealthy Amer­i­cans. A Democ­ra­cy Fund study of Trump vot­ers fol­low­ing the 2016 elec­tion found that, among the core sup­port­ers who pro­pelled Trump to the GOP nom­i­na­tion, 75% favor high­er tax­es on the rich.

Repub­li­can pol­i­cy­mak­ers, by con­trast, view the giant Social Secu­ri­ty, Medicare and Med­ic­aid pro­grams as fis­cal bur­dens. And they oppose high­er tax­es not just on prac­ti­cal grounds but in prin­ci­ple, as improp­er con­fis­ca­tion from own­ers of prop­er­ty.

When Pres­i­dent Barack Oba­ma pro­posed tax hikes on pri­vate equi­ty exec­u­tives in 2010, Black­stone Group bil­lion­aire Steve Schwarz­man, now an out­side Trump advi­sor, declared it “like when Hitler invad­ed Poland.” In a radio inter­view unearthed by CNN, Moore called the ear­ly 20th cen­tu­ry con­sti­tu­tion­al amend­ment per­mit­ting a fed­er­al income tax “the most evil act that has passed in 100 years.”

Ex-House Speak­er Paul Ryan used to call 60% of Amer­i­cans “tak­ers” who con­sume more ser­vices than they paid for in tax­es, and the oth­er 40% “mak­ers” stuck with the bill. In 2017, Trump bud­get direc­tor Mick Mul­vaney derid­ed deficit-spend­ing on gov­ern­ment pro­grams as “theft” from tax­pay­ers.

“We will reverse that lar­ce­ny,” Mul­vaney wrote in a news­pa­per col­umn. Trump and the GOP Con­gress sub­se­quent­ly enact­ed a large tax cut ben­e­fit­ing busi­ness­es and the wealthy more than every­one else.

Those pri­or­i­ties have grown ever hard­er to sus­tain in an age of stag­nant work­ing-class wages and widen­ing income inequal­i­ty. As Democ­rats have won the pop­u­lar vote in six of the past sev­en pres­i­den­tial elec­tions, Repub­li­cans have increas­ing­ly sought to impede steps to make vot­ing eas­i­er, most con­spic­u­ous­ly through new vot­er iden­ti­fi­ca­tion require­ments.

When new­ly empow­ered House Democ­rats this year passed leg­is­la­tion to make vot­ing eas­i­er and reduce par­ti­san ger­ry­man­der­ing, the GOP response high­light­ed its predica­ment. “A pow­er grab,” declared Sen­ate Repub­li­can Leader Mitch McConnell.

...

———-

“The GOP is attack­ing social­ism, but Trump Fed pick Stephen Moore pits cap­i­tal­ism against democ­ra­cy” by John Har­wood; CNBC; 04/18/2019

“Moore, after years with the Her­itage Foun­da­tion, Cato Insti­tute, Club for Growth and Wall Street Jour­nal edi­to­r­i­al board, rep­re­sents main­stream Repub­li­can eco­nom­ic think­ing. As he awaits for­mal nom­i­na­tion by the White House, no GOP sen­a­tor has opposed him.”

As he awaits for­mal nom­i­na­tion by the White House, no GOP sen­a­tor has opposed him. And yet Moore and Cain both have basi­cal­ly the same prob­lem from a Fed pol­i­cy-mak­ing per­spec­tive: based on past state­ments, both Moore and Cain are pol­i­cy hawks and gold bugs with a propen­si­ty for back­ing junk right-wing eco­nom­ic the­o­ries and both sud­den­ly become Fed pol­i­cy doves after Trump made it clear he was look­ing for nom­i­nees who would keep rates low to boost the econ­o­my. Cain and Moore and both play­ing exact­ly the same game. So it would appear that the Repub­li­can oppo­si­tion to Her­man Cain in the Sen­ate has more to do with the sex­u­al harass­ment alle­ga­tions against him than his pol­i­cy views.

And that’s part of what what makes Cain’s faux pop­ulist cru­sade against ‘aca­d­e­mics’ so wild­ly cyn­i­cal: Moore, Cain, and the rest of the Repub­li­can Par­ty are all adher­ents to the same sup­ply-side eco­nom­ic doc­trine that took con­trol of the Repub­li­can Par­ty with Rea­gan and has defined it ever since. A doc­trine that views democ­ra­cy as a dan­ger to cap­i­tal­ism because democ­ra­cy pro­vides the have-nots with a tool for prey­ing on the wealthy:

...
But the scruti­ny under­way since Trump tweet­ed his intent to nom­i­nate Moore high­lights a theme Repub­li­cans rarely empha­size: That democ­ra­cy, rather than being the well-spring of the Amer­i­can sys­tem, can be a used as weapon for strug­gling have-nots to prey on the afflu­ent by seiz­ing their wealth.

“Cap­i­tal­ism is a lot more impor­tant than democ­ra­cy,” Moore once told a doc­u­men­tary film­mak­er. “I’m not even a big believ­er in democ­ra­cy. I always say that democ­ra­cy can be two wolves and a sheep decid­ing what to have for din­ner.”

Repub­li­cans have long invoked the specter of “social­ism” in oppos­ing Demo­c­ra­t­ic pro­pos­als to expand gov­ern­ment by levy­ing tax­es to finance ben­e­fit pro­grams. They used that ratio­nale to oppose the cre­ation of Social Secu­ri­ty in the 1930s, Medicare and Med­ic­aid in the 1960s, and Oba­macare a decade ago.

...

In real­i­ty, both par­ties tra­di­tion­al­ly have sup­port­ed nei­ther social­ism nor unreg­u­lat­ed cap­i­tal­ism. Instead they back the “mixed econ­o­my” that exists through­out West­ern soci­eties — Democ­rats pre­fer­ring more gov­ern­ment reg­u­la­tions and ser­vices to tem­per mar­ket out­comes, Repub­li­cans few­er.

But the ris­ing influ­ence of unal­loyed con­ser­vatism since the Rea­gan era has increas­ing­ly placed GOP eco­nom­ic poli­cies at odds with the pref­er­ences of the elec­torate.

Vot­ers want to pre­serve major ben­e­fit pro­grams while rais­ing tax­es on major cor­po­ra­tions and wealthy Amer­i­cans. A Democ­ra­cy Fund study of Trump vot­ers fol­low­ing the 2016 elec­tion found that, among the core sup­port­ers who pro­pelled Trump to the GOP nom­i­na­tion, 75% favor high­er tax­es on the rich.

Repub­li­can pol­i­cy­mak­ers, by con­trast, view the giant Social Secu­ri­ty, Medicare and Med­ic­aid pro­grams as fis­cal bur­dens. And they oppose high­er tax­es not just on prac­ti­cal grounds but in prin­ci­ple, as improp­er con­fis­ca­tion from own­ers of prop­er­ty.
...

“Cap­i­tal­ism is a lot more impor­tant than democracy...I’m not even a big believ­er in democ­ra­cy. I always say that democ­ra­cy can be two wolves and a sheep decid­ing what to have for din­ner.”

Notice how, when viewed from the frame­work of the right-wing oli­garch, the have-nots are the wolves and the bil­lion­aires are the sheep in Moore’s depic­tion of democ­ra­cy. That’s the kind of pop­ulism he rep­re­sents. Plucky bil­lion­aires right­eous­ly stand­ing up to the world pop­ulism.

And that’s how far along the far right takeover of the GOP is in the age of Trump: Her­man Cain faux-pop­ulist cru­sade might make get him onto the Fed board and Stephen Moore appears to be on track.

It high­lights the polit­i­cal oppor­tu­ni­ty Moore’s and Cain’s nom­i­na­tion presents to the Democ­rats because the two real­ly are larg­er than life indi­vid­u­als who rep­re­sent so much of what has gone trag­i­cal­ly awry with the Repub­li­can Par­ty over the last gen­er­a­tion. It’s hard to come up with a bet­ter exam­ple of the steady encroach­ment of far right cranks pos­ing as pop­ulists, cor­rupt­ing the pub­lic pol­i­cy debate, and even­tu­al­ly under­min­ing the integri­ty of gov­ern­ment than the appoint­ment of Stephen Moore and Her­man Cain to serve on the Fed board. And the fact that Cain is going to try to turn it into a fight about the Fed being too ‘aca­d­e­m­ic’ is a per­fect exam­ple of right-wing’s cyn­i­cal and ongo­ing faux-pop­ulist attempt to divide-and-con­quer soci­ety along the lines of edu­ca­tion.

So as we can see, the nom­i­na­tion of Cain and Moore to the Fed board at the same time is a high­ly teach­able moment for the Unit­ed States. They’re both like liv­ing embod­i­ment of the cap­ture of the right-wing bil­lion­aires’ com­plete cap­ture of the Repub­li­can Par­ty.

At the same time, pret­ty much every Trump nom­i­na­tion is emblem­at­ic of what has gone wrong with the Repub­li­can Par­ty. For instance, Rick Per­ry is report­ed­ly con­sid­er­ing leav­ing his posi­tion as Sec­re­tary of Ener­gy. His rea­son for leav­ing is he wants a high­er income before retir­ing. And by Trump stan­dards, that’s going to make Per­ry one of the more suc­cess­ful Trump appoint­ments because he isn’t leav­ing office in a cloud of scan­dal. So Rick Per­ry is going to cash in on his posi­tion of Ener­gy Sec­re­tary to make more mon­ey, leav­ing that posi­tion open for some sort of oth­er high­ly unqual­i­fied Trump nom­i­nee. There’s no short­age of hor­ri­ble nom­i­nee teach­able moments. It’s more a ques­tion of whether or not Amer­i­ca learns from them.

And that’s part of what makes Her­man Cain’s faux-pop­ulist bizarro attack on aca­d­e­mics so sym­bol­ic of what has gone wrong in Amer­i­ca: One of the key ingre­di­ents in the rise of the careers of peo­ple like Cain and Moore is the takeover of an ide­ol­o­gy that can’t with­stand aca­d­e­m­ic scruti­ny. It turns out faux-pop­ulist right-wing agen­das made by and for bil­lion­aires tend to be bad poli­cies for almost every­one and aca­d­e­mics tend to notice that. It’s sort of a meta-teach­able moment about the impor­tance of learn­ing, which is hope­ful­ly some­thing that soci­ety does­n’t need to learn but here we are.

So we’ll see if Stephen Moore adopts Her­man Cain’s approach of fram­ing his appoint­ment as an attack on the “pro­fes­sor stan­dard” and the Fed’s reliance on aca­d­e­mics. Moore is cer­tain­ly a good fit for using Cain’s anti-aca­d­e­m­ic rhetoric but he does­n’t appear to be fac­ing any open oppo­si­tion yet from Repub­li­cans in the Sen­ate so it’s pos­si­ble Moore isn’t going to need to use those kinds of tac­tics.

Also keep in mind that if Cain’s nom­i­na­tion spi­rals into a big fight that gets a lot of pub­lic atten­tion, that could be exact­ly the time when the GOP rams Moore’s nom­i­na­tion through the Sen­ate when Cain is grab­bing the pub­lic atten­tion in the Fed fight. A big nom­i­na­tion fight over Cain as raz­zle daz­zle deflec­tion from Moore’s equal­ly pre­pos­ter­ous nom­i­na­tion. Hope­ful­ly that does­n’t hap­pen, but if the lack of open oppo­si­tion to Moore by the GOP in the Sen­ate makes it some­thing to watch for.

It’s one of the few bonus­es of things going to hell in a hand­bas­ket: there’s no short­age of high­ly illus­tra­tive teach­able moments. Most­ly bad moments.

Here’s the lat­est update on Trump’s dri­ve to stack the Fed­er­al Reserve board with right-wing flunkies Her­man Cain and Stephen Moore: after weeks of spec­u­la­tion that Cain is going to drop out fol­low­ing the emer­gence of Repub­li­can oppo­si­tion to his nom­i­na­tion, it’s offi­cial and Cain is out. This is despite Cain’s assur­ances last week that he was com­mit­ted to fight­ing for his nom­i­na­tion and fight­ing in oppo­si­tion of what he called the “pro­fes­sor stan­dard” that val­ued an aca­d­e­m­ic approach to Fed pol­i­cy. Instead, Cain informs us that, while he would love to take the job, he can’t. Because it does­n’t pay enough. As he puts it,
“I’m a race­horse, OK? And work­ing from the Fed, I would have been severe­ly ham­pered in a lot of things that I could say and do. I did not like that prospect.”:

Talk­ing Points Memo
News

Cain Says He Dropped Out Of Fed Con­sid­er­a­tion Because It Doesn’t Pay Enough

By Kate Riga
April 23, 2019 9:28 am

Her­man Cain, who, up until Mon­day, was Pres­i­dent Don­ald Trump’s like­ly pick for the Fed­er­al Reserve Board, said he dropped out of the process after find­ing out the salary: a pal­try $183,100.

“It’s an hon­or, it’s pres­ti­gious, and I real­ly want­ed to do it, emo­tion­al­ly,” Cain told the Wall Street Jour­nal. “But fac­tu­al­ly, it is a big cut in pay.”

“My biggest pas­sion is mak­ing mon­ey,” he added.

...

As for Cain, he seems con­tent to return to his life of high-pay­ing speak­ing gigs and weird spam­my email blitzes.

“Do you want a horse kept in the stable…or do you want to put this horse out on the race­track and let him run?” Cain asked. “I’m a race­horse, OK? And work­ing from the Fed, I would have been severe­ly ham­pered in a lot of things that I could say and do. I did not like that prospect.”

———-

“Cain Says He Dropped Out Of Fed Con­sid­er­a­tion Because It Doesn’t Pay Enough” by Kate Riga; Talk­ing Points Memo; 04/23/2019

““Do you want a horse kept in the stable…or do you want to put this horse out on the race­track and let him run?” Cain asked. “I’m a race­horse, OK? And work­ing from the Fed, I would have been severe­ly ham­pered in a lot of things that I could say and do. I did not like that prospect.””

Her­man Cain the race­horse isn’t going to be kept in the Fed sta­ble. He’s going to run free, mak­ing all the mon­ey he can. And Cain and the rest of us will be spared a Sen­ate con­fir­ma­tion hear­ing that makes it painful­ly clear how gross­ly unqual­i­fied he is for a Fed seat. And that just leaves the gross­ly unqual­i­fied Stephen Moore, who is still in con­tention and look­ing increas­ing­ly unqual­i­fied as his record is exam­ined more close­ly:

Vox

Stephen Moore is not wor­ried about his Fed board con­fir­ma­tion
Moore believes he will be con­firmed despite ques­tions over sex­ist columns he has writ­ten.

By Gabriela Resto-Mon­tero
Apr 28, 2019, 1:32pm EDT

Stephen Moore, like­ly to be one of Pres­i­dent Trump’s picks to fill Fed­er­al Reserve board vacan­cies, isn’t wor­ried about his bid to join the group. He pre­dicts he’ll sail through the con­fir­ma­tion process.

“I think I’m going to make it through this process,” Moore told George Stephanopou­los on ABC’s This Week Sun­day.

“I think that I am going to make it through this process,” Stephen Moore tells @GStephanopoulos when asked if he’s con­fi­dent that Trump will nom­i­nate him to the Fed­er­al Reserve board.

Moore is fac­ing back­lash over some of his past writ­ings: https://t.co/kuOq2sDskt pic.twitter.com/ZNTHlinQ7G
— This Week (@ThisWeekABC) April 28, 2019

Moore’s sure­ty comes as he faces crit­i­cism for arti­cles that seem to belit­tle women and for ques­tions about per­son­al debts.

As Vox’s Anna North wrote, among oth­er things, Moore called the pres­ence of a woman ref­er­ee at a NCAA bas­ket­ball game “an obscen­i­ty” and wrote of his frus­tra­tion at the way his wife cast her vote in an elec­tion, argu­ing she’d been swayed by a com­mer­cial: “Women are sooo mal­leable!”

He fol­lowed that thought with, “No won­der there’s a gen­der gap.”

In sev­er­al columns, Moore also appeared to argue against equal pay for men and women. In 2000, Moore wrote that women ath­letes should not be paid as much as men are because they are “infe­ri­or.” More recent­ly in 2014, Moore wrote that fem­i­nists haven’t con­sid­ered the impact on “fam­i­ly sta­bil­i­ty” that pay­ing women equal­ly to men would cause.

As Vox’s Aman­da Saku­ma notes, Moore was found to have been held in con­tempt of court for fail­ing to pay­ing his for­mer wife $300,000 in alimo­ny and child sup­port. He also owes more than $75,000 to the IRS.

Sun­day, the poten­tial nom­i­nee told Stephanopou­los he regret­ted these columns, but also called crit­i­cism over the pieces and his per­son­al debts part of a “smear cam­paign” and a “char­ac­ter assas­si­na­tion.”

“They were humor columns, but some of them weren’t fun­ny and so I am apolo­getic, I’m embar­rassed by some of those things that I wrote,” Moore said, before argu­ing the pieces aren’t rel­e­vant to how he would per­form as a board mem­ber at the Fed. “We should get back to the issue of whether I am qual­i­fied to be on the Fed­er­al Reserve board.”

“Sure I do,” poten­tial Fed board nom­i­nee Stephen Moore says when asked if he regrets any of his past writ­ings dis­parag­ing women.

“They were humor columns, but some of them weren’t fun­ny and so I am apolo­getic, I’m embar­rassed by some of those things” https://t.co/ITLVfQsgkk pic.twitter.com/3ouhe8Qa6A
— This Week (@ThisWeekABC) April 28, 2019

“I’ll debate any­body on eco­nom­ics,” Moore added. Many of his eco­nom­ic views are con­tro­ver­sial, how­ev­er.

Moore, a fel­low at the Her­itage Foun­da­tion, had crit­i­cized the Fed rais­ing inter­est rates, some­thing Trump has done as well. As Vox’s Matthew Ygle­sias has explained, that’s not nec­es­sar­i­ly a bad idea. Oth­er views Moore has expressed are “out­side the eco­nom­ic main­stream,” how­ev­er, accord­ing to Bloomberg.

For instance, Moore has expressed some fond­ness for the idea of peg­ging the US dol­lar to the val­ue of gold. In 2015, he said he believes that while dol­lars should be pegged to a bas­ket of com­modi­ties, the gold stan­dard is “a lot bet­ter than what we have now.”

He has also had some issues with defla­tion. Moore’s false claims on CNN about rate increas­es caus­ing “defla­tion in the econ­o­my” were tak­en apart as he was mak­ing them by Wash­ing­ton Post colum­nist Cather­ine Ram­pell. And a piece Moore wrote for the Wall Street Jour­nal called “The Fed Is a Threat to Growth” was crit­i­cized by the direc­tor of the Cen­ter for Mon­e­tary and Finan­cial Alter­na­tives at the Cato Insti­tute, George Sel­gin, who sug­gest­ed Moore doesn’t real­ly under­stand the mean­ing of “defla­tion” and that Moore’s piece con­tained fac­tu­al errors.

“‘Defla­tion,’ first of all, means an absolute decline in prices, and not mere­ly a decline in the rate at which prices increase,” Sel­gin wrote. “And notwith­stand­ing Mr. Moore’s asser­tion that ‘the con­sumer-price index has been remark­ably flat or slight­ly neg­a­tive,’ nei­ther the CPI nor any oth­er pop­u­lar price index has actu­al­ly declined in dur­ing the last six months.”

These views, along with his dis­mis­sive stance towards the gen­der wage gap, has led Repub­li­can Sen­a­tor Susan Collins to claim she has reser­va­tions about the nom­i­na­tion..

“The Fed­er­al Reserve is sup­posed to be inde­pen­dent, so that does con­cern me,” Collins said. “And from what I’ve read he also wants to return to a gold stan­dard. I’m not sure what the impli­ca­tions are of that.”

But Moore, who served as an eco­nom­ic advis­er to Pres­i­dent Trump’s cam­paign, said the con­cerns of Collins and oth­er sen­a­tors who have expressed reser­va­tions about him (like Utah sen­a­tor Mitt Rom­ney) won’t be a prob­lem.

“I’m friends with Susan Collins, I worked with her on the tax bill,” Moore said on This Week. “I know most of the Repub­li­can sen­a­tors, I think they respect my eco­nom­ic exper­tise and my record.”

Stephen Moore, Trump’s like­ly Fed board nom­i­nee, is under fire for some of his past writ­ings, includ­ing writ­ings dis­parag­ing women.

“If I become a lia­bil­i­ty to any of these sen­a­tors, I would with­draw. I don’t think it’s going to come to that,” Moore says https://t.co/kuOq2sDskt pic.twitter.com/jlr3s1PWlR
— This Week (@ThisWeekABC) April 28, 2019

Moore did, how­ev­er, say he is will­ing to with­draw from con­sid­er­a­tion should his nom­i­na­tion process cause sen­a­tors dif­fi­cul­ty with their con­stituents.

“If I become a lia­bil­i­ty to any of these sen­a­tors, I would with­draw,” he said.

...

———–

“Stephen Moore is not wor­ried about his Fed board con­fir­ma­tion” by Gabriela Resto-Mon­tero; Vox; 04/28/2019

“As Vox’s Anna North wrote, among oth­er things, Moore called the pres­ence of a woman ref­er­ee at a NCAA bas­ket­ball game “an obscen­i­ty” and wrote of his frus­tra­tion at the way his wife cast her vote in an elec­tion, argu­ing she’d been swayed by a com­mer­cial: “Women are sooo mal­leable!””

Yes, back in 2000, Stephen Moore was writ­ing in pub­lished columns about how “Women are sooo mal­leable!” 2000 was­n’t 1950. That was a wild­ly dick­ish thing to write by 2000 stan­dards but that did­n’t stop Moore. Because he’s a right-wing hack who was try­ing to appeal to a large­ly male right-wing audi­ence. And that’s a key under­ly­ing rea­son he’s so unqual­i­fied for the Fed board: Stephen Moore has always been a right-wing hack that says things unteth­ered to real­i­ty for ide­o­log­i­cal rea­sons and there’s no indi­ca­tion that’s changed. And some­one like that is a dan­ger on Fed board. If Moore gets his 14 year term appoint­ment, that’s 14 years of Moore’s hack­ery cre­at­ing a bias towards bad par­ti­san Fed poli­cies. It’s quite a sig­nal to send to mar­kets.

Amus­ing­ly, Moore is respond­ing to the crit­i­cisms over his past misog­y­ny by call­ing it a smear cam­paign and argu­ing that his nom­i­na­tion should be focused on whether or not he’s qual­i­fied as an econ­o­mist for the posi­tion. Which is amus­ing because, from a pol­i­cy stand­point, Moore so gross­ly unqual­i­fied he’s prob­a­bly bet­ter off hav­ing the focus on his misog­y­ny:

...
Sun­day, the poten­tial nom­i­nee told Stephanopou­los he regret­ted these columns, but also called crit­i­cism over the pieces and his per­son­al debts part of a “smear cam­paign” and a “char­ac­ter assas­si­na­tion.”

“They were humor columns, but some of them weren’t fun­ny and so I am apolo­getic, I’m embar­rassed by some of those things that I wrote,” Moore said, before argu­ing the pieces aren’t rel­e­vant to how he would per­form as a board mem­ber at the Fed. “We should get back to the issue of whether I am qual­i­fied to be on the Fed­er­al Reserve board.”

...

“I’ll debate any­body on eco­nom­ics,” Moore added. Many of his eco­nom­ic views are con­tro­ver­sial, how­ev­er.

...

He has also had some issues with defla­tion. Moore’s false claims on CNN about rate increas­es caus­ing “defla­tion in the econ­o­my” were tak­en apart as he was mak­ing them by Wash­ing­ton Post colum­nist Cather­ine Ram­pell. And a piece Moore wrote for the Wall Street Jour­nal called “The Fed Is a Threat to Growth” was crit­i­cized by the direc­tor of the Cen­ter for Mon­e­tary and Finan­cial Alter­na­tives at the Cato Insti­tute, George Sel­gin, who sug­gest­ed Moore doesn’t real­ly under­stand the mean­ing of “defla­tion” and that Moore’s piece con­tained fac­tu­al errors.

“‘Defla­tion,’ first of all, means an absolute decline in prices, and not mere­ly a decline in the rate at which prices increase,” Sel­gin wrote. “And notwith­stand­ing Mr. Moore’s asser­tion that ‘the con­sumer-price index has been remark­ably flat or slight­ly neg­a­tive,’ nei­ther the CPI nor any oth­er pop­u­lar price index has actu­al­ly declined in dur­ing the last six months.”
...

“He has also had some issues with defla­tion. Moore’s false claims on CNN about rate increas­es caus­ing “defla­tion in the econ­o­my” were tak­en apart as he was mak­ing them by Wash­ing­ton Post colum­nist Cather­ine Ram­pell.”

It’s actu­al­ly worth tak­ing a clos­er look at that CNN inter­view from back in Decem­ber where Moore was owned by Wash­ing­ton Post colum­nist Cather­ine Ram­pell over his claims about ris­ing rates caus­ing defla­tion across the US econ­o­my. Because the full exchange under­score a key fail­ing of Moore: being a right-wing hack who arrives as deci­sions based on par­ti­san ide­o­log­i­cal motives. In the inter­view, Ram­pell rebuts Moore’s claims that the Fed’s recent rate hikes caused defla­tion. Ram­pell accu­rate­ly point­ed out that there isn’t actu­al­ly defla­tion. Moore replied that there has been defla­tion for some com­modi­ties in an attempt to back up his false claim. Ram­pell replies that much of that has been due to Trump’s trade wars. And then Ram­pell points out how she can recall hear­ing Moore call for the Fed to raise rates dur­ing a peri­od of real defla­tion 10 years ago dur­ing the finan­cial cri­sis and then warned that there would be hyper­in­fla­tion with­out rais­ing rates.

And that exchange right there is why Moore is so unqual­i­fied for the Fed board: it’s per­fect­ly accept­able that Moore be in favor of the Fed keep­ing rates low today as Trump desires. Plen­ty of main­stream econ­o­mists would agree. That’s not the prob­lem. The prob­lem is Moore only wants rates low now because Trump is the pres­i­dent and he would have a com­plete­ly dif­fer­ent opin­ion if a Demo­c­rat was pres­i­dent just as he did when Barack Oba­ma was pre­sid­ing over the Great Reces­sion and he warned of hyper­in­fla­tion of the Fed did­n’t raise rates. Because he is a hack:

Raw Sto­ry

Trump-lov­ing econ­o­mist caught red-hand­ed ‘mak­ing up num­bers’ by CNN guest

Brad Reed
28 Dec 2018 at 08:44 ET

Wash­ing­ton Post colum­nist Cather­ine Ram­pell bust­ed Trump-lov­ing econ­o­mist Stephen Moore on Fri­day when he false­ly claimed that we are see­ing vast “defla­tion” in the Unit­ed States econ­o­my thanks to inter­est rate hikes by the Fed­er­al Reserve.

Dur­ing a CNN appear­ance, Moore tried to main­tain that the econ­o­my was as strong as ever, but he also blamed the Fed for tank­ing the stock mar­ket by rais­ing inter­est rates over the past sev­er­al months.

“Both of the rate hikes were unnec­es­sary and were a cause for defla­tion in the econ­o­my,” he said.

“Wait, wait, wait!” inter­ject­ed Ram­pell. “There is no defla­tion!”

“Yeah there is,” Moore replied.

“No there is not,” she shot back. “Look at the Con­sumer Price Index!”

Moore tried to counter by not­ing that some prices on the Com­modi­ties Price Index had dropped — but Ram­pell hit back by say­ing that much of that was due to Pres­i­dent Don­ald Trump’s trade wars.

...

Ram­pell then nailed Moore for his false warn­ings dur­ing the Oba­ma pres­i­den­cy that it was unwise for the Fed to keep inter­est rates low because it would lead to hyper­in­fla­tion — despite the fact that the econ­o­my at the time was deeply depressed and much more in need of easy mon­ey.

“I’m old enough to remem­ber when, ten years ago, dur­ing an actu­al defla­tion, you went on TV on a rival net­work and said we were about to have hyper­in­fla­tion and told the Fed that it was irre­spon­si­ble then to keep rates low,” she said. “It’s total­ly incon­sis­tent and it’s total­ly irre­spon­si­ble to make up num­bers.”

“I’m not mak­ing up num­bers,” Moore replied defen­sive­ly.

———-

“Trump-lov­ing econ­o­mist caught red-hand­ed ‘mak­ing up num­bers’ by CNN guest” by Brad Reed; Raw Sto­ry; 12/28/2018

““I’m old enough to remem­ber when, ten years ago, dur­ing an actu­al defla­tion, you went on TV on a rival net­work and said we were about to have hyper­in­fla­tion and told the Fed that it was irre­spon­si­ble then to keep rates low,” she said. “It’s total­ly incon­sis­tent and it’s total­ly irre­spon­si­ble to make up num­bers.””

Again, the prob­lem with Moore isn’t that he wants to keep rates low now. It’s that he wants to keep rates low now but want­ed to raise rates in the mid­dle of the finan­cial cri­sis while he warned of hyper­in­fla­tion. That’s an almost com­i­cal lack of qual­i­fi­ca­tions for a Fed board mem­ber.

And that’s what we find when we put aside the ques­tions about Stephen Moore’s writ­ings about women and focus on his qual­i­fi­ca­tions as an econ­o­mist: He’s a hack and hyper-par­ti­san ide­o­log­i­cal attack dog who will make his deci­sions based on the pol­i­tics of the sit­u­a­tion. Which is gen­er­al­ly not what you want for the Fed board. But this is Trump’s GOP we’re deal­ing with today so the ques­tion is whether or not the GOP is going to block him. And so far is sounds like Susan Collins has some con­cerns over his misog­y­ny and oth­er­wise there’s no real con­cern over his hack­ery. And that means Stephen Moore real­ly is on track at this point for his nom­i­na­tion to suc­ceed.

So let’s hope some pri­vate employ­er offers Stephen Moore a big enough salary to get him to pull a Her­man Cain and drop out of the nom­i­na­tion process to pur­sue mon­ey in the pri­vate sec­tor, because oth­er­wise it’s look­ing like Stephen Moore the race­horse is going to be trash­ing the Fed sta­ble for the next 14 years.

And that ends that: Stephen Moore is join­ing Her­man Cain in with­draw­ing his name from con­sid­er­a­tion for the Fed board due to the grow­ing num­ber of ques­tions about his qual­i­fi­ca­tions and char­ac­ter. Giv­en that Moore exem­pli­fied both junk eco­nom­ic the­o­ries and open crass par­ti­san­ship, it’s hard to see this as any­thing but good news for the US econ­o­my. But that still leaves the ques­tion of who Trump is going to nom­i­nate next. A ques­tion that becomes rather omi­nous con­sid­er­ing that last two picks.

So it’s worth not­ing that in the fol­low­ing New York Times arti­cle about the end or Moore’s nom­i­na­tion they list one par­tic­u­lar name for the next nom­i­nee that’s appar­ent­ly being pushed on Trump by the right-wing media. It’s a name we’ve heard in the past being bandied about in Trump’s cir­cles: Judy Shel­ton.

Recall how Judy Shel­ton is a gold stan­dard advo­cate who was con­sid­ered one of the eco­nom­ic ‘intel­lec­tu­als’ in Trump’s 2016 cam­paign team. The oth­er gold stan­dard advo­cate who was serv­ing on Trump’s eco­nom­ic team at the time was Lar­ry Kud­low.

As we now know, Kud­low went on to become Trump’s chief eco­nom­ic advis­er, replac­ing Gary Cohn in April of 2018. And Kud­low appears to have a great deal of influ­ence in who Trump selects for these Fed posi­tions and is much more of an eco­nom­ic nut job than Cohn. As the fol­low­ing arti­cle notes, Trump decid­ed to nom­i­nate Moore after Kud­low showed him a col­umn Moore wrote attack­ing Fed chair­man Jerome Pow­ell. So if Kud­low is the one guid­ing Trump on these Fed posi­tions we should prob­a­bly expect some­one as gross­ly unqual­i­fied as Cain or Moore. And wow is Judy Shel­ton is gross­ly unqual­i­fied. In oth­er words, she’s a per­fect fringe fit for Kud­low and already worked with him on the Trump 2016 cam­paign. And she’s far less like­ly than Cain and Moore to have a his­to­ry of misog­y­ny.

So while we don’t yet know who Trump is going to pick next, based on recent picks and Lar­ry Kud­low’s influ­ence we should expect Judy Shel­ton to be on the short­list:

The New York Times

Trump Won’t Nom­i­nate Stephen Moore for Fed Board

By Jim Tanker­s­ley, Mag­gie Haber­man and Emi­ly Cochrane
May 2, 2019

WASHINGTON — Pres­i­dent Trump said on Thurs­day that he would not nom­i­nate Stephen Moore for a seat on the Fed­er­al Reserve board, the sec­ond time in a month that con­cerns over a poten­tial nominee’s treat­ment of women have tor­pe­doed Mr. Trump’s attempt to place a loy­al­ist at the Fed.

The with­draw­al of Mr. Moore, a con­ser­v­a­tive com­men­ta­tor and Trump cam­paign eco­nom­ic advis­er, came after Repub­li­can law­mak­ers crit­i­cized his past com­ments about women, includ­ing that they should not earn more than men, along with finan­cial issues stem­ming from a 2010 divorce. Sev­er­al sen­a­tors relayed those con­cerns to the White House this week and made clear that Mr. Moore did not have the votes to clear the Repub­li­can-con­trolled Sen­ate.

“I think it’s prob­a­bly a good thing; I think it’s an impor­tant thing,” said Sen­a­tor Lisa Murkows­ki, Repub­li­can of Alas­ka, who had expressed reser­va­tions about the nom­i­na­tion.

Mr. Trump’s deci­sion to cut Mr. Moore loose appeared to come as a sur­prise to his poten­tial nom­i­nee, who had spent the morn­ing telling sev­er­al news media out­lets, includ­ing The Wall Street Jour­nal, that he would not with­draw and that he retained the full back­ing of the White House, which was “all in.”

This is the sec­ond time in recent weeks that one of Mr. Trump’s Fed picks was forced to with­draw over con­cerns about his views and atti­tudes toward women. Her­man Cain, a for­mer piz­za mag­nate, bowed out as he bat­tled pre­vi­ous accu­sa­tions of sex­u­al harass­ment that end­ed his 2012 pres­i­den­tial cam­paign.

It is unclear who — if any­one — Mr. Trump will for­mal­ly nom­i­nate for either of the two remain­ing Fed seats. Among the names being float­ed by con­ser­v­a­tive colum­nists is Judy Shel­ton, an econ­o­mist who has advised Mr. Trump and has advo­cat­ed a return to the gold stan­dard.

Mr. Trump placed the deci­sion to end the poten­tial nom­i­na­tion square­ly in Mr. Moore’s lap, say­ing in a tweet ear­ly Thurs­day after­noon that “Steve Moore, a great pro-growth econ­o­mist and a tru­ly fine per­son, has decid­ed to with­draw from the Fed process.”

Steve Moore, a great pro-growth econ­o­mist and a tru­ly fine per­son, has decid­ed to with­draw from the Fed process. Steve won the bat­tle of ideas includ­ing Tax Cuts....
— Don­ald J. Trump (@realDonaldTrump) May 2, 2019

Short­ly after­ward, a pub­lic rela­tions firm work­ing for Mr. Moore released a let­ter he wrote to Mr. Trump, cit­ing fam­i­ly strain for his deci­sion to step aside. “I am respect­ful­ly ask­ing that you with­draw my name from con­sid­er­a­tion,” Mr. Moore wrote. “The unre­lent­ing attacks on my char­ac­ter have become unten­able for me and my fam­i­ly, and three more months of this would be too hard on us.”

In an inter­view with the Fox Busi­ness Net­work on Thurs­day, Mr. Moore blamed a “sleaze cam­paign” for the deci­sion to with­draw, say­ing that “if I had any sense that this would hap­pen — peo­ple would be look­ing at my writ­ings from 20, 25 years ago — I would have told the pres­i­dent, ‘Wait a minute, I can’t do a Sen­ate con­fir­ma­tion.’”

He said some of his writ­ings “were insult­ing to women and they were meant to be a joke.”

“They were meant to be humor­ous and they weren’t,” he con­tin­ued.

In choos­ing Mr. Moore and Mr. Cain, Mr. Trump turned to men he con­sid­ered friends and whom he saw as poten­tial allies at the cen­tral bank, which he has crit­i­cized as an imped­i­ment to eco­nom­ic growth. Mr. Trump has select­ed four of the Fed’s sev­en board mem­bers, includ­ing its chair­man, Jerome H. Pow­ell. But the Fed’s deci­sion last year to raise inter­est rates four times has angered Mr. Trump, who has urged the Fed to cut rates by one point and engage in oth­er types of eco­nom­ic stim­u­lus.

Fed offi­cials have expressed few anx­i­eties about the two remain­ing vacan­cies, and it is not unprece­dent­ed for the board to oper­ate with­out a full slate of gov­er­nors. Both Janet L. Yellen and Ben Bernanke led the Fed with­out a full sev­en-mem­ber board dur­ing large parts of their tenure.

Repub­li­can law­mak­ers urged the pres­i­dent to take his time before float­ing anoth­er name.

“Read people’s arti­cles that they write,” said Sen­a­tor Shel­ley Moore Capi­to, Repub­li­can of West Vir­ginia. That, she said, “would be a good start.”

The pres­i­dent select­ed Mr. Moore after Lar­ry Kud­low, his Nation­al Eco­nom­ic Coun­cil direc­tor who was a best man at Mr. Moore’s wed­ding, showed the pres­i­dent a Wall Street Jour­nal opin­ion piece in which Mr. Moore called for the Fed to cut inter­est rates and said the cen­tral bank posed the biggest risk to the Amer­i­can econ­o­my.

Mr. Trump told reporters he planned to nom­i­nate Mr. Moore and Mr. Cain before White House offi­cials had per­formed a tra­di­tion­al back­ground check, includ­ing review­ing writ­ings, finances and past pub­lic con­tro­ver­sies. That left his nom­i­nees to endure intense pub­lic scruti­ny before being sub­ject­ed to the kind of inter­nal vet­ting that would typ­i­cal­ly deter­mine whether a per­son could pass con­gres­sion­al muster.

...

Sen­a­tor Richard C. Shel­by, Repub­li­can of Alaba­ma and a mem­ber of the Bank­ing Com­mit­tee, said that the les­son was to “scrub or vet some­body before you even think of nom­i­nat­ing them because they’ll be scrubbed by the press, the com­mit­tee and the Unit­ed States peo­ple.”

It was a rare instance of a crit­i­cal mass of Mr. Trump’s own par­ty buck­ing him in the Sen­ate. Sev­er­al Repub­li­cans joined Democ­rats in pass­ing bills to con­demn Amer­i­can mil­i­tary action in Yemen and Mr. Trump’s exec­u­tive order to divert funds to build a bor­der wall, which Mr. Trump vetoed. More recent­ly, the Sen­ate Finance Com­mit­tee chair­man, Charles E. Grass­ley of Iowa, warned Mr. Trump that he would not advance a new trade deal with Mex­i­co and Cana­da if Mr. Trump did not first scrap tar­iffs he has imposed on steel and alu­minum.

Mr. Moore’s selec­tion was crit­i­cized from the out­set, before his finan­cial issues and sex­ist com­ments came to light. A con­ser­v­a­tive econ­o­mist and pun­dit, Mr. Moore built a career in Wash­ing­ton lean­ing into the cul­ture wars and preach­ing the ben­e­fits of lim­it­ed gov­ern­ment, low tax­es and the oil and gas indus­try.

He found­ed the Club for Growth, an anti-tax polit­i­cal group that backed Repub­li­cans who sup­port­ed low tax­es — and attacked those who did not — in pri­ma­ry and gen­er­al elec­tion cam­paigns. He has also held jobs at right-wing think tanks includ­ing the Her­itage Foun­da­tion and the Cato Insti­tute, and served on the edi­to­r­i­al board of The Wall Street Jour­nal.

Democ­rats imme­di­ate­ly crit­i­cized the selec­tion of Mr. Moore as too par­ti­san for the Fed, which is his­tor­i­cal­ly inde­pen­dent. Sev­er­al promi­nent econ­o­mists, includ­ing con­ser­v­a­tives like N. Gre­go­ry Mankiw of Har­vard Uni­ver­si­ty, said Mr. Moore was not qual­i­fied for the posi­tion. Soon after his nom­i­na­tion, Mr. Moore issued what would be the first of many apolo­gies for past state­ments — in this case, express­ing remorse for say­ing Mr. Pow­ell should be fired after the Fed raised inter­est rates in Decem­ber.

In what would become a theme of his brief peri­od of con­sid­er­a­tion, Mr. Moore expressed a desire for crit­ics to focus exclu­sive­ly on his pol­i­cy plans for the Fed and ignore his volu­mi­nous paper trail.

“I don’t mind at all the bat­tle of ideas,” he said in an inter­view on March 26. “The per­son­al insults are pret­ty rough, and they’re just start­ing.”

Soon after, Mr. Moore found him­self ensnared in con­tro­ver­sy when court records sur­faced show­ing that he had failed to pay more than $300,000 in child sup­port and alimo­ny to his for­mer wife and was held in con­tempt of court by a Vir­ginia judge in 2013. In 2018, the Inter­nal Rev­enue Ser­vice placed a lien on his home after he failed to pay $75,000 in back tax­es.

Over the next month, inves­tiga­tive reporters from The Guardian, CNN, The New York Times and oth­er news media out­lets unearthed pre­vi­ous writ­ings and state­ments of Mr. Moore’s that slow­ly sank his can­di­da­cy.

In his career as a con­ser­v­a­tive writer, think tank econ­o­mist and cul­ture-war provo­ca­teur, Mr. Moore wrote a series of opin­ion arti­cles — and made speech­es and tele­vi­sion appear­ances — that den­i­grat­ed women. He sug­gest­ed that men need­ed to earn more than women, demeaned female ath­let­ic abil­i­ties and ques­tioned the right of women to attend the men’s col­lege bas­ket­ball tour­na­ment, unless they met a cer­tain stan­dard of attrac­tive­ness.

“The male needs to be the bread­win­ner of the fam­i­ly,” Mr. Moore said on C‑Span in 2000. “One of the rea­sons you’ve seen the decline of the fam­i­ly, not just in the black com­mu­ni­ty, but also it’s hap­pen­ing now in the white com­mu­ni­ty as well, is because women are more eco­nom­i­cal­ly self-suf­fi­cient.”

Mr. Moore also drew crit­i­cism for jok­ing, short­ly after Mr. Trump was elect­ed in 2016, about Mr. Trump kick­ing “a black fam­i­ly out of pub­lic hous­ing” — a ref­er­ence to for­mer Pres­i­dent Barack Oba­ma.

He apol­o­gized for some of those state­ments, which he called attempts at humor, and defend­ed oth­ers. But his expla­na­tions did not appear to sat­is­fy sen­a­tors, sev­er­al of whom are run­ning for re-elec­tion in tight races. He repeat­ed­ly called the focus on his writ­ings and finances a “smear cam­paign” and said his crit­ics were “pulling a Kavanaugh against me,” a ref­er­ence to the con­tentious nom­i­na­tion hear­ings of Jus­tice Brett M. Kavanaugh.

On Tues­day, Sen­a­tor Joni Ernst, Repub­li­can of Iowa, said she had told the White House she was unlike­ly to sup­port Mr. Moore, becom­ing the first sen­a­tor in her par­ty to be near­ing an explic­it dis­avow­al of his nom­i­na­tion. “I would vote no against him, should he come up for a vote,” Ms. Ernst told Bloomberg tele­vi­sion on Wednes­day. “I know there are a num­ber of oth­er col­leagues that have spo­ken out as well.”

———-

“Trump Won’t Nom­i­nate Stephen Moore for Fed Board” by Jim Tanker­s­ley, Mag­gie Haber­man and Emi­ly Cochrane; The New York Times; 05/02/2019

“Mr. Trump’s deci­sion to cut Mr. Moore loose appeared to come as a sur­prise to his poten­tial nom­i­nee, who had spent the morn­ing telling sev­er­al news media out­lets, includ­ing The Wall Street Jour­nal, that he would not with­draw and that he retained the full back­ing of the White House, which was “all in.””

It was pret­ty sud­den. Moore was declar­ing Trump “all in” on his nom­i­na­tions and a few hours lat­er Trump announced Moore’s deci­sion to with­draw. Who might be next? How about Judy Shel­ton, the one name giv­en in this New York Times arti­cle, so that would appear to indi­cate she’s seri­ous­ly in the run­ning. And she’s seri­ous­ly a gold stan­dard advo­cate mak­ing her the per­fect fit for Trump’s recent trend of crack pot Fed nom­i­nees under the direc­tion of Lar­ry Kud­low:

...
This is the sec­ond time in recent weeks that one of Mr. Trump’s Fed picks was forced to with­draw over con­cerns about his views and atti­tudes toward women. Her­man Cain, a for­mer piz­za mag­nate, bowed out as he bat­tled pre­vi­ous accu­sa­tions of sex­u­al harass­ment that end­ed his 2012 pres­i­den­tial cam­paign.

It is unclear who — if any­one — Mr. Trump will for­mal­ly nom­i­nate for either of the two remain­ing Fed seats. Among the names being float­ed by con­ser­v­a­tive colum­nists is Judy Shel­ton, an econ­o­mist who has advised Mr. Trump and has advo­cat­ed a return to the gold stan­dard.

...

The pres­i­dent select­ed Mr. Moore after Lar­ry Kud­low, his Nation­al Eco­nom­ic Coun­cil direc­tor who was a best man at Mr. Moore’s wed­ding, showed the pres­i­dent a Wall Street Jour­nal opin­ion piece in which Mr. Moore called for the Fed to cut inter­est rates and said the cen­tral bank posed the biggest risk to the Amer­i­can econ­o­my.
...

Also note how Trump has already has a huge impact on the Fed board, hav­ing appoint­ed four board mem­bers already, includ­ing Jerome Pow­ell. But that was most­ly done when Gary Cohn had Lar­ry Kud­low’s posi­tion. So we’re see­ing one major impact of Kud­low replac­ing Cohn: there’s a crack­pot run on the Fed. Also note how the Fed board can oper­ate with­out being fulling staffed for an extend­ed peri­od of time, so there’s no real urgency that these seats be filled, allow­ing Trump to make one irre­spon­si­ble nom­i­na­tion that gets shot down after anoth­er:

...
In choos­ing Mr. Moore and Mr. Cain, Mr. Trump turned to men he con­sid­ered friends and whom he saw as poten­tial allies at the cen­tral bank, which he has crit­i­cized as an imped­i­ment to eco­nom­ic growth. Mr. Trump has select­ed four of the Fed’s sev­en board mem­bers, includ­ing its chair­man, Jerome H. Pow­ell. But the Fed’s deci­sion last year to raise inter­est rates four times has angered Mr. Trump, who has urged the Fed to cut rates by one point and engage in oth­er types of eco­nom­ic stim­u­lus.

Fed offi­cials have expressed few anx­i­eties about the two remain­ing vacan­cies, and it is not unprece­dent­ed for the board to oper­ate with­out a full slate of gov­er­nors. Both Janet L. Yellen and Ben Bernanke led the Fed with­out a full sev­en-mem­ber board dur­ing large parts of their tenure.
...

Is Judy Shel­ton next? We’ll see. But it’s worth not­ing that the New York Sun edi­to­r­i­al that the above arti­cle linked to that endorsed Judy Shel­ton for the Fed board also men­tioned anoth­er fig­ure they were excit­ed about. James Grant of the Grant’s Inter­est Rate Observ­er. He’s anoth­er gold stan­dard advo­cate who was con­sid­ered a pos­si­ble Ron Paul pick for the Fed chair­man when Paul ran for pres­i­dent in 2012. So we should prob­a­bly put James Grant on the Fed short list too:

The New York Sun

Trump’s Ide­al Nom­i­nee for the Fed

Edi­to­r­i­al of The New York Sun
Feb­ru­ary 4, 2019

It looks like this could be the moment at which Pres­i­dent Trump makes his move in respect of the Fed­er­al Reserve. We say that because the chat­ter we hear is that he’s con­sid­er­ing nom­i­nat­ing to its board of gov­er­nors the econ­o­mist Judy Shel­ton. The Sun endors­es her hearti­ly. It would mark a bril­liant start to redeem­ing his cam­paign promis­es in respect of mon­e­tary pol­i­cy and our cen­tral bank.

Ms. Shel­ton is no stranger to read­ers of Sun edi­to­ri­als — or the edi­to­r­i­al page of the Wall Street Jour­nal. She has long since emerged as one of the most artic­u­late, but mea­sured, advo­cates of the idea that our eco­nom­ic trou­bles spring in large part, if not exclu­sive­ly, from the fiat nature of our cur­ren­cy. And that we need to bring back into our polit­i­cal econ­o­my the idea of sound mon­ey.

We wrote about Ms. Shel­ton when she deliv­ered at Jack­son Hole a speech chal­leng­ing the notion that the gold stan­dard was “crazy.” And also when, two years ago, she issued in the Wall Street Jour­nal an op-ed piece about how Mr. Trump is right in sug­gest­ing that mon­e­tary manip­u­la­tion is a real prob­lem. We called her “The Wood­peck­er” for the way she has kept ham­mer­ing away at the issue.

...

Not that Ms. Shel­ton is the only pos­si­bil­i­ty. Just the oth­er day she was inter­viewed on CNBC with anoth­er poten­tial nom­i­nee for the Fed, James Grant. The famed edi­tor of Grant’s Inter­est Rate Observ­er had once been moot­ed as a poten­tial chair­man of the Fed by no less a fig­ure than Con­gress­man Ron Paul. That was back in 2012, when Dr. Paul was mak­ing his mark in the Repub­li­can pres­i­den­tial pri­ma­ry.

So high­ly regard­ed is Mr. Grant that even though he’s a crit­ic of the Fed­er­al Reserve (on the CNBC clip above he argues that it’s insol­vent) he’s been invit­ed in to the New York Fed to speak to the cen­tral bankers them­selves. He sketched for them the prob­lem of what, to get to the pith, he calls the “Ph.D. stan­dard” of a dol­lar backed with but the fig­ur­ing of econ­o­mists.

We haven’t heard that Mr. Grant is being eyed for the open gov­er­nor­ship. He would, though, also be an ide­al can­di­date. Mr. Trump is said to be inter­view­ing Her­man Cain, who made a game run for the Repub­li­can pres­i­den­tial nom­i­na­tion in 2012. He is also a for­mer chair­man of the Kansas City Fed, but mon­e­tary reform of the kind we need hasn’t been his cen­tral pas­sion.

The thing to remem­ber in all this is that the plat­form on which Mr. Trump ran for pres­i­dent includ­ed mon­e­tary reform — point­ed­ly endors­ing a mon­e­tary com­mis­sion. It endorsed “Audit the Fed,” to give to the Con­gress greater over­sight of the Fed, and a mon­e­tary com­mis­sion, to begin a strate­gic review of our mon­e­tary sys­tem. Nom­i­nat­ing Judy Shel­ton to the Fed board would be a fab­u­lous first step in redeem­ing those promis­es.

——–

“Trump’s Ide­al Nom­i­nee for the Fed” Edi­to­r­i­al of The New York Sun; The New York Sun; 02/04/2019

“Not that Ms. Shel­ton is the only pos­si­bil­i­ty. Just the oth­er day she was inter­viewed on CNBC with anoth­er poten­tial nom­i­nee for the Fed, James Grant. The famed edi­tor of Grant’s Inter­est Rate Observ­er had once been moot­ed as a poten­tial chair­man of the Fed by no less a fig­ure than Con­gress­man Ron Paul. That was back in 2012, when Dr. Paul was mak­ing his mark in the Repub­li­can pres­i­den­tial pri­ma­ry.”

Yes, James Grant, the guy who would have been Ron Paul’s Fed pick, is the guy that the New York Sun Edi­to­r­i­al board also want to see on the is prob­a­bly on the short­list for the Fed board next to Judy Shel­ton. Trump appears to con­sume right-wing media to make his pol­i­cy deci­sion and the New York Sun edi­to­r­i­al board is like rich right-wing New York­ers col­lec­tive­ly talk­ing to Trump so there’s a pret­ty good chance he takes their words seri­ous­ly.

And yes, Grant is an open sup­port­er of return­ing the US to the gold stan­dard. Both Moore and Cain voiced their sup­port for the gold stan­dard. Kud­low too. So at the same time Trump is pub­licly attack­ing Jerome Pow­ell over rais­ing inter­est rates keep in mind he’s swing­ing decid­ed­ly into the pro-gold stan­dard camp based on his Fed nom­i­na­tions.

And don’t for­get these are 14 year terms to the Fed board and only sev­en seats so there’s lots of time for mul­ti­ple Repub­li­can pres­i­dents to stack the Fed board with at least 4 of the 7 Fed board mem­bers that are need­ed to get major­i­ty sup­port for fringe eco­nom­ic the­o­ries and go wild.

But regard­ing Shel­ton’s or Grant’s chances of being cho­sen by Trump, a lot will like­ly come down to whether or not they are able to some­how come up with an excuse for sup­port­ing low inter­est rates right now while Trump is in office. Because that’s some­thing both Moore and Cain were capa­ble of doing while still being right-wing nut job hacks. And that’s some­thing Shel­ton or Grant or a lot of oth­er gold bug types might not be able to do: have the eco­nom­ic pli­a­bil­i­ty that allowed them to sup­port low inter­est rates now while Trump is in office while still like­ly being hawks that vote for high­er rates in the future. Trump clear­ly wants low rates while he is in office. He also wants to pla­cate the gold bug crowd and that means high­er rates. Moore and Cain rep­re­sent­ed Trump’s means of thread­ing that nee­dle. Being unqual­i­fied hacks actu­al­ly helped thread that nee­dle.

So it’s going to be inter­est­ing to see who else Trump can find who might be able to thread that nee­dle of sup­port low rates for Trump while still being a right-wing nut. But we can be sure of one thing: if it’s not Shel­ton or Grant, it’s going to be some oth­er wing-nut who prob­a­bly sup­ports the gold stan­dard but is some­how able to jus­ti­fy low rates right now just for Trump. We don’t know who that per­son will be. We just know those are the qual­i­fi­ca­tions for the job.

Here’s an inter­est­ing pair of arti­cles that relate the sto­ry of the dis­turb­ing num­ber of Opus Dei mem­bers and affil­i­ates being part of the Trump admin­is­tra­tion (like Attor­ney Gen­er­al Bill Barr) with the sto­ry of Trump repeat­ed­ly nom­i­nat­ing gold bugs to the Fed­er­al Reserve board. First, recall how Lar­ry Kud­low, the Direc­tor of the Nation­al Eco­nom­ic Coun­cil Pres­i­dent Trump’s, was con­vert­ed to Catholi­cism by John McCloskey, the now-dis­graced mem­ber of Opus Dei who was a key indi­vid­ual for that orga­ni­za­tion in Wash­ing­ton DC dur­ing the ear­ly 2000’s. Also recall how Kud­low is a long-stand­ing sup­port­er of return­ing the US to the gold stan­dard and has been push­ing Trump to nom­i­nate oth­er gold stan­dard sup­port­ers to the Fed board like Her­man Cain and Stephen Moore (and pos­si­bly Judy Shel­ton next). So ques­tions about the Opus Dei influ­ence on the Trump admin­is­tra­tion are already some­what inter­twined with ques­tions about whether or not we’re see­ing an attempt to stack the Fed board with gold bugs. The fol­low­ing two arti­cles make those ques­tions even more inter­twined.

First, here’s a Pro Pub­li­ca piece from Novem­ber of 2017 about what the White House vis­i­tor logs tell us about who Mick Mul­vaney, then the direc­tor of the Office of Man­age­ment and Bud­get, was meet­ing with dur­ing that first year of the Trump White House. And while most of those vis­i­tor were peo­ple we would gen­er­al­ly expect (lob­by­ists for Koch Indus­tries, Wall Street CEOs, etc), there were a cou­ple of sur­pris­es. One sur­prise was a vis­it by Valery Vav­ilov, CEO of a tech com­pa­ny focused on cryp­tocur­ren­cies like Bit­coin. Although that vis­it was­n’t par­tic­u­lar­ly sur­pris­ing giv­en that Mul­vaney was already known to be one of the blockchain enthu­si­ast in con­gress and even co-found­ed a “blockchain cau­cus” in the House in 2016.

But there was anoth­er some­what more sur­pris­ing vis­it in those logs who was also a major pro­po­nent of ques­tion­able eco­nom­ic the­o­ries: a vis­it by John Bell, a two-time GOP Sen­ate can­di­date and promi­nent mem­ber of Opus Dei. When Bell died in ear­ly 2018, he was hailed as not just an impor­tant fig­ure in shap­ing the Repub­li­can Par­ty’s stances on social issues. He was also key fig­ure behind ‘Reaganomics’, the rise of sup­ply-side eco­nom­ics, and was a major gold bug. He even ran on return­ing to the gold stan­dard in both his his 1982 Sen­ate run and his 2014 Sen­ate run against Cory Book­er. In oth­er words, Bell isn’t just some ran­dom mem­ber of Opus Dei. He was a key thinker in the con­ser­v­a­tive move­ment on both social and eco­nom­ic issues.

And as we’re going to see, in 2016 Bell was call­ing for Trump to make reform­ing the Fed­er­al Reserve as a top pri­or­i­ty should he win. And, of course, all of the reforms he wants are the kinds of stuff that would tie the hands of the Fed dur­ing emer­gen­cies, in keep­ing with the gold bug phi­los­o­phy. So it’s increas­ing­ly look­ing like the Trump admin­is­tra­tion’s gold bug prob­lem and an Opus Dei prob­lem are part of the same prob­lem:

Pro Pub­li­ca

Koch Lob­by­ists and Opus Dei — Who’s Drop­ping in on Trump Bud­get Czar Mick Mul­vaney?
The influ­en­tial OMB director’s door is open to cor­po­rate and con­ser­v­a­tive inter­ests, accord­ing to logs that the White House fought to keep secret.

by Justin Elliott
Nov. 21, 2017, 1:56 p.m. EST

One of Pres­i­dent Don­ald Trump’s top cab­i­net offi­cials has met with a long list of lob­by­ists, cor­po­rate exec­u­tives and wealthy peo­ple with busi­ness inter­ests before the gov­ern­ment, accord­ing to cal­en­dars the Trump admin­is­tra­tion fought to keep secret.

The cal­en­dars for Mick Mul­vaney, the for­mer South Car­oli­na con­gress­man who now runs the White House Office of Man­age­ment and Bud­get, offer a glimpse of who has access to the high­est lev­els of the Trump admin­is­tra­tion.

Among those vis­it­ing Mul­vaney: Trump friend and casi­no mag­nate Steve Wynn; a flur­ry of offi­cials from the con­ser­v­a­tive Her­itage Foun­da­tion; a string of health care and Wall Street CEOs; lob­by­ists for Koch Indus­tries; a cryp­tocur­ren­cy evan­ge­list; and a promi­nent mem­ber of the Catholic group Opus Dei.

The Trump admin­is­tra­tion fought in court to block pub­lic records requests by Prop­er­ty of the Peo­ple, a Wash­ing­ton-based non­prof­it trans­paren­cy group, to release the cal­en­dars as well as vis­i­tor logs from sev­er­al oth­er White House offices. Lawyers for the group ulti­mate­ly pre­vailed and pro­vid­ed the doc­u­ments to ProP­ub­li­ca, which we are post­ing in a search­able for­mat.

As OMB direc­tor, Mul­vaney is the dri­ving force behind the president’s bud­get and influ­ences reg­u­la­tions and gov­ern­ment pro­cure­ment. It’s been wide­ly report­ed that he will become the act­ing head of the Con­sumer Finan­cial Pro­tec­tion Bureau. He also has the ear of the pres­i­dent, who is report­ed­ly a fan of Mulvaney’s per­for­mances on the Sun­day polit­i­cal shows. The cal­en­dars, which cov­er Feb­ru­ary to Sep­tem­ber, typ­i­cal­ly don’t include details on what was dis­cussed at the meet­ings. In some cas­es, the tim­ing of con­tact with Mul­vaney line up with OMB busi­ness.

“The OMB direc­tor is a mem­ber of the cab­i­net and also a senior advis­er to the pres­i­dent — because of that, the direc­tor often spends a ton of time in the West Wing,” said Ken­neth Baer, who was senior advis­er and asso­ciate direc­tor at the agency for sev­er­al years of the Oba­ma admin­is­tra­tion.

The quick­est way to get access to Mul­vaney appears to be to hire his for­mer con­gres­sion­al chief of staff, Al Simp­son, who joined the lob­by­ing firm Mer­cury in Feb­ru­ary.

Simp­son had sev­en meet­ings and a phone call with Mul­vaney in a four-month peri­od, between April and August. He appears on Mulvaney’s cal­en­dars more fre­quent­ly than any­one who is not a cur­rent gov­ern­ment offi­cial. Often, Simp­son brought lob­by­ing clients with him, includ­ing rep­re­sen­ta­tives from build­ing mate­ri­als giant Cemex; phar­ma firm Amerisource­Ber­gen; and Blue­Cross BlueShield of South Car­oli­na. Those three firms paid Mer­cury $360,000 in the first nine months of the year, dis­clo­sure fil­ings show.

A Mer­cury spokesman said: “The firm ful­ly com­plies with all reg­is­tra­tion and dis­clo­sure require­ments when rep­re­sent­ing clients.” The OMB press office did not respond to requests for com­ment.

In July, Simp­son and Koch Indus­tries lob­by­ists Bri­an Hen­neber­ry and Ray­mond Paul met with Mul­vaney.

In oth­er cas­es, bil­lion­aires them­selves came in to meet with Mul­vaney. They include Charles Schwab, med­ical entre­pre­neur PPatrick Soon-Shiong and Wynn, the casi­no mag­nate whose rela­tion­ship with Trump goes back decades. Wynn met with Mul­vaney in April. Wynn’s firm has lob­bied on tax issues on Capi­tol Hill. Wynn him­self, who has large hold­ings in Macau, has report­ed­ly been involved in press­ing the Trump admin­is­tra­tion on Chi­na issues. Wynn was also named finance chair­man of the Repub­li­can Nation­al Com­mit­tee in Jan­u­ary. Wynn’s spokesman declined to com­ment.

In late Feb­ru­ary, Mul­vaney had a call with Eugene Scalia, the son of the late Supreme Court jus­tice and a promi­nent lawyer at Gib­son Dunn. At the time, Scalia was rep­re­sent­ing busi­ness groups that want­ed OMB to delay the imple­men­ta­tion of a reg­u­la­tion known as the fidu­cia­ry rule. Scalia didn’t respond to a request for com­ment. Many of his meet­ings with health care exec­u­tives came as Repub­li­cans in Con­gress tried to repeal Oba­macare.

Mulvaney’s sched­ule is, to a large extent, a reflec­tion of his pol­i­tics. A for­mer mem­ber of the House’s con­ser­v­a­tive Free­dom Cau­cus, he recent­ly told Politi­co, “I don’t think any­one in this admin­is­tra­tion is more of a right-wing con­ser­v­a­tive than I am.” (The same pro­file quot­ed Simp­son, Mulvaney’s for­mer chief of staff turned lob­by­ist, prais­ing him.)

Mul­vaney met with few, if any, con­sumer groups. That’s in con­trast to Pres­i­dent Barack Obama’s first OMB direc­tor, Peter Orszag, whose vis­i­tor logs show meet­ings with both a long string of cor­po­rate exec­u­tives as well as phil­an­thropic and con­sumer rep­re­sen­ta­tives.

Among the more sur­pris­ing vis­i­tors to Mul­vaney was Jeff Bell, a for­mer Rea­gan aide who is marked on the cal­en­dar as being with the Catholic group Opus Dei. Bell told ProP­ub­li­ca that his March meet­ing with Mul­vaney, a Catholic, cov­ered “reli­gious and polit­i­cal mat­ters” but declined to com­ment fur­ther.

Anoth­er was Valery Vav­ilov, CEO of Bit­fury, a tech com­pa­ny focused on cryp­tocur­ren­cies like Bit­coin. When Mul­vaney was still in Con­gress last year, he co-found­ed a “blockchain cau­cus” to pro­mote the tech­nol­o­gy behind Bit­coin

At the May meet­ing, “Mul­vaney expressed his desire to encour­age gov­ern­ment use of blockchain and he asked our group for sug­ges­tions of sim­ple use cas­es that could be a first step for gov­ern­ment adop­tion,” a Bit­fury spokesman told ProP­ub­li­ca.

———-

“Koch Lob­by­ists and Opus Dei — Who’s Drop­ping in on Trump Bud­get Czar Mick Mul­vaney?” by Justin Elliott; Pro Pub­li­ca; 11/21/2017

“Among the more sur­pris­ing vis­i­tors to Mul­vaney was Jeff Bell, a for­mer Rea­gan aide who is marked on the cal­en­dar as being with the Catholic group Opus Dei. Bell told ProP­ub­li­ca that his March meet­ing with Mul­vaney, a Catholic, cov­ered “reli­gious and polit­i­cal mat­ters” but declined to com­ment fur­ther.”

So the direc­tor of the OMB meets with one of the more promi­nent mem­bers of Opus Dei to talk about “reli­gious and polit­i­cal mat­ters” dur­ing the first year of the Trump admin­is­tra­tion and that’s all they’re will­ing to tell us.

What might they have talked about? Well, since Jeff Bell is a two time GOP can­di­date and a key con­ser­v­a­tive pol­i­cy guru, we have a pret­ty good idea. And based on this August 2016 inter­view of Bell, it’s pret­ty clear that Bell viewed reform­ing the Fed­er­al Reserve as the key eco­nom­ic reform he’d like to see Trump imple­ment if he wins. And by ‘reform­ing’ the Fed, we’re talk­ing about return­ing to a gold-backed dol­lar. But bar­ring a return the gold stan­dard, Bell said he’d like to see reforms that would “address what the Fed is doing with zero inter­est rates, quan­ti­ta­tive eas­ing, too-big-to-fail, and all the rest” and lim­it the Fed­er­al Reserve to man­ag­ing the bank­ing sys­tem and serv­ing as a lender of last resort in the event of a run on the banks and that it.

Keep in mind that the Fed has a dual man­date gen­er­al­ly hat­ed by con­ser­v­a­tives: a man­date to keep infla­tion around 2 per­cent (which right-wingers gen­er­al­ly like). Before Richard Nixon took the US off the gold stan­dard in 1971 this man­date took the form of requir­ing that the Fed keep the val­ue of a dol­lar at 1/35th of an ounce of gold. And before 1978 this was the sole man­date. A sec­ond man­date to keep the econ­o­my near full employ­ment was intro­duced in 1978 in the mid­dle of the stagfla­tion of the late-1970’s. It’s this sec­ond man­date that right-wingers gen­er­al­ly loath, at least when a Demo­c­rat is in the White House.

With Bell, it’s not even clear how much he sup­ports a sin­gle man­date of just infla­tion con­trol. Grant­ed, back in 2013, when Bell opposed the nom­i­na­tion of Janet Yellen as Fed Chair­man he argued that Repub­li­cans would be mak­ing a big mis­take by sup­port­ing her nom­i­na­tion because she was a diehard believ­er in the dual man­date and many Repub­li­can Sen­a­tors have open­ly called for a return to the sin­gle man­date of just infla­tion con­trol. So in that con­text he appeared to have sup­port­ed at least the sin­gle man­date. But in the fol­low­ing 2016 inter­view of Bell, it’s far less clear he’s even will­ing to sup­port that. Instead, it sounds like he want­ed to lim­it the Fed to man­ag­ing the bank­ing sys­tem and pro­tect­ing against bank runs and that’s it. Although if there’s a return the gold stan­dard that would implic­it­ly have the sin­gle man­date of set­ting a fixed con­ver­sion rate between the dol­lar and an ounce of gold. So it’s not entire­ly clear how Bell want­ed to lim­it the Fed, but it’s abun­dant­ly clear that Bell want­ed the Repub­li­can Par­ty to cam­paign on the idea that the Fed is the pri­ma­ry source of aver­age Amer­i­cans ‘s eco­nom­ic woes and gut­ting the Fed is the path to pros­per­i­ty for all:

Nation­al Review

A Con­ser­v­a­tive Stal­wart Reflects on the 2016 Scene

By Neal B. Free­man
August 1, 2016 8:00 AM

There are three key points con­ser­v­a­tives should know about Jef­frey Bell. The first is that he was the Repub­li­can nom­i­nee for the U.S. Sen­ate in New Jer­sey in 1978 and then again in 2014. The two cam­paigns were remark­ably sim­i­lar. They were both short on cash and long on ideas, almost par­a­dig­mat­i­cal­ly so. Bell ran respectable races against two prodi­gious Demo­c­ra­t­ic vote-get­ters, Bill Bradley the first time and Cory Book­er the sec­ond. Bell lost both times, but in run­ning pow­er­ful­ly didac­tic cam­paigns he pulled the gen­er­al elec­torate, and in some respects his oppo­nents, clos­er to his own posi­tions.

The sec­ond bul­let point is that, over the past half-cen­tu­ry, Bell has been one of the most effec­tive pol­i­cy entre­pre­neurs of his gen­er­a­tion. Most con­spic­u­ous­ly, he has devel­oped and helped to secure a promi­nent place in the con­ser­v­a­tive coali­tion for the clus­ter of pop­ulist issues known as social con­ser­vatism.

More recent­ly, he has brought his con­sid­er­able pow­ers of analy­sis and advo­ca­cy to bear on the Fed­er­al Reserve. It seems like­ly that Fed reform will be high on the agen­da of an incom­ing Trump admin­is­tra­tion and pos­si­bly, if the redis­tri­b­u­tion­ist fever breaks, some­where to be found on the agen­da of a Clin­ton admin­is­tra­tion.

Along with a hand­ful of inde­fati­ga­ble col­leagues, Bell has also kept alive these many years the prospect of a return to the gold stan­dard. (Not to wor­ry. Bell is the only gold bug of my acquain­tance who doesn’t pin you to the liv­ing-room wall just as the host­ess rings the din­ner bell.)

I can vouch per­son­al­ly for anoth­er pol­i­cy suc­cess. It was Jeff Bell’s voice, log­i­cal and insis­tent, that was indis­pens­able in con­vert­ing can­di­date Ronald Rea­gan to sup­ply-side fis­cal­ism in 1980. Had Rea­gan not embraced Kemp-Roth-sized tax cuts, in my judg­ment, the Gip­per would not have been elect­ed and his rev­o­lu­tion would have been still­born.

The third thing you should know about Jeff Bell is that, for all his ide­o­log­i­cal fire, he is no Belt­way bark­er. He’s a qui­et and respect­ful man who rarely calls atten­tion to him­self. Old-timers can recall only a sin­gle anec­dote from his days as a young writer for Nation­al Review. It seems that one day, for rea­sons ful­ly expli­cat­ed at the time but by now long for­got­ten, Bell request­ed that NR change his byline from Ed Bell to Jeff Bell. WFB, who accord­ing to plau­si­ble fam­i­ly leg­end could speak in round­ed para­graphs well before his sec­ond birth­day, was momen­tar­i­ly struck word­less. The silence was bro­ken by NR pub­lish­er William Rush­er, who straight-faced that the pro­posed change amount­ed to “a remark­able turn of events in the his­to­ry of jour­nal­ism.” Thus it was that, just as Mar­i­on Mor­ri­son would one day become John Wayne, Ed Bell would hence­for­ward be known as Jeff Bell.

I asked Bell about the cur­rent plight.

Free­man: You’ve been a cham­pi­on for some years of a pop­ulist brand of con­ser­vatism. Hap­py now?

Bell: Yes and no. I’m dis­ap­point­ed that no con­ser­v­a­tive can­di­date for pres­i­dent — oth­er than, par­tial­ly, Ted Cruz — ran with Reagan’s com­bi­na­tion of social and eco­nom­ic con­ser­vatism. But this very fact, cou­pled with Repub­li­can non-per­for­mance when we had 21st-cen­tu­ry con­gres­sion­al majori­ties, led to a pop­ulist can­di­date emerg­ing from out­side the move­ment and then dom­i­nat­ing the nom­i­na­tion fight.

I didn’t pre­dict the rise of Don­ald Trump, but he could wind up as a net plus for con­ser­vatism — or not.

Free­man: I’ll bite. In what way could Trump wind up as a net plus for con­ser­vatism, with the lat­ter defined for this pur­pose as Buck­leyite con­ser­vatism?

Bell: The key polit­i­cal devel­op­ment in the post-Rea­gan era is the decline of con­ser­v­a­tive eco­nom­ics. Begin­ning with James Carville’s “It’s the econ­o­my, stu­pid” strat­e­gy in 1992, Repub­li­cans have not won the eco­nom­ic debate in a sin­gle pres­i­den­tial cycle. More­over, as weak as the Oba­ma econ­o­my has been, eco­nom­ic growth in 15 years of Demo­c­ra­t­ic pres­i­den­cies has been supe­ri­or to the twelve years of Bush pres­i­den­cies.

Vot­ers con­tin­ue to blame George W. Bush more than Barack Oba­ma for the eco­nom­ic hard times that began in 2007. Con­ven­tion­al con­ser­v­a­tive eco­nom­ics of the type espoused by Jeb Bush, John Kasich, and Mar­co Rubio lost every pri­ma­ry this year but Ohio and Puer­to Rico. They bare­ly men­tioned wage stag­na­tion or work-force decline and offered what sound­ed like triv­ial and incre­men­tal fix­es. There’s no rea­son to believe that a Repub­li­can with such a lim­it­ed agen­da would fare bet­ter in the gen­er­al elec­tion.

Free­man: And Trump, in your view, won the eco­nom­ic debate dur­ing the pri­maries and is capa­ble of win­ning it in the gen­er­al?

Bell: Pri­ma­ry vot­ers pre­ferred Trump in large part because he expressed out­rage over the eco­nom­ic decline of the Bush and Oba­ma pres­i­den­cies — and con­fi­dence that a Trump pres­i­den­cy can deliv­er big change. The jury is out on whether if elect­ed he could deliv­er on eco­nom­ic revi­tal­iza­tion. He cer­tain­ly wouldn’t get a long hon­ey­moon.

Free­man: Let’s play that out a bit. Sup­pose that Trump is elect­ed on a wave of opti­mism, or at least on a wave of stirred eco­nom­ic anx­i­ety. What “big changes” could he effect that might accu­rate­ly be described as con­ser­v­a­tive eco­nom­ics?

Bell: We have now arrived at my hob­by­horse.

Free­man: Uh-oh. My saint­ed moth­er told me to beware men rid­ing hob­by­hors­es.

Bell: I don’t see how Trump or any oth­er future pres­i­dent can fix the econ­o­my with­out revers­ing the takeover of the Amer­i­can econ­o­my by the Fed­er­al Reserve. Bet­ter trade deals won’t be enough unless the ulti­mate cause of eco­nom­ic dys­func­tion is addressed.

Free­man: Oth­er than a return to the gold stan­dard, what pol­i­cy changes would you be rec­om­mend­ing to Pres­i­dent Trump?

Bell: For the last three-plus decades, Con­gress has approved only one or at most two “big changes” a new pres­i­dent asks for in his first year. For Rea­gan and George W. Bush, it was a tax cut. For Clin­ton, a tax increase. For Oba­ma, the Afford­able Care Act and the stim­u­lus. Only George H. W. Bush failed to ask for a big change in his first year.

I believe that the Fed’s top-down man­age­ment of the U.S. econ­o­my is the sin­gle biggest bar­ri­er to a resump­tion of broad-based pros­per­i­ty. A new pres­i­dent should focus on Fed reform. Does that mean ask­ing for leg­is­la­tion to return to a gold-backed dol­lar? Not nec­es­sar­i­ly. But seri­ous reform has to address what the Fed is doing with zero inter­est rates, quan­ti­ta­tive eas­ing, too-big-to-fail, and all the rest.

Free­man: Would you rec­om­mend that a new pres­i­dent abol­ish the Fed?

Bell: No. But it should return to the func­tions for which it was orig­i­nal­ly set up: man­ag­ing the bank­ing sys­tem and serv­ing as a lender of last resort in the event of a run on the banks.

Free­man: I have to ask you about the social issues. For years you argued that social con­ser­vatism was not only a moral imper­a­tive but a win­ning issue. Giv­en what appears to be a seis­mic shift in pub­lic opin­ion on gay rights, espe­cial­ly, would you make the same argu­ment today?

Bell: Much of the coun­try is social­ly con­ser­v­a­tive, as well as most Repub­li­can vot­ers. The future of social con­ser­vatism is in doubt owing to a lack of Repub­li­can push­back. If social con­ser­vatism is thrown over the side, it’s hard for me to envi­sion exact­ly what the Repub­li­can base would con­sist of.

Free­man: Anoth­er ques­tion about that con­ser­v­a­tive base, as amor­phous as the notion seems at the moment. Cir­cum­stances, some of them hor­rif­ic to imag­ine, could con­spire to turn this into a nation­al-secu­ri­ty elec­tion. Could you see Trump­ism, which has adopt­ed a kind of pro­to-real­ism as its inter­na­tion­al pos­ture, inform­ing a new admin­is­tra­tion with neo­con­ser­v­a­tive pol­i­cy goals?

Bell: I think he will define him­self against Hillary as less inter­na­tion­al­ist but more hawk­ish. His for­eign pol­i­cy, which has been well-described as “Jack­son­ian,” is like­ly to be high­ly event-dri­ven. Under Oba­ma, pro­vok­ing the U.S. seemed to leave an adver­sary more safe rather than less. I doubt that will be the case in a Trump pres­i­den­cy.

...

———-

“A Con­ser­v­a­tive Stal­wart Reflects on the 2016 Scene” by Neal B. Free­man; Nation­al Review; 08/01/2016

“Along with a hand­ful of inde­fati­ga­ble col­leagues, Bell has also kept alive these many years the prospect of a return to the gold stan­dard. (Not to wor­ry. Bell is the only gold bug of my acquain­tance who doesn’t pin you to the liv­ing-room wall just as the host­ess rings the din­ner bell.)”

Yep, one of the key con­ser­v­a­tive thinkers of the last gen­er­a­tion is also an inde­fati­ga­ble gold bug.

But Bell does­n’t just pro­mote the gold stan­dard and straight­jack­et­ing the Fed. Instead, he ped­dles this agen­da as the only solu­tion to long-stand­ing eco­nom­ic trends in the Amer­i­can econ­o­my like wage stag­na­tion and work-force decline:

...
Free­man: I’ll bite. In what way could Trump wind up as a net plus for con­ser­vatism, with the lat­ter defined for this pur­pose as Buck­leyite con­ser­vatism?

Bell: The key polit­i­cal devel­op­ment in the post-Rea­gan era is the decline of con­ser­v­a­tive eco­nom­ics. Begin­ning with James Carville’s “It’s the econ­o­my, stu­pid” strat­e­gy in 1992, Repub­li­cans have not won the eco­nom­ic debate in a sin­gle pres­i­den­tial cycle. More­over, as weak as the Oba­ma econ­o­my has been, eco­nom­ic growth in 15 years of Demo­c­ra­t­ic pres­i­den­cies has been supe­ri­or to the twelve years of Bush pres­i­den­cies.

Vot­ers con­tin­ue to blame George W. Bush more than Barack Oba­ma for the eco­nom­ic hard times that began in 2007. Con­ven­tion­al con­ser­v­a­tive eco­nom­ics of the type espoused by Jeb Bush, John Kasich, and Mar­co Rubio lost every pri­ma­ry this year but Ohio and Puer­to Rico. They bare­ly men­tioned wage stag­na­tion or work-force decline and offered what sound­ed like triv­ial and incre­men­tal fix­es. There’s no rea­son to believe that a Repub­li­can with such a lim­it­ed agen­da would fare bet­ter in the gen­er­al elec­tion.

...

Bell: I don’t see how Trump or any oth­er future pres­i­dent can fix the econ­o­my with­out revers­ing the takeover of the Amer­i­can econ­o­my by the Fed­er­al Reserve. Bet­ter trade deals won’t be enough unless the ulti­mate cause of eco­nom­ic dys­func­tion is addressed.

...

I believe that the Fed’s top-down man­age­ment of the U.S. econ­o­my is the sin­gle biggest bar­ri­er to a resump­tion of broad-based pros­per­i­ty. A new pres­i­dent should focus on Fed reform. Does that mean ask­ing for leg­is­la­tion to return to a gold-backed dol­lar? Not nec­es­sar­i­ly. But seri­ous reform has to address what the Fed is doing with zero inter­est rates, quan­ti­ta­tive eas­ing, too-big-to-fail, and all the rest.
...

And while Bell does­n’t advo­cate actu­al­ly abol­ish­ing the Fed, he comes pret­ty close by advo­cat­ing lim­it­ing the Fed to sim­ply man­ag­ing the bank­ing sys­tem and serv­ing as a lender of last resort:

...
Free­man: Would you rec­om­mend that a new pres­i­dent abol­ish the Fed?

Bell: No. But it should return to the func­tions for which it was orig­i­nal­ly set up: man­ag­ing the bank­ing sys­tem and serv­ing as a lender of last resort in the event of a run on the banks.
...

Well, at least Bell was will­ing to have the Fed pro­tect against bank runs since the rest of the ‘reforms’ he want­ed to see would straight­jack­et the Fed in exact­ly the kinds of ways that make bank runs a lot more like­ly.

All in all, the sto­ry of Jef­frey Bell and his mys­te­ri­ous 2017 meet­ing with Mick Mul­vaney under­scores the fact that the influ­ence of Opus Dei should­n’t be seen as being lim­it­ed to social poli­cies. It’s clear­ly a cult with dan­ger­ous cult-like views on eco­nom­ic pol­i­cy too and enor­mous sway over the Trump admin­is­tra­tion and the Repub­li­can Par­ty as a whole. So while it remains to be seen who Trump is going to nom­i­nate next to the Fed board after Stephen Moore and Her­man Cain had their nom­i­na­tions fiz­zle, we can be pret­ty sure those future nom­i­nees will be Opus Dei-approved.

As con­cerns grow over the eco­nom­ic impact of the the Trump admin­is­tra­tion’s grow­ing trade wars, here’s a quick reminder that the poten­tial dam­age from those trade was is poten­tial­ly going to eclipsed by the long-term dam­age that could be inflict­ed on the US (and glob­al) econ­o­my should Trump final­ly suc­ceed in appoint­ing a whacked out gold bug to the Fed­er­al Reserve Board.

First, recall how the ini­tial set of Fed­er­al Reserve board nom­i­na­tions by the Trump admin­is­tra­tion, when Gary Cohn was his chief eco­nom­ic advis­er, were actu­al­ly rel­a­tive­ly sane peo­ple. Then Cohn was replaced with Lar­ry Kud­low and all of a sud­den the Trump admin­is­tra­tion was seri­ous­ly push­ing the com­i­cal­ly unqual­i­fied fig­ures like Stephen Moore and Her­man Cain for both of the open seats on the Fed board. Moore and Cain both hap­pen to be close to Kud­low and both are gold bug, as is Kud­low.

But even after Cain and Moore with­drew their nom­i­na­tions all indi­ca­tions were that Kud­low was going to sim­ply find anoth­er per­son in the gold bug mold to nom­i­nate next, like his good friend Judy Shel­ton, who was just inter­viewed the Finan­cial Times about her views on cen­tral bank­ing. As we’ll see in the fol­low­ing arti­cle, Shel­ton does­n’t actu­al­ly appear to believe in cen­tral bank­ing at all. In addi­tion to want­i­ng to return the US to a gold stan­dard, Shel­ton also wants to take the Fed­er­al Reserve out of the busi­ness of set­ting inter­est rates. The way Shel­ton puts it, inter­est rates should exclu­sive­ly be deter­mined by ‘the mar­ket’. That’s basi­cal­ly going back to a pre-Fed­er­al Reserve finan­cial sys­tem.

But it’s not just the US Shel­ton wants to see return to the gold stan­dard. Shel­ton describes her ‘big dream’: a new Bret­ton Woods-style con­fer­ence to reset the inter­na­tion­al mon­e­tary sys­tem which is cur­rent­ly most­ly based on float­ing cur­ren­cies. Shel­ton wants coun­tries to anchor their cur­ren­cies to a “neu­tral ref­er­ence point, a bench­mark” — which she envis­ages to be a “con­vert­ible gold-backed bond”. She also notes that if this Bret­ton Woods-style con­fer­ence took play at Mar-a-Lago that should be great. So she’s already think­ing about how to psy­cho­log­i­cal­ly sell the idea of such a con­fer­ence to Trump.

But per­haps the most alarm­ing fun fact in the fol­low­ing arti­cle is the fact that Shel­ton will prob­a­bly have a much eas­i­er time get­ting con­gres­sion­al approval than Moore or Cain received. Why? Because Shel­ton has already been approved for var­i­ous oth­er gov­ern­ment posi­tions. She was already approved by Con­gress to be the US rep­re­sen­ta­tive on the board of the Euro­pean Bank for Recon­struc­tion and Devel­op­ment and she was des­ig­nat­ed to be the Rus­sia expert on the board of the Nation­al Endow­ment for Democ­ra­cy due to her grad­u­ate school work on the Sovi­et econ­o­my. She also hap­pens to believe the Fed­er­al Reserve is a dan­ger­ous Sovi­et-style threat to the democ­ra­cy of mar­kets.

Beyond that, Shel­ton was elect­ed the new Chair­man of the Nation­al Endow­ment for Democ­ra­cy by the NED’s board of direc­tors in Jan­u­ary 2017 . Yep, Shel­ton was the per­son the Trump admin­is­tra­tion ini­tial­ly tapped to run one of the US’s key for­eign ‘soft’ influ­ence agen­cies.

So while Trump’s trade fol­lies are grab­bing all the head­lines, keep in mind that the per­son that con­tin­ues to appear to be in the front-run­ning for a seat on the Fed­er­al Reserve board (a 14 year term, don’t for­get) is some­one who sees cen­tral bank­ing as a ‘Soviet’-style threat to both the econ­o­my and democ­ra­cy and she’s already received Con­gres­sion­al approval for oth­er impor­tant jobs, which seems like anoth­er pret­ty big poten­tial threat to the econ­o­my the Trump admin­is­tra­tion is vol­un­tar­i­ly cre­at­ing right now by repeat­ed­ly nom­i­nat­ing gold bugs to the Fed:

Finan­cial Times

Fed can­di­date slams bank’s ‘Sovi­et’ pow­er over mar­kets
Trump pick Judy Shel­ton ques­tions if Fed should set inter­est rates

James Poli­ti in Wash­ing­ton
May 31, 2019

Judy Shel­ton, a senior US offi­cial who is being vet­ted for a job on the board of the Fed­er­al Reserve, has attacked the cen­tral bank for wield­ing unde­mo­c­ra­t­ic, Sovi­et-style pow­ers over mar­kets and sug­gest­ed it should not even be in the busi­ness of set­ting inter­est rates.

In an inter­view with the Finan­cial Times at the Trump Inter­na­tion­al Hotel in Wash­ing­ton this week, Ms Shel­ton called on the Fed to “think about whether they are doing more harm than good”. If appoint­ed to the board, she would be “ask­ing tough ques­tions” about its most basic mis­sion, she said.

“How can a dozen, slight­ly less than a dozen, peo­ple meet­ing eight times a year, decide what the cost of cap­i­tal should be ver­sus some kind of organ­i­cal­ly, mar­ket sup­ply deter­mined rate? The Fed is not omni­scient. They don’t know what the right rate should be. How could any­one?” Ms Shel­ton said.

“If the suc­cess of cap­i­tal­ism depends on some­one being smart enough to know what the rate should be on everything...we’re doomed. We might as well res­ur­rect Gos­plan,” she said, refer­ring to the state com­mit­tee that ran the Sovi­et Union’s planned econ­o­my. Ms Shel­ton did post­doc­tor­al research on the Sovi­et econ­o­my at Stan­ford University’s Hoover Insti­tu­tion, and was des­ig­nat­ed to be the Rus­sia expert on the board of the Nation­al Endow­ment for Democ­ra­cy.

The US rep­re­sen­ta­tive on the board of the Euro­pean Bank for Recon­struc­tion and Devel­op­ment, Ms Shel­ton is being con­sid­ered by Don­ald Trump to be a Fed gov­er­nor after his pre­vi­ous pro­posed can­di­dates — Stephen Moore and Her­man Cain — were dropped from con­tention. Both Mr Moore and Mr Cain with­drew this year after Repub­li­cans in the upper cham­ber balked at their lim­it­ed qual­i­fi­ca­tions for the job, per­son­al fac­tors that emerged dur­ing their vet­ting, and fears that they would not be inde­pen­dent enough from Mr Trump.

Ms Shel­ton, who obtained an MBA in busi­ness admin­is­tra­tion from the Uni­ver­si­ty of Utah, has already passed muster with Con­gress for the EBRD job, which could make it hard­er for the Sen­ate to turn her down. But her pos­si­ble nom­i­na­tion sug­gests that Mr Trump is in no mood for a less con­tro­ver­sial pick for the US cen­tral bank, and wants a dis­rup­tive can­di­date to argue for unortho­dox poli­cies with­in the Fed.

As well as ques­tion­ing whether the Fed should even be steer­ing mon­e­tary pol­i­cy, Ms Shel­ton has called for the cen­tral bank to stop pay­ing banks inter­est on excess reserves, a pol­i­cy intro­duced dur­ing the finan­cial cri­sis, say­ing it was turn­ing finan­cial insti­tu­tions into “util­i­ties”, reward­ing them for allow­ing mon­ey to “sit doing zilch” rather than being loaned out.

She also said that the Fed should con­tin­ue to reduce its bal­ance sheet below the $3.5tn tar­get set by Jay Pow­ell, the chair­man. “I would rather the Fed be less of an enti­ty. When a cen­tral bank buys up gov­ern­ment debt, that’s the begin­ning of com­pro­mised finances.”

She also said the Fed had become so influ­en­tial that it unnat­u­ral­ly drove invest­ment deci­sions and affect­ed finan­cial mar­kets. “It’s the dis­tort­ing aspect of the Fed that is the worst aspect — it’s a wag-the-dog sit­u­a­tion. Peo­ple are fix­at­ed on the Fed and are mak­ing mon­ey by arbi­trag­ing, tril­lions of a sec­ond after the lat­est FOMC announce­ment,” she added.

Ms Shel­ton has long been sym­pa­thet­ic to the gold stan­dard, which the US ful­ly aban­doned in the ear­ly 1970s in favour of a flex­i­ble exchange rate for the dol­lar. “Peo­ple call me a gold­bug, and I think, well, what does that make them? A Fed bug,” she says. Her big dream is a new Bret­ton Woods-style con­fer­ence — “if it takes place at Mar-a-Lago that would be great” — to reset the inter­na­tion­al mon­e­tary sys­tem, replac­ing the cur­rent regime, most­ly based on float­ing cur­ren­cies. Ms Shel­ton said coun­tries should agree to tie their cur­ren­cies to a “neu­tral ref­er­ence point, a bench­mark” — which she envis­ages to be a “con­vert­ible gold-backed bond”.

“Now is the piv­otal moment to ques­tion whether cen­tral bank­ing is real­ly deliv­er­ing what the cen­tral bankers them­selves aspire to. They are going through self-exam­i­na­tion so I think it’s rea­son­able to say there are alter­na­tives,” she said.

Ms Shel­ton, who has close ties to Lar­ry Kud­low, the direc­tor of the Nation­al Eco­nom­ic Coun­cil, as well as David Mal­pass, the pres­i­dent of the World Bank, worked for Mr Trump as an eco­nom­ic advis­er dur­ing the 2016 pres­i­den­tial cam­paign. She endorsed his “pro-growth eco­nom­ic agen­da”, from tax cuts to dereg­u­la­tion.

...

———–

“Fed can­di­date slams bank’s ‘Sovi­et’ pow­er over mar­kets” by James Poli­ti; Finan­cial Times; 05/31/2019

“In an inter­view with the Finan­cial Times at the Trump Inter­na­tion­al Hotel in Wash­ing­ton this week, Ms Shel­ton called on the Fed to “think about whether they are doing more harm than good”. If appoint­ed to the board, she would be “ask­ing tough ques­tions” about its most basic mis­sion, she said.”

Ask­ing “tough ques­tions” about the most basic mis­sion of the Fed­er­al Reserve. Tough ques­tion like whether or not the Fed should try to influ­ence mar­kets at all. It’s cer­tain­ly a basic ques­tion, and one she has an answer to: Shel­ton thinks the Fed’s basic job of set­ting inter­est rates and man­ag­ing the finan­cial sys­tem is a Sovi­et-style unde­mo­c­ra­t­ic abuse of mar­kets. The very idea of a group of peo­ple at a cen­tral bank attempt­ing to reg­u­late and the man­age the finan­cial sys­tem is seen as far­ci­cal to Shel­ton. Instead, there should be a new Bret­ton Woods-style con­fer­ence at Mar-a-Lago where the whole world agrees to switch over to the gold stan­dard. Keep in mind that peo­ple who want a com­plete reset of a sys­tem are gen­er­al­ly in favor of see­ing it col­lapse and some­one who wants the whole world to return to the gold stan­dard soon is some­one who falls into that cat­e­go­ry. now. Because in Shel­ton’s view, cen­tral bank­ing has failed so mis­er­ably that now is the piv­otal moment to look into alter­na­tives. That’s who Trump is like­ly to nom­i­nate to the Fed board:

...
Judy Shel­ton, a senior US offi­cial who is being vet­ted for a job on the board of the Fed­er­al Reserve, has attacked the cen­tral bank for wield­ing unde­mo­c­ra­t­ic, Sovi­et-style pow­ers over mar­kets and sug­gest­ed it should not even be in the busi­ness of set­ting inter­est rates.

...

“How can a dozen, slight­ly less than a dozen, peo­ple meet­ing eight times a year, decide what the cost of cap­i­tal should be ver­sus some kind of organ­i­cal­ly, mar­ket sup­ply deter­mined rate? The Fed is not omni­scient. They don’t know what the right rate should be. How could any­one?” Ms Shel­ton said.

...

She also said the Fed had become so influ­en­tial that it unnat­u­ral­ly drove invest­ment deci­sions and affect­ed finan­cial mar­kets. “It’s the dis­tort­ing aspect of the Fed that is the worst aspect — it’s a wag-the-dog sit­u­a­tion. Peo­ple are fix­at­ed on the Fed and are mak­ing mon­ey by arbi­trag­ing, tril­lions of a sec­ond after the lat­est FOMC announce­ment,” she added.

Ms Shel­ton has long been sym­pa­thet­ic to the gold stan­dard, which the US ful­ly aban­doned in the ear­ly 1970s in favour of a flex­i­ble exchange rate for the dol­lar. “Peo­ple call me a gold­bug, and I think, well, what does that make them? A Fed bug,” she says. Her big dream is a new Bret­ton Woods-style con­fer­ence — “if it takes place at Mar-a-Lago that would be great” — to reset the inter­na­tion­al mon­e­tary sys­tem, replac­ing the cur­rent regime, most­ly based on float­ing cur­ren­cies. Ms Shel­ton said coun­tries should agree to tie their cur­ren­cies to a “neu­tral ref­er­ence point, a bench­mark” — which she envis­ages to be a “con­vert­ible gold-backed bond”.
...

Don’t for­get, these aren’t views Shel­ton mere­ly expressed a decade ago. These are her answers to a new Finan­cial Times inter­view that’s focused on how she’ll behave on the Fed’s board. An eco­nom­ic nut job is about to get a 14 year term and get to run around the world with Fed­er­al Reserve cre­den­tials talk­ing about how we need to all return to the gold stan­dard.

And despite ques­tion­ing the basic exis­tence of cen­tral bank­ing and view­ing the Fed’s , Shel­ton is cur­rent­ly the US rep­re­sen­ta­tive on the board of the Euro­pean Bank for Recon­struc­tion and Devel­op­ment, and was des­ig­nat­ed the Rus­sia expert on the board of the Nation­al Endow­ment for Democ­ra­cy, which she chairs. So Shel­ton real­ly does have a much bet­ter chance of mak­ing it through Con­gress than Moore or Cain:

...
“If the suc­cess of cap­i­tal­ism depends on some­one being smart enough to know what the rate should be on everything...we’re doomed. We might as well res­ur­rect Gos­plan,” she said, refer­ring to the state com­mit­tee that ran the Sovi­et Union’s planned econ­o­my. Ms Shel­ton did post­doc­tor­al research on the Sovi­et econ­o­my at Stan­ford University’s Hoover Insti­tu­tion, and was des­ig­nat­ed to be the Rus­sia expert on the board of the Nation­al Endow­ment for Democ­ra­cy.

The US rep­re­sen­ta­tive on the board of the Euro­pean Bank for Recon­struc­tion and Devel­op­ment, Ms Shel­ton is being con­sid­ered by Don­ald Trump to be a Fed gov­er­nor after his pre­vi­ous pro­posed can­di­dates — Stephen Moore and Her­man Cain — were dropped from con­tention. Both Mr Moore and Mr Cain with­drew this year after Repub­li­cans in the upper cham­ber balked at their lim­it­ed qual­i­fi­ca­tions for the job, per­son­al fac­tors that emerged dur­ing their vet­ting, and fears that they would not be inde­pen­dent enough from Mr Trump.

Ms Shel­ton, who obtained an MBA in busi­ness admin­is­tra­tion from the Uni­ver­si­ty of Utah, has already passed muster with Con­gress for the EBRD job, which could make it hard­er for the Sen­ate to turn her down. But her pos­si­ble nom­i­na­tion sug­gests that Mr Trump is in no mood for a less con­tro­ver­sial pick for the US cen­tral bank, and wants a dis­rup­tive can­di­date to argue for unortho­dox poli­cies with­in the Fed.
...

When you have some­one like Shel­ton being seri­ous­ly con­sid­ered for the Fed board and pred­i­cat­ing their world­view on the fail­ure of cen­tral bank­ing, now is a good time to remind our­selves that the inter­ven­tions in finan­cial mar­kets by cen­tral banks have pret­ty much been the only insti­tu­tions around the globe that have con­sis­tent­ly worked rea­son­ably sane­ly to hold the world econ­o­my togeth­er over the last decade fol­low­ing the 2008 finan­cial cri­sis. It’s the leg­is­la­tures and gov­ern­ment reg­u­la­tors where the biggest fail­ures have tak­en place because that’s where the pol­i­tics of aus­ter­i­ty and peo­ple with views like Shel­ton gen­er­al­ly reign supreme. Nev­er for­get that a return to the gold stan­dard shifts economies to a modal­i­ty where deep­en­ing aus­ter­i­ty in the face of wors­en­ing reces­sions is just what the sys­tem man­dates. Peo­ple switched to cen­tral banks for a rea­son.

It was­n’t the cen­tral banks that sent almost no one to jail fol­low­ing the 2008 glob­al finan­cial cri­sis. And it was­n’t cen­tral banks that neglect­ed to bail out aver­age peo­ple due to con­cerns of ‘moral haz­ard’ at the same time the crim­i­nal per­pe­tra­tors in the finan­cial sec­tor got bailed out. That was the deci­sion of Con­gress and the exec­u­tive branch and oth­er gov­ern­ments around the world. It it was­n’t for the unprece­dent­ed stim­u­lus of the major cen­tral banks over the last decade the glob­al econ­o­my would have almost cer­tain­ly fall­en into a much deep­er reces­sion. It was the rest of gov­ern­ment that con­sis­tent­ly messed up big in the man­age­ment of the econ­o­my and finan­cial sys­tem. The Fed — when it was run by Ayn Rand acolyte Alan Greenspan — can cer­tain­ly take its share of the blame for for fan­ning the flames that led up to the 2008 cri­sis, but it’s hard to avoid the con­clu­sion that the Fed has been one of the more con­sis­tent­ly use­ful insti­tu­tions for the econ­o­my after the cri­sis large­ly because the Repub­li­cans could­n’t mess with it as eas­i­ly. Until now.

One obvi­ous major excep­tion to the rel­a­tive­ly decent track record of the major cen­tral banks over the last decade was the Euro­pean Cen­tral Bank’s insane deci­sion to raise rates in 2011 for the out­ra­geous rea­son of being con­cerned about future infla­tion which threw the euro­zone into a finan­cial cri­sis so severe that Mario Draghi was forced to pledge to do “what­ev­er it takes” the next year and engage the ECB in a host of emer­gency stim­u­lus pro­grams that are still unwind­ing. Emer­gency pro­grams that held the euro­zone togeth­er. And accord­ing Judy Shel­ton (and the Bun­des­bank) the ECB should­n’t have ever had the option to “do what­ev­er it takes” in an emer­gency like what the euro­zone was fac­ing. Because it should­n’t exist and instead be replaced with an inter­na­tion­al gold stan­dard where just let­ting finan­cial crises play out, regard­less of how deep they get, is fun­da­men­tal to how the sys­tem works. Mak­ing a bad sit­u­a­tion worse to rebal­ance is how the gold stan­dard sys­tem works which, again, is why cen­tral banks were set up in the first place.

So while Trump’s trade wars are no doubt play­ing with eco­nom­ic fire, keep in that Trump keeps nom­i­nat­ing gold bugs to the Fed and next in line is Judy Shel­ton, some­one who wants to blow up the inter­na­tion­al finan­cial sys­tem and do it soon. All at once at a new Bret­ton Woods-style con­fer­ence prefer­ably at Mar-a-Lago. That’s the kind of nom­i­na­tion that seems bad for the econ­o­my.

With the US jobs report for May com­ing in at a sur­pris­ing­ly weak num­ber and high­light­ing the risks for the US econ­o­my, the ques­tion of how the Trump admin­is­tra­tion is going to avoid a reces­sion head­ing into the 2020 elec­tion is sud­den­ly a much more urgent ques­tion now that that 2020 elec­tion cycle is get­ting into full swing.

It’s tak­en as a giv­en that the Trump admin­is­tra­tion is going to do what­ev­er it can to keep the US econ­o­my juiced up head­ing into the 2020 elec­tion cycle. The GOP tax scam bill that first came into effect in 2018 was cer­tain­ly seen by Trump and the GOP as part of that effort to keep the econ­o­my going, but it was also a poor­ly con­ceived of tax bill that waste­ful­ly gave the vast major­i­ty of the ben­e­fits to bil­lion­aires and big cor­po­ra­tions with lit­tle more than a short-term boost that may have already fiz­zled.

That’s part of the con­text that makes the fol­low­ing pair of arti­cles extra dis­turb­ing. The first arti­cle describes how fed­er­al reg­u­la­tors have already enabled the new mas­sive cred­it bub­ble rival­ing the one that blew up the glob­al econ­o­my in 2008. This time it’s a bub­ble in cor­po­rate debt, instead of a giant cred­it bub­ble root­ed in a hous­ing bub­ble like we saw last time. And this time the bub­ble much more heav­i­ly dri­ven by the ‘shad­ow’ bank­ing sec­tor instead of tra­di­tion­al banks. That’s in part because of the new post-2008 reg­u­la­tions that make it much hard­er to tra­di­tion­al banks to engage in the kind of extreme risk-tak­ing that cre­at­ed the last cred­it bub­ble, which effec­tive­ly cre­at­ed an oppor­tu­ni­ty for the non-tra­di­tion­al finan­cial enti­ties that don’t fall under those new reg­u­la­tions to step in and fill the void. The arti­cle also notes that tra­di­tion­al banks are increas­ing­ly fund­ing the shad­ow banks so while tra­di­tion­al banks may not be direct­ly tak­ing on the same kind of risks that they did in the lead up to the 2008 cri­sis they are still fuel­ing those risks this time around.

The sec­ond arti­cle is about how fed­er­al reg­u­la­tors and Repub­li­cans in Con­gress are doing every­thing they can to undo those 2008 reg­u­la­tions on tra­di­tion­al banks. Because of course they are. The arti­cle also notes that it’s the Fed­er­al Reserve that is often cham­pi­oning the loos­en­ing of these reg­u­la­tions. Keep in mind that the Fed­er­al Reserve board has sev­en seats, two of which are emp­ty. Of the five filled seats, all but one of those board mem­bers are Repub­li­cans (Lael Brainard is the loan Demo­c­rat). It under­scores the fact that, even though the Trump admin­is­tra­tion has­n’t yet appoint­ed any gold bug mon­e­tary nut jobs to the Fed­er­al Reserve board despite its recent attempts, the appointees that Trump did appoint to the board ear­li­er in his term have swung the Fed strong­ly to the right. Not so far to the right that they’re advo­cat­ing for return­ing to the gold stan­dard but still far enough that they’re engag­ing in tra­di­tion­al irre­spon­si­ble Repub­li­can dereg­u­la­tions.

And it’s that tra­di­tion­al Repub­li­can propen­si­ty for irre­spon­si­ble dereg­u­la­tions cou­pled with the fact that we have a new giant cred­it bub­ble already in the pipeline that make the ques­tion of what the Trump admin­is­tra­tion is going to do to keep the econ­o­my hum­ming along through the 2020 elec­tions so dis­turb­ing. Because irre­spon­si­ble dereg­u­la­tions are anoth­er means of keep­ing the econ­o­my going in the short-run...at the expense of desta­bi­liz­ing the finan­cial sys­tem. Again. And bank­ing dereg­u­la­tions don’t nec­es­sar­i­ly require con­gres­sion­al approval, mak­ing them a read­i­ly avail­able source of pro­vid­ing short-term eco­nom­ic stim­u­lus. Anoth­er tempt­ing time­bomb in the GOP’s pol­i­cy tool­box.

So as the ques­tion of whether or not the US econ­o­my will hold up for the next year and a half starts trans­lat­ing into ques­tions of what the Trump admin­is­tra­tion is going to do to ensure the econ­o­my does­n’t fall apart, keep in mind that irre­spon­si­ble dereg­u­la­tions of the finan­cial sec­tor that under­mine the finan­cial sys­tem are one of tools most read­i­ly avail­able to Trump for achiev­ing that desired short-term stim­u­lus:

The Wash­ing­ton Post

The shad­ow banks are back with anoth­er big bad cred­it bub­ble

By Steven Pearl­stein
Colum­nist
May 31, 2019

Fed­er­al Reserve Chair Jerome Pow­ell gave a speech a cou­ple of weeks back that showed that finan­cial reg­u­la­tors have learned many lessons from the 2008 finan­cial cri­sis, but not the most impor­tant one, name­ly:

If reg­u­la­tors wait to act until they can say with cer­tain­ty that a cred­it bub­ble is about to burst, they’ve wait­ed too long.

That’s par­tic­u­lar­ly true when it comes to the opaque and unreg­u­lat­ed “shad­ow” bank­ing sys­tem on Wall Street that has now sup­plant­ed reg­u­lat­ed banks as the lead­ing source of cred­it for busi­ness­es and con­sumers. This shad­ow sys­tem gets its mon­ey from big investors rather than depos­i­tors, and it revolves around hedge funds, invest­ment banks and pri­vate equi­ty funds rather than banks. These shad­ow banks have made bor­rowed mon­ey cheap­er and eas­i­er to get, but they have also made the finan­cial sys­tem and the U.S. econ­o­my more sus­cep­ti­ble to booms and busts. And with anoth­er giant cred­it bub­ble ready to burst — this one hav­ing to do with busi­ness bor­row­ing — we’re about to learn that painful les­son again.

The rise of the shad­ow bank­ing sys­tem began in the 1980s with “junk” bonds, which for the first time allowed com­pa­nies with less than blue-chip cred­it rat­ings to bor­row more eas­i­ly and cheap­ly from investors in the bond mar­ket than from banks on which they had always relied.

Then, begin­ning in the 1990s, shad­ow banks moved aggres­sive­ly into home mort­gages and oth­er con­sumer debt — auto loans, stu­dent loans, cred­it card debt — which they bought from banks and oth­er lenders, pack­aged togeth­er and sold to investors as bond-like secu­ri­ties. You know how that turned out.

After the crash in 2008, shad­ow bankers shift­ed their atten­tion to busi­ness lend­ing, using the same “secu­ri­ti­za­tion” process to buy and pack­age “lever­aged” loans — bank loans to big com­pa­nies that were already high­ly indebt­ed — into col­lat­er­al­ized loan oblig­a­tions, or CLOs. Investors couldn’t get enough of the CLOs, which promised high­er returns than low-yield­ing gov­ern­ment and cor­po­rate bonds, and cor­po­ra­tions gorged on lever­aged loans to fund merg­ers and acqui­si­tions, buy back their own shares and pay spe­cial div­i­dends to investors.

More recent­ly, Wall Street wiseguys have shift­ed from buy­ing loans to mak­ing them direct­ly — in this case to mid­size com­pa­nies, long con­sid­ered the last pre­serve of the tra­di­tion­al bank­ing sys­tem. The new play­ers are pri­vate equi­ty firms, hedge funds, invest­ment banks, insur­ers and once obscure enti­ties known as “busi­ness devel­op­ment com­pa­nies.”

In each of the last four years, investors poured more than $100 bil­lion into these mid­dle-mar­ket pri­vate cred­it funds, which now have com­bined assets of between $600 bil­lion and $900 bil­lion, accord­ing to esti­mates by Bloomberg News; Pre­qin, a data com­pa­ny; and Ares Cap­i­tal, a lead­ing direct lender. The banks’ share of mid­dle-mar­ket lend­ing has been near­ly cut in half as pri­vate lenders have not only tak­en busi­ness away from the banks but also sig­nif­i­cant­ly expand­ed the mar­ket by mak­ing loans that banks are unwill­ing or unable to make.

“It’s a wild west space,” a top cred­it strate­gist from Bank of Amer­i­ca told the Finan­cial Times this year. “The whole thing has explod­ed in size, and every­one is get­ting into it.”

The banks’ ini­tial retreat from the mid­dle mar­ket was a result of the orgy of bank merg­ers in the 1990s, dur­ing which region­al banks were rolled up into a hand­ful of large nation­al banks. While mid­dle-mar­ket lend­ing was the bread and but­ter of region­al banks, the mega­banks were focused on lend­ing to the largest cor­po­ra­tions. More­over, to real­ize the cost sav­ings that were promised from the merg­ers, the mega­banks reduced the num­ber of lend­ing offi­cers with the knowl­edge of and expe­ri­ence with com­pa­nies and indus­tries to make cus­tomized loans based on esti­mates of expect­ed cash flows. Instead, the mega­banks began offer­ing mid­dle-mar­ket cus­tomers a set of stan­dard­ized loan prod­ucts that required very lit­tle paper­work or eval­u­a­tion.

This retreat from mid­dle-mar­ket lend­ing accel­er­at­ed in the after­math of the 2008 finan­cial cri­sis, when reg­u­la­tors began requir­ing banks to set aside more cap­i­tal as a finan­cial cush­ion against loan loss­es. More cap­i­tal was also required for loans to com­pa­nies that already had lots of debt or that had gone through a year or two of hard times. Reg­u­la­tors also raised red flags when­ev­er they saw loans with­out covenants that allowed the bank to demand that a loan be paid back if the com­pa­ny failed to hit cer­tain busi­ness tar­gets.

The shad­ow banks, how­ev­er, were only too hap­py to step in and fill the void left by the reg­u­lat­ed banks, lend­ing direct­ly to firms with low­er cred­it rat­ings and lend­ing with few­er covenants and more flex­i­ble terms. They were able to offer cus­tomized loan pack­ages that incor­po­rate a mix­ture of cheap­er first-in-line “senior” debt with riski­er and more expen­sive “junior” or “mez­za­nine” financ­ing.

Loans could be approved quick­ly, with­out hav­ing to get approval from the loan com­mit­tees found in most banks. And for all that speed, flex­i­bil­i­ty and addi­tion­al lend­ing risk, com­pa­nies were will­ing to pay inter­est rates aver­ag­ing 2‑percentage points above what banks might have charged, accord­ing to a paper by Sergey Cher­nenko of Pur­due, Isil Erel of Ohio State and Robert Prilmeier of Tulane.

To fund all this loan-mak­ing, the shad­ow banks have turned to insur­ance com­pa­nies, pen­sion funds, uni­ver­si­ty endow­ments and wealthy investors, offer­ing them a chance to buy into a diver­si­fied pool of loans that offer returns rang­ing from 6 per­cent to 13 per­cent, depend­ing on the lev­el of risk they are will­ing to assume.

And even though tra­di­tion­al banks may be mak­ing few­er loans to mid­size busi­ness­es, they’ve been eager­ly lend­ing to the hedge funds, pri­vate equi­ty firms and busi­ness devel­op­ment com­pa­nies that are mak­ing more of those loans. In fact, the fastest grow­ing cat­e­go­ry of rev­enue and prof­it for the banks in recent years has been lend­ing to “non-bank finan­cial insti­tu­tions.” Accord­ing to the lat­est report from the Fed­er­al Reserve, unreg­u­lat­ed cred­it funds now have access to more than $1 tril­lion in lines of cred­it from reg­u­lat­ed banks, an increase of 65 per­cent over five years. And there is evi­dence that, in the face of increased com­pe­ti­tion, the pri­vate funds are tak­ing on high­er and high­er lev­els of debt to con­tin­ue offer­ing the same high yields to their investors.

Mid­dle-mar­ket lend­ing, of course, is just part of the biggest expan­sion in cor­po­rate bor­row­ing the U.S. econ­o­my has ever seen, a result of eight years of cheap and easy mon­ey engi­neered by the Fed and oth­er cen­tral banks after the 2008 finan­cial cri­sis.

The ratio of cor­po­rate bor­row­ing to a vari­ety of met­rics — prof­its and assets, book val­ue or the size of the over­all econ­o­my — is at or near an all-time high. So is the risk­i­ness of the loans, reflect­ing the amount of debt com­pa­nies have tak­en on, the absence of covenants and the rosy assump­tions made about the amount of cash flow com­pa­nies will have to cov­er debt ser­vice.

Mean­while, the dif­fer­ence in inter­est rates between the safest loans and the riski­est — in finan­cial jar­gon, the “spread” — is at his­tor­i­cal­ly low lev­els, a reli­able indi­ca­tion of too much mon­ey chas­ing too few good lend­ing oppor­tu­ni­ties. Accord­ing to the lat­est “finan­cial sta­bil­i­ty” reports from the Fed­er­al Reserve and the Inter­na­tion­al Mon­e­tary Fund, all of these mea­sures have got­ten worse in the last two years, with many flash­ing yel­low and red on their dash­boards of sys­temic finan­cial risk.

“Any­time you have this much mon­ey chas­ing loans, you are going to have acci­dents,” a banker told me recent­ly.

If all this new­ly bor­rowed mon­ey were being used to cre­ate new tech­nol­o­gy or enhance pro­duc­tiv­i­ty, pil­ing up all this debt might be a risk worth tak­ing. But the evi­dence sug­gests that what it is most­ly doing is arti­fi­cial­ly stim­u­lat­ing the econ­o­my. Com­pa­nies have used much of this new­ly bor­rowed mon­ey to buy back their own shares, pay spe­cial div­i­dends to pri­vate equi­ty investors and acquire oth­er com­pa­nies, all of which have the effect of inflat­ing stock prices. The recent wave of rich­ly priced merg­ers and over­priced stock offer­ings, and the declin­ing returns offered by recent com­mer­cial real estate deals, are all good indi­ca­tions of a cred­it bub­ble wait­ing to burst.

So, is this a replay of 2008?

In some ways no, as Fed Chair­man Pow­ell not­ed in his May 20 speech.

For starters, the reg­u­lat­ed bank­ing sys­tem is much bet­ter cap­i­tal­ized, with banks eas­i­ly pass­ing strin­gent “stress tests” now required by reg­u­la­tors to assess their abil­i­ty to with­stand the eco­nom­ic and finan­cial equiv­a­lent of a Cat­e­go­ry 4 hur­ri­cane.

And house­hold debt has grown no faster than house­hold income and is con­cen­trat­ed in house­holds best able to pay it back.

Even in the shad­ow bank­ing sys­tem, the struc­ture of invest­ments has changed in ways that make it more dif­fi­cult for investors to pull their mon­ey out at the first sign of trou­ble, mak­ing a “run” on the sys­tem less like­ly. More­over, unlike reg­u­lat­ed banks, shad­ow banks are not required to imme­di­ate­ly “write down” the val­ue of the loans in their port­fo­lios when prices fall on the open mar­ket. That lim­its the amount of forced or pan­ic sell­ing.

But in oth­er ways, there are trou­bling par­al­lels between the 2008 mort­gage bub­ble and today’s bub­ble in cor­po­rate cred­it.

As before, too much of the lend­ing growth is dri­ven by investors’ search for yield rather than bor­row­ers need for new cap­i­tal.

And as before, this excess of sup­ply rel­a­tive to demand has led to a dete­ri­o­ra­tion of lend­ing stan­dards that start­ed in the shad­ow bank­ing sys­tem and has now spread to reg­u­lat­ed banks anx­ious about a fur­ther reduc­tion in their mar­ket share. (My favorite stat: Dur­ing the first three months of this year, accord­ing to Trepp, a data com­pa­ny, inter­est-only loans — loans requir­ing no pay­back of prin­ci­pal until the loan is due — account­ed for three-quar­ters of all new com­mer­cial real estate loans.)

As before, reg­u­lat­ed banks have dis­cov­ered that they can make almost as much prof­it sell­ing and lend­ing into the shad­ow bank­ing sys­tem as they can mak­ing and hold­ing loans them­selves.

And as before, reg­u­la­tors don’t know what they don’t know about the shad­ow bank­ing sys­tem. They don’t know exact­ly where the risks are con­cen­trat­ed or how investors will respond to a turn in sen­ti­ment or an increase in defaults. They don’t know how much lever­age the shad­ow banks have tak­en on and how much forced sell­ing there will be if loan val­ues fall. They don’t know all the indi­rect ways in which the reg­u­lat­ed banks are exposed to the shad­ow bank­ing sys­tem.

Anoth­er wor­ri­some sim­i­lar­i­ty is the way bankers have used their polit­i­cal clout with Repub­li­can politi­cians to fight off attempts by reg­u­la­tors to restrain their risk-tak­ing.

Two years ago, when career bank reg­u­la­tors issued guid­ance meant to crack down on lever­aged lend­ing, for exam­ple, bankers went run­ning to Repub­li­can lead­ers in Con­gress, who threat­ened a con­gres­sion­al veto unless they with­drew it.

And tucked into last year’s bud­get com­pro­mise was a Repub­li­can rid­er allow­ing busi­ness devel­op­ment com­pa­nies, which have been spring­ing up like mush­rooms in a rain for­est, to dou­ble the amount of mon­ey they can bor­row rel­a­tive to the amount of equi­ty cap­i­tal they raise from investors.

Per­haps the biggest sim­i­lar­i­ty between the pre­vi­ous cred­it bub­ble and this one, how­ev­er, is the stub­born reluc­tance of reg­u­la­tors to let some of the air out of the cred­it bub­ble before it bursts.

After the 2008 cri­sis, the Unit­ed States and a dozen oth­er indus­tri­al­ized coun­tries cre­at­ed a clear and sim­ple mech­a­nism for doing so, known as the “coun­ter­cycli­cal cap­i­tal buffer.” The ratio­nale behind the buffer is that when unem­ploy­ment is near his­toric lows and asset prices are at record highs, when cred­it qual­i­ty is declin­ing and spreads are nar­row­ing, banks should be required to set aside extra cap­i­tal to pro­tect against a down­turn and reduce the amount of cred­it in the finan­cial sys­tem.

Yet in March, with near­ly all of those key indi­ca­tors flash­ing red, the Fed­er­al Reserve’s Board of Gov­er­nors vot­ed 4 to 1 not to trig­ger the coun­ter­cycli­cal cap­i­tal require­ments. The lone dis­senter was Lael Brainard, a vet­er­an of the Clin­ton White House and the Oba­ma Trea­sury.

Ran­dal Quar­les, the Fed’s vice chair­man and point man on bank super­vi­sion, declared after­ward that the Unit­ed States didn’t need to use coun­ter­cycli­cal buffers because oth­er reg­u­la­to­ry con­trols were now so effec­tive that the Amer­i­can bank­ing sys­tem could weath­er any tur­bu­lence with­out them. In a sub­se­quent talk at Yale Uni­ver­si­ty, Quar­les, a one­time part­ner at the Car­lyle Group, a pri­vate equi­ty firm deeply involved in the shad­ow bank­ing sys­tem, blamed — who else? — the media for over­play­ing and over­sim­pli­fy­ing the risks from the rapid expan­sion of busi­ness lend­ing.

And in his recent speech, Pow­ell, who spent most of his life as a Wall Street lawyer and banker, assured his audi­ence that reg­u­la­tors “will always act to address emerg­ing risk” — which might ring true if you con­sid­er “act­ing” to mean mon­i­tor­ing, study­ing, shar­ing data and “work­ing to ensure that banks are prop­er­ly man­ag­ing the risks they have tak­en on.” In oth­er words, doing every­thing except actu­al­ly requir­ing banks to throt­tle back on their riski­est busi­ness lend­ing.

Mean­while, the Finan­cial Sta­bil­i­ty Over­sight Coun­cil, com­pris­ing all the government’s finan­cial mar­ket reg­u­la­tors, has also been sit­ting on its hands, mon­i­tor­ing every­thing but doing noth­ing. The coun­cil was cre­at­ed by Con­gress as part of the Dodd-Frank finan­cial reform bill as a last line of defense against finan­cial crises. But as with most oth­er pro­vi­sions of the law, the pol­i­cy of the Trump admin­is­tra­tion has been to ignore or under­mine it. The coun­cil is head­ed by Trea­sury Sec­re­tary Stephen Mnuchin, a for­mer Gold­man Sachs invest­ment banker who even­tu­al­ly made more than $10 mil­lion buy­ing and sell­ing — with part­ners — a Cal­i­for­nia bank that, after engag­ing in aggres­sive mort­gage lend­ing, failed dur­ing the last hous­ing cri­sis.

...

So remem­ber those names: Pow­ell, Quar­les and Mnuchin. When the cor­po­rate cred­it bub­ble bursts — when com­pa­nies can’t repay their debts and the shad­ow banks col­lapse and lend­ing dries up and stock prices plunge and the econ­o­my again falls into reces­sion — they are the ones who should be hauled up before the court of pub­lic opin­ion and called to account.

———-

“The shad­ow banks are back with anoth­er big bad cred­it bub­ble” by Steven Pearl­stein; The Wash­ing­ton Post; 05/31/2019

“After the crash in 2008, shad­ow bankers shift­ed their atten­tion to busi­ness lend­ing, using the same “secu­ri­ti­za­tion” process to buy and pack­age “lever­aged” loans — bank loans to big com­pa­nies that were already high­ly indebt­ed — into col­lat­er­al­ized loan oblig­a­tions, or CLOs. Investors couldn’t get enough of the CLOs, which promised high­er returns than low-yield­ing gov­ern­ment and cor­po­rate bonds, and cor­po­ra­tions gorged on lever­aged loans to fund merg­ers and acqui­si­tions, buy back their own shares and pay spe­cial div­i­dends to investors.”

Yep, after the 2008 finan­cial cri­sis, the shad­ow bankers took the same ‘finan­cial inno­va­tion’ that enabled the hous­ing cri­sis into the cor­po­rate lend­ing space. Dereg­u­lat­ed cor­po­rate lend­ing. And now we have a cor­po­rate debt bub­ble. Who could have seen that com­ing?

...
If reg­u­la­tors wait to act until they can say with cer­tain­ty that a cred­it bub­ble is about to burst, they’ve wait­ed too long.

That’s par­tic­u­lar­ly true when it comes to the opaque and unreg­u­lat­ed “shad­ow” bank­ing sys­tem on Wall Street that has now sup­plant­ed reg­u­lat­ed banks as the lead­ing source of cred­it for busi­ness­es and con­sumers. This shad­ow sys­tem gets its mon­ey from big investors rather than depos­i­tors, and it revolves around hedge funds, invest­ment banks and pri­vate equi­ty funds rather than banks. These shad­ow banks have made bor­rowed mon­ey cheap­er and eas­i­er to get, but they have also made the finan­cial sys­tem and the U.S. econ­o­my more sus­cep­ti­ble to booms and busts. And with anoth­er giant cred­it bub­ble ready to burst — this one hav­ing to do with busi­ness bor­row­ing — we’re about to learn that painful les­son again.

...

And in each of the last four years there’s been $100 bil­lion pour­ing into lend­ing for the mid-sized cor­po­rate loan mar­ket alone, where shad­ow banks aren’t just financ­ing tra­di­tion­al mid-sized cor­po­rate loans. They’re direct­ly lend­ing. And this is all out­side much of the new post-2008 cri­sis reg­u­la­to­ry regime. That’s why all the mon­ey is flow­ing there:

...
More recent­ly, Wall Street wiseguys have shift­ed from buy­ing loans to mak­ing them direct­ly — in this case to mid­size com­pa­nies, long con­sid­ered the last pre­serve of the tra­di­tion­al bank­ing sys­tem. The new play­ers are pri­vate equi­ty firms, hedge funds, invest­ment banks, insur­ers and once obscure enti­ties known as “busi­ness devel­op­ment com­pa­nies.”

In each of the last four years, investors poured more than $100 bil­lion into these mid­dle-mar­ket pri­vate cred­it funds, which now have com­bined assets of between $600 bil­lion and $900 bil­lion, accord­ing to esti­mates by Bloomberg News; Pre­qin, a data com­pa­ny; and Ares Cap­i­tal, a lead­ing direct lender. The banks’ share of mid­dle-mar­ket lend­ing has been near­ly cut in half as pri­vate lenders have not only tak­en busi­ness away from the banks but also sig­nif­i­cant­ly expand­ed the mar­ket by mak­ing loans that banks are unwill­ing or unable to make.

“It’s a wild west space,” a top cred­it strate­gist from Bank of Amer­i­ca told the Finan­cial Times this year. “The whole thing has explod­ed in size, and every­one is get­ting into it.”
...

It’s a trend that accel­er­at­ed after the post-2008 finan­cial cri­sis as high­er cap­i­tal reserve require­ments on tra­di­tion­al banks and the rel­a­tive lack of reg­u­la­tions in the non-tra­di­tion­al finan­cial world cre­at­ed an oppor­tu­ni­ty for the shad­ow bank­ing sec­tor to step into the cor­po­rate lend­ing mar­ket and that’s what hap­pened.

A shad­ow bank­ing space heav­i­ly financed by the tra­di­tion­al bank­ing sec­tor. Yep. The banks are financ­ing the shad­ow banks to get around their new reg­u­la­tions. And this is all large­ly ok from a reg­u­la­to­ry stand­point appar­ent­ly:

...
And even though tra­di­tion­al banks may be mak­ing few­er loans to mid­size busi­ness­es, they’ve been eager­ly lend­ing to the hedge funds, pri­vate equi­ty firms and busi­ness devel­op­ment com­pa­nies that are mak­ing more of those loans. In fact, the fastest grow­ing cat­e­go­ry of rev­enue and prof­it for the banks in recent years has been lend­ing to “non-bank finan­cial insti­tu­tions.” Accord­ing to the lat­est report from the Fed­er­al Reserve, unreg­u­lat­ed cred­it funds now have access to more than $1 tril­lion in lines of cred­it from reg­u­lat­ed banks, an increase of 65 per­cent over five years. And there is evi­dence that, in the face of increased com­pe­ti­tion, the pri­vate funds are tak­ing on high­er and high­er lev­els of debt to con­tin­ue offer­ing the same high yields to their investors.

...

As before, reg­u­lat­ed banks have dis­cov­ered that they can make almost as much prof­it sell­ing and lend­ing into the shad­ow bank­ing sys­tem as they can mak­ing and hold­ing loans them­selves.

And as before, reg­u­la­tors don’t know what they don’t know about the shad­ow bank­ing sys­tem. They don’t know exact­ly where the risks are con­cen­trat­ed or how investors will respond to a turn in sen­ti­ment or an increase in defaults. They don’t know how much lever­age the shad­ow banks have tak­en on and how much forced sell­ing there will be if loan val­ues fall. They don’t know all the indi­rect ways in which the reg­u­lat­ed banks are exposed to the shad­ow bank­ing sys­tem.
...

In addi­tion to financ­ing from tra­di­tion­al banks, the mon­ey for this shad­ow cor­po­rate lend­ing bonan­za has come from insur­ance com­pa­nies, pen­sion funds, uni­ver­si­ty endow­ments, and wealth investors. So if there’s a shad­ow bank­ing sec­tor implo­sion it’s impor­tant to keep in mind that the pres­sure for a big bailout is going to be immense giv­en that ‘every­one’ is going to get nailed. That’s how these things go, which is why reg­u­la­tions pre­vent­ing crises are sup­posed to be fol­lowed and enforced.

And regard­ing insur­ance com­pa­nies financ­ing this cor­po­rate cred­it bub­ble, don’t for­get that the col­lapse of insur­ance giant AIG basi­cal­ly pre­cip­i­tat­ed the 2008 finan­cial cri­sis because AIG played a mas­sive role in the colat­er­al­ized debt swap mar­ket for mort­gage-backed secu­ri­ties and did­n’t hedge its bets (because it got greedy) so when it implod­ed it set off a chain-reac­tion of real loss­es in the finan­cial mar­kets. AIG had reached ‘too big too fail’ sta­tus for the finan­cial sys­tem. Too big too fail is a real thing, that’s why reg­u­la­tors are sup­posed to pre­vent too big to fail insti­tu­tions from form­ing in the first place. Or reg­u­late the hell out of them when they do form. But that pret­ty much nev­er hap­pens so get ready for future sit­u­a­tions where bailouts aren’t the worst option(the worst option is usu­al­ly choos­ing not to pros­e­cute hard­ly any­one):

...
This retreat from mid­dle-mar­ket lend­ing accel­er­at­ed in the after­math of the 2008 finan­cial cri­sis, when reg­u­la­tors began requir­ing banks to set aside more cap­i­tal as a finan­cial cush­ion against loan loss­es. More cap­i­tal was also required for loans to com­pa­nies that already had lots of debt or that had gone through a year or two of hard times. Reg­u­la­tors also raised red flags when­ev­er they saw loans with­out covenants that allowed the bank to demand that a loan be paid back if the com­pa­ny failed to hit cer­tain busi­ness tar­gets.

The shad­ow banks, how­ev­er, were only too hap­py to step in and fill the void left by the reg­u­lat­ed banks, lend­ing direct­ly to firms with low­er cred­it rat­ings and lend­ing with few­er covenants and more flex­i­ble terms. They were able to offer cus­tomized loan pack­ages that incor­po­rate a mix­ture of cheap­er first-in-line “senior” debt with riski­er and more expen­sive “junior” or “mez­za­nine” financ­ing.

...

To fund all this loan-mak­ing, the shad­ow banks have turned to insur­ance com­pa­nies, pen­sion funds, uni­ver­si­ty endow­ments and wealthy investors, offer­ing them a chance to buy into a diver­si­fied pool of loans that offer returns rang­ing from 6 per­cent to 13 per­cent, depend­ing on the lev­el of risk they are will­ing to assume.
...

And note what a waste this cor­po­rate loan shad­ow bank­ing bub­ble is in terms of return on invest­ment for the US: most of the cor­po­rate loans are being used to buy back stock and inflate share prices. Goos­ing the stock mar­ket. That’s it. No new jobs. Just high­er exec­u­tive bonus­es. So when the big bailout comes, keep in mind that a huge chunk of what’s get­ting bailed out is cor­po­rate debt used to jack up share prices. It’s an exam­ple of why we can’t have nice things:

...
If all this new­ly bor­rowed mon­ey were being used to cre­ate new tech­nol­o­gy or enhance pro­duc­tiv­i­ty, pil­ing up all this debt might be a risk worth tak­ing. But the evi­dence sug­gests that what it is most­ly doing is arti­fi­cial­ly stim­u­lat­ing the econ­o­my. Com­pa­nies have used much of this new­ly bor­rowed mon­ey to buy back their own shares, pay spe­cial div­i­dends to pri­vate equi­ty investors and acquire oth­er com­pa­nies, all of which have the effect of inflat­ing stock prices. The recent wave of rich­ly priced merg­ers and over­priced stock offer­ings, and the declin­ing returns offered by recent com­mer­cial real estate deals, are all good indi­ca­tions of a cred­it bub­ble wait­ing to burst.
...

And, of course, it’s the Repub­li­cans, who almost entire­ly opposed the post-2008 new reg­u­la­tions in the first place, are the ones the bank­ing indus­try is turn­ing to in the fight to over­turn the new rules. A fight the banks are clear­ly win­ning.

Adding to banks’ reg­u­la­to­ry for­tunes is the fact that the Fed­er­al Reserve has tak­en a decid­ed ‘light touch’ reg­u­la­to­ry approach to the point where it’s echo­ing the Pollyan­na-ish atti­tudes of bub­bles-past. The Fed has already refused to enact the finan­cial buffer rules that were cre­at­ed after the last cri­sis for exact­ly that moment in the busi­ness cycle. The “coun­ter­cycli­cal cap­i­tal buffer” cre­at­ed by the inter­na­tion­al com­mu­ni­ty would sim­ply force banks to set aside greater cap­i­tal con­trols but the Fed refus­es to enact it. But the Fed’s Ran­dal Quar­les, the Fed’s vice chair­man and point man on bank super­vi­sion, has announced that the coun­ter­cycli­cal buffers aren’t need­ed in the US because oth­er reg­u­la­to­ry con­trols were now so effec­tive that the Amer­i­can bank­ing sys­tem could weath­er any tur­bu­lence with­out them. It’s trou­bling­ly famil­iar brava­do. The kind of brava­do por­trays cod­dling the banks as bold opti­mism:

...
Anoth­er wor­ri­some sim­i­lar­i­ty is the way bankers have used their polit­i­cal clout with Repub­li­can politi­cians to fight off attempts by reg­u­la­tors to restrain their risk-tak­ing.

Two years ago, when career bank reg­u­la­tors issued guid­ance meant to crack down on lever­aged lend­ing, for exam­ple, bankers went run­ning to Repub­li­can lead­ers in Con­gress, who threat­ened a con­gres­sion­al veto unless they with­drew it.

And tucked into last year’s bud­get com­pro­mise was a Repub­li­can rid­er allow­ing busi­ness devel­op­ment com­pa­nies, which have been spring­ing up like mush­rooms in a rain for­est, to dou­ble the amount of mon­ey they can bor­row rel­a­tive to the amount of equi­ty cap­i­tal they raise from investors.

Per­haps the biggest sim­i­lar­i­ty between the pre­vi­ous cred­it bub­ble and this one, how­ev­er, is the stub­born reluc­tance of reg­u­la­tors to let some of the air out of the cred­it bub­ble before it bursts.

After the 2008 cri­sis, the Unit­ed States and a dozen oth­er indus­tri­al­ized coun­tries cre­at­ed a clear and sim­ple mech­a­nism for doing so, known as the “coun­ter­cycli­cal cap­i­tal buffer.” The ratio­nale behind the buffer is that when unem­ploy­ment is near his­toric lows and asset prices are at record highs, when cred­it qual­i­ty is declin­ing and spreads are nar­row­ing, banks should be required to set aside extra cap­i­tal to pro­tect against a down­turn and reduce the amount of cred­it in the finan­cial sys­tem.

Yet in March, with near­ly all of those key indi­ca­tors flash­ing red, the Fed­er­al Reserve’s Board of Gov­er­nors vot­ed 4 to 1 not to trig­ger the coun­ter­cycli­cal cap­i­tal require­ments. The lone dis­senter was Lael Brainard, a vet­er­an of the Clin­ton White House and the Oba­ma Trea­sury.

Ran­dal Quar­les, the Fed’s vice chair­man and point man on bank super­vi­sion, declared after­ward that the Unit­ed States didn’t need to use coun­ter­cycli­cal buffers because oth­er reg­u­la­to­ry con­trols were now so effec­tive that the Amer­i­can bank­ing sys­tem could weath­er any tur­bu­lence with­out them. In a sub­se­quent talk at Yale Uni­ver­si­ty, Quar­les, a one­time part­ner at the Car­lyle Group, a pri­vate equi­ty firm deeply involved in the shad­ow bank­ing sys­tem, blamed — who else? — the media for over­play­ing and over­sim­pli­fy­ing the risks from the rapid expan­sion of busi­ness lend­ing.
...

And Trea­sury Sec­re­tary Steve Mnuchin is under­min­ing the Finan­cial Sta­bil­i­ty Over­sight Coun­cil’s mon­i­tor­ing activ­i­ties. All the pieces are falling into place for a mas­sive bub­ble: an explo­sion in shad­ow bank­ing and the sab­o­tag­ing of reg­u­la­tors. It’s clear­ly the Trump admin­is­tra­tion and Repub­li­can Par­ty’s agen­da because it’s the finan­cial indus­try’s agen­da:

...
Mean­while, the Finan­cial Sta­bil­i­ty Over­sight Coun­cil, com­pris­ing all the government’s finan­cial mar­ket reg­u­la­tors, has also been sit­ting on its hands, mon­i­tor­ing every­thing but doing noth­ing. The coun­cil was cre­at­ed by Con­gress as part of the Dodd-Frank finan­cial reform bill as a last line of defense against finan­cial crises. But as with most oth­er pro­vi­sions of the law, the pol­i­cy of the Trump admin­is­tra­tion has been to ignore or under­mine it. The coun­cil is head­ed by Trea­sury Sec­re­tary Stephen Mnuchin, a for­mer Gold­man Sachs invest­ment banker who even­tu­al­ly made more than $10 mil­lion buy­ing and sell­ing — with part­ners — a Cal­i­for­nia bank that, after engag­ing in aggres­sive mort­gage lend­ing, failed dur­ing the last hous­ing cri­sis.
...

So that was all around trou­bling. There’s a grow­ing cred­it bub­ble in the poor­ly reg­u­lat­ed and opaque shad­ow bank­ing mar­kets for cor­po­rate lend­ing and Trump and the GOP are intent on mak­ing that bad sit­u­a­tion worse.

And as the fol­low­ing piece from the Cen­ter for Amer­i­can Progress describes, one of the ways Repub­li­cans and the con­ser­v­a­tive wing of the Fed are mak­ing a bad sit­u­a­tion worse is by weak­en­ing the rules for ensur­ing banks are pre­pared the next cri­sis. Rule changes like get­ting rid of the ‘liv­ing will’ require­ment for banks in the $100 bil­lion to $250 bil­lion range (which is mad­ness) and mak­ing banks in the $250 bil­lion to $700 bil­lion range only have to update their ‘liv­ing will’ (of how they’re wind down if need be) every 6 years instead of annu­al­ly. 6 years is a long time to update such mat­ters in the finan­cial world. Oth­er pro­pos­als from the Fed include weak­en­ing cap­i­tal­iza­tion rules that ensure banks have enough in reserves to deal with large loss­es. Banks have enlist­ed the Repub­li­cans for an assault on the post-2008 rules and the 4–1 Repub­li­can major­i­ty on the Fed board is join­ing in on that reg­u­la­to­ry assault with a slew of pro­pos­als to weak­en the finan­cial pro­tec­tions put in place to ensure large bailouts for the banks won’t be need­ed dur­ing the next cri­sis because banks will have enough in reserve. And not just the Fed. Fed­er­al agen­cies like the Office of the Comp­trol­ler of the Cur­ren­cy (OCC), and Fed­er­al Deposit Insur­ance Corp. (FDIC) are doing their part in the dereg­u­la­to­ry bonan­za.

It’s, again, a reminder that while the ini­tial Trump appoint­ments to the Fed board may not have been com­plete cranks like Her­man Cain or Stephen Moore but they were still Repub­li­can appointees and there are con­se­quences for Repub­li­can appointees. Con­se­quences like pro­pos­als from the Fed for reg­u­la­to­ry changes that would make big bailouts for the bank paid for by the pub­lic a lot more like­ly and a lot more expen­sive:

Cen­ter for Amer­i­can Progress

Tai­lor­ing Bank­ing Reg­u­la­tions to Accel­er­ate the Next Cri­sis

By Gregg Gelzi­nis
Post­ed on May 16, 2019, 12:01 am

When Pres­i­dent Don­ald Trump took office, he promised to do “a big num­ber”1 on the Dodd-Frank Wall Street Reform and Con­sumer Pro­tec­tion Act. He also promised to give a “major hair­cut”2 to this cen­ter­piece of the U.S. response to the 2007–2008 finan­cial cri­sis. Beyond sign­ing into law the Eco­nom­ic Growth, Reg­u­la­to­ry Relief, and Con­sumer Pro­tec­tion Act3—a 2018 bill that rolled back key pieces of Dodd-Frank—Trump has sought to keep his promise by appoint­ing finan­cial reg­u­la­tors intent on water­ing down major ele­ments of finan­cial reform.

These bank­ing regulators—at the Fed­er­al Reserve Board of Gov­er­nors, Office of the Comp­trol­ler of the Cur­ren­cy (OCC), and Fed­er­al Deposit Insur­ance Corp. (FDIC)—have pro­posed or final­ized a host of changes to the big-bank safe­guards put in place fol­low­ing the 2007–2008 finan­cial cri­sis. The com­mon refrain from these reg­u­la­tors is that the changes should be appro­pri­ate­ly char­ac­ter­ized as a com­mon­sense “tai­lor­ing” of reg­u­la­tion. In fact, Fed­er­al Reserve Vice Chair for Super­vi­sion Ran­dal Quar­les used the words “tai­lor” or “tai­lor­ing” a stag­ger­ing 25 times in a sin­gle relat­ed pol­i­cy speech.4 The phrase implies the changes are neu­tral tweaks. When ana­lyz­ing them col­lec­tive­ly, how­ev­er, it becomes very clear that they are not.

The reg­u­la­to­ry actions, when tak­en togeth­er, amount to sub­stan­tial big-bank dereg­u­la­tion and severe­ly increase the fragili­ty of the finan­cial sys­tem. Some changes imple­ment pro­vi­sions to the Dodd-Frank roll­back bill in con­cern­ing ways, while oth­ers go far beyond the law. The U.S. econ­o­my and tax­pay­ers are sig­nif­i­cant­ly more exposed to the risks of anoth­er crash today than they were two years ago.

Liv­ing wills

The most recent dereg­u­la­to­ry pro­pos­al, issued by the Fed and FDIC, tar­gets banks’ liv­ing wills sub­mis­sions.5 These bien­ni­al sub­mis­sions to the two reg­u­la­tors pro­vide a roadmap for how the bank would be wound down in an order­ly fash­ion if it failed. If the Fed and FDIC find defi­cien­cies upon review­ing the res­o­lu­tion plans, banks must rec­ti­fy them in a time­ly man­ner or face more strin­gent reg­u­la­to­ry safe­guards. Reg­u­la­tors even have the author­i­ty to break up firms if the liv­ing wills are repeat­ed­ly defi­cient. Dur­ing the 2007–2008 finan­cial cri­sis, pol­i­cy­mak­ers did not have the tools or nec­es­sary infor­ma­tion to liq­ui­date “too big to fail” banks and shad­ow banks;6 the only options were cat­a­stroph­ic bank­rupt­cies or tax­pay­er bailouts. Through the liv­ing wills process, banks have sim­pli­fied their legal struc­tures and have bet­ter posi­tioned cap­i­tal and liq­uid­i­ty through­out their firms to facil­i­tate an order­ly fail­ure, if nec­es­sary.7

The lat­est pro­posed rule from the Fed and FDIC would elim­i­nate the liv­ing wills require­ment for banks with between $100 bil­lion and $250 bil­lion in assets.8 If a bank of this size failed, how­ev­er, it would rep­re­sent one of the largest bank fail­ures in the his­to­ry of the Unit­ed States.9 These are not small banks. Absent a cred­i­ble liv­ing will, reg­u­la­tors dur­ing the next cri­sis would be far more like­ly to resort to mas­sive bank merg­ers with tax­pay­er assis­tance. The pro­posed rule would also decrease the fre­quen­cy of sub­mis­sions for all banks with more than $250 bil­lion in assets—including the largest Wall Street banks.

Ini­tial­ly, liv­ing wills sub­mis­sions were required annu­al­ly, but over time, the process shift­ed to the cur­rent bien­ni­al timetable. Under the pro­pos­al, banks with between $250 bil­lion and $700 bil­lion in assets, as well as the U.S. oper­a­tions of mas­sive for­eign banks such as Deutsche Bank, would sub­mit full plans only once every six years. The largest Wall Street banks—the eight glob­al sys­tem­i­cal­ly impor­tant banks (G‑SIBs)—would be required to sub­mit a full liv­ing will once every four years. The pro­pos­al would also require banks to sub­mit minires­o­lu­tion plans halfway between full sub­mis­sions. More­over, the pro­pos­al includes a trou­bling pro­vi­sion regard­ing waivers for the liv­ing wills sub­mis­sions: Banks can ask the Fed and FDIC to waive cer­tain ele­ments of the res­o­lu­tion plan, and only one of the two reg­u­la­tors has to agree to the waiv­er for it to be grant­ed.10 Put anoth­er way, if one agency rejects the waiv­er and one agency agrees to it, it is grant­ed. A tie goes to the big banks, not tax­pay­ers.

More­over, the FDIC has begun the rule-mak­ing process for weak­en­ing the res­o­lu­tion plan require­ments for tax­pay­er-insured, deposit-tak­ing sub­sidiaries, also known as insured depos­i­to­ry insti­tu­tions (IDI).11 These IDI plans are sep­a­rate from the liv­ing wills. The liv­ing wills sub­mis­sions cov­er the res­o­lu­tion of the entire bank­ing con­glom­er­ate, while the IDI plans only cov­er the tax­pay­er-insured com­mer­cial bank­ing sub­sidiaries.12

Less strin­gent liv­ing wills require­ments decrease the like­li­hood of order­ly fail­ures and increase the chances that pol­i­cy­mak­ers will again resort to tax­pay­er bailouts dur­ing the next crash.13

Bank cap­i­tal

The lack of strong equi­ty-cap­i­tal buffers was one of the key vul­ner­a­bil­i­ties in the bank­ing sys­tem before the finan­cial cri­sis.14 Bank cap­i­tal is essen­tial­ly a cush­ion of fund­ing, which, unlike debt, does not need to be repaid and can there­fore absorb loss­es. In the past decade, post­cri­sis efforts have sub­stan­tial­ly strength­ened bank cap­i­tal lev­els. But research shows there is more work to be done.15 Instead of build­ing on this progress, Trump-appoint­ed reg­u­la­tors have tak­en steps to low­er equi­ty buffers at the largest banks in the coun­try.

The Fed and OCC issued a pro­pos­al that would low­er the cap­i­tal buffers at the tax­pay­er-backed com­mer­cial bank­ing units of the eight Wall Street G‑SIBs by $121 bil­lion, or 20 per­cent.16 Addi­tion­al­ly, the pro­pos­al could lead to an $86 bil­lion reduc­tion over time at their hold­ing com­pa­nies, as banks seek to opti­mize their oth­er cap­i­tal require­ments.17

Fur­ther­more, reg­u­la­tors issued a pro­pos­al that would allow banks with between $250 bil­lion and $700 bil­lion in assets to opt out of a new cap­i­tal require­ment called the accu­mu­lat­ed oth­er com­pre­hen­sive income (AOCI) cap­i­tal treat­ment. The AOCI require­ment ensures that banks’ cap­i­tal lev­els reflect their up-to-date loss­es on cer­tain assets.18 Dur­ing the cri­sis, banks did not have to imme­di­ate­ly write down their cap­i­tal lev­els when the val­ues of cer­tain secu­ri­ties were dete­ri­o­rat­ing. This treat­ment paint­ed an unre­al­is­ti­cal­ly rosy pic­ture of the loss-absorb­ing capac­i­ty at banks.19

Risks tend to build under the sur­face dur­ing strong eco­nom­ic times. For cen­turies, a dam­ag­ing cycle of booms and busts has been dri­ven, in part, by finan­cial dereg­u­la­tion dur­ing pos­i­tive eco­nom­ic times. Yet, despite clear evi­dence that the econ­o­my is mov­ing toward the end of the busi­ness cycle, the Fed refused in March to acti­vate a post­cri­sis cap­i­tal buffer that was cre­at­ed to improve the loss-absorb­ing capac­i­ty at the largest banks dur­ing eco­nom­ic booms.20 With ele­vat­ed asset prices and sky-high cor­po­rate debt lev­els, the coun­ter­cycli­cal cap­i­tal buffer, as it is called, was designed to be acti­vat­ed in moments like this.21

These actions on bank cap­i­tal leave the core bank­ing sys­tem more vul­ner­a­ble to anoth­er crash.22

Stress test­ing

The Fed pro­posed or final­ized sev­er­al changes to the bank stress-test­ing regime that would fun­da­men­tal­ly weak­en this impor­tant reg­u­la­to­ry tool. Stress tests are meant to ensure banks have suf­fi­cient cap­i­tal buffers to han­dle a severe finan­cial shock and eco­nom­ic down­turn, while still serv­ing the cred­it needs of the real econ­o­my.23 The first stress tests were con­duct­ed in 2009 and have played an impor­tant role in improv­ing both the cap­i­tal lev­els and inter­nal cap­i­tal plan­ning capa­bil­i­ties at big banks.

First, the Fed pro­posed water­ing down cer­tain assump­tions used in the stress tests, which would make the tests less rig­or­ous.24 Banks would have to pre­fund only four quar­ters of their planned div­i­dends instead of nine quar­ters of planned div­i­dends and share repur­chas­es. More­over, the Fed would assume that bank bal­ance sheets do not grow dur­ing the stress-test­ing time hori­zon, fur­ther lim­it­ing the amount of cap­i­tal required by the tests.25

Sec­ond, the Fed pro­posed remov­ing the sup­ple­men­tary lever­age ratio (SLR)—an impor­tant cap­i­tal requirement—from the stress tests.26 The SLR does not take the risk­i­ness of a bank’s assets into account and serves as a com­ple­ment to the risk-weight­ed cap­i­tal require­ments that also apply to banks.27 This is one of the mea­sures that pre­vent­ed some Wall Street banks from ini­tial­ly pass­ing the 2018 stress tests, and its removal cer­tain­ly makes the tests less chal­leng­ing for big banks.28 Fed Vice Chair for Super­vi­sion Quar­les even sug­gest­ed the Fed may remove all lever­age mea­sures from the tests.29 Third, the Fed is now pub­licly releas­ing detailed infor­ma­tion on its own inter­nal mod­els used in the stress tests.30 Pro­vid­ing this infor­ma­tion to banks helps them game the tests and could lead to cor­re­lat­ed risk tak­ing, as banks adapt their bal­ance sheets to lim­it their stress-test­ing loss­es based on the Fed’s mod­els. Releas­ing this infor­ma­tion is akin to giv­ing banks the tests in advance. The stress tests are sup­posed to shock bank bal­ance sheets and test them in a robust man­ner. This change turns stress test­ing into a sim­ple open book exam.

Fourth, the Fed elim­i­nat­ed its qual­i­ta­tive objec­tion in the stress tests.31 Under the qual­i­ta­tive objec­tion, the Fed could stop big-bank share­hold­er dis­tri­b­u­tions if the firms had defi­cien­cies in their inter­nal cap­i­tal plan­ning process­es. The threat of this pow­er­ful tool is a major rea­son why banks have improved their inter­nal con­trols, gov­er­nance, and capa­bil­i­ties around cap­i­tal plan­ning.32 And this deci­sion runs counter to the Fed’s pur­port­ed desire to pro­vide more “trans­paren­cy” sur­round­ing the tests.33 In real­i­ty, the Fed is only advanc­ing trans­paren­cy when it serves banks. Final­ly, the Fed pro­posed reduc­ing the fre­quen­cy of stress tests from annu­al­ly to bien­ni­al­ly for banks with $100 bil­lion to $250 bil­lion in assets, as well as for mas­sive for­eign banks with U.S. oper­a­tions of that size.34

...

Liq­uid­i­ty rules

The Fed, FDIC, and OCC issued a pro­posed rule that would sub­stan­tial­ly reduce the liq­uid­i­ty require­ments for banks with between $100 bil­lion and $700 bil­lion in assets.35 Liq­uid­i­ty require­ments are impor­tant safe­guards to lim­it the chances and effects of dam­ag­ing bank runs.36 Banks should have the liq­uid assets nec­es­sary to quick­ly meet cash demands from cred­i­tors and coun­ter­par­ties dur­ing a peri­od of stress. If a bank’s assets are tied up in illiq­uid, hard-to-sell assets, it may have to sell those assets at fire-sale prices to gen­er­ate cash. Fire sales harm the bank’s finan­cial posi­tion and can have dan­ger­ous rip­ple effects on oth­er firms and mar­kets.

The reg­u­la­tors’ pro­posed rule would entire­ly remove two impor­tant post­cri­sis liq­uid­i­ty requirements—the liq­uid­i­ty cov­er­age ratio and the net sta­ble fund­ing ratio—for banks with between $100 bil­lion and $250 bil­lion in assets and would reduce these require­ments by 15 per­cent to 30 per­cent for banks with between $250 bil­lion and $700 bil­lion in assets.37 These changes would reduce the liq­uid­i­ty buffers at affect­ed banks by $77 bil­lion.38

Low­er liq­uid­i­ty buffers at some of the largest banks in the coun­try make it more like­ly that banks will resort to destruc­tive fire sales in times of stress and increase the chances that cred­i­tors will run in the first place.39

Vol­ck­er rule

The five finan­cial reg­u­la­to­ry agen­cies with juris­dic­tion over the Vol­ck­er rule issued a pro­posed rule that would invite more risk into the bank­ing sys­tem.40 The Vol­ck­er rule pre­vents bank hold­ing com­pa­nies and their affil­i­ates from mak­ing risky pro­pri­etary bets and from invest­ing in hedge funds and pri­vate equi­ty funds. Engag­ing in trad­ing activ­i­ty for the bank’s own prof­it is high­ly risky and belongs out­side of the core bank­ing sys­tem, which is backed by tax­pay­ers.

The pro­pos­al allows banks essen­tial­ly to reg­u­late their own adher­ence to a cen­tral pro­vi­sion in the Vol­ck­er rule, weak­ens def­i­n­i­tions, removes cer­tain restric­tions for for­eign banks, increas­es the size of exist­ing loop­holes, and cre­ates new ones.41 Despite a stat­ed desire to advance data-dri­ven pol­i­cy, the pro­pos­al offers no data or evi­dence jus­ti­fy­ing the roll­backs. And recent report­ing sug­gests Wall Street lob­by­ing efforts have suc­cess­ful­ly con­vinced the reg­u­la­tors to make even more severe changes and reverse course on ele­ments of the pro­pos­al banks opposed.42

Con­clu­sion

Reg­u­la­tors call their actions reg­u­la­to­ry “tai­lor­ing.” But these actions move in one direction—weakening the big-bank reg­u­la­tions put in place fol­low­ing the finan­cial cri­sis. It is dereg­u­la­tion, plain and sim­ple. And the actions doc­u­ment­ed here do not cov­er addi­tion­al recent mea­sures, includ­ing lighter bank super­vi­sion,43 reg­u­la­to­ry roll­backs made by Con­gress that did not pro­vide much dis­cre­tion to reg­u­la­tors,44 dereg­u­la­tion in the shad­ow bank­ing sec­tor,45 and the dis­man­tling of key con­sumer finan­cial pro­tec­tions.46

These rules have been large­ly pro­posed or final­ized on a one-by-one basis, mak­ing it easy to lose sight of the big pic­ture. But the rules inter­act with and exac­er­bate one anoth­er, and the col­lec­tive impact of these actions should trou­ble all Amer­i­cans. Reg­u­la­tors are mak­ing stress in the finan­cial sys­tem more like­ly while lim­it­ing the abil­i­ty for banks to safe­ly han­dle that stress. Reg­u­la­tors won’t bear the bur­den of the next crash. That tab will be picked up, as always, by tax­pay­ers.

....

———-

“Tai­lor­ing Bank­ing Reg­u­la­tions to Accel­er­ate the Next Cri­sis” by Gregg Gelzi­nis; Cen­ter for Amer­i­can Progress; 05/16/2019

“The reg­u­la­to­ry actions, when tak­en togeth­er, amount to sub­stan­tial big-bank dereg­u­la­tion and severe­ly increase the fragili­ty of the finan­cial sys­tem. Some changes imple­ment pro­vi­sions to the Dodd-Frank roll­back bill in con­cern­ing ways, while oth­ers go far beyond the law. The U.S. econ­o­my and tax­pay­ers are sig­nif­i­cant­ly more exposed to the risks of anoth­er crash today than they were two years ago.
”

It’s not just one real­ly bad idea com­ing from the Fed­er­al Reserve. It’s a full spec­trum assault of bad reg­u­la­tor ideas that, if imple­ment­ed, would severe­ly increase the fragili­ty of the finan­cial sys­tem. Start­ing with liv­ing wills, the ‘Plan B’, when ‘B’ is bank­rupt­cy for the banks. Liv­ing wills are a key pil­lar of the post-2008 reg­u­la­to­ry regime intend­ed to make the sys­tem more like­ly to avoid the kind of cas­cade of bank­rupt­cies that threat­ened to take place in 2008 as a result of mass lever­ag­ing. The Fed is propos­ing to get rid of the liv­ing will require­ment entire­ly for banks in the $100 bil­lion to $250 bil­lion range, which is insane. Those are big banks. Maybe not behe­moths but big enough to pos­si­bly trig­ger a tax-pay­er-financed merg­er with a larg­er bank as part of a res­cue pack­age designed to avoid have the loss­es bleed into the rest of the finan­cial sys­tem. You don’t need to be the biggest bank to be too big to fail. Espe­cial­ly in a high­ly lever­aged sys­tem:

...
Liv­ing wills

The most recent dereg­u­la­to­ry pro­pos­al, issued by the Fed and FDIC, tar­gets banks’ liv­ing wills sub­mis­sions.5 These bien­ni­al sub­mis­sions to the two reg­u­la­tors pro­vide a roadmap for how the bank would be wound down in an order­ly fash­ion if it failed. If the Fed and FDIC find defi­cien­cies upon review­ing the res­o­lu­tion plans, banks must rec­ti­fy them in a time­ly man­ner or face more strin­gent reg­u­la­to­ry safe­guards. Reg­u­la­tors even have the author­i­ty to break up firms if the liv­ing wills are repeat­ed­ly defi­cient. Dur­ing the 2007–2008 finan­cial cri­sis, pol­i­cy­mak­ers did not have the tools or nec­es­sary infor­ma­tion to liq­ui­date “too big to fail” banks and shad­ow banks;6 the only options were cat­a­stroph­ic bank­rupt­cies or tax­pay­er bailouts. Through the liv­ing wills process, banks have sim­pli­fied their legal struc­tures and have bet­ter posi­tioned cap­i­tal and liq­uid­i­ty through­out their firms to facil­i­tate an order­ly fail­ure, if nec­es­sary.7

The lat­est pro­posed rule from the Fed and FDIC would elim­i­nate the liv­ing wills require­ment for banks with between $100 bil­lion and $250 bil­lion in assets.8 If a bank of this size failed, how­ev­er, it would rep­re­sent one of the largest bank fail­ures in the his­to­ry of the Unit­ed States.9 These are not small banks. Absent a cred­i­ble liv­ing will, reg­u­la­tors dur­ing the next cri­sis would be far more like­ly to resort to mas­sive bank merg­ers with tax­pay­er assis­tance. The pro­posed rule would also decrease the fre­quen­cy of sub­mis­sions for all banks with more than $250 bil­lion in assets—including the largest Wall Street banks.
...

And for banks in the $250 bil­lion to $700 bil­lion range, the Fed is propos­ing requir­ing ‘liv­ing will’ updates only once every 6 years, which is an eter­ni­ty for these kinds of ques­tions:

...
Ini­tial­ly, liv­ing wills sub­mis­sions were required annu­al­ly, but over time, the process shift­ed to the cur­rent bien­ni­al timetable. Under the pro­pos­al, banks with between $250 bil­lion and $700 bil­lion in assets, as well as the U.S. oper­a­tions of mas­sive for­eign banks such as Deutsche Bank, would sub­mit full plans only once every six years. The largest Wall Street banks—the eight glob­al sys­tem­i­cal­ly impor­tant banks (G‑SIBs)—would be required to sub­mit a full liv­ing will once every four years. The pro­pos­al would also require banks to sub­mit minires­o­lu­tion plans halfway between full sub­mis­sions. More­over, the pro­pos­al includes a trou­bling pro­vi­sion regard­ing waivers for the liv­ing wills sub­mis­sions: Banks can ask the Fed and FDIC to waive cer­tain ele­ments of the res­o­lu­tion plan, and only one of the two reg­u­la­tors has to agree to the waiv­er for it to be grant­ed.10 Put anoth­er way, if one agency rejects the waiv­er and one agency agrees to it, it is grant­ed. A tie goes to the big banks, not tax­pay­ers.
...

And the FDIC is get­ting in on the dereg­u­la­to­ry action by begin­ning the process for weak­en­ing liv­ing wills for tax­pay­er-insured insti­tu­tions:

...
More­over, the FDIC has begun the rule-mak­ing process for weak­en­ing the res­o­lu­tion plan require­ments for tax­pay­er-insured, deposit-tak­ing sub­sidiaries, also known as insured depos­i­to­ry insti­tu­tions (IDI).11 These IDI plans are sep­a­rate from the liv­ing wills. The liv­ing wills sub­mis­sions cov­er the res­o­lu­tion of the entire bank­ing con­glom­er­ate, while the IDI plans only cov­er the tax­pay­er-insured com­mer­cial bank­ing sub­sidiaries.12
...

The Fed also wants to see cap­i­tal reserve require­ments dropped by 20 per­cent and both the Fed and Office of the Comp­trol­ler of the Cur­ren­cy (OCC) want to see banks in the $250 billion-$700 bil­lion range get to opt out of report­ing require­ments that their declared cap­i­tal lev­els are up-to-date on cer­tain assets to large loss­es can’t be hid­den. So we’re see­ing a num­ber of reg­u­la­to­ry changes mak­ing it eas­i­er to hide loss­es and not do any­thing about it. Because, again, elect­ing Repub­li­cans has con­se­quences:

„,
Bank cap­i­tal

The lack of strong equi­ty-cap­i­tal buffers was one of the key vul­ner­a­bil­i­ties in the bank­ing sys­tem before the finan­cial cri­sis.14 Bank cap­i­tal is essen­tial­ly a cush­ion of fund­ing, which, unlike debt, does not need to be repaid and can there­fore absorb loss­es. In the past decade, post­cri­sis efforts have sub­stan­tial­ly strength­ened bank cap­i­tal lev­els. But research shows there is more work to be done.15 Instead of build­ing on this progress, Trump-appoint­ed reg­u­la­tors have tak­en steps to low­er equi­ty buffers at the largest banks in the coun­try.

The Fed and OCC issued a pro­pos­al that would low­er the cap­i­tal buffers at the tax­pay­er-backed com­mer­cial bank­ing units of the eight Wall Street G‑SIBs by $121 bil­lion, or 20 per­cent.16 Addi­tion­al­ly, the pro­pos­al could lead to an $86 bil­lion reduc­tion over time at their hold­ing com­pa­nies, as banks seek to opti­mize their oth­er cap­i­tal require­ments.17

Fur­ther­more, reg­u­la­tors issued a pro­pos­al that would allow banks with between $250 bil­lion and $700 bil­lion in assets to opt out of a new cap­i­tal require­ment called the accu­mu­lat­ed oth­er com­pre­hen­sive income (AOCI) cap­i­tal treat­ment. The AOCI require­ment ensures that banks’ cap­i­tal lev­els reflect their up-to-date loss­es on cer­tain assets.18 Dur­ing the cri­sis, banks did not have to imme­di­ate­ly write down their cap­i­tal lev­els when the val­ues of cer­tain secu­ri­ties were dete­ri­o­rat­ing. This treat­ment paint­ed an unre­al­is­ti­cal­ly rosy pic­ture of the loss-absorb­ing capac­i­ty at banks.19
...

In keep­ing with the trou­bling theme, the Fed is pro­pos­al water­ing down the stress test­ing rules. The tests would be less rig­or­ous and the Fed would release infor­ma­tion on how the tests will work that make it eas­i­er for banks to pass the test. Also, rules that ini­tial­ly pre­vent­ed large banks from pass­ing their 2018 stress test would be removed, along with the “qual­i­ta­tive objec­tion” part of the stress tests where banks could fail due to a lack of inter­nal con­trols. And the stress tests would only take place every two years instead of annu­al for banks in the $100 bil­lion to $250 bil­lion range. Bailouts here we come:

...
Stress test­ing

The Fed pro­posed or final­ized sev­er­al changes to the bank stress-test­ing regime that would fun­da­men­tal­ly weak­en this impor­tant reg­u­la­to­ry tool. Stress tests are meant to ensure banks have suf­fi­cient cap­i­tal buffers to han­dle a severe finan­cial shock and eco­nom­ic down­turn, while still serv­ing the cred­it needs of the real econ­o­my.23 The first stress tests were con­duct­ed in 2009 and have played an impor­tant role in improv­ing both the cap­i­tal lev­els and inter­nal cap­i­tal plan­ning capa­bil­i­ties at big banks.

First, the Fed pro­posed water­ing down cer­tain assump­tions used in the stress tests, which would make the tests less rig­or­ous.24 Banks would have to pre­fund only four quar­ters of their planned div­i­dends instead of nine quar­ters of planned div­i­dends and share repur­chas­es. More­over, the Fed would assume that bank bal­ance sheets do not grow dur­ing the stress-test­ing time hori­zon, fur­ther lim­it­ing the amount of cap­i­tal required by the tests.25

Sec­ond, the Fed pro­posed remov­ing the sup­ple­men­tary lever­age ratio (SLR)—an impor­tant cap­i­tal requirement—from the stress tests.26 The SLR does not take the risk­i­ness of a bank’s assets into account and serves as a com­ple­ment to the risk-weight­ed cap­i­tal require­ments that also apply to banks.27 This is one of the mea­sures that pre­vent­ed some Wall Street banks from ini­tial­ly pass­ing the 2018 stress tests, and its removal cer­tain­ly makes the tests less chal­leng­ing for big banks.28 Fed Vice Chair for Super­vi­sion Quar­les even sug­gest­ed the Fed may remove all lever­age mea­sures from the tests.29 Third, the Fed is now pub­licly releas­ing detailed infor­ma­tion on its own inter­nal mod­els used in the stress tests.30 Pro­vid­ing this infor­ma­tion to banks helps them game the tests and could lead to cor­re­lat­ed risk tak­ing, as banks adapt their bal­ance sheets to lim­it their stress-test­ing loss­es based on the Fed’s mod­els. Releas­ing this infor­ma­tion is akin to giv­ing banks the tests in advance. The stress tests are sup­posed to shock bank bal­ance sheets and test them in a robust man­ner. This change turns stress test­ing into a sim­ple open book exam.

Fourth, the Fed elim­i­nat­ed its qual­i­ta­tive objec­tion in the stress tests.31 Under the qual­i­ta­tive objec­tion, the Fed could stop big-bank share­hold­er dis­tri­b­u­tions if the firms had defi­cien­cies in their inter­nal cap­i­tal plan­ning process­es. The threat of this pow­er­ful tool is a major rea­son why banks have improved their inter­nal con­trols, gov­er­nance, and capa­bil­i­ties around cap­i­tal plan­ning.32 And this deci­sion runs counter to the Fed’s pur­port­ed desire to pro­vide more “trans­paren­cy” sur­round­ing the tests.33 In real­i­ty, the Fed is only advanc­ing trans­paren­cy when it serves banks. Final­ly, the Fed pro­posed reduc­ing the fre­quen­cy of stress tests from annu­al­ly to bien­ni­al­ly for banks with $100 bil­lion to $250 bil­lion in assets, as well as for mas­sive for­eign banks with U.S. oper­a­tions of that size.34
...

And then there’s the pro­posed changes to the liq­uid­i­ty rules that the Fed, FDIC, and OCC are all rec­om­mend­ing that would sub­stan­tial­ly reduce liq­uid­i­ty require­ments for banks in the $100 bil­lion to $700 bil­lion range. This is par­tic­u­lar­ly dan­ger­ous because fire sale sit­u­a­tions cre­at­ed by liq­uid­i­ty crises sit­u­a­tion can eas­i­ly become the trig­gers for sig­nif­i­cant repric­ing events that lead to a cas­cad­ing sys­temic cri­sis. The kind of cri­sis that could lead to a col­lapse and was avoid­ed in 2008 when the Fed extend­ed tril­lions in emer­gency cred­it to banks across as part of the bailout. The Fed, FDIC, and OCC are all propos­ing rule changes that mak­ing those kinds of fire sale repric­ing sit­u­a­tions more like­ly, in keep­ing with the trou­bling theme:

...
Liq­uid­i­ty rules

The Fed, FDIC, and OCC issued a pro­posed rule that would sub­stan­tial­ly reduce the liq­uid­i­ty require­ments for banks with between $100 bil­lion and $700 bil­lion in assets.35 Liq­uid­i­ty require­ments are impor­tant safe­guards to lim­it the chances and effects of dam­ag­ing bank runs.36 Banks should have the liq­uid assets nec­es­sary to quick­ly meet cash demands from cred­i­tors and coun­ter­par­ties dur­ing a peri­od of stress. If a bank’s assets are tied up in illiq­uid, hard-to-sell assets, it may have to sell those assets at fire-sale prices to gen­er­ate cash. Fire sales harm the bank’s finan­cial posi­tion and can have dan­ger­ous rip­ple effects on oth­er firms and mar­kets.

The reg­u­la­tors’ pro­posed rule would entire­ly remove two impor­tant post­cri­sis liq­uid­i­ty requirements—the liq­uid­i­ty cov­er­age ratio and the net sta­ble fund­ing ratio—for banks with between $100 bil­lion and $250 bil­lion in assets and would reduce these require­ments by 15 per­cent to 30 per­cent for banks with between $250 bil­lion and $700 bil­lion in assets.37 These changes would reduce the liq­uid­i­ty buffers at affect­ed banks by $77 bil­lion.38

Low­er liq­uid­i­ty buffers at some of the largest banks in the coun­try make it more like­ly that banks will resort to destruc­tive fire sales in times of stress and increase the chances that cred­i­tors will run in the first place.39
...

Oh, and the Fed is propos­ing that banks get to make up their own rules for how they’ll enforce the Vol­ck­er rule, which is the rule that pre­vents bank hold­ing com­pa­nies from mak­ing risky pro­pri­etary bets. Let­ting banks make risky pro­pri­etary is like giv­ing a meth addict a pile of meth and ask­ing them to make sure noth­ing hap­pens to it. So of course that’s what’s being pro­posed:

...
Vol­ck­er rule

The five finan­cial reg­u­la­to­ry agen­cies with juris­dic­tion over the Vol­ck­er rule issued a pro­posed rule that would invite more risk into the bank­ing sys­tem.40 The Vol­ck­er rule pre­vents bank hold­ing com­pa­nies and their affil­i­ates from mak­ing risky pro­pri­etary bets and from invest­ing in hedge funds and pri­vate equi­ty funds. Engag­ing in trad­ing activ­i­ty for the bank’s own prof­it is high­ly risky and belongs out­side of the core bank­ing sys­tem, which is backed by tax­pay­ers.

The pro­pos­al allows banks essen­tial­ly to reg­u­late their own adher­ence to a cen­tral pro­vi­sion in the Vol­ck­er rule, weak­ens def­i­n­i­tions, removes cer­tain restric­tions for for­eign banks, increas­es the size of exist­ing loop­holes, and cre­ates new ones.41 Despite a stat­ed desire to advance data-dri­ven pol­i­cy, the pro­pos­al offers no data or evi­dence jus­ti­fy­ing the roll­backs. And recent report­ing sug­gests Wall Street lob­by­ing efforts have suc­cess­ful­ly con­vinced the reg­u­la­tors to make even more severe changes and reverse course on ele­ments of the pro­pos­al banks opposed.42
...

And as the piece reminds us at the end, this is just a sam­pling of the finan­cial indus­try’s suc­cess­ful assault on finan­cial reg­u­la­tions and their eager allies in the Repub­li­can Par­ty. And all of these changes inter­act with each oth­er. So there’s syn­er­gy at work. Bad syn­er­gy. And that bad syn­er­gy is going to be tax-pay­er fund­ed bailouts a lot more like­ly:

...
Con­clu­sion

Reg­u­la­tors call their actions reg­u­la­to­ry “tai­lor­ing.” But these actions move in one direction—weakening the big-bank reg­u­la­tions put in place fol­low­ing the finan­cial cri­sis. It is dereg­u­la­tion, plain and sim­ple. And the actions doc­u­ment­ed here do not cov­er addi­tion­al recent mea­sures, includ­ing lighter bank super­vi­sion,43 reg­u­la­to­ry roll­backs made by Con­gress that did not pro­vide much dis­cre­tion to reg­u­la­tors,44 dereg­u­la­tion in the shad­ow bank­ing sec­tor,45 and the dis­man­tling of key con­sumer finan­cial pro­tec­tions.46

These rules have been large­ly pro­posed or final­ized on a one-by-one basis, mak­ing it easy to lose sight of the big pic­ture. But the rules inter­act with and exac­er­bate one anoth­er, and the col­lec­tive impact of these actions should trou­ble all Amer­i­cans. Reg­u­la­tors are mak­ing stress in the finan­cial sys­tem more like­ly while lim­it­ing the abil­i­ty for banks to safe­ly han­dle that stress. Reg­u­la­tors won’t bear the bur­den of the next crash. That tab will be picked up, as always, by tax­pay­ers.
...

When the next cri­sis hits and the US is forced to effec­tive­ly bailout all of these shad­ow banks to keep the pen­sion funds and endow­ments from implod­ing, it’s going to be impor­tant to keep in mind that those are the sit­u­a­tions where the phrase ‘full faith and cred­it’ are par­tic­u­lar­ly impor­tant and coun­tries that com­pe­tent­ly reg­u­late their finan­cial sys­tems and pun­ish pow­er finan­cial wrong­do­ers deserve a lot more faith and cred­it than coun­tries that keep giv­ing pow­er to lunatics that blow up the sys­tem and loot the place with impuni­ty. It’s one of the nuances of the pub­lic per­cep­tion man­age­ment of big bailouts: in order to war­rant the ‘full faith and cred­it’ of the mar­kets, it’s impor­tant for a coun­try to demon­strate a will­ing­ness to engage in bailouts when the sit­u­a­tion calls for it with­out being a bunch of suck­ers who keep pay­ing for one giant loot­ing after anoth­er. It’s hard to have a lot of faith in the future of a banana repub­lic.

And the next time the cri­sis hits and blame inevitably gets direct­ed as the Fed’s low rate poli­cies and QE, it’s also going to be impor­tant to keep in mind that the big prob­lem in US mon­e­tary pol­i­cy isn’t the low rates. The Fed’s low rates are a rea­son for greater reg­u­la­tions on the banks. It’s the dereg­u­la­tions that’s the pol­i­cy blun­der we see­ing play out.

So as the US heads into the full 2020 elec­tion sea­son, keep in mind that the Repub­li­cans are qui­et­ly try­ing to imple­ment the kind of rule changes that make a giant tax-pay­er financed bailout inevitable no mat­ter who wins in 2020. Because, again, elect­ing Repub­li­cans has con­se­quences. Includ­ing long-term con­se­quences like sow­ing the seeds of blow­ing up the econ­o­my. Again.

A new set of jobs num­bers for the US econ­o­my were released Fri­day. They were some­what bet­ter than expect­ed. As expect­ed, Pres­i­dent Trump made sure to tout the num­bers. But also as expect­ed, Trump once again railed against the Fed­er­al Reserve for not cut­ting rates.

But there was a far more con­se­quen­tial bit of Fed­er­al Reserve news this week. Trump just nom­i­nat­ed two new peo­ple to fill the open slots on the Fed­er­al Reserve Board of gov­er­nors: The first new nom­i­nee is Christo­pher Waller, the research direc­tor at the Fed­er­al Reserve Bank of St. Louis and a known ‘Dove’ who would be inclined to sup­port low­er inter­est rates. And the sec­ond new nom­i­nee was....*drum roll*...Judy Shel­ton! Yes, as has been antic­i­pat­ed, Judy Shel­ton, a gold bug who wants to return the globe to a gold stan­dard and has lit­er­al­ly advo­cat­ed get­ting rid of cen­tral banks, just got nom­i­nat­ed to the Fed­er­al Reserve Board of Gov­er­nors. That makes her the third gold bug in a row Trump has shown an inter­est in nom­i­nat­ing. But unlike Stephen Moore and Her­man Cain, both of whom nev­er actu­al­ly got nom­i­nat­ed after it became clear that they did­n’t have the nec­es­sary Repub­li­can sup­port in the Sen­ate, Shel­ton has actu­al­ly been nom­i­nat­ed, which is an omi­nous sign since that could indi­cate the Trump admin­is­tra­tion has deter­mined Shel­ton has the Sen­ate sup­port she needs.

So despite the fact that Trump has been open­ly harass­ing the Fed­er­al Reserve to low­er inter­est rates in an effort to prop up the US econ­o­my head­ing into 2020 and despite that fact that he nom­i­nat­ed a Dove like Waller, Trump has nom­i­nat­ed some­one who does­n’t think any cen­tral bank­ing inter­ven­tions should take place at all. You can’t get more hawk­ish than that. So why would Trump nom­i­nate an indi­vid­ual that appears to be ide­o­log­i­cal­ly opposed to the Fed poli­cies he’s demand­ing?

Well, as the fol­low­ing arti­cle notes, there is one pos­si­ble expla­na­tion, although, true to form, it does­n’t actu­al­ly make a lot of sense. Shel­ton has recent­ly come to embrace a dra­mat­ic cut in the Fed rate. Last month, dur­ing a speech at the Trump Inter­na­tion­al Hotel in Wash­ing­ton, Shel­ton asked the ques­tion, “Let’s say they do bring [the Fed tar­get rate] down 100 basis points in the next six months. Do you think that will cause infla­tion to go up? I don’t know the answer to that any­more.” So Shel­ton is open­ly cater­ing to Trump on his demands for a dra­mat­ic cut in the Fed tar­get rates. But there’s a catch, of course. Beyond pleas­ing Trump to get the job, the core rea­son Shel­ton appears to be so open to drop­ping inter­est rates is in in order to facil­i­tate the elim­i­na­tion of the inter­est the Fed pays to banks for excess reserves held at the Fed, known as the “Inter­est on Excess Reserves” (IOER) rate. The IOER was intro­duced in 2008 as a tool for more effec­tive­ly impact­ing inter­est rates and encour­ag­ing banks to cre­ate a finan­cial ‘cush­ion’ (leav­ing funds at the Fed is basi­cal­ly the safest place for mon­ey). Until June of last year, the IOER sim­ply tracked the top of the Fed tar­get rate rage (recall that the Fed tar­get rate is the rate which banks charge each oth­er for overnight lend­ing). For exam­ple, if the Fed had a tar­get rate range of 2.25–2.50%, the IOER would be 2.50%. Since then, as the actu­al Fed tar­get raise has drift­ed clos­er the top of the range, the Fed as cut the IOER a few times with­out cut­ting the tar­get rate as a means of push­ing that rate down to mid­dle of the tar­get range. In oth­er words, the IOER is a tool for both fine-tun­ing rates and encour­ag­ing banks to hold an extra finan­cial cush­ion.

Shel­ton has pro­posed phas­ing out the IOER rate, cur­rent at 2.35%, down to 0% with­in a year or two. Such a move would invari­ably cause a rapid drop in inter­est rates because banks would have less incen­tive to hold reserves at the Fed and instead lend it out on the mar­kets. So Shel­ton’s long-term desire to dis­man­tle this pol­i­cy tools neces­si­tates a drop in inter­est rates which hap­pens to coin­cide with Trump’s short-term desire of low­er rates.

Shel­ton’s plan for dip­ping rates to zero by end­ing the IOER includes anoth­er com­po­nent that direct­ly con­tra­dicts what Trump has said he likes to see and would fur­ther her agen­da of remov­ing Fed pol­i­cy tools: the Fed would also have to start sell­ing rapid­ly off the bonds it acquired as part of the “quan­ti­ta­tive eas­ing” (QE) pro­grams. When the Fed pur­chased those bonds it was effec­tive­ly inject­ing cred­it into the finan­cial sys­tem and that excess cred­it would dis­rupt the Fed’s abil­i­ty to manip­u­late inter­est rates towards the tar­get rate once the inter­est pay­ments on excess reserves is elim­i­nat­ed. So one of the direct con­se­quences of Shel­ton’s plans to cut rates by drop­ping the IOER pay­ments would be an accel­er­at­ed unwind­ing of QE which is actu­al­ly con­trac­tionary for the cred­it mar­kets. Trump is pre­sum­ably obliv­i­ous to all of this giv­en that he’s called for an increase in QE and more bond buy­ing the Fed. In addi­tion, if the Fed ends the IOWR pay­ments which are nec­es­sary for QE to func­tion, it’s going to be a hard­er for the Fed to restart QE if nec­es­sary.

And keep in mind that the cham­pi­oning end­ing IOER pay­ments to banks is the kind of pol­i­cy that could have a lot of gener­ic appeal to the pub­lic sim­ply because it real­ly is the Fed pay­ing the banks to just park mon­ey. That’s not going to be a pop­u­lar pol­i­cy even it was was the appro­pri­ate pol­i­cy at the time it was imple­ment­ed in 2008. So it’s pos­si­ble we could see Shel­ton’s attempts to frame her poli­cies as ‘pop­ulist’ get a boost by call­ing for the elim­i­na­tion of the IOER.

There’s anoth­er rate that Shel­ton has advo­cat­ed should be close to zero: infla­tion. Yep, Shel­ton feels the Fed’s tar­get rate for infla­tion should be zero, which means she advo­cates that the infla­tion reg­u­lar­ly dip in and out of defla­tion­ary ter­ri­to­ry. It’s a lunatic pol­i­cy from an eco­nom­ic stand­point but ide­o­log­i­cal­ly con­sis­tent for a gold bug.

Oh, and don’t for­get Shel­ton has already been approved by Con­gress for the posi­tion of Euro­pean Bank for Recon­struc­tion and Devel­op­ment and she’s the Chair­man of the Nation­al Endow­ment for Democ­ra­cy. So if you thought the nom­i­na­tions of Her­man Cain and Stephen Moore were gross­ly irre­spon­si­ble, get ready for the nau­se­at­ing­ly irre­spon­si­ble and more like­ly to suc­ceed nom­i­na­tion of Judy Shel­ton:

The New York Times

Trump’s Deci­sion to Tap Shel­ton Cre­ates Polit­i­cal Risk for the Fed

By Jean­na Smi­alek
July 3, 2019

WASHINGTON — On a steamy after­noon in late May, Judy Shel­ton was camped out in the lob­by of the Trump Hotel in Wash­ing­ton, hold­ing court with reporters from her perch on a high-backed couch.

She had cho­sen the loca­tion, a sym­bol­ic back­drop for a big moment in her career. Her name had sur­faced as being under con­sid­er­a­tion for one of two open seats on the sev­en-mem­ber Fed­er­al Reserve Board of Gov­er­nors. For a pro­po­nent of the gold stan­dard who has spent a career crit­i­ciz­ing the Fed, a nom­i­na­tion offered a chance to shape the insti­tu­tion from with­in.

Ms. Shel­ton, 65, has spent years posi­tion­ing her­self, pen­ning opin­ion pieces and tweets prais­ing Pres­i­dent Trump’s poli­cies, from tar­iffs to tax cuts. She was an advis­er to his cam­paign and served on his tran­si­tion team.

But before nab­bing the Fed job, Ms. Shel­ton made a final trans­for­ma­tion, pub­li­cized part­ly from the air-con­di­tioned calm of the hotel atri­um. Long a crit­ic of low inter­est rates, Ms. Shel­ton now said they should drop, poten­tial­ly to zero — a piv­ot that made head­lines and put her in line with Mr. Trump, a cheap-mon­ey devo­tee.

Mr. Trump announced on Tues­day that he would nom­i­nate Ms. Shel­ton as a Fed gov­er­nor, along with Christo­pher Waller, who is research direc­tor at the Fed­er­al Reserve Bank of St. Louis. Both are like­ly to sup­port low bor­row­ing costs.

But the way Ms. Shel­ton is mak­ing her new­found argu­ment for low inter­est rates may be par­tic­u­lar­ly con­se­quen­tial, because it inten­si­fies her assault on a busi­ness-as-usu­al belief at the Fed.

Ms. Shel­ton wants to cut rates as a way of phas­ing out the Fed’s prac­tice of pay­ing banks inter­est on excess mon­ey parked at the cen­tral bank. The Fed changes the rate it pays banks on reserves as a tool to guide its bench­mark inter­est rate high­er, a prac­tice it adopt­ed in the wake of the finan­cial cri­sis.

The approach has long been a polit­i­cal light­ning rod, because it rewards banks for leav­ing mon­ey sit­ting at the Fed. Crit­i­cism of the prac­tice has fad­ed some­what, but Ms. Shelton’s nom­i­na­tion could reignite it.

“It real­ly gets into the arcane dark arts of mak­ing mon­e­tary pol­i­cy,” said Mark Spin­del, an author of a book on the pol­i­tics of the Fed­er­al Reserve. “It will res­onate.”

Like many of Ms. Shelton’s pol­i­cy views, her thoughts on excess reserves are not ful­ly con­sis­tent with what Mr. Trump says he wants.

The pres­i­dent has said the Fed should low­er rates, stop shrink­ing its bal­ance sheet and start expand­ing it again by buy­ing more bonds — a prac­tice that’s often called quan­ti­ta­tive eas­ing or Q.E..

Ms. Shelton’s plan would involve the Fed drop­ping rates to zero. But to ditch pay­ing inter­est on reserves, the Fed would also need to slash its bond hold­ings, because the old rate-set­ting sys­tem does not work when there is a lot of mon­ey slosh­ing around the finan­cial sys­tem.

In oth­er words: The coun­try can have its old oper­at­ing frame­work or a big bal­ance sheet, but prob­a­bly not both.

“If you’re in favor of Q.E., then pre­sum­ably you’re in favor of inter­est on excess reserves — it’d be hard to argue how you could do one with­out the oth­er,” said William Dud­ley, for­mer pres­i­dent of the Fed­er­al Reserve Bank of New York. The cur­rent sys­tem will make it eas­i­er for the Fed to go back to buy­ing bonds should the econ­o­my enter anoth­er down­turn, he said, leav­ing pol­i­cy more nim­ble. It also makes set­ting inter­est rates eas­i­er.

Such argu­ments have failed to pla­cate law­mak­ers in the past. In a rare show of bipar­ti­san sen­ti­ment in Feb­ru­ary 2016, Jeb Hen­sar­ling, then the Repub­li­can chair­man of the House Finan­cial Ser­vices Com­mit­tee, and Max­ine Waters, the top Demo­c­rat on the pan­el, crit­i­cized Janet L. Yellen, the Fed chair at the time, for the prac­tice. Ms. Waters walked her cri­tiques back, but in 2017, Mr. Hen­sar­ling again urged that it “should not become a per­ma­nent tool of mon­e­tary pol­i­cy.”

Law­mak­ers have stopped blast­ing the prac­tice so loud­ly since Jerome H. Pow­ell took over at the cen­tral bank in ear­ly 2018. The Fed announced this year that it would con­tin­ue using the inter­est-on-reserves approach to set­ting inter­est rates indef­i­nite­ly — allow­ing offi­cials to stop shrink­ing their bal­ance sheet ear­li­er.

But it has always been a del­i­cate issue, and Ms. Shel­ton could bring it back into the lime­light.

“She’s got a top step of the podi­um to read­dress these things,” Mr. Spin­del said.

The Fed has oper­a­tional free­dom, which means that Con­gress sets its goals — full employ­ment and low and sta­ble prices — but the Fed choos­es how to achieve them. Pol­i­tics should not mat­ter. But prac­ti­cal­ly, Con­gress could change the Fed­er­al Reserve Act if mon­e­tary pol­i­cy drew enough ire. And the Fed’s inde­pen­dence is already under pres­sure as Mr. Trump reg­u­lar­ly crit­i­cizes Mr. Pow­ell and his col­leagues.

“The Fed­er­al Reserve should be inde­pen­dent and think long term,” said Sen­a­tor Tina Smith, Demo­c­rat of Min­neso­ta and a mem­ber of the Sen­ate Bank­ing Com­mit­tee, which will vet Ms. Shel­ton and Mr. Waller. Because Mr. Trump has tak­en aim at the cen­tral bank, she said, “these nom­i­nees will get addi­tion­al scruti­ny.”

...

Ms. Shel­ton is more than a polit­i­cal ally of Mr. Trump’s: She is a Fed crit­ic who wants to over­haul the Unit­ed States’ mon­e­tary sys­tem. She was a co-leader of the Sound Mon­ey Project before the Trump admin­is­tra­tion nom­i­nat­ed her to her cur­rent job as the Unit­ed States exec­u­tive direc­tor at the Euro­pean Bank for Recon­struc­tion and Devel­op­ment, and has spent her career mak­ing a case for a hard cur­ren­cy peg.

“Mon­ey is a moral con­tract between the gov­ern­ment and indi­vid­ual cit­i­zens,” Ms. Shel­ton said at the Trump Hotel in May. “Some­one called me a gold bug — what would I rather be? A Fed bug?”

Her views are at odds with both the eco­nom­ic main­stream and America’s mon­e­tary sys­tem. The Unit­ed States end­ed dol­lar con­vert­ibil­i­ty to gold in 1971 as for­eign hold­ings of dol­lars out­stripped America’s gold reserves, threat­en­ing a run. The Unit­ed States had dis­cov­ered that it could not be the glob­al reserve cur­ren­cy and at the same time run a gold-backed mon­e­tary sys­tem.

Dol­lars now derive their val­ue from the fed­er­al government’s back­ing. Ms. Shel­ton has argued that return­ing to a fixed-cur­ren­cy peg would cre­ate a more even play­ing field for inter­na­tion­al trade and pre­vent cen­tral banks like Japan’s from buy­ing up gov­ern­ment debt to help cheap­en the nation­al cur­ren­cy and make exports com­pet­i­tive.

“The notion that free trade should be based on sta­ble exchange rates so that goods and cap­i­tal flow in accor­dance with free-mar­ket prin­ci­ples has been aban­doned by tech­no­crat elit­ists who simul­ta­ne­ous­ly extol the ben­e­fits of glob­al­iza­tion,” Ms. Shel­ton wrote in a Wall Street Jour­nal opin­ion arti­cle in Feb­ru­ary 2017.

Mr. Trump has also voiced veiled sup­port for the gold stan­dard in the past, say­ing before the 2016 elec­tion that “bring­ing back the gold stan­dard would be very hard to do, but boy, would it be won­der­ful.”

It is ques­tion­able that a fixed exchange stan­dard would work in 2019. Oth­er coun­tries would need to agree on a stan­dard for con­vert­ibil­i­ty. Tying cur­ren­cies to a com­mod­i­ty would risk expos­ing economies to arbi­trary price swings.

If the Fed were tasked with tar­get­ing a com­mod­i­ty price, it could no longer focus con­cert­ed­ly on steady­ing over­all prices and sta­bi­liz­ing the job mar­ket, as it cur­rent­ly does. Main­stream econ­o­mists are prac­ti­cal­ly unan­i­mous in agree­ing that a gold-fixed cur­ren­cy would be worse for every­day Amer­i­cans.

“You have to basi­cal­ly sub­or­di­nate your mon­e­tary pol­i­cy to exchange rates,” Mr. Dud­ley said. “You’re sub­or­di­nat­ing your goals of price sta­bil­i­ty and unem­ploy­ment to oth­er goals.”

———-

“Trump’s Deci­sion to Tap Shel­ton Cre­ates Polit­i­cal Risk for the Fed” by Jean­na Smi­alek; The New York Times; 07/03/2019

“Mr. Trump announced on Tues­day that he would nom­i­nate Ms. Shel­ton as a Fed gov­er­nor, along with Christo­pher Waller, who is research direc­tor at the Fed­er­al Reserve Bank of St. Louis. Both are like­ly to sup­port low bor­row­ing costs.”

Two new nom­i­nees. Both want to see low­er rates. But only one, Christo­pher Waller, is a Dove. Shel­ton has very dif­fer­ent moti­va­tions for want­i­ng to see low­er rates: As a means of dis­man­tling the IOER. IF the IOER gets elim­i­nat­ed, banks are going to remove that finan­cial cush­ion of excess reserves and rates are inevitably going to fall. So while Waller would tend to see low­er rates as good pol­i­cy, Shel­ton appears to see them more as the cost of achiev­ing her goals of dis­man­tling Fed pol­i­cy tools:

...
But the way Ms. Shel­ton is mak­ing her new­found argu­ment for low inter­est rates may be par­tic­u­lar­ly con­se­quen­tial, because it inten­si­fies her assault on a busi­ness-as-usu­al belief at the Fed.

Ms. Shel­ton wants to cut rates as a way of phas­ing out the Fed’s prac­tice of pay­ing banks inter­est on excess mon­ey parked at the cen­tral bank. The Fed changes the rate it pays banks on reserves as a tool to guide its bench­mark inter­est rate high­er, a prac­tice it adopt­ed in the wake of the finan­cial cri­sis.

The approach has long been a polit­i­cal light­ning rod, because it rewards banks for leav­ing mon­ey sit­ting at the Fed. Crit­i­cism of the prac­tice has fad­ed some­what, but Ms. Shelton’s nom­i­na­tion could reignite it.

“It real­ly gets into the arcane dark arts of mak­ing mon­e­tary pol­i­cy,” said Mark Spin­del, an author of a book on the pol­i­tics of the Fed­er­al Reserve. “It will res­onate.”

Like many of Ms. Shelton’s pol­i­cy views, her thoughts on excess reserves are not ful­ly con­sis­tent with what Mr. Trump says he wants.
...

And while Trump has called for expand­ing QE and more Fed bond buy, one of the big con­se­quences of Shel­ton’s plan is that the Fed’s QE bal­ance sheet of pur­chased bonds will have to be sold off because the Fed’s rate-set­ting sys­tem with­out the IOER inter­est pay­ments does­n’t real­ly work with all of the extra cred­it gen­er­at­ed by the bond pur­chas­es slosh­ing around in the finan­cial sys­tem. In oth­er words, the Fed will need to unwind its QE hold­ings and con­tract the lev­els of avail­able cred­it for Shel­ton’s pro­pos­al to work:

...
The pres­i­dent has said the Fed should low­er rates, stop shrink­ing its bal­ance sheet and start expand­ing it again by buy­ing more bonds — a prac­tice that’s often called quan­ti­ta­tive eas­ing or Q.E..

Ms. Shelton’s plan would involve the Fed drop­ping rates to zero. But to ditch pay­ing inter­est on reserves, the Fed would also need to slash its bond hold­ings, because the old rate-set­ting sys­tem does not work when there is a lot of mon­ey slosh­ing around the finan­cial sys­tem.

In oth­er words: The coun­try can have its old oper­at­ing frame­work or a big bal­ance sheet, but prob­a­bly not both.

“If you’re in favor of Q.E., then pre­sum­ably you’re in favor of inter­est on excess reserves — it’d be hard to argue how you could do one with­out the oth­er,” said William Dud­ley, for­mer pres­i­dent of the Fed­er­al Reserve Bank of New York. The cur­rent sys­tem will make it eas­i­er for the Fed to go back to buy­ing bonds should the econ­o­my enter anoth­er down­turn, he said, leav­ing pol­i­cy more nim­ble. It also makes set­ting inter­est rates eas­i­er.
...

And note how Shel­ton decries the Fed sys­tem as a “tech­no­crat­ic elit­ist” sys­tem that has aban­doned free-mar­ket prin­ci­ples. And yet, if the US did switch to the gold stan­dard the Fed would have to aban­don the goals of price sta­bil­i­ty and full employ­ment and focus entire­ly on main­tain­ing that exc­a­hange rate. Return­ing to the gold stan­dard would hand mas­sive amounts of pow­er to pri­vate forces and oth­er nations with the pow­er to influ­ence the sup­ply of gold and that exchange rate. Hand­ing over a nation’s mon­e­tary pol­i­cy to ‘the mar­ket’ is a give­away of nation­al sov­er­eign­ty:

...
“The notion that free trade should be based on sta­ble exchange rates so that goods and cap­i­tal flow in accor­dance with free-mar­ket prin­ci­ples has been aban­doned by tech­no­crat elit­ists who simul­ta­ne­ous­ly extol the ben­e­fits of glob­al­iza­tion,” Ms. Shel­ton wrote in a Wall Street Jour­nal opin­ion arti­cle in Feb­ru­ary 2017.

Mr. Trump has also voiced veiled sup­port for the gold stan­dard in the past, say­ing before the 2016 elec­tion that “bring­ing back the gold stan­dard would be very hard to do, but boy, would it be won­der­ful.”

It is ques­tion­able that a fixed exchange stan­dard would work in 2019. Oth­er coun­tries would need to agree on a stan­dard for con­vert­ibil­i­ty. Tying cur­ren­cies to a com­mod­i­ty would risk expos­ing economies to arbi­trary price swings.

If the Fed were tasked with tar­get­ing a com­mod­i­ty price, it could no longer focus con­cert­ed­ly on steady­ing over­all prices and sta­bi­liz­ing the job mar­ket, as it cur­rent­ly does. Main­stream econ­o­mists are prac­ti­cal­ly unan­i­mous in agree­ing that a gold-fixed cur­ren­cy would be worse for every­day Amer­i­cans.

“You have to basi­cal­ly sub­or­di­nate your mon­e­tary pol­i­cy to exchange rates,” Mr. Dud­ley said. “You’re sub­or­di­nat­ing your goals of price sta­bil­i­ty and unem­ploy­ment to oth­er goals.”
...

And despite all those com­pelling rea­sons for Trump to avoid nom­i­nat­ing some­one like Shel­ton, he went ahead and did it. Of course, the odds of the rest of the Fed­er­al Reserve board agree­ing to imple­ment Shel­ton’s plans are exceed­ing­ly low. She’s only one vote on the board. But if she’s nom­i­nat­ed that a 14 year term, which is plen­ty of time for future pres­i­dents to stack the board with more gold bugs.

More impor­tant­ly, as the arti­cle indi­cates, if Shel­ton gets con­firmed she’ll have plen­ty of time and oppor­tu­ni­ty fuel fights over Fed pol­i­cy in Con­gress:

...
“If you’re in favor of Q.E., then pre­sum­ably you’re in favor of inter­est on excess reserves — it’d be hard to argue how you could do one with­out the oth­er,” said William Dud­ley, for­mer pres­i­dent of the Fed­er­al Reserve Bank of New York. The cur­rent sys­tem will make it eas­i­er for the Fed to go back to buy­ing bonds should the econ­o­my enter anoth­er down­turn, he said, leav­ing pol­i­cy more nim­ble. It also makes set­ting inter­est rates eas­i­er.

Such argu­ments have failed to pla­cate law­mak­ers in the past. In a rare show of bipar­ti­san sen­ti­ment in Feb­ru­ary 2016, Jeb Hen­sar­ling, then the Repub­li­can chair­man of the House Finan­cial Ser­vices Com­mit­tee, and Max­ine Waters, the top Demo­c­rat on the pan­el, crit­i­cized Janet L. Yellen, the Fed chair at the time, for the prac­tice. Ms. Waters walked her cri­tiques back, but in 2017, Mr. Hen­sar­ling again urged that it “should not become a per­ma­nent tool of mon­e­tary pol­i­cy.”

Law­mak­ers have stopped blast­ing the prac­tice so loud­ly since Jerome H. Pow­ell took over at the cen­tral bank in ear­ly 2018. The Fed announced this year that it would con­tin­ue using the inter­est-on-reserves approach to set­ting inter­est rates indef­i­nite­ly — allow­ing offi­cials to stop shrink­ing their bal­ance sheet ear­li­er.

But it has always been a del­i­cate issue, and Ms. Shel­ton could bring it back into the lime­light.

“She’s got a top step of the podi­um to read­dress these things,” Mr. Spin­del said.

The Fed has oper­a­tional free­dom, which means that Con­gress sets its goals — full employ­ment and low and sta­ble prices — but the Fed choos­es how to achieve them. Pol­i­tics should not mat­ter. But prac­ti­cal­ly, Con­gress could change the Fed­er­al Reserve Act if mon­e­tary pol­i­cy drew enough ire. And the Fed’s inde­pen­dence is already under pres­sure as Mr. Trump reg­u­lar­ly crit­i­cizes Mr. Pow­ell and his col­leagues.

“The Fed­er­al Reserve should be inde­pen­dent and think long term,” said Sen­a­tor Tina Smith, Demo­c­rat of Min­neso­ta and a mem­ber of the Sen­ate Bank­ing Com­mit­tee, which will vet Ms. Shel­ton and Mr. Waller. Because Mr. Trump has tak­en aim at the cen­tral bank, she said, “these nom­i­nees will get addi­tion­al scruti­ny.”
...

Don’t for­get that one of the biggest changes to Fed pol­i­cy that the GOP has been try­ing to pull off for years is drop­ping the dual man­date. GOP­ers, includ­ing Mike Pence, have long advo­cat­ed that the Fed not fac­tor in unem­ploy­ment lev­els into its deci­sion-mak­ing and focus sole­ly on infla­tion. And that’s a deci­sion of Con­gress, not the Fed. So Shel­ton’s the abil­i­ty to spark and fuel fights as a mem­ber of the Fed board of gov­er­nors could have sig­nif­i­cant con­se­quences sim­ply be fuel­ing the ongo­ing politi­ciza­tion of the Fed. That might end up being the biggest long-term con­se­quence of Shel­ton’s nom­i­na­tion, assum­ing she gets con­firmed.

But let’s not for­get that politi­ciz­ing the Fed was some­thing Trump was doing all on his own. And that brings us to the dis­turb­ing obser­va­tion Paul Krug­man had a cou­ple of weeks ago regard­ing all of his pub­lic jaw­bon­ing about low­er inter­est rates: Trump actu­al­ly has a point about the Fed being too aggres­sive with the rate hikes, but by being so Trumpian in mak­ing that point he’s changed the moral cal­cu­lus of the sit­u­a­tion and now it’s not clear the Fed should cut rates. Because cut­ting rates at this point, after Trump has been decry­ing the Fed for months and threat­en­ing to replace Chair­man Pow­ell, is now kind of a taint­ed move for the Fed. Trump taint­ed it with his bul­ly­ing blus­ter and threats against Pow­ell and as a result it’s ques­tion­able whether or not the Fed should cut rates at the next oppor­tu­ni­ty even from a Dovish per­spec­tive. That’s how bad Trump’s Fed pol­i­cy is. Even when he’s right (for pure­ly self­ish rea­sons), he makes right wrong by being right in the wrong way for the wrong rea­sons:

The New York Times
Opin­ion

The Trumpi­fi­ca­tion of the Fed­er­al Reserve
Like it or not, its next move will be polit­i­cal.

By Paul Krug­man
Opin­ion Colum­nist

June 20, 2019

In late 2015 then-can­di­date Don­ald Trump accused Janet Yellen, chair of the Fed­er­al Reserve, of being part of a polit­i­cal con­spir­a­cy. Yellen, he insist­ed, was keep­ing inter­est rates unjus­ti­fi­ably low in an attempt to help Hillary Clin­ton win the pres­i­den­cy.

As it hap­pens, there were very good rea­sons for the Fed to keep rates low at the time. Some mea­sures of the job mar­ket, notably prime-age employ­ment, were still well below pre­cri­sis lev­els, and busi­ness invest­ment was going through a sig­nif­i­cant slump — a sort of mini-reces­sion.

Fast for­ward to the present. The employ­ment pic­ture is much stronger now than it was then. There are hints of an eco­nom­ic slow­down, part­ly because of the uncer­tain­ty cre­at­ed by Trump’s trade war, but they’re con­sid­er­ably fainter than those of 2015–16. And Trump him­self keeps boast­ing about the economy’s strength.

Yet he is open­ly pres­sur­ing the Fed to cut rates, and is report­ed­ly look­ing for ways to demote Jay Pow­ell, the man he him­self chose to replace Yellen — declin­ing to reap­point Yellen, accord­ing to some reports, because he didn’t think she was tall enough.

But wait, there’s more. While there are, as I said, hints of a slow­down here, there are much stronger warn­ing signs in Europe, where man­u­fac­tur­ing is slump­ing and reces­sion wor­ries are on the rise. Yet even as he tries to bul­ly the Fed into cut­ting rates, Trump flew into a rage over reports that the Euro­pean Cen­tral Bank, Europe’s coun­ter­part to the Fed, is con­sid­er­ing rate cuts of its own, which would weak­en the euro and make U.S. indus­try less com­pet­i­tive.

If these var­i­ous posi­tions sound incon­sis­tent to you, you’re just not think­ing about them in the right way. The com­mon prin­ci­ple is sim­ple: Mon­e­tary pol­i­cy should be what­ev­er serves Don­ald Trump’s inter­ests. Noth­ing else mat­ters.

And Trump’s cur­rent rage at the Fed should be under­stood main­ly as an expres­sion of frus­tra­tion over the fail­ure of his 2017 tax cut.

Yes, the tax cut gave the econ­o­my a boost, as you’d expect from poli­cies that widened the annu­al full-employ­ment bud­get deficit by about $400 bil­lion. (Imag­ine what the Oba­ma econ­o­my would have looked like if Con­gress had let him spend $400 bil­lion a year on, say, infra­struc­ture.) But it was a pret­ty mod­est boost, con­sid­er­ing, with much of the tax cut being used just to buy back cor­po­rate stock.

More to the point, the tax cut was a polit­i­cal bust: Trump isn’t get­ting much cred­it for good eco­nom­ic num­bers, and a plu­ral­i­ty of the white work­ing-class vot­ers on whom the tweet­er in chief depends believe (cor­rect­ly) that his poli­cies main­ly ben­e­fit peo­ple rich­er than them­selves.

So Trump is, in effect, demand­ing that the Fed bail him out of the con­se­quences of his own pol­i­cy fail­ures. And if that were the whole sto­ry, the appro­pri­ate response would be some polite, Fed­speak ver­sion of “Go to hell.”

But as it hap­pens, Trump and his tantrums aren’t the whole sto­ry. There is, in fact, a strong case that the Fed was too quick to raise inter­est rates from 2015 to 2019 — that it under­es­ti­mat­ed how much slack there still was in the U.S. econ­o­my and over­es­ti­mat­ed the economy’s under­ly­ing strength (which it has done con­sis­tent­ly over the past decade).

And there is cor­re­spond­ing­ly a case for par­tial­ly revers­ing recent Fed rate hikes, and cut­ting rates now as insur­ance against a pos­si­ble future slump — get­ting ahead of the curve. Don­ald Trump is the worst pos­si­ble per­son to be mak­ing this argu­ment, but that doesn’t mean that the argu­ment is wrong.

...

Cen­tral bankers, like those run­ning the Fed, try to por­tray them­selves as apo­lit­i­cal and tech­no­crat­ic. This is nev­er quite true in prac­tice, but it’s an ide­al toward which they strive. Thanks to Trump, how­ev­er, what­ev­er the Fed does next will be seen as deeply polit­i­cal. If it does cut rates despite low unem­ploy­ment, this will be seen as giv­ing up its inde­pen­dence and let­ting Trump dic­tate pol­i­cy. If it doesn’t, Trump will lash out even hard­er.

And if I were Pow­ell, I’d be wor­ried about an even worse sce­nario. Sup­pose the Fed were to cut rates, and growth and infla­tion end up being high­er than expect­ed. Con­ven­tion­al pol­i­cy would then call for revers­ing the rate cut — right on the eve of the 2020 elec­tion. The polit­i­cal firestorm would be hor­rif­ic.

...

What this means for mon­e­tary pol­i­cy, I think, is that while straight eco­nom­ics says that the Fed should try to get ahead of the curve, the polit­i­cal trap Trump has cre­at­ed argues that it should hold off — that it should insist that its pol­i­cy is “data-depen­dent,” and wait for clear evi­dence of a seri­ous slow­down before act­ing.

Now, this might mean that if the Fed does even­tu­al­ly cut rates, what­ev­er boost this gives the econ­o­my (which would be lim­it­ed in any case, since rates are already quite low) will come too late to help Trump in the 2020 elec­tion. But if that’s what hap­pens, Trump will have only him­self to blame.

———-

“The Trumpi­fi­ca­tion of the Fed­er­al Reserve” by Paul Krug­man; The New York Times; 06/20/2019

“And Trump’s cur­rent rage at the Fed should be under­stood main­ly as an expres­sion of frus­tra­tion over the fail­ure of his 2017 tax cut.”

It’s a key point to keep in mind: Trump would­n’t be wor­ry­ing about low­er rates if the GOP’s 2017 tax cut scam had­n’t fiz­zled out by 2019 with­out show­ing signs of sow­ing seeds of future growth. The tax cut got him a one year eco­nom­ic jolt and it’s just deficits from here on out. Trump is going to screw up mon­e­tary pol­i­cy to bail him­self out for screw­ing up the US’s fis­cal future with a fiz­zled tax cut. It’s crit­i­cal con­text for Trump’s bat­tles with the Fed. They are bat­tles that nev­er would have been fought if sup­ply-side eco­nom­ics was­n’t such a scam:

...
Yes, the tax cut gave the econ­o­my a boost, as you’d expect from poli­cies that widened the annu­al full-employ­ment bud­get deficit by about $400 bil­lion. (Imag­ine what the Oba­ma econ­o­my would have looked like if Con­gress had let him spend $400 bil­lion a year on, say, infra­struc­ture.) But it was a pret­ty mod­est boost, con­sid­er­ing, with much of the tax cut being used just to buy back cor­po­rate stock.

More to the point, the tax cut was a polit­i­cal bust: Trump isn’t get­ting much cred­it for good eco­nom­ic num­bers, and a plu­ral­i­ty of the white work­ing-class vot­ers on whom the tweet­er in chief depends believe (cor­rect­ly) that his poli­cies main­ly ben­e­fit peo­ple rich­er than them­selves.

So Trump is, in effect, demand­ing that the Fed bail him out of the con­se­quences of his own pol­i­cy fail­ures. And if that were the whole sto­ry, the appro­pri­ate response would be some polite, Fed­speak ver­sion of “Go to hell.”
...

And in the process of demand­ing this bailout from the Fed, Trump is so depen­dent on chaot­ic bul­ly­ing to get his way that he lit­er­al­ly cre­at­ed moral conun­drum for doing the right thing. As Krug­man points out, there real­ly is a decent case that could be made that the Fed over­shot on the rate hikes and should attempt to get ‘ahead of the curve’ of a slow­ing econ­o­my with a strate­gic rate cut jolt. But now such a move is taint­ed with Trump’s bul­ly­ing. That’s how ill suit­ed he is for this office. He makes right wrong. It’s like the worst form of Midas Touch ever:

...
But as it hap­pens, Trump and his tantrums aren’t the whole sto­ry. There is, in fact, a strong case that the Fed was too quick to raise inter­est rates from 2015 to 2019 — that it under­es­ti­mat­ed how much slack there still was in the U.S. econ­o­my and over­es­ti­mat­ed the economy’s under­ly­ing strength (which it has done con­sis­tent­ly over the past decade).

And there is cor­re­spond­ing­ly a case for par­tial­ly revers­ing recent Fed rate hikes, and cut­ting rates now as insur­ance against a pos­si­ble future slump — get­ting ahead of the curve. Don­ald Trump is the worst pos­si­ble per­son to be mak­ing this argu­ment, but that doesn’t mean that the argu­ment is wrong.

...

Cen­tral bankers, like those run­ning the Fed, try to por­tray them­selves as apo­lit­i­cal and tech­no­crat­ic. This is nev­er quite true in prac­tice, but it’s an ide­al toward which they strive. Thanks to Trump, how­ev­er, what­ev­er the Fed does next will be seen as deeply polit­i­cal. If it does cut rates despite low unem­ploy­ment, this will be seen as giv­ing up its inde­pen­dence and let­ting Trump dic­tate pol­i­cy. If it doesn’t, Trump will lash out even hard­er.

And if I were Pow­ell, I’d be wor­ried about an even worse sce­nario. Sup­pose the Fed were to cut rates, and growth and infla­tion end up being high­er than expect­ed. Con­ven­tion­al pol­i­cy would then call for revers­ing the rate cut — right on the eve of the 2020 elec­tion. The polit­i­cal firestorm would be hor­rif­ic.

...

What this means for mon­e­tary pol­i­cy, I think, is that while straight eco­nom­ics says that the Fed should try to get ahead of the curve, the polit­i­cal trap Trump has cre­at­ed argues that it should hold off — that it should insist that its pol­i­cy is “data-depen­dent,” and wait for clear evi­dence of a seri­ous slow­down before act­ing.

Now, this might mean that if the Fed does even­tu­al­ly cut rates, what­ev­er boost this gives the econ­o­my (which would be lim­it­ed in any case, since rates are already quite low) will come too late to help Trump in the 2020 elec­tion. But if that’s what hap­pens, Trump will have only him­self to blame.
...

“What this means for mon­e­tary pol­i­cy, I think, is that while straight eco­nom­ics says that the Fed should try to get ahead of the curve, the polit­i­cal trap Trump has cre­at­ed argues that it should hold off — that it should insist that its pol­i­cy is “data-depen­dent,” and wait for clear evi­dence of a seri­ous slow­down before act­ing.”

The way Krug­man sees it, based on straight eco­nom­ics at this point, with the US econ­o­my going strong but show­ing signs of slow­ing down, Trump real­ly is right to call for Fed cuts. His fiz­zling tax cuts cre­at­ed the con­di­tions where a rate cut is in order. But Trump botched mak­ing his case by threat­en­ing to replace Pow­ell and politi­ciz­ing the whole thing that the cal­cu­lus calls for the Fed to prob­a­bly hold off. Trump taint­ed a pru­dent pre­emp­tive rate cut and now such a cut would be impru­dent.

So while nom­i­nat­ing Judy Shel­ton may seem like the worst mon­e­tary move Trump has made so far, a case could be made Trump’s sab­o­tage of the Fed is worse. Shel­ton, if nom­i­nat­ed, will be inflict­ing dam­age from the Fed bul­ly pul­pit for 14 years. That’s pret­ty awful. But Trump’s pub­lic sab­o­tag­ing of the Fed by attack­ing Pow­ell and demand­ing cuts is taint­ing the very poli­cies that could hold off a 2020 reces­sion dur­ing an elec­tion year and save his own ass. That’s a dif­fer­ent kind of awful.

And that’s more or less the Trump mon­e­tary pol­i­cy at this point: an ever grow­ing spec­trum of self-destruc­tive awful­ness that’s so bad it taints the prop­er path for­ward. So it’s like the rest of Trump’s poli­cies. When you zoom out it’s a mas­sive spec­trum of awful­ness.

The res­ig­na­tion of Labor Sec­re­tary Alex Acos­ta in the wake of the new inves­ti­ga­tion into Jef­frey Epstein’s child sex traf­fick­ing net­work and the focus on Acosta’s role in nego­ti­at­ing Epstein’s ear­li­er sweet­heart deal with the gov­ern­ment was obvi­ous­ly an attempt by the Trump admin­is­tra­tion to push that poten­tial mega-scan­dal out of the head­lines. Time will tell if that hap­pens. Again.

Recall that Acos­ta became Trump’s first Labor Sec­re­tary after Trump’s first choice, Andy Pudzn­er, with­drew fol­low­ing domes­tic abuse rev­e­la­tions. Trump’s labor sec­re­tary nom­i­nees haven’t expe­ri­enced smoothed sail­ing. Although Acos­ta was sec­re­tary for over two years and he was vul­ner­a­ble to the Epstein scan­dal that entire time because his role in the Epstein case was report­ed on. So with Pudzn­er we’ve seen how a Trump nom­i­nee might implode from past scan­dal in days or weeks but with Acos­ta we see an exam­ple of how some­one dodged his scan­dal for years.

But as the fol­low­ing arti­cle makes clear, we should­n’t assume Trump’s new act­ing labor sec­re­tary, Patrick Pizzel­la, isn’t also going to be leav­ing after the pub­lic learns about his own scan­dalous past. Pizzel­la is a long-time Repub­li­can lob­by­ist and oper­a­tive who pre­vi­ous­ly worked for both the Rea­gan and George W. Bush admin­is­tra­tions. He was a senior con­sul­tant for the Labor Depart­ment dur­ing the Bush admin­is­tra­tion. And it turns out that back in the 90’s, Pizzel­la worked along­side Jack Abramoff to shield the North­ern Mar­i­ana Islands from fed­er­al labor laws in order to allow for sweat­shops that paid below the min­i­mum wage. The That’s the cur­rent act­ing Sec­re­tary of Labor. The guy who worked with Abramoff to allow sweat­shops on US ter­ri­to­ries. Amer­i­ca’s already dec­i­mat­ed unions are unsur­pris­ing­ly extra freaked out about Acosta’s replace­ment.

It also sounds like Pizzel­la is con­sid­ered to be much more aligned with busi­ness inter­ests than Acos­ta. So things real­ly are going to get worse in the realm of labor law. Giv­en all that, it will be inter­est­ing to see if work­ing with Jack Abramoff to pro­mote sweat­shops and being a com­plete sell­out to busi­ness is polit­i­cal­ly tox­ic enough to trig­ger an ear­ly res­ig­na­tion for Pizzel­la as Labor Sec­re­tary or if that’s just part of Amer­i­ca’s Trumpian New Nor­mal:

Politi­co

Trump’s act­ing Labor sec­re­tary pick feared by unions

By IAN KULLGREN

07/12/2019 02:12 PM EDT

Updat­ed 07/12/2019 03:01 PM EDT

Patrick Pizzel­la, tapped by Pres­i­dent Don­ald Trump on Fri­day to step in as act­ing Labor sec­re­tary, is a polar­iz­ing fig­ure beloved by con­ser­v­a­tives for his pro-busi­ness views and dis­liked by unions and Democ­rats for a his­to­ry of oppos­ing work­er pro­tec­tions.

Pizzel­la, who has served as deputy sec­re­tary of Labor since April 2018, will take over fol­low­ing Labor Sec­re­tary Alexan­der Acosta’s res­ig­na­tion amid con­tro­ver­sy over a plea deal that he bro­kered for wealthy sex offend­er Jef­frey Epstein as a pros­e­cu­tor in Flori­da. Pizzel­la comes “high­ly rec­om­mend­ed by Alex,” Trump told reporters Fri­day.

But Pizzella’s ascen­dance to the top of the agency tasked with enforc­ing labor pro­tec­tions is some­thing unions have long feared. He worked along­side dis­graced lob­by­ist Jack Abramoff to shield the North­ern Mar­i­ana Islands from fed­er­al labor laws in the 1990s, and gen­er­al­ly has favored eas­ing work­place reg­u­la­tions.

“If the pres­i­dent is seri­ous about help­ing work­ing peo­ple, select­ing Patrick Pizzel­la would­n’t be the way to demon­strate that,” Ran­di Wein­garten, pres­i­dent of the Amer­i­can Fed­er­a­tion of Teach­ers, said in a state­ment. “My deal­ings with Patrick have been lim­it­ed, but his dubi­ous track record, includ­ing his asso­ci­a­tion with Jack Abramoff, does­n’t bode well.”

...

The appoint­ment is wel­come news for busi­ness advo­cates, who had grown frus­trat­ed with Acosta’s tepid approach to dereg­u­la­tion.

“He’s more aligned with busi­ness, he’s more aligned with polit­i­cal [staff] in the depart­ment itself,” said a for­mer admin­is­tra­tion offi­cial. “He’s liked by every­one there, he’s liked by the admin­is­tra­tion, he’s liked by the reg­u­lat­ed com­mu­ni­ties.”

Pizzel­la is well-known in Wash­ing­ton labor cir­cles, hav­ing served as a senior advis­er in the Labor Depart­ment dur­ing the George W. Bush admin­is­tra­tion. He was a Repub­li­can mem­ber of the Fed­er­al Labor Rela­tions Author­i­ty, the body that gov­erns rela­tions between fed­er­al unions and agen­cies, dur­ing the Oba­ma admin­is­tra­tion and became chair­man in 2017 when Trump took office.

“He’s an doc­tri­naire con­ser­v­a­tive,” said a sec­ond for­mer admin­is­tra­tion offi­cial. “He has ties to with all the usu­al sus­pects in town, whether it’s the Cham­ber or Nation­al Right to Work.”

As a lob­by­ist in the 1990s at Pre­ston Gates Ellis & Rou­ve­las Meeds, Pizzel­la worked with Abramoff to help the North­ern Mar­i­ana Islands push back against efforts to impose fed­er­al labor laws such as the min­i­mum wage on its res­i­dents. In his 2011 book “Capi­tol Pun­ish­ment,” Abramoff described Pizzel­la as “a long­time Repub­li­can polit­i­cal oper­a­tive, and a stal­wart mem­ber of the Rea­gan admin­is­tra­tion.”

“Smart, lik­able, clever, and hard work­ing,“ he wrote, “Pat was a per­fect addi­tion to the quick­ly emerg­ing ‘Team Abramoff.’ ”

Abramoff was lat­er con­vict­ed in a cor­rup­tion scan­dal relat­ed to his work at the firm, but Pizzel­la was nev­er impli­cat­ed in any of the wrong­do­ing.

At Pizzella’s con­fir­ma­tion hear­ing in 2017, then-Sen. Al Franken (D‑Minn.) read off a list of doc­u­ment­ed abus­es of women work­ers on the islands — includ­ing forced abor­tion, pros­ti­tu­tion and beat­ings — while Pizzel­la was lob­by­ing there.

Pizzel­la respond­ed that he was “not aware of any such thing,” but admit­ted he prob­a­bly lob­bied against a bill to pre­vent work­er abus­es in the Mar­i­anas.

“I don’t remem­ber if we actu­al­ly lob­bied against that leg­is­la­tion,” Pizzel­la said. “But I’d assume we did.”

“He has not done enough to repu­di­ate his past record of defend­ing com­pa­nies that rou­tine­ly ignored these rights, and he has not giv­en work­ers ade­quate rea­son to believe that he will defend their rights in the future,” the Lead­er­ship Con­fer­ence on Civ­il and Human Rights said in a state­ment oppos­ing Pizzella’s nom­i­na­tion in 2017.

Unions — includ­ing the AFL-CIO, the nation’s largest labor fed­er­a­tion — refrained from call­ing on Acos­ta to resign even as the Epstein scan­dal reached its apex, wor­ried that Pizzel­la would be far more hos­tile to their cause.

...

———

“Trump’s act­ing Labor sec­re­tary pick feared by unions” by IAN KULLGREN; Politi­co; 07/12/2019

“The appoint­ment is wel­come news for busi­ness advo­cates, who had grown frus­trat­ed with Acosta’s tepid approach to dereg­u­la­tion.”

The Trump admin­is­tra­tion’s approach to labor law dereg­u­la­tion has been “tepid” under Acos­ta, who has been Trump’s labor sec­re­tary from the begin­ning. That’s the view of the anony­mous busi­ness advo­cates inter­viewed for the arti­cle. So the busi­ness com­mu­ni­ty is expect­ing that labor pol­i­cy under Pizzel­la will swing sig­nif­i­cant­ly fur­ther towards the busi­ness com­mu­ni­ty (and away from work­ers) than it already had under Trump so far:

...
“He’s more aligned with busi­ness, he’s more aligned with polit­i­cal [staff] in the depart­ment itself,” said a for­mer admin­is­tra­tion offi­cial. “He’s liked by every­one there, he’s liked by the admin­is­tra­tion, he’s liked by the reg­u­lat­ed com­mu­ni­ties.”

Pizzel­la is well-known in Wash­ing­ton labor cir­cles, hav­ing served as a senior advis­er in the Labor Depart­ment dur­ing the George W. Bush admin­is­tra­tion. He was a Repub­li­can mem­ber of the Fed­er­al Labor Rela­tions Author­i­ty, the body that gov­erns rela­tions between fed­er­al unions and agen­cies, dur­ing the Oba­ma admin­is­tra­tion and became chair­man in 2017 when Trump took office.

“He’s an doc­tri­naire con­ser­v­a­tive,” said a sec­ond for­mer admin­is­tra­tion offi­cial. “He has ties to with all the usu­al sus­pects in town, whether it’s the Cham­ber or Nation­al Right to Work.”
...

And when he was lob­by­ing with Jack Abramoff in the 90’s, Pizzel­la lob­bied with Jack Abramoff to allow sweat­shops in the North­ern Mar­i­ana Islands avoid fed­er­al min­i­mum wage laws. He also lob­bied against laws that would have pro­tect­ed the work­ers there from doc­u­ment­ed abus­es likes forced abor­tion, pros­ti­tu­tion and beat­ings. Pizzel­la said he did­n’t recall lob­by­ing for that but admit­ted he would have:

...
As a lob­by­ist in the 1990s at Pre­ston Gates Ellis & Rou­ve­las Meeds, Pizzel­la worked with Abramoff to help the North­ern Mar­i­ana Islands push back against efforts to impose fed­er­al labor laws such as the min­i­mum wage on its res­i­dents. In his 2011 book “Capi­tol Pun­ish­ment,” Abramoff described Pizzel­la as “a long­time Repub­li­can polit­i­cal oper­a­tive, and a stal­wart mem­ber of the Rea­gan admin­is­tra­tion.”

“Smart, lik­able, clever, and hard work­ing,“ he wrote, “Pat was a per­fect addi­tion to the quick­ly emerg­ing ‘Team Abramoff.’ ”

Abramoff was lat­er con­vict­ed in a cor­rup­tion scan­dal relat­ed to his work at the firm, but Pizzel­la was nev­er impli­cat­ed in any of the wrong­do­ing.

At Pizzella’s con­fir­ma­tion hear­ing in 2017, then-Sen. Al Franken (D‑Minn.) read off a list of doc­u­ment­ed abus­es of women work­ers on the islands — includ­ing forced abor­tion, pros­ti­tu­tion and beat­ings — while Pizzel­la was lob­by­ing there.

Pizzel­la respond­ed that he was “not aware of any such thing,” but admit­ted he prob­a­bly lob­bied against a bill to pre­vent work­er abus­es in the Mar­i­anas.

“I don’t remem­ber if we actu­al­ly lob­bied against that leg­is­la­tion,” Pizzel­la said. “But I’d assume we did.”
...

So it’s clear that things are going to get worse for work­er pro­tec­tions and unions in gen­er­al with Pizzel­la as act­ing direc­tor. This is why busi­ness advo­cates are excit­ed.

But as the fol­low­ing arti­cle notes, there’s a link between the decades-long Repub­li­can assault on labor and unions and mon­e­tary pol­i­cy and it’s a link that proves Trump right. Right for the wrong rea­sons of course. There was a recent odd sto­ry about AOC, Trump and Fed Chair­man Jerome Pow­ell all shar­ing the same dis­sent­ing views mon­e­tary pol­i­cy and how much slack there is in the labor pool. Sort of.

Trump has long want­ed low­er rates and made that clear. He’s threat­ened to replace Jerome Pow­ell over it. His tax cut was an eco­nom­ic dud and low­er rates are clear­ly now in his polit­i­cal best inter­ests.

But just this week, Trump’s eco­nom­ic advi­sor Lar­ry Kud­low end­ed up prais­ing Alexandi­ra Oca­sio-Cor­tex when AOC grill Fed chair­man Pow­ell dur­ing a con­gres­sion­al hear­ing and got Pow­ell to agree that the Fed’s assump­tions about how low unem­ploy­ment could get before infla­tion kicks in has been dra­mat­i­cal­ly and sys­tem­at­i­cal­ly off for years. The Fed bases its mod­els on things like the Philips Curve, which mod­els a hypo­thet­i­cal inverse rela­tion­ship between infla­tion and unem­ploy­ment. The low­er the unem­ploy­ment the high­er the infla­tion because of wage infla­tion from the low unem­ploy­ment. If the Fed gets its Phillips Curve assump­tion wrong it’s going raise rates pre­ma­ture­ly. And AOC got Pow­ell to acknowl­edge that the Fed has indeed been get­ting its Phillips Curve wrong and rais­ing rates pre­ma­ture­ly.

And as the arti­cle notes, a cru­cial rea­son the Fed’s eco­nom­ic mod­els that helped define the low­er bound of the unem­ploy­ment rate the Fed would allow before rais­ing rates in an attempt to ward off wage infla­tion have been have off for years now is that those mod­els were based on 1970s assump­tions about the pow­er and influ­ence of unions and labor. Assump­tions that are no longer true thanks to decades of Repub­li­can Labor sab­o­tage. So when Trump com­plains that the Fed raised rates too ear­ly, he is cor­rect thanks in part to Trump’s assault on labor unions:

Talk­ing Points Memo
Cafe

Trump, AOC, And Jerome Pow­ell All Agree — The Fed Got Employ­ment Wrong
Some­times, on the econ­o­my, Trump is right, albeit for the wrong rea­sons.

By David Blanch­flower
July 11, 2019 6:14 pm

This arti­cle is part of TPM Cafe, TPM’s home for opin­ion and news analy­sis.

We now know all too well that in the run-up to the Great Reces­sion, pol­i­cy­mak­ers failed to spot what was com­ing. Cen­tral banks around the world — includ­ing the Fed­er­al Reserve in the U.S., the Mon­e­tary Pol­i­cy Com­mit­tee in the UK and the Euro­pean Cen­tral Bank in the Euro­zone — missed the big one in their own coun­tries but also failed to see that the cri­sis was glob­al; one down, all down. In Octo­ber 2008 mem­bers of the Fed­er­al Reserve’s Fed­er­al Open Mar­ket Com­mit­tee pre­dict­ed that real GDP growth in the U.S. in 2009 would be in the range ‑1.0% to +1.8%. We got ‑2.54%.

Mis­cal­cu­la­tions like this have real con­se­quences. We now know that the U.S. went into reces­sion in Decem­ber 2007, as deter­mined by the Nation­al Bureau of Eco­nom­ic Research’s Busi­ness Cycle Dat­ing Com­mit­tee, while almost every oth­er advanced coun­try did so in April 2008. My new book, “Not Work­ing: Where Have all the Good Jobs Gone?” sets out in great detail how pol­i­cy­mak­ers missed this cat­a­stro­phe, even as it was upon them.

The Fed wrong­ly, in my judg­ment, raised rates nine times between 2015 and 2018 because of its mis­tak­en belief that the U.S. was at full employ­ment. Dur­ing that time, oth­er mea­sures, espe­cial­ly weak wage growth, sug­gest­ed that full employ­ment was still a long way off. Trump sensed that and has right­ly been push­ing for rate cuts.

Two years after the 1929 Great Crash, econ­o­mist John May­nard Keynes warned pre­scient­ly that a finan­cial cri­sis is espe­cial­ly hard to recov­er from and that growth would inevitably be slow. “It is a pos­si­bil­i­ty that the dura­tion of the slump may be much more pro­longed than most peo­ple are expect­ing, and much will be changed both in our ideas and in our meth­ods before we emerge,” he said. He was not talk­ing, he said, about “the dura­tion of the acute phase of the slump,” but about “the long, drag­ging con­di­tions of semi-slump, or at least sub-nor­mal pros­per­i­ty, which may be expect­ed to suc­ceed the acute phase.”

Today, more than a decade after the Great Reces­sion began, we are still mired in those “long, drag­ging con­di­tions of semi-slump.” On the cam­paign trail, Don­ald Trump clev­er­ly spot­ted that. Glob­al recov­ery has been mut­ed in the years after the 2008–2009 reces­sion and peo­ple are hurt­ing even after ten years of growth in what is now the longest U.S. recov­ery ever. Pain, anx­i­ety, depres­sion and a gen­er­al sense of help­less­ness are all up. Hap­pi­ness is down. Trump tapped into those feel­ings.

The rise of deaths of despair — from drug over­dos­es, liv­er fail­ure from heavy drink­ing and sui­cide — in rur­al Amer­i­ca and the urban heart­land, espe­cial­ly among least-edu­cat­ed whites, was rapid­ly becom­ing a plague. Amer­i­cans are increas­ing­ly in pain, not alle­vi­at­ed by the huge rise in opi­oid pre­scrip­tions. Life expectan­cy in the U.S. is falling.

The votes for Trump — and, as I show in “Not Work­ing,” for Brex­it also — were reflec­tions of the inse­cu­ri­ty, hope­less­ness and iso­la­tion that peo­ple were feel­ing, espe­cial­ly those who had been left behind in the recov­ery. Old coal and steel towns were suf­fer­ing. Peo­ple vot­ed for Trump because they thought he could bring about change.

...

Between 2015 and 2018, large­ly based on the FOMC’s view that the U.S. labor mar­ket was close to full employ­ment, the Fed, wrong­ly in my view, raised rates nine times; once in 2015 and 2016; three times in 2017 and four times in 2018. At the end of 2018 Fed was fore­cast­ing fur­ther rate ris­es to come in 2019 and 2020. In doing so, it relied on mod­els that date from the 1970s, when the econ­o­my was quite dif­fer­ent. Cru­cial­ly, unions were far more pow­er­ful then than they are today. In 2019, these mod­els are long out of date, but econ­o­mists have con­tin­ued to rely on them, and won­der why there is nei­ther infla­tion nor the wage growth they expect to come with it.

As a result, Trump turned on the Fed and argued that rates were too high and that there should in fact be cuts. He even went after the chair of the Fed, Jay Pow­ell, threat­en­ing to fire or even demote him. In my book I argue “the Fed had been sig­nal­ing more ris­es to come; Pres­i­dent Trump turned his ire toward them, and they changed their tune in 2019. I have to say I agree with him.” I still do.

Dur­ing ques­tion­ing by Rep. Alexan­dria Oca­sio-Cortez (D‑N.Y.) at the House Finan­cial Ser­vices Com­mit­tee yes­ter­day, Pow­ell essen­tial­ly admit­ted that the Fed had wrong­ly raised rates because it thought the U.S. was close to full employ­ment when it wasn’t.

“Do you think it is pos­si­ble that the Fed’s esti­mates of the low­est sus­tain­able esti­mates for the unem­ploy­ment rate may have been too high?” Oca­sio-Cortez asked Pow­ell.

“Absolute­ly,” he replied.

“So, we over­shot in what our long-term unem­ploy­ment rate is?” she fol­lowed up.

“I think we have learned that it is low­er, sub­stan­tial­ly low­er than we thought,” the Fed chair­man replied.

Oca­sio Cortez went on to ques­tion Pow­ell on the Phillips Curve, an eco­nom­ic mod­el that sup­pos­es that low unem­ploy­ment dri­ves the rate of wage growth, and, with it, infla­tion. It is key to the Fed’s eco­nom­ic mod­els. But that the­o­ry, she said, “is no longer describ­ing what is hap­pen­ing in today’s econ­o­my.” Pow­ell agreed.

The next day, Nation­al Eco­nom­ic Coun­cil direc­tor Lar­ry Kud­low said “hats off to Ms. AOC” for her ques­tions, say­ing she “kind of nailed that.” Trump and AOC agree on the need to cut rates and so do I. More pol­i­cy errors by the elites.

“Not Work­ing” shows that, now, wage growth is dri­ven not by unem­ploy­ment but by under­em­ploy­ment, which has still not returned to pre-reces­sion lev­els. That explains the weak wage growth we see today, and why the U.S. is not yet at full employ­ment.

Nonethe­less, the mar­kets sug­gest that investors expect three rate cuts by the Fed by the end of 2019 and prob­a­bly even more in 2020 as the U.S. econ­o­my like­ly slows or even goes into reces­sion. Trump was right, if per­haps for the wrong rea­sons — he is wor­ried about the economy’s, and the Fed’s, influ­ence on his reelec­tion chances for 2020.

...

———-

“Trump, AOC, And Jerome Pow­ell All Agree — The Fed Got Employ­ment Wrong” by David Blanch­flower; Talk­ing Points Memo; 07/11/2019

“The Fed wrong­ly, in my judg­ment, raised rates nine times between 2015 and 2018 because of its mis­tak­en belief that the U.S. was at full employ­ment. Dur­ing that time, oth­er mea­sures, espe­cial­ly weak wage growth, sug­gest­ed that full employ­ment was still a long way off. Trump sensed that and has right­ly been push­ing for rate cuts.”

Note that many econ­o­mists, includ­ing Paul Krug­man, would agree with David Blanch­flow­er’s (the author) assess­ment that the Fed raised rates too aggres­sive­ly from 2015–2018 and the weak wage growth was evi­dence of that. A big rea­son the Fed’s mod­els were off is because they’re based on 1970’s mod­els that were arrived at when labor was much larg­er and more influ­en­tial in the US econ­o­my for increas­ing wages. And AOC got Jerome Pow­ell to admit this dur­ing a hear­ing. It was rather remark­able because that’s quite an admis­sion from Pow­ell:

...
Between 2015 and 2018, large­ly based on the FOMC’s view that the U.S. labor mar­ket was close to full employ­ment, the Fed, wrong­ly in my view, raised rates nine times; once in 2015 and 2016; three times in 2017 and four times in 2018. At the end of 2018 Fed was fore­cast­ing fur­ther rate ris­es to come in 2019 and 2020. In doing so, it relied on mod­els that date from the 1970s, when the econ­o­my was quite dif­fer­ent. Cru­cial­ly, unions were far more pow­er­ful then than they are today. In 2019, these mod­els are long out of date, but econ­o­mists have con­tin­ued to rely on them, and won­der why there is nei­ther infla­tion nor the wage growth they expect to come with it.

As a result, Trump turned on the Fed and argued that rates were too high and that there should in fact be cuts. He even went after the chair of the Fed, Jay Pow­ell, threat­en­ing to fire or even demote him. In my book I argue “the Fed had been sig­nal­ing more ris­es to come; Pres­i­dent Trump turned his ire toward them, and they changed their tune in 2019. I have to say I agree with him.” I still do.

Dur­ing ques­tion­ing by Rep. Alexan­dria Oca­sio-Cortez (D‑N.Y.) at the House Finan­cial Ser­vices Com­mit­tee yes­ter­day, Pow­ell essen­tial­ly admit­ted that the Fed had wrong­ly raised rates because it thought the U.S. was close to full employ­ment when it wasn’t.

“Do you think it is pos­si­ble that the Fed’s esti­mates of the low­est sus­tain­able esti­mates for the unem­ploy­ment rate may have been too high?” Oca­sio-Cortez asked Pow­ell.

“Absolute­ly,” he replied.

“So, we over­shot in what our long-term unem­ploy­ment rate is?” she fol­lowed up.

“I think we have learned that it is low­er, sub­stan­tial­ly low­er than we thought,” the Fed chair­man replied.
...

AOC also got Pow­ell to admit that the ver­sions of the Phillips Curve that defines for its mod­els the rela­tion­ship between infla­tion and unem­ploy­ment has long been too strict. Againt, it’s quite an admis­sion. Lar­ry Kud­low applaud­ed APC :

...
Oca­sio Cortez went on to ques­tion Pow­ell on the Phillips Curve, an eco­nom­ic mod­el that sup­pos­es that low unem­ploy­ment dri­ves the rate of wage growth, and, with it, infla­tion. It is key to the Fed’s eco­nom­ic mod­els. But that the­o­ry, she said, “is no longer describ­ing what is hap­pen­ing in today’s econ­o­my.” Pow­ell agreed.

...

“Not Work­ing” shows that, now, wage growth is dri­ven not by unem­ploy­ment but by under­em­ploy­ment, which has still not returned to pre-reces­sion lev­els. That explains the weak wage growth we see today, and why the U.S. is not yet at full employ­ment.
...

So as the Trump admin­is­tra­tion’s assault on labor kicks into high gear under act­ing Labor Sec­re­tary Patrick Pizzel­la, note that Trump’s calls for low­er Fed rates are get­ting more and more jus­ti­fied. It turns out ratch­et­ing up the GOP’s War on Labor is a good rea­son for a rate cut. It’s anoth­er reminder of the grim real­i­ty that Trump is so wrong about so much, even when he’s right he’s some­how wrong.

Here’s a quick update on the nom­i­na­tion of Judy Shel­ton for the Fed­er­al Reserve board of gov­er­nors: While the Repub­li­cans in the Sen­ate haven’t embraced Shel­ton’s calls for a return to the gold stan­dard, they appear to be going out of their way not to crit­i­cize her too much. For instance, as the fol­low­ing arti­cle describes, last month, Repub­li­can Sen­a­tor Mar­sha Black­burn said of Shel­ton, “I’ve always appre­ci­at­ed Judy Shelton’s take on the issues and look for­ward to hear­ing more from her as we go through this process.” Black­burn sup­ports the gold stan­dard her­self so that’s not a sur­prise. Mitt Rom­ney sort of deflect­ed ques­tions about Shel­ton, say­ing, “I have not reviewed their back­grounds at this stage...The ini­tial read is that they are both qual­i­fied econ­o­mists and not par­ti­san polit­i­cal folks, and if they have strong cre­den­tials I’ll be hap­py to sup­port them.”

John Kennedy said of Shel­ton, “Based on what I’ve read about [Shel­ton] — I haven’t seen her in com­mit­tee yet — she’s very intel­li­gent, thought­ful per­son who has a lot of expe­ri­ence.” Regard­ing her advo­ca­cy for the gold stan­dard, Kennedy dis­missed con­cerns by fram­ing her views as part of ‘a larg­er point’: “I’ve read some of her mus­ings about the gold stan­dard,” he said. “To me, she’s mak­ing a larg­er point: The val­ue of your cur­ren­cy mat­ters, and coun­tries should not manip­u­late their cur­ren­cy in order to gain an advan­tage in trade — and I agree with that. I don’t think we’re going back to the gold stan­dard, nor do I think she believes that we’re going back to the gold stan­dard.”

And Sen­a­tor Tim Scott said of Shel­ton and Waller, the more con­ven­tion Fed board nom­i­nee nom­i­nat­ed by Trump for the oth­er open seat, “They seem to be very knowl­edge­able about the Fed...I think they are picks that reflect the equi­lib­ri­um com­ing out of the admin­is­tra­tion that we’d all expect.” It was a cre­ative way for Scott to char­ac­ter­ize Trump’s selec­tion of a con­ven­tion­al nom­i­nee paired with a lunatic like Shel­ton. A cre­ate and high­ly def­er­en­tial way to put it that sug­gests Scott is look­ing for an excuse to jus­ti­fy a vote for Shel­ton.

Sen­a­tor Kevin Cramer gave per­haps the least enthu­si­as­tic endorse­ment of Shel­ton, with a sim­ple “I don’t know,” when asked if he would sup­port her nom­i­na­tion.

So as we can see, the ini­tial GOP Sen­ate response to Shel­ton was very dif­fer­ent from their ini­tial takes on Her­man Cain or Stephen Moore, Trump’s two pre­vi­ous nom­i­nees who also sup­port­ed the gold stan­dard. Moore and Cain nev­er real­ly had vocal sup­port in the Sen­ate, but with Shel­ton the Repub­li­cans appears to search­ing for a way to make it hap­pen:

Roll Call

GOP sen­a­tors sound opti­mistic about Trump’s new Fed picks
They’re at least far­ing bet­ter than the president’s last two picks

Jim Sak­sa
Post­ed Jul 10, 2019 10:36 AM

A week after Pres­i­dent Don­ald Trump tweet­ed his inten­tion to nom­i­nate Judy Shel­ton and Christo­pher Waller to the Fed­er­al Reserve Board, GOP sen­a­tors are express­ing cau­tious opti­mism about both picks, despite Shelton’s unortho­dox views on mon­e­tary pol­i­cy.

They’re at least bet­ter than the president’s pre­vi­ous two picks — Stephen Moore and Her­man Cain dropped out before they were offi­cial­ly nom­i­nat­ed — said Sen. Richard C. Shel­by, R‑Alabama. “Well, we haven’t eval­u­at­ed them yet, but the pre­vi­ous two were lack­ing in a lot of things,” he said.

The Cain and Moore choic­es were con­sid­ered scut­tled after at least four Repub­li­cans said they would vote against them.

Like Cain and Moore, Shel­ton has long advo­cat­ed a U.S. to return to the gold stan­dard, a posi­tion opposed by most econ­o­mists, and has changed from a fierce crit­ic of easy mon­ey poli­cies dur­ing Pres­i­dent Barack Obama’s tenure to an out­spo­ken dove since Trump took office. That rever­sal has led crit­ics to ques­tion whether she’d uphold the Fed’s rep­u­ta­tion for apo­lit­i­cal, data-dri­ven deci­sion mak­ing.

...

Shel­by, who pre­vi­ous­ly was chair­man of the Sen­ate Bank­ing Com­mit­tee and still sits on it, also indi­cat­ed con­cern for the Fed’s inde­pen­dence.

“We need qual­i­fied peo­ple,” Shel­by said, declin­ing to speak direct­ly about Shelton’s nom­i­na­tion. “That’s a high bar.”

“I think Chair­man [Jerome] Pow­ell has done a good job,” Shel­by added. “He might not please me day-to-day, but their inde­pen­dence is impor­tant.”

His Repub­li­can col­leagues on the com­mit­tee, which would hold the con­fir­ma­tion hear­ings, sound­ed more sup­port­ive of the pick.

“Based on what I’ve read about [Shel­ton] — I haven’t seen her in com­mit­tee yet — she’s very intel­li­gent, thought­ful per­son who has a lot of expe­ri­ence,” said Sen. John Kennedy of Louisiana, who also spoke high­ly of Waller.

“They seem to be very knowl­edge­able about the Fed,” said Sen. Tim Scott, R‑South Car­oli­na. “I think they are picks that reflect the equi­lib­ri­um com­ing out of the admin­is­tra­tion that we’d all expect.”

Some Repub­li­cans not on the com­mit­tee also praised Shel­ton, whose eco­nom­ic views find sup­port among the party’s right wing.

“I’ve always appre­ci­at­ed Judy Shelton’s take on the issues and look for­ward to hear­ing more from her as we go through this process,” said Sen. Mar­sha Black­burn, R‑Tennessee, who also favors a U.S. return to the gold stan­dard.

Many sen­a­tors declined to com­ment, say­ing they still had research to do.

“I have not reviewed their back­grounds at this stage,” said Sen. Mitt Rom­ney of Utah, one of the Repub­li­cans to speak out against Cain. “The ini­tial read is that they are both qual­i­fied econ­o­mists and not par­ti­san polit­i­cal folks, and if they have strong cre­den­tials I’ll be hap­py to sup­port them.”

Sen. Kevin Cramer of North Dako­ta, who opposed Cain, also hedged. “I don’t know either one of them per­son­al­ly,” Cramer said. “I’ve done a bit of read­ing of Waller’s stuff. Obvi­ous­ly, he seems like a thought­ful guy.”

But asked if he was ready to sup­port Waller or Shel­ton, “I don’t know” was Cramer’s response.

Safe choice

Waller is seen by Fed watch­ers as a safe pick. He’s a long­time senior research econ­o­mist at the Fed­er­al Reserve Bank of St. Louis who opposed the Fed’s inter­est rate hikes in 2018. Waller is also close to St. Louis Fed Pres­i­dent James Bullard, the only mem­ber of the rate-set­ting Fed­er­al Open Mar­ket Com­mit­tee to vote for an inter­est rate cut at the Fed’s June meet­ing. He’s a reg­is­tered Repub­li­can with an eco­nom­ics Ph.D.

“Waller seems like a very con­ven­tion­al choice,” said Scott Sum­n­er, Mon­e­tary Pol­i­cy chair­man at the Mer­ca­tus Cen­ter, a free mar­ket-ori­ent­ed think tank at George Mason Uni­ver­si­ty. “I don’t think he’d be very con­tro­ver­sial based on what I’ve read.”

But Shel­ton is a dif­fer­ent sto­ry, said Sum­n­er, who com­pared her to Cain and Moore.

“All three were fair­ly hawk­ish in their views dur­ing great reces­sion: They thought mon­e­tary pol­i­cy was too expan­sion­ary,” he said. “In my view, it was actu­al­ly too con­trac­tionary dur­ing the Great Reces­sion. So, I find those views a bit puz­zling.”

Trump has already picked four of the five cur­rent gov­er­nors on the sev­en-mem­ber board, includ­ing Pow­ell to become chair­man. Pow­ell con­tin­ued his predecessor’s pol­i­cy of slow­ly rais­ing inter­est rates and wind­ing down the Fed’s quan­ti­ta­tive eas­ing pro­gram, repeat­ed­ly draw­ing the president’s tweet­ed ire.

Most main­stream econ­o­mists con­sid­er the Fed’s polit­i­cal inde­pen­dence an essen­tial ele­ment for con­trol­ling infla­tion. When cen­tral banks can’t take the polit­i­cal­ly unpop­u­lar steps to con­strain infla­tion — which often result in lost jobs and low­ered wages — prices can spike.

Shel­ton has gone from call­ing for rais­ing rates to keep infla­tion at zero per­cent — not the Fed’s 2 per­cent tar­get — to advo­cat­ing inter­est rates at zero per­cent.

“Judy Shel­ton is chang­ing every sin­gle posi­tion she has held for a long time, in a com­plete 180 degree flip, based on who the pres­i­dent is and it’s pret­ty wor­ry­ing ‚” said Sam Bell, pol­i­cy direc­tor at Employ Amer­i­ca, a left-lean­ing advo­ca­cy group. “She’s flipped on whether the Fed­er­al Reserve should be pay­ing atten­tion to finan­cial mar­kets, she’s flipped on trade, she’s flipped on any num­ber of dif­fer­ent aspects, and it’s real­ly wor­ry­ing because who knows what she’ll do as a Fed gov­er­nor. “

He said he expects Repub­li­cans to oppose her.

“I think con­firm­ing some­body who is so trans­par­ent­ly flips their posi­tions that are sup­pos­ed­ly long held and deeply felt just to get clos­er to pow­er is going to be a tough pill for a num­ber of Repub­li­can sen­a­tors to swal­low,” said Bell.

Shel­ton has repeat­ed­ly called for the U.S. to devel­op a cur­ren­cy backed by gold or oth­er assets. She has pro­posed a shift toward such a sys­tem by hav­ing the Trea­sury issue bonds redeemable in gold.

“I don’t know much about Judy Shel­ton,” said Kent Smet­ters, an econ­o­mist at the Uni­ver­si­ty of Pennsylvania’s Whar­ton School and for­mer Trea­sury offi­cial dur­ing George W. Bush’s pres­i­den­cy. “I would be con­cerned with any­one who sup­ports a return to the gold stan­dard.

“Rather than cre­ate sta­bil­i­ty, the gold stan­dard pro­duces more price volatil­i­ty and growth volatil­i­ty, not less,” he said in an emailed com­ment. “Besides invit­ing spec­u­la­tors and being sub­ject to new sup­ply dis­cov­er­ies, a gold stan­dard forces a fixed exchange rate between coun­tries that have adopt­ed the gold stan­dard, which is very dan­ger­ous. The U.S. export­ed the Great Depres­sion to the rest of the world due to the gold stan­dard; the oppo­site could hap­pen at any point.”

Kennedy dis­count­ed Shelton’s advo­ca­cy for gold.

“I’ve read some of her mus­ings about the gold stan­dard,” he said. “To me, she’s mak­ing a larg­er point: The val­ue of your cur­ren­cy mat­ters, and coun­tries should not manip­u­late their cur­ren­cy in order to gain an advan­tage in trade — and I agree with that. I don’t think we’re going back to the gold stan­dard, nor do I think she believes that we’re going back to the gold stan­dard.”

...

———-

“GOP sen­a­tors sound opti­mistic about Trump’s new Fed picks” by Jim Sak­sa; Roll Call; 07/10/2019

” A week after Pres­i­dent Don­ald Trump tweet­ed his inten­tion to nom­i­nate Judy Shel­ton and Christo­pher Waller to the Fed­er­al Reserve Board, GOP sen­a­tors are express­ing cau­tious opti­mism about both picks, despite Shelton’s unortho­dox views on mon­e­tary pol­i­cy.”

Cau­tious opti­mism. That was the con­sen­sus take from the Repub­li­cans in the Sen­ate. And this is for some­one who is cur­rent­ly call­ing for aggres­sive Fed rate cuts rail­ing against low­er­ing rates in the wake of the 2008 finan­cial cri­sis and spend­ing decades advo­cat­ing for a school of thought that calls for end­ing cen­tral bank­ing entire­ly. Shel­ton isn’t just an eco­nom­ic nut job. She’s an incon­sis­tent eco­nom­ic nut job. So in that sense she’s actu­al­ly entire­ly in keep with Moore and Cain who did sim­i­lar pol­i­cy back­flips:

...
Most main­stream econ­o­mists con­sid­er the Fed’s polit­i­cal inde­pen­dence an essen­tial ele­ment for con­trol­ling infla­tion. When cen­tral banks can’t take the polit­i­cal­ly unpop­u­lar steps to con­strain infla­tion — which often result in lost jobs and low­ered wages — prices can spike.

Shel­ton has gone from call­ing for rais­ing rates to keep infla­tion at zero per­cent — not the Fed’s 2 per­cent tar­get — to advo­cat­ing inter­est rates at zero per­cent.

“Judy Shel­ton is chang­ing every sin­gle posi­tion she has held for a long time, in a com­plete 180 degree flip, based on who the pres­i­dent is and it’s pret­ty wor­ry­ing ‚” said Sam Bell, pol­i­cy direc­tor at Employ Amer­i­ca, a left-lean­ing advo­ca­cy group. “She’s flipped on whether the Fed­er­al Reserve should be pay­ing atten­tion to finan­cial mar­kets, she’s flipped on trade, she’s flipped on any num­ber of dif­fer­ent aspects, and it’s real­ly wor­ry­ing because who knows what she’ll do as a Fed gov­er­nor. “
...

So that was the GOP Sen­a­tor’s take on Shel­ton a month ago. Has any­thing changed? Yep, but only slight­ly. The strained jus­ti­fi­ca­tions for not oppos­ing her nom­i­na­tions have changed a bit.

For exam­ple, when asked about his views on Shel­ton’s gold stan­dard advo­ca­cy, Tim Scott now says, “I don’t think it’s rel­e­vant,” and added that there was no need to focus on “con­tro­ver­sial state­ments” when “she has decades of work that we can actu­al­ly look at.”

Pat Toomey, who sits on the Bank­ing Com­mit­tee that will vet her, said he wouldn’t sup­port a return to the gold stan­dard, but then added that peg­ging to Fed inter­est rates “some com­mod­i­ty bas­ket index would not be an unrea­son­able way to anchor mon­e­tary pol­i­cy.” So he’s sort of advo­cat­ing for a gold-stan­dard-lite in that response.

And Mike Rounds sim­ply deflect­ed ques­tions about Shel­ton by assert­ing, “I haven’t had a chance to drill down and study what she has writ­ten and what she has said, and I’ve nev­er met her.” So the Repub­li­cans in the Sen­ate still appear to be try­ing to give them­selves enough wig­gle room to even­tu­al­ly vote for her:

Politi­co

Trump Fed pick’s push for gold trou­bles law­mak­ers

Promi­nent econ­o­mists agree that a return to a gold-linked dol­lar would not be bet­ter for the aver­age Amer­i­can.

By VICTORIA GUIDA
07/28/2019 06:57 AM EDT

Decades after the U.S. aban­doned its pol­i­cy of tying the dollar’s val­ue to gold, Pres­i­dent Don­ald Trump’s lat­est pick for the Fed­er­al Reserve, Judy Shel­ton, wants to bring it back into style.

Shelton’s long­time pro­mo­tion of a return to a gold stan­dard is so out of the main­stream that it’s like­ly to be an obsta­cle on her road to Sen­ate con­fir­ma­tion. Yet it’s only one of sev­er­al ideas she has espoused that would rede­fine — and dimin­ish — the Fed’s role in the econ­o­my. And that mat­ters because, while Shel­ton would be only one of sev­en Fed gov­er­nors if con­firmed, she could be in line to chair the cen­tral bank if Trump wins reelec­tion.

A gold stan­dard would make deficit spend­ing much more expen­sive. It would lim­it the cen­tral bank’s abil­i­ty to take the kind of extra­or­di­nary mea­sures that it did dur­ing the finan­cial cri­sis to stop the econ­o­my from going into freefall. And it would link the Fed’s inter­est rate deci­sions to gold mar­ket fluc­tu­a­tions rather than to its cur­rent goals of fight­ing infla­tion and max­i­miz­ing employ­ment.

“The gold stan­dard would prob­a­bly shat­ter a lot of people’s dreams around the world right now,” said Sen. Richard Shel­by (R‑Ala.), a key mem­ber of the Bank­ing Com­mit­tee, which will vet her nom­i­na­tion. “There was a rea­son to get off of it.”

...

For her part, Shel­ton says she’s glad the top­ic is being dis­cussed. “I am actu­al­ly quite grate­ful that these ideas, that have been my focus for some 25 years, are being ele­vat­ed to the lev­el of pub­lic debate with­out people’s eyes glaz­ing over,” she wrote in one of mul­ti­ple emails to POLITICO.

While even Shel­ton agrees that the U.S. is nowhere near being on track to return­ing to a gold stan­dard, which was ful­ly aban­doned by Pres­i­dent Richard Nixon in 1971, the idea has main­tained pop­u­lar­i­ty in cer­tain con­ser­v­a­tive and lib­er­tar­i­an cir­cles as a way to increase the dollar’s sta­bil­i­ty.

That’s par­tic­u­lar­ly true among those with a strong dis­trust of the Fed — a camp that includes Shel­ton.

While both the 2012 and 2016 Repub­li­can Par­ty plat­forms called for a new com­mis­sion to con­sid­er fix­ing the dollar’s val­ue to a pre­cious met­al, most econ­o­mists argue that return­ing to gold would pre­vent the cen­tral bank from act­ing in the best inter­est of the econ­o­my. They also say it would attempt to aggres­sive­ly head off a prob­lem that hasn’t exist­ed for decades: run­away infla­tion.

In 2012, the Uni­ver­si­ty of Chicago’s Booth School of Busi­ness asked 40 promi­nent econ­o­mists whether a return to the gold stan­dard would be bet­ter for the aver­age Amer­i­can. All of them said no.

Sup­port for tying the dol­lar to gold’s val­ue makes a Fed can­di­date “man­i­fest­ly unqual­i­fied, in the same way I wouldn’t have a sur­geon gen­er­al who sup­port­ed leech­es and blood­let­ting,” said Jason Fur­man, a Har­vard pro­fes­sor and for­mer chief econ­o­mist to Pres­i­dent Barack Oba­ma. “It hand­cuffs the Fed and locks them into focus­ing on an objec­tive that has no under­ly­ing real­i­ty, which is the price of the dol­lar rel­a­tive to gold.”

Repub­li­cans have not pub­licly voiced con­cerns about Shel­ton her­self, whose selec­tion comes in the wake of sen­a­tors’ objec­tions to Trump’s last two picks, Stephen Moore and Her­man Cain — both forced to with­draw. But nei­ther are GOP sen­a­tors embrac­ing the idea that has been cen­tral to her pol­i­cy advo­ca­cy for more than two decades.

Sen. Pat Toomey (R‑Pa.), an influ­en­tial Bank­ing Com­mit­tee mem­ber, said he wouldn’t sup­port a return to the gold stan­dard, although he said peg­ging rates to “some com­mod­i­ty bas­ket index would not be an unrea­son­able way to anchor mon­e­tary pol­i­cy.”

“I haven’t had a chance to drill down and study what she has writ­ten and what she has said, and I’ve nev­er met her,” he added, a sen­ti­ment echoed by Sen. Mike Rounds (R‑S.D.).

Some sen­a­tors are ignor­ing the ques­tion entire­ly. “I don’t think it’s rel­e­vant,” Sen. Tim Scott (R‑S.C.) said when asked about her views on gold, adding that there was no need to focus on “con­tro­ver­sial state­ments” when “she has decades of work that we can actu­al­ly look at.”

But talk­ing about Shelton’s decades of work means talk­ing about gold, and her can­di­da­cy for the cen­tral bank gives her a big­ger plat­form than ever to make her case.

The dol­lar is now val­ued by trad­ing on the open mar­ket, rather than hav­ing a fixed val­ue in terms of gold, and its price often appre­ci­ates in con­nec­tion with pos­i­tive devel­op­ments in the U.S. econ­o­my. Trump has in recent months bemoaned the strength of the dol­lar rel­a­tive to oth­er cur­ren­cies, because it makes U.S. exports more expen­sive, and called on the Fed to deval­ue it. Shel­ton, in con­trast, has long advo­cat­ed for a strong, sta­ble dol­lar.

She says return­ing to an authen­tic gold stan­dard — in which dol­lars are redeemable for a cer­tain amount of gold — “would not be fea­si­ble” now, because there are too many dol­lars in cir­cu­la­tion rel­a­tive to the U.S. government’s store of gold. Such a stan­dard hasn’t ful­ly exist­ed in the U.S. since the Great Depres­sion.

But, she added, “it might be worth try­ing to incor­po­rate some aspect of a gold/silver link to a future debt instru­ment to add intrin­sic val­ue.”

At the heart of her phi­los­o­phy is the notion that peo­ple should be able to hold assets whose val­ues are sta­ble through­out time. And key to enforc­ing that goal is giv­ing peo­ple the abil­i­ty to hold gold rather than gov­ern­ment-issued cur­ren­cies.

“The dol­lar comes clos­est to being a glob­al medi­um of exchange, though its effi­cien­cy is great­ly reduced because its val­ue con­stant­ly fluc­tu­ates,” Shel­ton wrote in 2012. “How can a glob­al econ­o­my func­tion opti­mal­ly when the fore­most mon­e­tary unit of account for mea­sur­ing val­ue shifts unpre­dictably across bor­ders and through time?”

In 1994, she wrote a book, “Mon­ey Melt­down,” which advo­cat­ed for a new Bret­ton Woods agree­ment. Under that World War II-era arrange­ment, coun­tries tied their cur­ren­cies to the val­ue of gold so exchange rates would­n’t fluc­tu­ate much. It was aban­doned by the U.S. dur­ing the Viet­nam War when for­eign gov­ern­ments began cash­ing in their dol­lars for gold.

Shel­ton has sug­gest­ed that one way to move toward an updat­ed agree­ment would be a deci­sion by Trea­sury to tem­porar­i­ly issue bonds that are redeemable in either dol­lars or gold, an idea float­ed by Alan Greenspan, who would lat­er chair the Fed, in 1981..

She said such an exam­ple set by the U.S. would lead oth­er coun­tries to adopt a sim­i­lar approach, essen­tial­ly allow­ing coun­tries to deter­mine the rel­a­tive val­ue of their cur­ren­cies.

In 2012, she explained what she saw as the impli­ca­tions of this idea: “Gov­ern­ments might even be removed from the busi­ness of pro­duc­ing mon­ey. A Uni­ver­sal Gold Reserve Bank could evolve toward the end of the tran­si­tion process, bundling con­tracts into gold-linked secu­ri­ties.”

Still, Shel­ton told POLITICO that it’s “pre­ma­ture to talk about inter­na­tion­al agree­ments or link­ing to gold.”

“We are a long ways from doing any­thing along those lines,” she said. “I do think that, by iden­ti­fy­ing cur­ren­cy deval­u­a­tion as being an unfair trade prac­tice, Pres­i­dent Trump is show­ing inter­na­tion­al eco­nom­ic lead­er­ship.”

Link­ing the dol­lar to gold would pre­vent cen­tral banks from being able to deval­ue their cur­ren­cy rel­a­tive to the dol­lar to gain an export advan­tage against the U.S. — some­thing Trump has been press­ing the Fed to do.

George Sel­gin, an econ­o­mist at Cato, is sym­pa­thet­ic to the goals of gold stan­dard sup­port­ers but doesn’t agree with their solu­tion. He also expressed skep­ti­cism about Shelton’s con­vert­ible bond pro­pos­al.

“If gold bonds had any bear­ing on mon­e­tary pol­i­cy, it would be by caus­ing the Trea­sury to pres­sure the Fed to lim­it move­ments in ... the price of gold,” he said. But prac­ti­cal­ly speak­ing, he added, Trea­sury would just give itself an escape hatch if gold prices went up too much.

“So the bonds would not give even the Trea­sury, let alone the Fed, a very strong incen­tive to lob­by for keep­ing the price of gold low and sta­ble,” Sel­gin added.

———-

“Trump Fed pick’s push for gold trou­bles law­mak­ers” by VICTORIA GUIDA; Politi­co; 07/28/2019

“Repub­li­cans have not pub­licly voiced con­cerns about Shel­ton her­self, whose selec­tion comes in the wake of sen­a­tors’ objec­tions to Trump’s last two picks, Stephen Moore and Her­man Cain — both forced to with­draw. But nei­ther are GOP sen­a­tors embrac­ing the idea that has been cen­tral to her pol­i­cy advo­ca­cy for more than two decades.”

This appears to be the game at work here. The Repub­li­cans aren’t endors­ing Shel­ton’s calls for a return to the gold stan­dard, with some excep­tions like Mar­sha Black­burn. But they’re also being sure to say nice things about Shel­ton her­self. That’s the kind of rhetoric that points towards a deci­sion to back her despite her gold stan­dard advo­ca­cy.

And as the arti­cle notes, the GOP’s nation­al plat­form in 2012 and 2016 actu­al­ly called for a com­mis­sion to study return­ing to the gold stan­dard. Or some sort of pre­cious met­al stan­dard. Which is basi­cal­ly a call for a return to the gold stan­dard open­ly with­out call­ing for it. Kind of like vot­ing for Shel­ton with­out endors­ing her views. So Sen­a­tors like Black­burn who open­ly back return­ing to the gold stan­dard clear­ly have allies in the Sen­ate. They might be qui­et allies but they are there:

...
While both the 2012 and 2016 Repub­li­can Par­ty plat­forms called for a new com­mis­sion to con­sid­er fix­ing the dollar’s val­ue to a pre­cious met­al, most econ­o­mists argue that return­ing to gold would pre­vent the cen­tral bank from act­ing in the best inter­est of the econ­o­my. They also say it would attempt to aggres­sive­ly head off a prob­lem that hasn’t exist­ed for decades: run­away infla­tion.
...

And note one of the oth­er clear absur­di­ties in this GOP push to place a gold stan­dard advo­cate on the Fed board: a gold stan­dard would make deficit spend­ing much more expen­sive. And the Repub­li­can Par­ty — the Par­ty of use­less tax cuts and explod­ing deficits — is lay­ing the ground­work for a return to it:

...
A gold stan­dard would make deficit spend­ing much more expen­sive. It would lim­it the cen­tral bank’s abil­i­ty to take the kind of extra­or­di­nary mea­sures that it did dur­ing the finan­cial cri­sis to stop the econ­o­my from going into freefall. And it would link the Fed’s inter­est rate deci­sions to gold mar­ket fluc­tu­a­tions rather than to its cur­rent goals of fight­ing infla­tion and max­i­miz­ing employ­ment.
...

And if the prospect of Shel­ton just being one of sev­en Fed gov­er­nors if she’s nom­i­nat­ed makes it seem like it’s rel­a­tive­ly safe to nom­i­nate her because she can’t sin­gle-hand­ed­ly impose a gold stan­dard, note that if Trump wins in 2020 he’ll be in a posi­tion to make Shel­ton the chair of the Fed:

...
Shelton’s long­time pro­mo­tion of a return to a gold stan­dard is so out of the main­stream that it’s like­ly to be an obsta­cle on her road to Sen­ate con­fir­ma­tion. Yet it’s only one of sev­er­al ideas she has espoused that would rede­fine — and dimin­ish — the Fed’s role in the econ­o­my. And that mat­ters because, while Shel­ton would be only one of sev­en Fed gov­er­nors if con­firmed, she could be in line to chair the cen­tral bank if Trump wins reelec­tion.

...

For her part, Shel­ton says she’s glad the top­ic is being dis­cussed. “I am actu­al­ly quite grate­ful that these ideas, that have been my focus for some 25 years, are being ele­vat­ed to the lev­el of pub­lic debate with­out people’s eyes glaz­ing over,” she wrote in one of mul­ti­ple emails to POLITICO.
...

So we can add that to the list of night­mare sce­nar­ios that would be unleashed if Trump wins reelec­tion: Fed Chair Judy Shel­ton.

Also keep in mind that the Repub­li­can Par­ty’s “time-incon­sis­ten­cy strat­e­gy” described by for­mer Rea­gan pol­i­cy advi­sor Bruce Bartlett — a strat­e­gy of inten­tion­al­ly cre­at­ing as much pub­lic debt as pos­si­ble on tax cuts when Repub­li­cans are in office to boost the econ­o­my in the short-run and then point at the debt result­ing from those tax cuts years lat­er to jus­ti­fy cuts to social pro­grams — means that if the US does even­tu­al­ly return to the gold stan­dard it’s going to be real­ly, real­ly, real­ly expen­sive to finance the US’s debt at that point thanks to all the Repub­li­can debt. Which, of course, will be used to jus­ti­fy more cuts to social pro­grams. As planned. And that’s why we should be tak­ing this high­ly unse­ri­ous idea of return­ing to the gold stan­dard very seri­ous­ly. Crip­pling the US gov­ern­ment by return­ing to the gold stan­dard after blow­ing up the nation­al debt is the log­i­cal con­clu­sion to Repub­li­can eco­nom­ic mad­ness. It’s too dev­as­tat­ing­ly irre­spon­si­ble for the GOP to resist.

As the 2020 elec­tion cycle heats up for the US at the same time a ‘lone wolf’ neo-Nazi domes­tic ter­ror cam­paign keeps the polit­i­cal focus on the role Pres­i­dent Trump plays in stok­ing and ampli­fy­ing white nation­al­ist sen­ti­ments, one of the more inter­est­ing dynam­ics to watch unfold in that con­text is the ongo­ing fight between the Trump White House and the Fed­er­al Reserve over mon­e­tary pol­i­cy. Because as Trump’s rela­tion­ship to white nation­al­ism becomes more and more ‘the issue’ of the elec­tion cycle, the Trump admin­is­tra­tion’s desire to refo­cus atten­tion on the rel­a­tive strength of the US econ­o­my is only going to grow too. The greater the polit­i­cal cost Trump pays for the con­se­quences of his white nation­al­ism, the more pres­sure he’s going to put on the Fed to cut rates and boost the econ­o­my. And as Trump has made abun­dant­ly clear with his own attempts to pub­licly shame Fed Chair Jerome Pow­ell, insult­ing Pow­ell is Trump’s method of choice for pres­sur­ing the Fed. The more Trump gets called a racist, the more he’s going to yell at Jerome Pow­ell.

With that unfor­tu­nate dynam­ic in mind, it’s worth not­ing that, accord­ing to sources close to the admin­is­tra­tion, Trump appar­ent­ly believes his “relent­less” pub­lic crit­i­cism of Fed Chair­man Jerome Pow­ell “has got­ten him to play ball.” In oth­er words, Trump’s bul­ly­ing of Jerome Pow­ell so far has just been a warm up. It’s going to get wild.

In addi­tion, these advis­ers close to Trump tell us that Trump felt the Fed was keep­ing rates low dur­ing Oba­ma’s pres­i­den­cy to help Oba­ma (which ignores the mas­sive eco­nom­ic cri­sis Oba­ma inher­it­ed) and Trump expects sim­i­lar treat­ment. Yep, he appar­ent­ly thinks ultra-low rates should be giv­en to him as a mat­ter of fair­ness with Oba­ma. That’s Trump’s head­space when he’s think­ing about these things.

And that rais­es the oth­er fas­ci­nat­ing dynam­ic that we’re going to see emerge: when a pres­i­dent like Trump starts hyper-politi­ciz­ing Fed pol­i­cy with a cam­paign of per­son­al insults and demands for much low­er rates to stim­u­late the econ­o­my, what kind of impact does that have on the mar­kets and poten­tial­ly the 2020 econ­o­my? It’s an unusu­al sit­u­a­tion. Trump’s per­son­al pique, when pub­licly direct­ed at the Fed, has the poten­tial to become an eco­nom­ic force unto itself. What kind of impact will an increas­ing­ly child­ish Trump bul­ly­ing cam­paign against Pow­ell through­out 2020 elec­tion cycle have on finan­cial mar­kets and the econ­o­my? And what kind of impact will pub­lic bul­ly­ing have on stim­u­la­tive the impact of upcom­ing Fed rate cuts? Could Trump’s bul­ly­ing actu­al­ly end up weak­en­ing the stim­u­la­tive impact of Fed cuts? These are the kinds of ques­tions that should­n’t need to be asked but do need to be asked because the US elect­ed a scorned tod­dler to be Pres­i­dent.

As the fol­low­ing arti­cle also notes, the Fed’s rate cut last month did indeed arguably result from Trump’s actions, but not his pub­lic harass­ment of Pow­ell. It was a result of a weak­en­ing glob­al econ­o­my being fur­ther weak­ened by all of Trump’s ad hoc trade wars dri­ven by Trump’s errat­ic impulse. Trump’s pique is already an eco­nom­ic force. A neg­a­tive eco­nom­ic force. And now Trump is try­ing to use his pique to bul­ly the Fed into pro­tect him from the con­se­quences. It’s one of the many sad cycles of dys­func­tion plot lines on the real­i­ty TV show run­ning the US gov­ern­ment.:

Reuters

Fed remains a tar­get as econ­o­my falls short of Trump’s ambi­tious goals

Howard Schnei­der, Gin­ger Gib­son
August 11, 2019 / 7:10 AM / Updat­ed

WASHINGTON (Reuters) — It has become a jar­ring and fre­quent con­tra­dic­tion. Pres­i­dent Don­ald Trump blames the Fed­er­al Reserve for putting the U.S. econ­o­my at risk while data shows an econ­o­my in “rea­son­ably good” shape, as the head of the cen­tral bank recent­ly said.

But behind that con­fus­ing dance between a norm-break­ing Repub­li­can pres­i­dent and a stick-to-its-knit­ting Fed lies a dilem­ma for Trump.

“Rea­son­ably good” is not what Trump promised to deliv­er dur­ing his 2016 cam­paign, and at this point he heads into a reelec­tion year short of the key eco­nom­ic goals he set and wor­ried a reces­sion could under­mine his bid for a sec­ond term.

Growth is ebbing and well below the 3% annu­al rate he said his admin­is­tra­tion would hit; the trade deficit has widened and there is no sign of the “easy” vic­to­ry he said would come in a trade war with Chi­na; far from the surge in invest­ment he promised would fol­low a cor­po­rate tax cut, busi­ness cap­i­tal spend­ing of late has been a drag on growth over­all.

Each month there are more jobs. But that has been true for near­ly nine years, and as on many fronts the best days of “Trumpo­nom­ics” may be in the past as the economy’s per­for­mance reverts to an Oba­ma-era trend of around 2% annu­al growth.

“He is so focused on the Fed because in terms of avoid­ing a reces­sion that is tru­ly in his eyes his biggest obsta­cle,” to reelec­tion, said a source in reg­u­lar com­mu­ni­ca­tion with the White House, explain­ing that Trump wants to take no chances, even if the risk of a down­turn is low.

It’s in that con­text that Trump scorns a cen­tral bank whose longer-term approach to pol­i­cy has clashed with his more imme­di­ate inter­ests — the same ten­sion appar­ent in oth­er bat­tles between the pres­i­dent and gov­ern­ment agen­cies with their own insti­tu­tion­al pow­ers or cul­ture.

In the Fed’s case, while its chair­man and Wash­ing­ton-based gov­er­nors are appoint­ed by the pres­i­dent, its respon­si­bil­i­ty is to a “man­date” estab­lished by Con­gress.

The Fed’s goals of “max­i­mum employ­ment, sta­ble prices, and mod­er­ate long-term inter­est rates” are dis­tinct from, and some­times in con­flict with, the eco­nom­ic or polit­i­cal pri­or­i­ties of the par­ty in pow­er, whether it’s max­i­miz­ing annu­al growth, gain­ing lever­age in a trade nego­ti­a­tion or, gain­ing eco­nom­ic momen­tum in an elec­tion year with inter­est rates low­er than the data would war­rant.

...

Trump’s demands that the Fed stim­u­late the econ­o­my, by con­trast, have cov­ered a gamut of imme­di­ate needs, and moved well beyond con­ven­tion to sug­gest, for exam­ple, that the Fed restart cri­sis-era asset pur­chas­es at a time of his­tor­i­cal­ly low unem­ploy­ment.

One day it’s to sup­port a wob­bly stock mar­ket. The next to boost growth, and then lat­er to gain an upper hand in trade talks through a cheap­er dol­lar, as Trump demand­ed twice last week when he said the U.S. cen­tral bank should not allow the rate cuts and cur­ren­cy moves of oth­er nations to off­set the impact of tar­iffs he has imposed.

When rates remained low through Pres­i­dent Barack Obama’s reelec­tion cam­paign and sec­ond term, Trump said the Fed had “become very polit­i­cal.” Advis­ers famil­iar with his think­ing say he now expects the same treat­ment, even if the econ­o­my is in a dif­fer­ent place.

RATE CUT ‘INSURANCE’

It’s debat­able whether the Fed-bash­ing has had much influ­ence.

The source close to the admin­is­tra­tion said Trump believes his “relent­less” pub­lic crit­i­cism of Fed Chair­man Jerome Pow­ell “has got­ten him to play ball.” The cen­tral bank cut rates by a quar­ter of a per­cent­age point at its July 30–31 pol­i­cy meet­ing.

Fed offi­cials see it dif­fer­ent­ly.

Pow­ell, the pri­vate equi­ty lawyer hand­picked by Trump to head the Fed only to be blast­ed lat­er by the pres­i­dent as an incom­pe­tent “nobody,” has empha­sized that he was “not going to make mis­takes of char­ac­ter or integri­ty” — in oth­er words, that he would not take Trump’s elec­tion prospects into con­sid­er­a­tion in set­ting pol­i­cy.

The Fed has in fact steadi­ly shift­ed gears since late last year but for a vari­ety of rea­sons, includ­ing a sense that the fall­out from trade wars may be greater than expect­ed, and that its own esti­mate of the appro­pri­ate inter­est rate for the cur­rent state of the U.S. econ­o­my was too high.

Per­haps above all was evi­dence that the faster growth pro­duced by the $1.5 tril­lion tax cut pack­age passed in late 2017 and high­er fed­er­al gov­ern­ment spend­ing in 2018 was fad­ing quick­er than expect­ed.

Ear­ly last year “we were look­ing for growth above trend and con­tin­ued improve­ment in the unem­ploy­ment rate,” Chica­go Fed Pres­i­dent Charles Evans said last week. By lat­er in the year “we began to won­der if things were play­ing out in a soft­er fash­ion ... The tax bill’s influ­ence on busi­ness fixed invest­ment was hard­er to see, it was sort of wan­ing ... Trade nego­ti­a­tions were tak­ing place with a brinkman­ship style and that led to more uncer­tain­ty.”

In response, the Fed first shelved its plans to steadi­ly raise rates this year. That deci­sion came on the heels of four rate increas­es in 2018.

At the most recent pol­i­cy meet­ing, the Fed’s rate-set­ting com­mit­tee decid­ed to go even fur­ther by cut­ting the cen­tral bank’s bench­mark overnight lend­ing rate.

The move was, arguably, a response to Trump — but to his actions, not his direct demands. In May, the pres­i­dent unnerved investors by threat­en­ing to impose tar­iffs on Mex­i­co unless it curbed the flow of migrants head­ing north into the Unit­ed States.

Although a deal was reached to avert the tar­iffs, the link­age of trade pol­i­cy to a large­ly non-eco­nom­ic goal res­onat­ed deeply among Fed offi­cials, who became con­vinced they need­ed some rate cut “insur­ance” to pro­tect the U.S. eco­nom­ic expan­sion from an increas­ing­ly uncer­tain glob­al envi­ron­ment.

But if the rate cut raised ques­tions about whether the cen­tral bank was now teth­ered to Trump’s tweets — des­tined to con­sid­er rate cuts when any threat­ened tar­iffs sent mar­kets into a tail­spin — Fed pol­i­cy­mak­ers last week tried to put some dis­tance between them­selves and the Oval Office.

From here on, said St. Louis Fed Pres­i­dent James Bullard, among the stronger advo­cates for low­er rates, “tit-for-tat” trade actions wouldn’t war­rant Fed action.

Although traders are expect­ing the Fed to cut rates two more times this year, and some bond pric­ing may reflect a ris­ing risk of a reces­sion, Fed offi­cials feel a down­turn is unlike­ly and that they have mat­ters in hand.

“It cer­tain­ly became clear to me with the Mex­i­co sit­u­a­tion ... that trade pol­i­cy uncer­tain­ty is going to be high. It is going to be high into the fore­see­able future,” Bullard said. “We’ve adjust­ed for the ratch­et­ing up ... Let’s wait and see how the econ­o­my responds to that.”

———-

“Fed remains a tar­get as econ­o­my falls short of Trump’s ambi­tious goals” by Howard Schnei­der, Gin­ger Gib­son; Reuters; 08/11/2019

““He is so focused on the Fed because in terms of avoid­ing a reces­sion that is tru­ly in his eyes his biggest obsta­cle,” to reelec­tion, said a source in reg­u­lar com­mu­ni­ca­tion with the White House, explain­ing that Trump wants to take no chances, even if the risk of a down­turn is low.”

Trump views the Fed as being key to his reelec­tion chances. Jerome bet­ter have thick skin. Although not too thick. It’s impor­tant ot keep in mind that there are real valid argu­ments for more aggres­sive stim­u­lus by the Fed. That’s always been one of the com­pli­ca­tions with Trump’s beef with the Fed. He sort of has a point. The prob­lem is that Trump’s actu­al argu­ments — that include ‘Oba­ma got low rates so I should too’ — aren’t among the valid argu­ments to for low­er rates. When Oba­ma was in office Trump called for high­er rates when the econ­o­my was much weak­er. Trump’s intel­lec­tu­al frame­work for eco­nom­ic pol­i­cy is whether or not it will help Trump and he does­n’t hid it. There’s no intel­lec­tu­al com­pass, let alone a moral one. So Trump’s bla­tant crass­ness actu­al­ly pol­lutes the valid argu­ments for low­er rates. But he’s appar­ent­ly con­vinced that his berat­ing of Pow­ell worked, so Pow­ell bet­ter get ready for more pres­i­den­tial harass­ment:

...
When rates remained low through Pres­i­dent Barack Obama’s reelec­tion cam­paign and sec­ond term, Trump said the Fed had “become very polit­i­cal.” Advis­ers famil­iar with his think­ing say he now expects the same treat­ment, even if the econ­o­my is in a dif­fer­ent place.

RATE CUT ‘INSURANCE’

It’s debat­able whether the Fed-bash­ing has had much influ­ence.

The source close to the admin­is­tra­tion said Trump believes his “relent­less” pub­lic crit­i­cism of Fed Chair­man Jerome Pow­ell “has got­ten him to play ball.” The cen­tral bank cut rates by a quar­ter of a per­cent­age point at its July 30–31 pol­i­cy meet­ing.
...

It remains unclear how much Trump’s harass­ment of the Fed real­ly did impact its deci­sion to cut rates. But it is clear that all the oth­er ways Trump has been open­ly dam­ag­ing the US econ­o­my undoubt­ed­ly had to be influ­enc­ing the Fed’s deci­sion too. And that includes the remark­able fail­ure of the GOP’s 2017 tax cut which is fiz­zling out even faster than the Fed pro­ject­ed. A whole year of stim­u­lus. That’s what the US got from that tax scam:

...
The Fed has in fact steadi­ly shift­ed gears since late last year but for a vari­ety of rea­sons, includ­ing a sense that the fall­out from trade wars may be greater than expect­ed, and that its own esti­mate of the appro­pri­ate inter­est rate for the cur­rent state of the U.S. econ­o­my was too high.

Per­haps above all was evi­dence that the faster growth pro­duced by the $1.5 tril­lion tax cut pack­age passed in late 2017 and high­er fed­er­al gov­ern­ment spend­ing in 2018 was fad­ing quick­er than expect­ed.

Ear­ly last year “we were look­ing for growth above trend and con­tin­ued improve­ment in the unem­ploy­ment rate,” Chica­go Fed Pres­i­dent Charles Evans said last week. By lat­er in the year “we began to won­der if things were play­ing out in a soft­er fash­ion ... The tax bill’s influ­ence on busi­ness fixed invest­ment was hard­er to see, it was sort of wan­ing ... Trade nego­ti­a­tions were tak­ing place with a brinkman­ship style and that led to more uncer­tain­ty.”

In response, the Fed first shelved its plans to steadi­ly raise rates this year. That deci­sion came on the heels of four rate increas­es in 2018.
...

And note how St. Louis Fed Pres­i­dent James Bullard, recent­ly announced that “tit-for-tat” trade spats, and the eco­nom­ic fall­out from that, would­n’t be used as a rea­son for fur­ther Fed rate cuts. So the Fed is at least pub­licly sort of sig­nal­ing that it won’t be auto­mat­i­cal­ly save Trump from the eco­nom­ic fall­out of his trade dis­pute impuls­es, which is only going to piss Trump off at the Fed even more:

...
At the most recent pol­i­cy meet­ing, the Fed’s rate-set­ting com­mit­tee decid­ed to go even fur­ther by cut­ting the cen­tral bank’s bench­mark overnight lend­ing rate.

The move was, arguably, a response to Trump — but to his actions, not his direct demands. In May, the pres­i­dent unnerved investors by threat­en­ing to impose tar­iffs on Mex­i­co unless it curbed the flow of migrants head­ing north into the Unit­ed States.

Although a deal was reached to avert the tar­iffs, the link­age of trade pol­i­cy to a large­ly non-eco­nom­ic goal res­onat­ed deeply among Fed offi­cials, who became con­vinced they need­ed some rate cut “insur­ance” to pro­tect the U.S. eco­nom­ic expan­sion from an increas­ing­ly uncer­tain glob­al envi­ron­ment.

But if the rate cut raised ques­tions about whether the cen­tral bank was now teth­ered to Trump’s tweets — des­tined to con­sid­er rate cuts when any threat­ened tar­iffs sent mar­kets into a tail­spin — Fed pol­i­cy­mak­ers last week tried to put some dis­tance between them­selves and the Oval Office.

From here on, said St. Louis Fed Pres­i­dent James Bullard, among the stronger advo­cates for low­er rates, “tit-for-tat” trade actions wouldn’t war­rant Fed action.
...

So that’s going to be one of the sad sto­ries we get to watch unfold: the upcom­ing 2020 Trump bul­ly­ing cam­paign that Trump thinks he needs to do to ensure a rel­a­tive­ly strong econ­o­my through­out 2020. A bul­ly­ing cam­paign that will be part strate­gic, part hap­haz­ard, part com­pul­sive, and entire­ly oppor­tunis­tic.

And don’t for­get that Trump’s fight with the Fed serves anoth­er key pur­pose head­ing into 2020: it’s a dis­trac­tion from Trump’s white nation­al­ism. It’s kind of hard to come up with a white nation­al­ist angle to Fed­er­al Reserve sto­ries, although Trump’s repeat­ed and ongo­ing attempts to stack the Fed with far right gold bugs is intend­ed to appeal pri­mar­i­ly to white nation­al­ist vot­ers so that sort of qual­i­fies.

Now that emol­u­ments and bribery by for­eign gov­ern­ments is once again on the Trumpian scan­dal front burn­er fol­low­ing Trump’s now-aban­doned attempt to get the next G7 meet­ing host­ed at one of his Flori­da golf clubs, here’s a reminder that the Amer­i­can pub­lic does­n’t just need to be con­cerned about Trump receiv­ing illic­it indi­rect bribes. There’s also the poten­tial for him giv­ing illic­it indi­rect bribes and per­haps self-enrich­ing at the same time:

It turns out some­one has been get­ting real­ly lucky in the finan­cial mar­kets thanks entire­ly to Trump’s blovi­a­tions. Like, real­ly lucky. Lucky trades like buy large num­bers of stock options at the end of a trad­ing day on Fri­day hours before there’s a week­end announce­ment about progress on the US-Chi­na trade nego­ti­a­tions, which is exact­ly what hap­pened on Sep­tem­ber 10 of this year when some­one bought 82,000 S&P e‑minis (futures con­tracts) in the last ten min­utes of trad­ing on that Fri­day. A few hours lat­er, Chi­na announced it was lift­ing a num­ber of tar­iffs on US goods and Trump then announced the post­pone­ment of planned US tar­iffs on Chi­nese goods. The per­son who made that last minute futures pur­chase made about $190 mil­lion. The big­ger sus­pi­cious last minute trades have made over a bil­lion.

Now, peo­ple are going to get lucky in finan­cial mar­kets. Coin­ci­dences hap­pen in finance. And in that exam­ple, it was the Chi­nese gov­ern­ment who made the first pub­lic good­will over­ture which was rapid­ly fol­lowed by the Trump admin­is­tra­tions so it’s pos­si­ble the Trump team had­n’t already known about that upcom­ing round of good­will ges­tures when the per­son made the large S&P futures pur­chase at the end of the trad­ing day hours before­hand. But as the fol­low­ing arti­cle describes, the mar­kets have expe­ri­enced an unusu­al abun­dance of these coin­ci­dences dur­ing the Trump admin­is­tra­tion. It just keeps hap­pen­ing. Right before there’s a big mar­ket-mov­ing announce­ment involv­ing the kind of infor­ma­tion that the Trump admin­is­tra­tion might, or def­i­nite­ly does, know is going to hap­pen some­one makes a big high­ly prof­itable bet. It’s hap­pened so many times that traders are start­ing to sus­pect there’s foul play afoot in the form of insid­er trad­ing ema­nat­ing out of the White House.

Adding to the sus­pi­cions is an inci­dent that, in years past, would have been a huge pres­i­den­tial scan­dal but is just a blip in the Trump era. It was a scan­dalous blip that also involved trade talks with Chi­na: In late August, Trump casu­al­ly told reporters that Chi­na called him twice and expressed their desire to made a trade deal. This news obvi­ous­ly cause mar­kets to shoot up. The news was also fake news. There were no phone calls from Chi­na, as the Chi­nese gov­ern­ment made clear short­ly after Trump’s com­ments. When asked why Trump lied to the world about this, admin­is­tra­tion offi­cials told reporters Trump mis­spoke and “con­flat­ed” com­ments from China’s Vice Pre­mier Liu He with direct com­mu­ni­ca­tion from the Chi­nese gov­ern­ment. Which is a total BS expla­na­tion. The Trump team also said Trump was, “eager to project opti­mism that might boost mar­kets.” Yep.

Oh, and it turns out there was a lucky trad­er who made a last-minute futures trade at the and of the day on the Fri­day before Trump’s mar­ket mov­ing lie the fol­low­ing Mon­day about the Chi­nese phone calls. This lucky trad­er made $1.5 bil­lion. Might peo­ple con­nect­ed to the Trump White House be con­nect­ed with that big win­ning bet?

Also keep in mind that, if we’re look­ing for sus­pects of who in the Trump White House might be the source of the leaks to the anony­mous ‘lucky’ last-minute investors, Trump him­self is an obvi­ous sus­pect for far from the only one. It’s a pirate admin­is­tra­tion. They’re pret­ty much all sus­pects. That’s impor­tant to note because of the three gov­ern­ment agen­cies with the reg­u­la­to­ry over­sight to look into whether or not insid­er knowl­edge was used in mak­ing these trades, two agen­cies — the Secu­ri­ties and Exchange Com­mis­sion, which reg­u­lates the equi­ty mar­kets, and to the Com­mod­i­ty Futures Trad­ing Com­mis­sion, which reg­u­lates futures con­tracts — did­n’t respond to reporters.

The Chica­go Mer­can­tile Exchange, The oth­er one where the trades hap­pened, told reporters the trade in ques­tion came from mul­ti­ple sources and were not of con­cern. Putting aside how easy it would be for a sin­gle source to make their bets look like they’re com­ing from mul­ti­ple sources, the dis­missal of con­cern based on the fact that the lucky $1.5 bet in came from mul­ti­ple sources demon­strates why it’s impor­tant to rec­og­nize that this White House is so eth­i­cal­ly and legal­ly blind that there’s prob­a­bly been mul­ti­ple sources in this admin­is­tra­tion leak­ing insid­er knowl­edge about mar­ket mov­ing events the entire time. There might actu­al­ly be mul­ti­ple leak recip­i­ents all buy­ing ‘lucky’ futures con­tracts all the time. There’s so much cor­rup­tion it becomes its own noise:

Van­i­ty Fair

“There Is Def­i­nite Han­ky-Panky Going On”: The Fan­tas­ti­cal­ly Prof­itable Mys­tery of the Trump Chaos Trades

The president’s talk can move markets—and it’s made some futures traders bil­lions. Did they know what he was going to say before he said it?

By William D. Cohan
Octo­ber 16, 2019

In the last 10 min­utes of trad­ing at the Chica­go Mer­can­tile Exchange on Fri­day, Sep­tem­ber 13, some­one got very lucky. That’s when he or she, or a group of peo­ple, sold short 120,000 “S&P e‑minis”—electronically trad­ed futures con­tracts linked to the Stan­dard & Poor’s 500 stock index—when the index was trad­ing around 3010. The time was 3:50 p.m. in New York; it was near­ing mid­night in Tehran. A few hours lat­er, drones attacked a large swath of Sau­di Arabia’s oil infra­struc­ture, chok­ing off pro­duc­tion in the coun­try and send­ing oil prices soar­ing. By the time the CME next opened, for pre­trad­ing on Sun­day night, the S&P index had fall­en 30 points, giv­ing that very for­tu­nate trad­er, or traders, a quick $180 mil­lion prof­it.

It was not an iso­lat­ed occur­rence. Three days ear­li­er, in the last 10 min­utes of trad­ing, some­one bought 82,000 S&P e‑minis when the index was trad­ing at 2969. That was near­ly 4 a.m. on Sep­tem­ber 11 in Bei­jing, where a few hours lat­er, the Chi­nese gov­ern­ment announced that it would lift tar­iffs on a range of Amer­i­can-made prod­ucts. As has been the typ­i­cal reac­tion in the U.S. stock mar­kets as the trade war with Chi­na chugs on with­out any per­cep­ti­ble log­ic, when the news about a poten­tial res­o­lu­tion of it seems pos­i­tive, stock mar­kets go up, and when the news about the trade war appears neg­a­tive, they go down.

The news was viewed pos­i­tive­ly. The S&P index moved swift­ly on Sep­tem­ber 11 to 2996, up near­ly 30 points. That same day, Pres­i­dent Don­ald Trump said he would post­pone tar­iffs on some Chi­nese goods, and the S&P index moved to 3016, or up 47 points since the for­tu­nate per­son bought the 82,000 e‑minis just before the mar­ket closed on Sep­tem­ber 10. Since a one-point move­ment, up or down, in an e‑mini con­tract is worth $50, a 47-point move­ment up in a day was worth $2,350 per con­tract. If you were the lucky one who bought the 82,000 e‑mini con­tracts, well, then you were sit­ting on a one-day prof­it of rough­ly $190 mil­lion.

A week ear­li­er, three min­utes before the CME closed on Sep­tem­ber 3, some­one bought 55,000 e‑mini con­tracts, with the index at about 2906. At around 9 p.m. in New York—9 a.m. in Hong Kong—the mar­ket start­ed mov­ing and kept ral­ly­ing for the next six hours or so, reach­ing 2936. Around 2 p.m. in Hong Kong—2 a.m. in New York—Carrie Lam, the Hong Kong leader, announced that she would be with­draw­ing the con­tro­ver­sial extra­di­tion bill that had been roil­ing the city in protest for months. Who­ev­er bought those e‑mini con­tracts a few hours ear­li­er made a killing: a cool $82.5 mil­lion prof­it.

But these wins were peanuts com­pared to the mon­ey made by a trad­er, or group of traders, who bought 420,000 Sep­tem­ber e‑minis in the last 30 min­utes of trad­ing on June 28. That was some 40% of the day’s trad­ing vol­ume in Sep­tem­ber e‑minis—making it a trade that could not eas­i­ly be ignored. By then, Pres­i­dent Trump was already in Osa­ka, Japan—14 hours ahead of Chicago—and on his way to a rough­ly hour-long meet­ing with China’s Pres­i­dent Xi Jin­ping as part of the G20 sum­mit. On Sat­ur­day in Osa­ka, after the mar­ket had closed in Chica­go, Trump emerged from his meet­ing with Xi and announced that the inter­mit­tent trade talks were “back on track.” The fol­low­ing week was a good one in the stock mar­ket, thanks to the Trump announce­ment. On Thurs­day, June 27, the S&P 500 index stood at about 2915; a week or so lat­er, it was just below 3000, a gain of 84 points, or $4,200 per e‑mini con­tract. Who­ev­er bought the 420,000 e‑minis on June 28 had made a hand­some prof­it of near­ly $1.8 bil­lion.

Traders in the Chica­go pits have been watch­ing these kinds of wagers with an increas­ing mix­ture of shock and awe since the start of the Trump pres­i­den­cy. They are used to rapid fluc­tu­a­tions in the S&P 500 index; volatil­i­ty is com­mon, of course. But the pre­ci­sion and tim­ing of these trades, and the vast amount of mon­ey being made as a result of them, make the traders won­der if all this is on the lev­el. Are the peo­ple behind these trades incred­i­bly lucky, or do they have access to infor­ma­tion that oth­er peo­ple don’t have about, say, Trump’s or Beijing’s lat­est think­ing on the trade war or any oth­er of a num­ber of ways that Trump is able to move the mar­kets through his tweet­ing or slips of the tongue? Essen­tial­ly, do they have inside infor­ma­tion?

The­o­ret­i­cal­ly, mar­ket reg­u­la­tors are sup­posed to be keep­ing an eye on big trades such as these, to try to fig­ure out whether they are just hap­py coin­ci­dences or whether there is some­thing more nefar­i­ous afoot. And they say they do. But calls to the Chica­go Mer­can­tile Exchange, where the trades takes place, the Secu­ri­ties and Exchange Com­mis­sion, which reg­u­lates the equi­ty mar­kets, and to the Com­mod­i­ty Futures Trad­ing Com­mis­sion, which reg­u­lates futures con­tracts, such as e‑minis, were answered in dif­fer­ent ways. Christo­pher Carofine, at the SEC, declined to com­ment. The CFTC did not respond to my inquiries, while a spokes­woman for the CME says the trades in ques­tion did not orig­i­nate from a sin­gle source and they were of no con­cern.

There is no way for anoth­er trad­er, let alone an out­sider such as me, to know who is mak­ing these trades. But reg­u­la­tors know or can find out.. One long­time CME trad­er who has been watch­ing with dis­gust says he’s nev­er seen any­thing quite like these trades, not at least since al-Qai­da cashed in before ini­ti­at­ing the Sep­tem­ber 11 attacks. “There is def­i­nite han­ky-panky going on, to the world’s finan­cial mar­kets’ detri­ment,” he says. “This is abysmal.”

In the case of Trump, mar­ket manip­u­la­tion also yields polit­i­cal div­i­dends. Per­haps the most obvi­ous exam­ple dates to late August, when Trump, des­per­ate to reignite trade talks with Chi­na, boast­ed dur­ing the G7 sum­mit that his coun­ter­parts in Bei­jing had come back to the table. “We’ve got­ten two calls—very, very good calls,” he told reporters. “They mean busi­ness.” The mar­ket rose more than 900 points over the next few days. But a spokesper­son for the Chi­nese for­eign min­istry said he was not aware of any such calls. An edi­tor at the Glob­al Times, the state-con­trolled news­pa­per, tweet­ed that he knew of no calls made in the days lead­ing up to the G7 meet­ing and that “Chi­na won’t cave to US pres­sure.” Two U.S gov­ern­ment offi­cials lat­er told CNN that Trump mis­spoke and “con­flat­ed” com­ments from China’s Vice Pre­mier Liu He with direct com­mu­ni­ca­tion from the Chi­nese. Accord­ing to CNN, the offi­cials said Trump was “eager to project opti­mism that might boost mar­kets.”

Indeed, this sin­gle Trump lie briefly inflat­ed domes­tic mar­kets by hun­dreds of bil­lions of dol­lars. “What this describes is, quite lit­er­al­ly, mar­ket manip­u­la­tion that con­sti­tutes crim­i­nal vio­la­tions of the Secu­ri­ties Exchange Act of 1934,” com­ment­ed George Con­way, the con­ser­v­a­tive attor­ney and Trump crit­ic.

...

Fed­er­al reg­u­la­tors might start here: In the last 10 min­utes of trad­ing on Fri­day, August 23, as the mar­kets were roil­ing in the face of more bad trade news, some­one bought 386,000 Sep­tem­ber e‑minis. Three days lat­er, Trump lied about get­ting a call from Chi­na to restart the trade talks, and the S&P 500 index shot up near­ly 80 points. The poten­tial prof­it on the trade was more than $1.5 bil­lion.

———-

““There Is Def­i­nite Han­ky-Panky Going On”: The Fan­tas­ti­cal­ly Prof­itable Mys­tery of the Trump Chaos Trades” by William D. Cohan; Van­i­ty Fair; 10/16/2019

“Traders in the Chica­go pits have been watch­ing these kinds of wagers with an increas­ing mix­ture of shock and awe since the start of the Trump pres­i­den­cy. They are used to rapid fluc­tu­a­tions in the S&P 500 index; volatil­i­ty is com­mon, of course. But the pre­ci­sion and tim­ing of these trades, and the vast amount of mon­ey being made as a result of them, make the traders won­der if all this is on the lev­el. Are the peo­ple behind these trades incred­i­bly lucky, or do they have access to infor­ma­tion that oth­er peo­ple don’t have about, say, Trump’s or Beijing’s lat­est think­ing on the trade war or any oth­er of a num­ber of ways that Trump is able to move the mar­kets through his tweet­ing or slips of the tongue? Essen­tial­ly, do they have inside infor­ma­tion?”

Shock and awe from the Chica­go traders dur­ing the Trump admin­is­tra­tion at these lucky last-minute futures trades that could have ben­e­fit­ed from insid­er infor­ma­tion. But reg­u­la­tors aren’t con­cerned, for either mys­tery or unas­sur­ing rea­sons:

...
The­o­ret­i­cal­ly, mar­ket reg­u­la­tors are sup­posed to be keep­ing an eye on big trades such as these, to try to fig­ure out whether they are just hap­py coin­ci­dences or whether there is some­thing more nefar­i­ous afoot. And they say they do. But calls to the Chica­go Mer­can­tile Exchange, where the trades takes place, the Secu­ri­ties and Exchange Com­mis­sion, which reg­u­lates the equi­ty mar­kets, and to the Com­mod­i­ty Futures Trad­ing Com­mis­sion, which reg­u­lates futures con­tracts, such as e‑minis, were answered in dif­fer­ent ways. Christo­pher Carofine, at the SEC, declined to com­ment. The CFTC did not respond to my inquiries, while a spokes­woman for the CME says the trades in ques­tion did not orig­i­nate from a sin­gle source and they were of no con­cern.

There is no way for anoth­er trad­er, let alone an out­sider such as me, to know who is mak­ing these trades. But reg­u­la­tors know or can find out.. One long­time CME trad­er who has been watch­ing with dis­gust says he’s nev­er seen any­thing quite like these trades, not at least since al-Qai­da cashed in before ini­ti­at­ing the Sep­tem­ber 11 attacks. “There is def­i­nite han­ky-panky going on, to the world’s finan­cial mar­kets’ detri­ment,” he says. “This is abysmal.”
...

“There is def­i­nite han­ky-panky going on, to the world’s finan­cial mar­kets’ detriment...This is abysmal.” Absy­mal han­ky-panky. That’s how the long­time CME trad­er who describes this phe­nom­e­na under the Trump admin­is­tra­tion of lucky last-minute trades that some­one with White House insid­er knowl­edge would have made if they thought they could get away with it. And they can get away with it because reg­u­la­tors don’t appear to be inves­ti­gat­ing. Mak­ing it all the more abysmal.

And, of course, this is par for the course. It’s exact­ly what we should expect at that point. There are oth­er actors oth­er than the Trump White House who might be engag­ing in these insid­er big bets, but at this point it would be sur­pris­ing if the Trump White House was­n’t doing this. It just screams Trump. It’s typ­i­cal. It would be sur­pris­ing if it was­n’t hap­pen­ing.

So the next time Trump says some­thing that moves the mar­kets, it’s worth keep­ing in mind it might not just be his impromp­tu mad­ness. It could alter­na­tive­ly be Trump try­ing to make a quick prof­it. It’s an exam­ple of how Trump’s out of con­trol nature can be used to mask for-prof­it crimes like mov­ing mar­kets, which is also part of what makes it all so abysmal.

Here’s a rel­a­tive­ly pos­i­tive, but ulti­mate­ly omi­nous, update about the prospects of Judy Shel­ton’s nom­i­na­tion to the Fed­er­al Reserve Board. First, recall how we were omi­nous­ly warned back in July of 2019 how Shel­ton could be in line to become the chair­man of the Fed Board if Trump wins reelec­tion and Repub­li­can sen­a­tors were cau­tious­ly opti­mism about Shel­ton’s nom­i­na­tion to the board despite her ‘unortho­dox views’. It was some extreme­ly omi­nous cau­tious opti­mism giv­en that Shel­ton’s ‘out of the eco­nom­ic main­stream’ views include get­ting rid of cen­tral banks alto­geth­er and return­ing to the gold stan­dard.

Well, Shel­ton was just had a hear­ing before the Sen­ate Bank­ing Com­mit­tee this week and it sounds like the Repub­li­can sen­a­tors weren’t very sat­is­fied with her per­for­mance. Repub­li­can sources are telling The Hill that we should expect her nom­i­na­tion to be with­drawn due to a lack of Repub­li­can sup­port. It’s the same fate that hap­pened to the nom­i­na­tions of Her­man Cain and Stephen Moore, Trump’s two pre­vi­ous nom­i­nees who advo­cat­ed for the gold-stan­dard. That’s what these anony­mous sources are now telling The Hill. So the sen­ti­ment on Shel­ton’s nom­i­na­tion among Repub­li­can sen­a­tors appears to have shift­ed since July. Maybe.

As we’ll see in the sec­ond AP arti­cle below, which was writ­ten a cou­ple days before The Hill arti­cle and before the actu­al Sen­ate hear­ing that left the Repub­li­can sen­a­tors under­whelmed, there’s a pre­dic­tion com­ing from George Sel­gin, a mon­e­tary pol­i­cy expert at the Koch-fund­ed far right lib­er­tar­i­an Cato Foun­da­tion, that Shel­ton’s nom­i­na­tion is going to go through in the end despite the expres­sions of mis­giv­ings from some Repub­li­can sen­a­tors. Why is Sel­gin con­fi­dent of Shel­ton’s even­tu­al nom­i­na­tion? Because Trump is feel­ing embold­ened fol­low­ing his impeach­ment acquit­tal and Repub­li­can sen­a­tors aren’t going to want to defy him and risk his ire. And Trump is clear­ly quite embold­ened. So this is going to be an inter­est­ed test of just how strong­ly Trump wants a Fed nominee/chairman who is a gold stan­dard advo­cate. It was nev­er clear if Trump’s string of doomed ‘unortho­dox’ far right lib­er­tar­i­an eco­nom­ic nom­i­nees — Cain, Moore, and maybe Shel­ton — was nev­er seri­ous and just part an act intend­ed to appeal to the Alex Jones/Gold Bug crowd that makes up a sub­stan­tial por­tion of his base or if the nom­i­na­tions were part of a real agen­da pol­i­cy agen­da he wants to push that real­ly does open up. But here we are now with Trump in ’embold­ened’ mode and Repub­li­can sen­a­tors will­ing to defy him. How is this going to play out? Will Repub­li­cans allow ’embold­ened Trump’ to inflict seri­ous dam­age to the integri­ty of the Fed­er­al Reserve with a Shel­ton nom­i­na­tion?

Also keep in mind that Shel­ton’s ‘clas­si­cal eco­nom­ic’ lib­er­tar­i­an ide­ol­o­gy is very much in keep­ing with the poli­cies of the Koch-fund­ed Cato Foun­da­tion and the eco­nom­ic ide­ol­o­gy long advo­cat­ed by the far right bil­lion­aires like the Kochs. Trump is clear­ly will­ing to be irre­spon­si­ble enough to nom­i­nate some­one like Shel­ton. Do the Kochs and oth­er lib­er­tar­i­an bil­lion­aires real­ly want that to hap­pen? Don’t for­get that the cabal of right-wing bil­lion­aires asso­ci­at­ed with the Koch net­work that finance the mod­ern con­ser­v­a­tive move­ment are the chief ben­e­fi­cia­ries of the cur­rent eco­nom­ic sys­tem, so adding an eco­nom­ic time-bomb like Shel­ton to the Fed board is some­thing they may not want to actu­al­ly see hap­pen. Shel­ton could do seri­ous long-term dam­age to the US’s role in the glob­al econ­o­my over the course of her 14 year term on the Fed board. How inter­est­ed are the right-wing bil­lion­aires in blow­ing up an eco­nom­ic sys­tem they already have a stran­gle­hold over? Shel­ton’s nom­i­na­tion fight is sort of a test of that ques­tion.

Ok, here’s an arti­cle from The Hill about how Repub­li­can sources in the Sen­ate are expect­ing the White House to with­draw Shel­ton’s nom­i­na­tion in the face of open Repub­li­can oppo­si­tion fol­low­ing Shel­ton’s Sen­ate hear­ing. As the arti­cle notes, if only two GOP law­mak­ers vote against Shel­ton on the bank­ing com­mit­tee her nom­i­na­tion will be defeat­ed. And both Sen­a­tors Shel­by and Toomey have expressed con­cerns and Sen­a­tor Kennedy remains unde­cid­ed. So the sig­nal­ing from three of the GOP Sen­a­tors on the Bank­ing Com­mit­tee com­ing out of Shel­ton’s hear­ing was neg­a­tive enough to sink her nom­i­na­tion and anony­mous GOP staffers are telling the Hill her nom­i­na­tion is sunk. There’s an anony­mous Repub­li­can Sen­a­tor who told The Hill that “She’s being pulled”. But the White House was push­ing back on that nar­ra­tive. And yet, as the arti­cle notes, Sen­a­tor Shel­by refused to say he would vote against Shel­ton. He left it at “I don’t know.” It’s the kind of sit­u­a­tion that sug­gests the GOP Sen­a­tors are more request­ing that Trump with­draw Shel­ton as opposed to demand­ing it as is their right and oblig­a­tion if they see fit. Shel­by and Toomey and oth­er Repub­li­cans are open­ly express­ing con­cerns about how Shel­ton isn’t a “main­stream” econ­o­mist and her gold stan­dard advo­ca­cy. But they aren’t actu­al­ly rul­ing out her nom­i­na­tion. And nei­ther is the White House. That’s how the nom­i­na­tion fight over Judy Shel­ton’s play­ing out dur­ing this moment of an ’embold­ened’ and ‘unleashed’ post-impeach­ment-acquit­tal Trump:

The Hill

Repub­li­cans expect Trump to with­draw con­tro­ver­sial Fed nom­i­nee

By Alexan­der Bolton and Syl­van Lane — 02/13/20 03:31 PM EST

Sen­ate Repub­li­can sources expect Pres­i­dent Trump to with­draw his nom­i­na­tion of Judy Shel­ton to serve on the Fed­er­al Reserve Board fol­low­ing bipar­ti­san resis­tance on Capi­tol Hill.

The White House has not made a final deci­sion, since Trump would first need to sign off on the rever­sal, but Repub­li­can sources say it would be “desir­able” for her to with­draw from con­sid­er­a­tion and that her nom­i­na­tion is “trend­ing” in that direc­tion.

“She’s being pulled,” said a Repub­li­can sen­a­tor.

Sen­ate GOP aides have indi­cat­ed to col­leagues pri­vate­ly that they expect Shel­ton to with­draw, accord­ing to one Sen­ate aide famil­iar with the dis­cus­sions.

...

GOP sen­a­tors pre­vi­ous­ly quashed Trump’s selec­tions of entre­pre­neur Her­man Cain and con­ser­v­a­tive com­men­ta­tor Stephen Moore for the Fed in 2019 before the pres­i­dent could for­mal­ly nom­i­nate them.

The White House press office on Thurs­day after­noon, how­ev­er, pushed back on talk that Shelton’s nom­i­na­tion is doomed.

“The nom­i­na­tion of Judy Shel­ton and Christo­pher Waller are not being pulled. Both were in front of the Bank­ing Com­mit­tee today and the White House expects both to be con­firmed by the Sen­ate to the Fed­er­al Reserve,” the White House said in a state­ment.

Trump has also tapped Christo­pher Waller, the research direc­tor of the St. Louis Fed, to serve as a Fed board mem­ber.

Shel­ton has tak­en bipar­ti­san crit­i­cism over a 2009 op-ed in which she urged the Unit­ed States to return to the gold stan­dard, a pol­i­cy that was aban­doned by Pres­i­dent Nixon in the ear­ly 1970s.

Her biggest back­ers for the Fed post are Trump and Nation­al Eco­nom­ic Coun­cil Direc­tor Lar­ry Kud­low. But beyond Trump and Kud­low, her sup­port with­in the admin­is­tra­tion is thin, accord­ing to a Sen­ate aide briefed on the nom­i­na­tion.

Kud­low was also a strong sup­port­er for Moore’s nom­i­na­tion, which the White House with­drew last year after hit­ting robust GOP resis­tance on Capi­tol Hill.

Shel­ton, a for­mer Trump cam­paign advis­er, was nom­i­nat­ed to the Fed in Jan­u­ary after the pres­i­dent first announced his intent to appoint her in July.

Sen­ate Repub­li­cans on the Bank­ing Com­mit­tee were not impressed with her per­for­mance at a con­fir­ma­tion hear­ing Thurs­day morn­ing, which sen­a­tors said would be an impor­tant test for her nom­i­na­tion.

Law­mak­ers from both par­ties crit­i­cized her at the hear­ing for sup­port­ing the gold stan­dard, revers­ing her views on inter­est rates after Trump’s elec­tion and defend­ing the pres­i­den­t’s attacks on the Fed and its chair­man, Jerome Pow­ell.

“I don’t claim to be in the main­stream of econ­o­mists,” Shel­ton said in her defense.

She vowed to “strength­en the dis­cus­sion” and work close­ly with the Fed’s lead­ers.

Asked to rate Shelton’s per­for­mance Thurs­day, Sen. Richard Shel­by (R‑Ala.), a senior mem­ber of the Bank­ing Com­mit­tee, replied terse­ly: “She per­formed.”

“I have a lot of con­cerns, espe­cial­ly even after the hear­ing. I’m think­ing about it, talk­ing to some of my col­leagues,” he said.

Shel­by said Shelton’s unortho­dox views on eco­nom­ic and mon­e­tary pol­i­cy are among his “pri­ma­ry con­cerns.”

“I’m not sat­is­fied that she’s main­stream at the moment,” he said. “I’d like to sup­port her. I’d like to sup­port the president’s nom­i­nees. I haven’t always done that. I think the Fed should be inde­pen­dent and we should have main­stream peo­ple on there, and I don’t think she’s a main­stream econ­o­mist,” Shel­by told reporters.

Shel­by, how­ev­er, declined to say how he would vote or spec­u­late on what would hap­pen to Shelton’s nom­i­na­tion.

Asked when the nom­i­nee might receive a con­fir­ma­tion vote, Shel­by said, “I don’t know.”

Repub­li­cans con­trol 15 seats on the Bank­ing Com­mit­tee, while Democ­rats con­trol 13.

If two GOP law­mak­ers vote against Shel­ton, her nom­i­na­tion will be defeat­ed in com­mit­tee.

So far, Shel­by and Sen. Pat Toomey (R‑Pa.) have raised seri­ous con­cerns with her nom­i­na­tion. A third mem­ber of the pan­el, Sen. John Kennedy (R‑La.), is unde­cid­ed.

Toomey on Thurs­day warned that Shelton’s advo­ca­cy for cut­ting inter­est rates to pre­vent the dol­lar from strength­en­ing any fur­ther, which could hurt exports, is a risky strat­e­gy.

“That’s a very, very dan­ger­ous path to go down. This beg­gar-thy-neigh­bor mutu­al cur­ren­cy deval­u­a­tion is not in our inter­est, and it is not in the man­date of the Fed to pur­sue it,” Toomey said.

Oth­er Repub­li­can sen­a­tors — even law­mak­ers not on the Bank­ing Com­mit­tee — have raised con­cerns about Shelton’s views.

“I share Sen. Shelby’s con­cern,” said Sen. Pat Roberts (Kan.), when asked about the prospect of return­ing to the gold stan­dard.

Shel­by on Wednes­day said return­ing to the gold stan­dard “is kind of like the barter sys­tem.”

“Hard to get out of a reces­sion with that,” he said. “Not enough gold in the world. Our [gross domes­tic prod­uct] GDP is worth so much more than gold.”

In addi­tion to derail­ing Cain and Moore before they could be nom­i­nat­ed, Sen­ate Repub­li­cans spiked two of Trump’s oth­er Fed nom­i­nees.

Repub­li­can law­mak­ers did not advance the 2017 nom­i­na­tion of for­mer Carnegie Mel­lon eco­nom­ics pro­fes­sor Mar­vin Good­friend after he faced intense scruti­ny dur­ing his con­fir­ma­tion hear­ing.

His nom­i­na­tion expired in 2018 and was not renewed by Trump before Good­friend died of can­cer in Decem­ber 2019.

Repub­li­can sen­a­tors also reject­ed Trump’s choice of for­mer Fed research direc­tor Nel­lie Liang, a Demo­c­rat who was inte­gral to the post-cri­sis bank reg­u­la­to­ry regime often crit­i­cized by Repub­li­cans.

Moore told The Hill in an inter­view that nom­i­nees who have unortho­dox eco­nom­ic views face an uphill bat­tle to win Sen­ate con­fir­ma­tion.

“There is a bias at the Fed against any­one who thinks out of the box. I find that to be so trou­bling,” he said. “Whether you agree or dis­agree with Judy’s posi­tion, it’s healthy to have peo­ple that don’t just toe the ortho­dox line on mon­e­tary pol­i­cy.”

...

————

“Repub­li­cans expect Trump to with­draw con­tro­ver­sial Fed nom­i­nee” by Alexan­der Bolton and Syl­van Lane; The Hill; 02/13/2020

“The White House has not made a final deci­sion, since Trump would first need to sign off on the rever­sal, but Repub­li­can sources say it would be “desir­able” for her to with­draw from con­sid­er­a­tion and that her nom­i­na­tion is “trend­ing” in that direc­tion.”

Things are “trend­ing” against Shel­ton and it would be “desir­able” if she her nom­i­na­tion was with­drawn. That’s the push­back from the Sen­ate Repub­li­cans. Push­back in the form of anony­mous Repub­li­can sources telling this to The Hill. Sen­ate aids are pri­vate­ly indi­cat­ing that they expect Shel­ton’s nom­i­na­tion to be with­drawn and an anony­mous Repub­li­can sen­a­tor tells The Hill “She’s being pulled”. It’s like they’re beg­ging Trump to with­draw her nom­i­na­tion in the most tepid way pos­si­ble. And the White House is push­ing back and say­ing Shel­ton’s nom­i­na­tion isn’t over. That all strong­ly sug­gests it isn’t over:

...
“She’s being pulled,” said a Repub­li­can sen­a­tor.

Sen­ate GOP aides have indi­cat­ed to col­leagues pri­vate­ly that they expect Shel­ton to with­draw, accord­ing to one Sen­ate aide famil­iar with the dis­cus­sions.

...

The White House press office on Thurs­day after­noon, how­ev­er, pushed back on talk that Shelton’s nom­i­na­tion is doomed.

“The nom­i­na­tion of Judy Shel­ton and Christo­pher Waller are not being pulled. Both were in front of the Bank­ing Com­mit­tee today and the White House expects both to be con­firmed by the Sen­ate to the Fed­er­al Reserve,” the White House said in a state­ment.
...

The Repub­li­can Sen­a­tors are the Bank­ing Com­mit­tee are telling reporters they aren’t hap­py with her as a nom­i­nee. But they won’t tell reporters that they won’t vote for her. It real­ly does appear to be the case the Repub­li­can Sen­a­tors are ask­ing Trump to please with­draw her because they are ter­ri­fied of open­ly oppos­ing her. The Repub­li­can Sen­ate has replaced checks and bal­ance with plead­ing:

...
Sen­ate Repub­li­cans on the Bank­ing Com­mit­tee were not impressed with her per­for­mance at a con­fir­ma­tion hear­ing Thurs­day morn­ing, which sen­a­tors said would be an impor­tant test for her nom­i­na­tion.

...

Asked to rate Shelton’s per­for­mance Thurs­day, Sen. Richard Shel­by (R‑Ala.), a senior mem­ber of the Bank­ing Com­mit­tee, replied terse­ly: “She per­formed.”

“I have a lot of con­cerns, espe­cial­ly even after the hear­ing. I’m think­ing about it, talk­ing to some of my col­leagues,” he said.

Shel­by said Shelton’s unortho­dox views on eco­nom­ic and mon­e­tary pol­i­cy are among his “pri­ma­ry con­cerns.”

“I’m not sat­is­fied that she’s main­stream at the moment,” he said. “I’d like to sup­port her. I’d like to sup­port the president’s nom­i­nees. I haven’t always done that. I think the Fed should be inde­pen­dent and we should have main­stream peo­ple on there, and I don’t think she’s a main­stream econ­o­mist,” Shel­by told reporters.

Shel­by, how­ev­er, declined to say how he would vote or spec­u­late on what would hap­pen to Shelton’s nom­i­na­tion.

Asked when the nom­i­nee might receive a con­fir­ma­tion vote, Shel­by said, “I don’t know.”

Repub­li­cans con­trol 15 seats on the Bank­ing Com­mit­tee, while Democ­rats con­trol 13.

If two GOP law­mak­ers vote against Shel­ton, her nom­i­na­tion will be defeat­ed in com­mit­tee.

So far, Shel­by and Sen. Pat Toomey (R‑Pa.) have raised seri­ous con­cerns with her nom­i­na­tion. A third mem­ber of the pan­el, Sen. John Kennedy (R‑La.), is unde­cid­ed.
...

And note Toomey’s con­cern about Shel­ton sup­port­ing a cur­ren­cy deval­u­a­tion to pre­vent a strength­en­ing of the dol­lar based on the jus­ti­fi­ca­tion that it would hurt exports — a Trump posi­tion that’s com­plete­ly opposed to Shel­ton’s past eco­nom­ic views. Trump knows Shel­ton will do what he wants. That’s going to make her some­one he might fight for despite the dam­age to the econ­o­my she might do serv­ing on the Fed board. She’s pop­u­lar with the Gold Bugs and a com­pli­ant crony who will make up what­ev­er rea­son to vote as Trump demands. It’s a big rea­son she should be the board and a big rea­son Trump wants her there:

...
Toomey on Thurs­day warned that Shelton’s advo­ca­cy for cut­ting inter­est rates to pre­vent the dol­lar from strength­en­ing any fur­ther, which could hurt exports, is a risky strat­e­gy.

“That’s a very, very dan­ger­ous path to go down. This beg­gar-thy-neigh­bor mutu­al cur­ren­cy deval­u­a­tion is not in our inter­est, and it is not in the man­date of the Fed to pur­sue it,” Toomey said.

Oth­er Repub­li­can sen­a­tors — even law­mak­ers not on the Bank­ing Com­mit­tee — have raised con­cerns about Shelton’s views.

“I share Sen. Shelby’s con­cern,” said Sen. Pat Roberts (Kan.), when asked about the prospect of return­ing to the gold stan­dard.

Shel­by on Wednes­day said return­ing to the gold stan­dard “is kind of like the barter sys­tem.”

“Hard to get out of a reces­sion with that,” he said. “Not enough gold in the world. Our [gross domes­tic prod­uct] GDP is worth so much more than gold.”
...

Trump clear­ly has vir­tu­al­ly all the real lever­age in this nego­ti­a­tion with the Sen­ate Repub­li­cans over Shel­ton’s nom­i­na­tion. That’s why the Sen­a­tors aren’t rul­ing out Shel­ton and using anony­mous sources to The Hill to com­mu­ni­cate a hope the White House with­draws her. But their pub­lic plead­ing might per­suade Trump so we’ll see.

Now here’s the AP arti­cle from a few days before the Sen­ate hear­ing that includes the con­fi­dent pre­dic­tion from the Cato Foun­da­tion’s George Selig that Shel­ton’s nom­i­na­tion suc­ceeds despite Sen­ate Repub­li­can oppo­si­tion. Why? Because Trump is embold­ened and the Repub­li­can sen­a­tors dare not defy him. And based on the above The HIll arti­cle, that is indeed the case. It’s up to Trump if Shel­ton gets the job. He’s embold­ened. Checks and bal­ances be damned:

Asso­ci­at­ed Press

A Trump Fed choice faces Sen­ate scruti­ny over pol­i­cy views

By CHRISTOPHER RUGABER
Feb­ru­ary 12, 2020

WASHINGTON (AP) — One of Pres­i­dent Don­ald Trump’s nom­i­nees for the Fed­er­al Reserve will like­ly face skep­ti­cal ques­tion­ing from a Sen­ate com­mit­tee Thurs­day over her uncon­ven­tion­al eco­nom­ic views.

Trump has nom­i­nat­ed Judy Shel­ton for the Fed’s Board of Gov­er­nors, a posi­tion with sig­nif­i­cant influ­ence over inter­est rate pol­i­cy and the reg­u­la­tion of banks and finan­cial mar­kets. Her views have includ­ed sup­port for tying the dollar’s val­ue to gold and ques­tion­ing the need for a ful­ly inde­pen­dent Fed. Shel­ton has also expressed seem­ing­ly con­tra­dic­to­ry views on inter­est rate pol­i­cy and once sug­gest­ed that the fed­er­al gov­ern­ment need not guar­an­tee bank deposits.

In the after­math of the Great Reces­sion, when the unem­ploy­ment rate peaked at 10% in 2009, Shel­ton opposed the Fed’s ultra-low inter­est rate pol­i­cy.. Yet she has since echoed Trump’s sup­port for ultra-low rates even as the unem­ploy­ment rate has reached a near-half-cen­tu­ry low of 3.6%.

“There is no sen­si­ble argu­ment besides polit­i­cal expe­di­en­cy for why she advo­cat­ed for high­er inter­est rates and stunt­ed growth under a Demo­c­ra­t­ic pres­i­dent yet wants low­er rates and faster growth under a Repub­li­can,” said Josh Bivens, research direc­tor at the lib­er­al Eco­nom­ic Pol­i­cy Insti­tute.

Shel­ton was an eco­nom­ic advis­er to Trump’s 2016 cam­paign. She recent­ly served as U.S. exec­u­tive direc­tor for the Euro­pean Bank for Recon­struc­tion and Devel­op­ment, a mul­ti­lat­er­al insti­tu­tion set up in 1991 to help for­mer com­mu­nist coun­tries tran­si­tion to mar­ket economies.

Besides Shel­ton, Trump has nom­i­nat­ed Christo­pher Waller, direc­tor of research at the St. Louis Fed­er­al Reserve Bank, for a sec­ond vacan­cy on the sev­en-mem­ber Fed board. Waller will also appear before the Sen­ate Bank­ing Com­mit­tee on Thurs­day. If both nom­i­nees are con­firmed by the com­mit­tee and then by the full Sen­ate — both con­trolled by Repub­li­cans — Trump will have installed six of the sev­en Fed gov­er­nors.

Waller, who has attend­ed Fed pol­i­cy-mak­ing meet­ings for years as a staff mem­ber, is a far more con­ven­tion­al choice for the board. Some of his most wide­ly cit­ed research exam­ines the ben­e­fits of the cen­tral bank’s inde­pen­dence from polit­i­cal inter­fer­ence.

Shel­ton, how­ev­er, has been a skep­tic of the need for the Fed’s inde­pen­dence, which most econ­o­mists regard as crit­i­cal to allow­ing the cen­tral bank to make del­i­cate deci­sions on inter­est rates and infla­tion that elect­ed offi­cials might oth­er­wise oppose or block. Many Fed watch­ers wor­ry that Trump may be weak­en­ing the Fed’s inde­pen­dence with his fre­quent pub­lic attacks on its chair­man, Jerome Pow­ell, for not cut­ting rates more aggres­sive­ly.

“It would be in keep­ing with its his­tor­i­cal man­date if the Fed were to pur­sue a more coor­di­nat­ed rela­tion­ship with both Con­gress and the pres­i­dent,” Shel­ton wrote last fall in the Wall Street Jour­nal.

On Wednes­day, sen­a­tors on the Bank­ing Com­mit­tee from both par­ties voiced sup­port for an inde­pen­dent Fed dur­ing Powell’s semi­an­nu­al tes­ti­mo­ny to Con­gress. Their sup­port, which Pow­ell has assid­u­ous­ly court­ed through numer­ous con­gres­sion­al vis­its, stands in con­trast to Trump’s bar­rage of Twit­ter attacks on the cen­tral bank’s rate pol­i­cy.

“If Con­gress is as com­mit­ted to Fed inde­pen­dence as they appear to be, then it should be a no-brain­er to take a pass” on Shelton’s nom­i­na­tion, said Diane Swonk, chief econ­o­mist for Grant Thorn­ton, an account­ing firm.

One fac­tor in Shelton’s nom­i­na­tion is that the pres­i­dent may regard her as a good choice to suc­ceed Pow­ell, whose term as chair­man will expire in ear­ly 2022, should Trump be re-elect­ed. Pow­ell, like his two imme­di­ate pre­de­ces­sors, also served as a gov­er­nor before Trump ele­vat­ed him to the chair­man­ship.

That means that if Shel­ton were con­firmed for the Fed’s board, Wall Street traders might place out­size weight on any com­ments she made about Fed pol­i­cy, Swonk said. And if she were to dis­agree with most of the oth­er Fed pol­i­cy­mak­ers, that could make it hard­er to inter­pret the Fed’s pol­i­cy direc­tion.

“What is it going to look like to have a Fed chair-in-wait­ing stak­ing out posi­tions dif­fer­ent from the rest of the board?” Swonk asked. “When does dis­sent become dis­so­nance?”

Shel­ton has also broad­ly sup­port­ed more open trade and immi­gra­tion poli­cies, includ­ing among the Unit­ed States, Cana­da and Mex­i­co — a posi­tion sharply at odds with the Trump administration’s hard line on immi­gra­tion.

In a Wall Street Jour­nal col­umn from 2000 titled “North Amer­i­ca doesn’t need bor­ders,” Shel­ton endorsed the vision of then-Mex­i­can Pres­i­dent Vicente Fox that North America’s eco­nom­ic inte­gra­tion should be deep­ened, part­ly through loos­er immi­gra­tion laws.

Sen. Mike Rounds, a Repub­li­can from South Dako­ta who is on the com­mit­tee, sug­gest­ed Wednes­day in a ques­tion to Pow­ell that more diverse views would ben­e­fit the Fed.

“It’s crit­i­cal to have diverse per­spec­tives,” Pow­ell respond­ed. “But I real­ly think we do, though. We have had plen­ty of dis­sent at the Fed over the years.”

Some Fed watch­ers say they think that despite the wide­spread skep­ti­cism about Shelton’s nom­i­na­tion, she will even­tu­al­ly be con­firmed by the Sen­ate. In part, that is because the pres­i­dent appears embold­ened, in the wake of his impeach­ment tri­al, to con­front and even attack any Repub­li­can dis­senters.

The odds of her approval “are indeed high, as few Repub­li­can sen­a­tors are like­ly to risk incur­ring Trump’s dis­plea­sure at a time when he’s feel­ing both tri­umphant and vin­dic­tive,” said George Sel­gin, a mon­e­tary pol­i­cy expert at the Cato Foun­da­tion.

————

“A Trump Fed choice faces Sen­ate scruti­ny over pol­i­cy views” by CHRISTOPHER RUGABER; Asso­ci­at­ed Press; 02/12/2020

“One fac­tor in Shelton’s nom­i­na­tion is that the pres­i­dent may regard her as a good choice to suc­ceed Pow­ell, whose term as chair­man will expire in ear­ly 2022, should Trump be re-elect­ed. Pow­ell, like his two imme­di­ate pre­de­ces­sors, also served as a gov­er­nor before Trump ele­vat­ed him to the chair­man­ship.”

Trump watch­ers sus­pect Trump views Shel­ton as a good replace­ment for Pow­ell in 2022 as chair­man of the Fed. It’s one of the many dis­as­ter wait­ing to unfold dur­ing a sec­ond Trump term. Fed chair Judy Shel­ton. She’s eco­nom­i­cal­ly ‘unortho­dox’ in lib­er­tar­i­an stu­pid ways and a Trump crony too. And as Cato Foun­da­tion mon­e­tary expert George Sel­gin observed, the odds of Shel­ton’s approval by the Sen­ate “are indeed high, as few Repub­li­can sen­a­tors are like­ly to risk incur­ring Trump’s dis­plea­sure at a time when he’s feel­ing both tri­umphant and vin­dic­tive”. The Sen­ate Repub­li­cans can’t risk anger­ing a tri­umphant and vin­dic­tive embold­ened Trump:

...
Some Fed watch­ers say they think that despite the wide­spread skep­ti­cism about Shelton’s nom­i­na­tion, she will even­tu­al­ly be con­firmed by the Sen­ate. In part, that is because the pres­i­dent appears embold­ened, in the wake of his impeach­ment tri­al, to con­front and even attack any Repub­li­can dis­senters.

The odds of her approval “are indeed high, as few Repub­li­can sen­a­tors are like­ly to risk incur­ring Trump’s dis­plea­sure at a time when he’s feel­ing both tri­umphant and vin­dic­tive,” said George Sel­gin, a mon­e­tary pol­i­cy expert at the Cato Foun­da­tion.

...

Judy Shel­ton’s addi­tion to the Fed board for 14 year term and a pos­si­ble chair­man­ship is a poten­tial con­se­quence of Trump’s embold­ened sta­tus and the inabil­i­ty of Sen­ate Repub­li­cans to stand up to Trump’s unstop­pable will. If Trump real­ly wants Shel­ton for the Fed it’s going to hap­pen because the Repub­li­can sen­a­tors will get in line. They can­not risk his wrath. Shel­ton’s fate in the Sen­ate is ulti­mate­ly up to Trump because he’s ’empow­ered’ now after his acquit­tal by the Repub­li­can Sen­a­tors. And clear­ly feel­ing vin­dic­tive.

That’s the sta­tus of the Judy Shel­ton nom­i­na­tion: Trump’s fel­low Repub­li­cans trem­ble before him and fear his wrath. It’s good news for Shel­ton. And gen­er­al­ly omi­nous for every­one else. There’s a lot of wrath to go around.

With the glob­al econ­o­my in a state of pan­ic it’s no exag­ger­a­tion at this point to assert that the role of Fed­er­al Reserve in man­ag­ing the econ­o­my and pro­vid­ing some sem­blance of calm to the mar­kets is prob­a­bly more impor­tant right now than at any point since the 2008 finan­cial cri­sis. The Fed cut rates by 1.00 point (a mas­sive cut) down to near zero on Mon­day. A mas­sive rate cut to near zero that was met by the mar­kets with a record sell­off in US equi­ties. So we’re already at point where Fed rate cuts are no longer an option and oth­er more unortho­dox mea­sures are going to be required going for­ward. And that means cred­i­bil­i­ty in the Fed’s lead­er­ship is going to be more impor­tant than nor­mal.

And it’s in that con­text that it’s worth not­ing that, two days before that his­toric Fed rate cut down to near-zero, Pres­i­dent Trump decid­ed to once again threat­en to fire the Fed’s chair­man Jerome Pow­ell. Or rather, Trump pub­licly mused on Sat­ur­day that he had the right to not exact­ly fire Pow­ell entire­ly but instead demote him to a dif­fer­ent posi­tion and install some­one else as Fed chief, thus ensur­ing that one of the ques­tions fac­ing mar­kets as we head into this peri­od of eco­nom­ic tur­moil is the basic ques­tion of whether or not Pow­ell will be fired if the econ­o­my gets real­ly bad and who might replace him:

The New York Times

Trump Says He Could Demote Fed Chair Pow­ell, Risk­ing More Mar­ket Tur­moil
At a time of grave investor uncer­tain­ty over the coro­n­avirus, econ­o­mists warned that the pres­i­dent could throw fuel on the fire.

By Jean­na Smi­alek
March 14, 2020

WASHINGTON — Pres­i­dent Trump said on Sat­ur­day that he had the pow­er to remove or demote Jerome H. Pow­ell, the Fed­er­al Reserve chair, renew­ing a long-run­ning threat against the cen­tral bank’s leader at a time when it could fur­ther roil volatile mar­kets.

Mr. Trump said in a news con­fer­ence at the White House that oust­ing Mr. Pow­ell was not his cur­rent plan but that he was “not hap­py with the Fed” because it was “fol­low­ing” and “we should be lead­ing.” He said he had the right to remove Mr. Pow­ell as chair “and put him in a reg­u­lar posi­tion and put some­body else in charge,” but added, “I haven’t made any deci­sions on that.”

While it was a famil­iar threat from a pres­i­dent who has con­tin­u­al­ly beat­en up on Mr. Pow­ell, it was made in the midst of grow­ing con­cern that the spread of the coro­n­avirus could tip the Unit­ed States into a reces­sion.

The mere hint that Mr. Trump could fire Mr. Pow­ell, or demote him to a Fed gov­er­nor, risks fur­ther desta­bi­liz­ing mar­kets by wor­ry­ing investors, who are already fret­ting over the eco­nom­ic fall­out from shut-down busi­ness­es, quar­an­tined work­ers and cur­tailed activ­i­ty.

Investors have been look­ing to the Fed to help con­tain the eco­nom­ic fall­out, and Mr. Pow­ell led his col­leagues in slash­ing inter­est rates by half a per­cent­age point in one of the ear­li­est glob­al cen­tral bank respons­es to the coro­n­avirus. The Fed has also been active in sooth­ing dis­or­der­ly mar­kets over the past week.

“If he removed Jerome Pow­ell, it would be huge­ly desta­bi­liz­ing to mar­kets,” said Ernie Tedeschi, a pol­i­cy econ­o­mist at Ever­core ISI in Wash­ing­ton. “The mar­ket trusts Jerome Pow­ell to do what mon­e­tary pol­i­cy can do. Jerome Pow­ell gets it.”

...

The cen­tral bank’s pol­i­cy-set­ting com­mit­tee meets this week in Wash­ing­ton, and it is wide­ly expect­ed to cut inter­est rates — per­haps to near zero — at or before that gath­er­ing. It could also renew bond buy­ing or roll out oth­er emer­gency pro­grams meant to sta­bi­lize the inner work­ings of finan­cial mar­kets, econ­o­mists expect.

Mr. Trump prob­a­bly does not have the legal author­i­ty to fire Mr. Pow­ell, whom he nom­i­nat­ed in 2017 but who was con­firmed by Con­gress. It is less clear whether the pres­i­dent could demote him, but if he tried, the Fed­er­al Open Mar­ket Com­mit­tee — which sets inter­est rates — could still select Mr. Pow­ell as its leader, ren­der­ing any new chair most­ly irrel­e­vant.

This is not the first time Mr. Trump has aired the idea of remov­ing his hand-select­ed Fed chair. In Decem­ber 2018, after the Fed raised rates, the pres­i­dent pri­vate­ly talked about fir­ing Mr. Pow­ell, telling advis­ers that the Fed chair would “turn me into Hoover,” a ref­er­ence to the Great Depres­sion-era pres­i­dent Her­bert Hoover. The state­ments caused jit­ters on Wall Street.

Mick Mul­vaney, who had recent­ly been named the act­ing White House chief of staff, said in a sub­se­quent tele­vi­sion inter­view that Mr. Trump “now real­izes he does not have the author­i­ty to fire” the Fed chair.

This time around, Mr. Tedeschi said he doubt­ed the pres­i­dent would try to demote Mr. Pow­ell, and was prob­a­bly just try­ing to jaw­bone the cen­tral bank ahead of its meet­ing this week.

“I think peo­ple are used to it, at this point,” he said. “But it prob­a­bly doesn’t help.”

———–

“Trump Says He Could Demote Fed Chair Pow­ell, Risk­ing More Mar­ket Tur­moil” by Jean­na Smi­alek; The New York Times; 03/14/2020

“Mr. Trump said in a news con­fer­ence at the White House that oust­ing Mr. Pow­ell was not his cur­rent plan but that he was “not hap­py with the Fed” because it was “fol­low­ing” and “we should be lead­ing.” He said he had the right to remove Mr. Pow­ell as chair “and put him in a reg­u­lar posi­tion and put some­body else in charge,” but added, “I haven’t made any deci­sions on that.””

Anoth­er round of open­ly trash­ing the Fed chair because the Fed has­n’t cut rates as much as Trump prefers. When Trump says he’s “not hap­py with the Fed” because it was “fol­low­ing” and “we should be lead­ing,” Trump is basi­cal­ly say­ing he thinks the Fed should have rates that are actu­al­ly low­er than those set by, say, the Bank of Japan or Euro­pean Cen­tral Bank, which is basi­cal­ly a call for tak­ing the Fed rates into neg­a­tive ter­ri­to­ry.

And note how these com­ments on Sat­ur­day hap­pened days before the Fed was set to meet and was wide­ly expect­ed to cut rates sig­nif­i­cant­ly, per­haps to near zero. Thus, by pub­licly call­ing for Pow­ell’s demo­tion, Trump basi­cal­ly politi­cized what­ev­er move the Fed was going to do:

...
The cen­tral bank’s pol­i­cy-set­ting com­mit­tee meets this week in Wash­ing­ton, and it is wide­ly expect­ed to cut inter­est rates — per­haps to near zero — at or before that gath­er­ing. It could also renew bond buy­ing or roll out oth­er emer­gency pro­grams meant to sta­bi­lize the inner work­ings of finan­cial mar­kets, econ­o­mists expect.
...

And it’s also not like finan­cial mar­kets are some­how going to respond pos­i­tive­ly to threats of fir­ing Pow­ell. As observers point out, the mar­kets seem to actu­al­ly trust Pow­ell to be some­one who under­stands the job, some­thing that can’t be assumed of the per­son Trump appoints next:

...
While it was a famil­iar threat from a pres­i­dent who has con­tin­u­al­ly beat­en up on Mr. Pow­ell, it was made in the midst of grow­ing con­cern that the spread of the coro­n­avirus could tip the Unit­ed States into a reces­sion.

The mere hint that Mr. Trump could fire Mr. Pow­ell, or demote him to a Fed gov­er­nor, risks fur­ther desta­bi­liz­ing mar­kets by wor­ry­ing investors, who are already fret­ting over the eco­nom­ic fall­out from shut-down busi­ness­es, quar­an­tined work­ers and cur­tailed activ­i­ty.

Investors have been look­ing to the Fed to help con­tain the eco­nom­ic fall­out, and Mr. Pow­ell led his col­leagues in slash­ing inter­est rates by half a per­cent­age point in one of the ear­li­est glob­al cen­tral bank respons­es to the coro­n­avirus. The Fed has also been active in sooth­ing dis­or­der­ly mar­kets over the past week.

“If he removed Jerome Pow­ell, it would be huge­ly desta­bi­liz­ing to mar­kets,” said Ernie Tedeschi, a pol­i­cy econ­o­mist at Ever­core ISI in Wash­ing­ton. “The mar­ket trusts Jerome Pow­ell to do what mon­e­tary pol­i­cy can do. Jerome Pow­ell gets it.”
...

And if Trump did decide to sud­den­ly get rid of Pow­ell, it does indeed sound like he might be able to demote him. At least it’s legal­ly ambigu­ous. He prob­a­bly can’t legal­ly fire him but he just might be able to legal­ly demote him. It’s part of what these pub­lic threats by Trump can’t be eas­i­ly dis­missed. He real­ly might do this:

...
Mr. Trump prob­a­bly does not have the legal author­i­ty to fire Mr. Pow­ell, whom he nom­i­nat­ed in 2017 but who was con­firmed by Con­gress. It is less clear whether the pres­i­dent could demote him, but if he tried, the Fed­er­al Open Mar­ket Com­mit­tee — which sets inter­est rates — could still select Mr. Pow­ell as its leader, ren­der­ing any new chair most­ly irrel­e­vant.
...

Also keep in mind that Trump is going to look­ing for scape­goats if the econ­o­my falls into a sus­tained reces­sion or worse and Pow­ell would be an obvi­ous poten­tial scape­goat. That means this ques­tion of whether or not Trump might fire Pow­ell real­ly could grow in impor­tance as this loom­ing eco­nom­ic cri­sis plays out.

And that, of course, brings us to the ongo­ing push by the Trump admin­is­tra­tion to get Judy Shel­ton — some­how who has long sug­gest­ed we should get rid of the cen­tral bank (and all cen­tral banks) and return to a glob­al gold-stan­dard — on the Fed board. Don’t for­get that Shel­ton open will­ing­ness to com­plete­ly invert her past posi­tion in order to please Trump — like her sud­den embrace of ultra-low inter­est rates and high­er infla­tion pegs — has made her a top can­di­date for replac­ing Pow­ell if she makes it onto the board.

Recall how three Repub­li­can Sen­a­tors on the Sen­ate Bank­ing Com­mit­tee — Sen­a­tors Shel­by, Toomey, and Kennedy — expressed tepid reser­va­tions about Shel­ton’s nom­i­na­tion last month. It was the kind of protest that sound­ed more like they were beg­ging Trump not to keep her nom­i­na­tion because they knew they could­n’t actu­al­ly bring them­selves to oppose Trump’s wish­es. Well, here’s an update on their oppo­si­tion to Shel­ton: They’re fine with her now. That’s more or less what Sen­a­tors Shel­by and Toomey indi­cat­ed at the end of Feb­ru­ary dur­ing a hear­ing on her nom­i­na­tion. Also, Toomey actu­al­ly sup­port­ed the idea of a gold stan­dard dur­ing hear­ing.

And, of course, the jus­ti­fi­ca­tion Shel­by and Toomey have giv­en are com­plete non­sense. For starters, here’s Shel­by’s expla­na­tion for why he will now sup­port Shel­ton: the Fed board is pret­ty big so she won’t have that much influ­ence any­way. That’s seri­ous­ly his jus­ti­fi­ca­tion. It’s also a com­plete­ly decep­tive jus­ti­fi­ca­tion giv­en that Shel­ton is seen as a top can­di­date to replace Pow­ell at the head of the Fed but only if she’s first nom­i­nat­ed to the board. And that ignores the pro­found and destruc­tive influ­ence Shel­ton would have in the media as a Fed board mem­ber. So not only will Shel­ton have sig­nif­i­cant influ­ence if she’s approved but she’s poised to have the most influ­ence after Trump makes her the Fed Chair­man:

Bloomberg

GOP’s Shel­by Says He Could Sup­port Shel­ton for Fed Board

By John Fitz­patrick
02/27/2020

Repub­li­can Sen­a­tor Richard Shel­by sig­naled he may sup­port Pres­i­dent Don­ald Trump’s nom­i­na­tion of Judy Shel­ton for the Fed­er­al Reserve Board despite reser­va­tions about the con­tro­ver­sial nom­i­nee.

Shelby’s sup­port for Shel­ton in the Sen­ate Bank­ing Com­mit­tee would remove one major obsta­cle to her nom­i­na­tion get­ting a vote on the floor of the Repub­li­can-con­trolled Sen­ate.

“If the com­mit­tee, the major­i­ty of the com­mit­tee, I’m talk­ing about Repub­li­cans, want to sup­port her, I would do it too,” Shel­by said, adding, “She wouldn’t be my num­ber one choice.”

Shel­by was one of the key Repub­li­cans on the bank­ing com­mit­tee who had been unde­cid­ed on Shelton’s nom­i­na­tion. GOP Sen­a­tor Pat Toomey of Penn­syl­va­nia, anoth­er of the unde­cid­ed Repub­li­cans, said Thurs­day he’d sup­port Shel­ton. Sen­a­tor John Kennedy, a Louisiana Repub­li­can, said he’s still unde­cid­ed. A sin­gle Repub­li­can “no” would be enough to block her, with Democ­rats on the pan­el like­ly unit­ed in oppo­si­tion.

Asked whether he would vote in com­mit­tee to send Shelton’s nom­i­na­tion to the Sen­ate floor, Shel­by said, “I could.”

...

Shel­by raised ques­tions about whether Shelton’s views were in the main­stream of eco­nom­ic think­ing.

“But the board’s big,” Shel­by said. “If she goes on the Fed and she’s an out­lier she will not have much influ­ence.”

———–

“GOP’s Shel­by Says He Could Sup­port Shel­ton for Fed Board” by John Fitz­patrick; Bloomberg; 02/27/2020

““But the board’s big,” Shel­by said. “If she goes on the Fed and she’s an out­lier she will not have much influ­ence.””

If Shel­ton is made a mem­ber of the Fed board she won’t have much influ­ence. That’s his jus­ti­fi­ca­tion. It was always obvi­ous that Shel­by would find a way to pla­cate Trump and find an excuse to sup­port Shel­ton’s nom­i­na­tion but that’s still a pret­ty sad final jus­ti­fi­ca­tion. A jus­ti­fi­ca­tion that’s basi­cal­ly an acknowl­edge­ment that she’s unfit for the job.

And note how Shel­by hedges his sup­port to say he’ll sup­port Shel­ton if his oth­er Repub­li­can Sen­a­tors on the com­mit­tee do so. So he admits she’s unfit for the job but will sup­port her if the rest of his fel­low Repub­li­cans on the com­mit­tee do so. It’s about as tepid as you can get for sup­port­ing a nom­i­nee, but still a clear sig­nal for sup­port:

...
“If the com­mit­tee, the major­i­ty of the com­mit­tee, I’m talk­ing about Repub­li­cans, want to sup­port her, I would do it too,” Shel­by said, adding, “She wouldn’t be my num­ber one choice.”
...

It’s not exact­ly full-throat­ed sup­port for Shel­ton but sup­port nonethe­less. And sup­port that appeared to be an attempt to pass the onus onto one of his oth­er Repub­li­can Sen­a­tors since was only sig­nal­ing that he would sup­port Shel­ton if all the oth­er Repub­li­cans on the com­mit­tee did so too. That points to Sen­a­tors Toomey and Shel­by. But not Toomey since he came out in sup­port of Shel­ton lat­er that day. In Toomey’s case, he claims he spoke with Shel­ton about her views on using mon­e­tary pol­i­cy to deval­ue the dol­lar and Shel­ton assured him that she was strong­ly opposed to that. And that is indeed a posi­tion that’s in keep with Shel­ton’s his­toric views on mon­e­tary pol­i­cy. Gold bugs don’t tend to sup­port cen­tral bank-dri­ven cur­ren­cy deval­u­a­tions. But we can’t ignore that one of Shel­ton’s sig­na­ture qual­i­fi­ca­tions for this posi­tion is that she’s demon­strat­ed a will­ing­ness to com­plete­ly invert her views to align them with Pres­i­dent Trump’s views and one of Trump’s demands of the Fed is that it low­er rates in part to make the low­er the val­ue of the dol­lar. That’s part of what Trump’s threats of fir­ing Pow­ell are all about. He wants as cheap a dol­lar as pos­si­ble. And we we saw last month, part of the rea­son Toomey was specif­i­cal­ly con­cerned about the pos­si­bil­i­ty of Shel­ton sup­port mon­e­tary pol­i­cy that would deval­ue the dol­lar is because Shel­ton has come out in sup­port of that in recent years as part of her suck­ing up to Trump. So vot­ing for Shel­ton is basi­cal­ly a vote for some­one who will sup­port mon­e­tary pol­i­cy that low­ers the val­ue of the dol­lar and the jus­ti­fi­ca­tion Toomey gave for his sup­port of Shel­ton is that she recent­ly assured him she won’t actu­al­ly sup­port doing that despite it being at the top of Trump’s mon­e­tary pol­i­cy wish list.

But Toomey went fur­ther dur­ing the hear­ing when he expressed his con­cerns about Shel­ton’s recent pub­lic sup­port for mon­e­tary pol­i­cy that low­ers the val­ue of the dol­lar: in cit­ing his con­cerns about Shel­ton’s com­ments on poli­cies that low­er the dol­lar, Toomey went on to state that an argu­ment could be made for link­ing the dol­lar to a met­ric that includes pre­cious met­als. Which is anoth­er way of advo­cat­ing for a gold stan­dard. Or some sort of pre­cious met­al stan­dard. Per­haps a bas­ket of pre­cious met­als. Either way, it’s a hor­ri­ble idea and that’s lit­er­al­ly what Toomey did while pre­tend­ing to grill Shel­ton dur­ing the hear­ing: he chas­tised her for not sup­port­ing a gold stan­dard enough. That’s some high qual­i­ty gaslight­ing right there:

Bloomberg

Toomey Says He Will Back Judy Shel­ton for Fed­er­al Reserve Board

By Erik Was­son
02/27/2020

Repub­li­can Sen­a­tor Pat Toomey said he’ll sup­port Pres­i­dent Don­ald Trump’s nom­i­na­tion of Judy Shel­ton for the Fed­er­al Reserve Board.

Toomey’s back­ing is essen­tial to Shelton’s prospects for clear­ing the Sen­ate Bank­ing Com­mit­tee, but isn’t enough to assure her nom­i­na­tion gets sent to the floor for a vote. Two oth­er GOP sen­a­tors are unde­cid­ed on her nom­i­na­tion, and a sin­gle Repub­li­can “no” would be enough to block her, with Democ­rats on the pan­el like­ly unit­ed in oppo­si­tion.

Shel­ton, a for­mer eco­nom­ic advis­er to Trump’s pres­i­den­tial cam­paign, has drawn skep­ti­cism because of her past advo­ca­cy of return­ing the dol­lar to the gold stan­dard. She has also said that she was “high­ly skep­ti­cal” that the Fed’s con­gres­sion­al man­date to pur­sue max­i­mum employ­ment and sta­ble prices was rel­e­vant.

Oth­er Repub­li­cans on the Bank­ing Com­mit­tee have yet to say whether they will vote for her. Sen­a­tor Richard Shel­by of Alaba­ma said through his office on Wednes­day night that he remains unde­cid­ed. Louisiana Sen­a­tor John Kennedy also still hasn’t decid­ed how he’ll vote, accord­ing to a per­son famil­iar with his stance.

Toomey, of Penn­syl­va­nia, had said dur­ing Shelton’s con­fir­ma­tion hear­ing that he was specif­i­cal­ly con­cerned about her past com­ments indi­cat­ing she sup­ports the Fed­er­al Reserve devalu­ing the dol­lar in response to deval­u­a­tions of oth­er cur­ren­cies. He said, in con­trast, that an argu­ment could be made for link­ing the dol­lar to a met­ric that includes pre­cious met­als.

...

“Since the hear­ing, I have cor­re­spond­ed and spo­ken fur­ther with Dr. Judy Shel­ton about her views on mon­e­tary pol­i­cy,” he said in the state­ment. “She clar­i­fied to me that she will oppose using mon­e­tary pol­i­cy for the pur­pose of devalu­ing the dol­lar. It would have been impru­dent and con­trary to statu­to­ry autho­riza­tion for the Fed­er­al Reserve to go down this path.”

“Giv­en her assur­ances,” Toomey said, “I intend to sup­port Dr. Shelton’s nom­i­na­tion.”

———-

“Toomey Says He Will Back Judy Shel­ton for Fed­er­al Reserve Board” by Erik Was­son; Bloomberg; 02/27/2020

“Shel­ton, a for­mer eco­nom­ic advis­er to Trump’s pres­i­den­tial cam­paign, has drawn skep­ti­cism because of her past advo­ca­cy of return­ing the dol­lar to the gold stan­dard. She has also said that she was “high­ly skep­ti­cal” that the Fed’s con­gres­sion­al man­date to pur­sue max­i­mum employ­ment and sta­ble prices was rel­e­vant.”

Isn’t is remark­able: Shel­ton’s nom­i­na­tion is draw­ing crit­i­cism for her past sup­port of the gold stan­dard and oppo­si­tion to Fed rules like the “dual man­date” (which ensures the Fed has to fac­tor in the unem­ploy­ment lev­el and not sole­ly the infla­tion rate when craft­ing pol­i­cy) at the same time Repub­li­can Sen­a­tors like Pat Toomey are feign­ing con­cern that she’s go along with Trump’s demand of a mon­e­tary pol­i­cy that would low­er the dol­lar. And Toomey got the assur­ances he need­ed that “she will oppose using mon­e­tary pol­i­cy for the pur­pose of devalu­ing the dol­lar”, which is the kind of com­plete­ly garbage assur­ance we should expect in this sit­u­a­tion. Shel­ton could sim­ply come up with a dif­fer­ent rea­son oth­er than explic­it­ly devalu­ing the dol­lar for sup­port­ing the same low­er-dol­lar pol­i­cy (and there would be noth­ing nec­es­sar­i­ly wrong with that). It’s just a bunch of the­atrics:

...
“Since the hear­ing, I have cor­re­spond­ed and spo­ken fur­ther with Dr. Judy Shel­ton about her views on mon­e­tary pol­i­cy,” he said in the state­ment. “She clar­i­fied to me that she will oppose using mon­e­tary pol­i­cy for the pur­pose of devalu­ing the dol­lar. It would have been impru­dent and con­trary to statu­to­ry autho­riza­tion for the Fed­er­al Reserve to go down this path.”

“Giv­en her assur­ances,” Toomey said, “I intend to sup­port Dr. Shelton’s nom­i­na­tion.”
...

And then Toomey frames his con­cerns about Shel­ton by com­ing out in favor of link­ing the dol­lar to a met­ric that includes pre­cious met­als, i.e. the gold stan­dard! Again, this was some world class gaslight­ing:

...
Toomey, of Penn­syl­va­nia, had said dur­ing Shelton’s con­fir­ma­tion hear­ing that he was specif­i­cal­ly con­cerned about her past com­ments indi­cat­ing she sup­ports the Fed­er­al Reserve devalu­ing the dol­lar in response to deval­u­a­tions of oth­er cur­ren­cies. He said, in con­trast, that an argu­ment could be made for link­ing the dol­lar to a met­ric that includes pre­cious met­als.
...

But hey, at least Sen­a­tor Kennedy still claims to be unde­cid­ed on Shel­ton’s nom­i­na­tion. So we get to wait and see what his fake excuse will be for even­tu­al­ly sup­port­ing it:

...
Oth­er Repub­li­cans on the Bank­ing Com­mit­tee have yet to say whether they will vote for her. Sen­a­tor Richard Shel­by of Alaba­ma said through his office on Wednes­day night that he remains unde­cid­ed. Louisiana Sen­a­tor John Kennedy also still hasn’t decid­ed how he’ll vote, accord­ing to a per­son famil­iar with his stance.
...

a
Will Kennedy fall back on a Shel­by-style acknowl­edge­ment that Shel­ton is a bad nom­i­nee when he even­tu­al­ly suc­cumbs to Trump’s demands or will he engage in Toomey-style gaslight­ing? We’ll see. But as the fol­low­ing arti­cle reminds us, if a sin­gle Repub­li­can on the bank­ing com­mit­tee oppos­es Shel­ton’s nom­i­na­tion she’ll like­ly be blocked. And as we just sway, Shel­by is indi­cat­ing that he’ll only sup­port Shel­ton if all the oth­er Repub­li­cans do so. That sug­gests Kennedy might not have to fear being the only Repub­li­can sen­a­tor on the com­mit­tee who vot­ed against Trump’s nom­i­nee. Shel­by is imply­ing he’ll vote against her too if Kennedy does it. So the fact that Sen­a­tor Kennedy remains unde­cid­ed isn’t triv­ial. Well, it is triv­ial is his sup­port is prob­a­bly a fore­gone con­clu­sion. But if he is hon­est­ly unde­cid­ed that means Sen­a­tor Kennedy just might pre­vent a lunatic like Shel­ton head­ing the Fed. As far as lega­cies go for Repub­li­can Sen­a­tors you could do worse.

That’s all part of what makes the ongo­ing nom­i­na­tion fight over Judy Shel­ton a grow­ing issue for finan­cial mar­kets and the glob­al econ­o­my thanks to the GOP Sen­ate’s cow­ardice in the face of Trump’s incom­pe­tence: Shel­ton real­ly could make it onto the Fed right in the mid­dle of glob­al viral eco­nom­ic melt­down. It’s like the worst pos­si­ble sig­nal the Trump admin­is­tra­tion could send to mar­kets about the future of the US econ­o­my. Espe­cial­ly because, as the arti­cle also notes, if Shel­ton does make it through the nom­i­na­tion process there’s no deny­ing that she will be a top can­di­date to replace Pow­ell in 2022. That’s the self-inflict­ed mon­e­tary psy­chodra­ma Trump and the GOP inflict­ed on the finan­cial sys­tem right in the mid­dle of a his­toric eco­nom­ic melt­down:

Bloomberg Opin­ion

Judy Shel­ton Was a Bad Fed Choice Even Before the Coro­n­avirus

Stand firm, skep­ti­cal Repub­li­can sen­a­tors. Cen­tral bank inde­pen­dence and seri­ous­ness have nev­er been need­ed more.

By Michael R. Strain
March 17, 2020, 1:30 PM CDT

As the coro­n­avirus spreads across the U.S., impor­tant parts of the econ­o­my are scal­ing back and finan­cial mar­kets are stag­ger­ing. On Sun­day, the Fed engaged in its most dras­tic actions since the glob­al finan­cial cri­sis over a decade ago, cut­ting inter­est rates to near zero and com­mit­ting to pur­chase $700 bil­lion in Trea­suries and mort­gage-backed secu­ri­ties. It’s hard to imag­ine a worse time to appoint a new Fed gov­er­nor best known for fringe the­o­ries and ques­tion­able inde­pen­dence.

That’s why Repub­li­can sen­a­tors who’ve opposed Pres­i­dent Don­ald Trump’s nom­i­na­tion of Judy Shel­ton to the Fed­er­al Reserve Board shouldn’t back down.

Shelton’s fate rests in the hands of Repub­li­cans on the 25-mem­ber Sen­ate Bank­ing Com­mit­tee, which could make its deci­sion as soon as this month. All 12 Democ­rats on the com­mit­tee will prob­a­bly vote against her. That means a sin­gle no vote from a Repub­li­can mem­ber would block her nom­i­na­tion.

After a nom­i­na­tion hear­ing in mid-Feb­ru­ary, three GOP sen­a­tors — Richard Shel­by of Alaba­ma, John Kennedy of Louisiana and Patrick Toomey of Penn­syl­va­nia — expressed con­cern about giv­ing Shel­ton a role in set­ting the nation’s mon­e­tary pol­i­cy, plac­ing her con­fir­ma­tion in seri­ous doubt.

But lat­er in the month, Toomey announced his sup­port. On Feb. 27, Bloomberg News report­ed Shelby’s answer to whether he would vote to send Shelton’s nom­i­na­tion to the Sen­ate floor: “I could.”

He could, but he shouldn’t. Sen­a­tors Shel­by and Kennedy should hold firm.

There’s more at stake than a seat on the Fed board. Once seat­ed, Shel­ton would become a lead­ing can­di­date to become Fed chair in two years. Sen­a­tors who vot­ed for her nom­i­na­tion as a gov­er­nor would be hard pressed to vote against her for the cen­tral bank’s top job.

Trump has made no secret of his unhap­pi­ness with Jerome H. Pow­ell, the cur­rent Fed chair­man. At a news con­fer­ence on Sat­ur­day, the pres­i­dent mused over whether he could remove Pow­ell from office before his term expires in 2022. “I think I have the right to do, to remove him as chair­man, he is, he has so far made a lot of bad deci­sions in my opin­ion,” Trump said. He clear­ly won’t reap­point Pow­ell.

Since being con­sid­ered for a Fed gov­er­nor­ship, Shel­ton has pub­licly changed her views on sev­er­al crit­i­cal issues, includ­ing the wis­dom of very low inter­est rates and weak­en­ing the U.S. dol­lar to sup­port exports. It is rea­son­able to be con­cerned that her views have changed to cur­ry favor with Trump. And based on that, it is rea­son­able to be con­cerned that the pres­i­dent might want her as Fed chair when Powell’s term expires. The Sen­ate should keep her off the short list for Powell’s suc­ces­sor by deny­ing her a governor’s seat.

The coro­n­avirus out­break should focus the minds of Repub­li­can sen­a­tors on the need for the leader of the Fed to inspire calm and con­fi­dence dur­ing a cri­sis — and to put in place the right pol­i­cy response. Shelton’s long his­to­ry of crit­i­ciz­ing the Fed’s com­pe­tence, objec­tives and even its exis­tence would pro­vide a shaky foun­da­tion for any cri­sis-man­age­ment efforts. This would be espe­cial­ly true of a Chair Shel­ton.

For exam­ple, in 2009, she asked, “Why do we need a cen­tral bank?” In 2011, she described the Fed as “almost a rogue agency.” As recent­ly as last year, Shel­ton expressed skep­ti­cism that a Fed objec­tive should be pro­mot­ing full employ­ment. “I don’t know that that is real­ly the Fed’s job,” she said in an inter­view with Bloomberg News.

Shelton’s views on mon­e­tary pol­i­cy are far out­side the main­stream. Too far. She has a long his­to­ry of sup­port­ing the gold stan­dard, which has been reject­ed by econ­o­mists and aban­doned by cen­tral banks. (In her hear­ing, she changed her view on this issue, as she has on oth­ers.) The gold stan­dard is a recipe for eco­nom­ic insta­bil­i­ty. It also could dic­tate the wrong course of action in sit­u­a­tions the Fed is like­ly to con­front. As the U.S. entered the Great Reces­sion in ear­ly 2008, com­mod­i­ty prices were increas­ing and the dol­lar was falling. The gold stan­dard sug­gests increas­ing inter­est rates in this sit­u­a­tion — exact­ly the wrong response.

Shel­by has raised con­cerns about Shelton’s views. In late Feb­ru­ary, when his oppo­si­tion soft­ened, Shel­by said, “The board’s big.” He con­tin­ued, “If she goes on the Fed and she’s an out­lier, she will not have much influ­ence.”

Maybe so. But a Fed gov­er­nor say­ing wacky things dur­ing a cri­sis as dire as the coro­n­avirus pan­dem­ic is some­thing to avoid. To say noth­ing of a Fed gov­er­nor who would be on the short list for Fed chair.

If con­firmed, Shel­ton would be a direct threat to the Fed’s inde­pen­dence from pol­i­tics. That her views have changed so quick­ly on fun­da­men­tal issues rais­es ade­quate sus­pi­cion for sen­a­tors to vote against her nom­i­na­tion. But one needn’t spec­u­late. In an op-ed pub­lished after Trump announced his inten­tion to nom­i­nate her, Shel­ton open­ly called for less inde­pen­dence. “It would be in keep­ing with its his­tor­i­cal man­date if the Fed were to pur­sue a more coor­di­nat­ed rela­tion­ship with both Con­gress and the pres­i­dent,” she wrote.

Even if Shel­ton wouldn’t do the president’s bid­ding on the Fed — keep­ing rates low to run the econ­o­my hot for longer than is pru­dent, risk­ing infla­tion — what ulti­mate­ly mat­ters is whether mar­ket par­tic­i­pants think she might. Price infla­tion is deter­mined in large part by what peo­ple think it will be in the future. If peo­ple think the Fed will set mon­e­tary pol­i­cy not based on what is best for the economy’s long-term inter­est, but instead to help the pres­i­dent polit­i­cal­ly, prices will be pushed up. Pub­lic con­fi­dence in the Fed’s inde­pen­dence from pol­i­tics is crit­i­cal to keep­ing prices sta­ble.

...

All Repub­li­can sen­a­tors: Imag­ine if some­one with Shelton’s views and bag­gage were Fed chair today instead of Pow­ell. Imag­ine a Fed gov­er­nor going on tele­vi­sion next week with a long his­to­ry of argu­ing against very low inter­est rates, and that the Fed is not par­tic­u­lar­ly effec­tive or nec­es­sary, at a time when the world is look­ing to the cen­tral bank for eco­nom­ic sup­port.

Vote no.

———-

“Judy Shel­ton Was a Bad Fed Choice Even Before the Coro­n­avirus” by Michael R. Strain; Bloomberg; 03/17/2020

“All Repub­li­can sen­a­tors: Imag­ine if some­one with Shelton’s views and bag­gage were Fed chair today instead of Pow­ell. Imag­ine a Fed gov­er­nor going on tele­vi­sion next week with a long his­to­ry of argu­ing against very low inter­est rates, and that the Fed is not par­tic­u­lar­ly effec­tive or nec­es­sary, at a time when the world is look­ing to the cen­tral bank for eco­nom­ic sup­port.”

Yep, just imag­ine if Judy Shel­ton was the Chair of the Fed right now. It’s a time when glob­al mar­kets are in tur­moil and inter­est rates are already near zero, leav­ing only the kind of unortho­dox mon­e­tary poli­cies gold bugs hate left to still use. What if Judy Shel­ton was the pub­lic face of the Fed right now? What would that be like dur­ing a major eco­nom­ic cri­sis? It’s a sit­u­a­tion that should be imag­ined by not just Repub­li­can Sen­a­tors but any­one who cares about sane eco­nom­ic pol­i­cy-mak­ing because if Shel­ton because the chair she’s going to face a cri­sis. We don’t know what that cri­sis will be but she’ll face at least one. It’s more or less inevitable. So the Repub­li­can Sen­a­tors who appear to be near­ly unan­i­mous in sup­port­ing Shel­ton had bet­ter be think­ing about how their vote in sup­port of Shel­ton will look when the next major cri­sis unfolds:

...
Shelton’s fate rests in the hands of Repub­li­cans on the 25-mem­ber Sen­ate Bank­ing Com­mit­tee, which could make its deci­sion as soon as this month. All 12 Democ­rats on the com­mit­tee will prob­a­bly vote against her. That means a sin­gle no vote from a Repub­li­can mem­ber would block her nom­i­na­tion.
...

And as the arti­cle notes, if the Repub­li­can Sen­a­tors vote for Shel­ton’s nom­i­na­tion now it’s going to be a lot hard­er to oppose her expect­ed nom­i­na­tion by Trump in 2022 to replace Pow­ell as the chair of the Fed in 2022. That’s why Shel­by’s excuse that allow­ing Shel­ton on the board won’t give her much influ­ence any­way is such garbage. It would be a major step­ping stone towards Shel­ton get­ting the most influ­ence on the board in just two short years. What major crises might hit just two short years from now and beyond? Who knows but it will prob­a­bly be Chair Shel­ton who leads the Fed dur­ing those crises if Trump is win reelec­tion:

...
There’s more at stake than a seat on the Fed board. Once seat­ed, Shel­ton would become a lead­ing can­di­date to become Fed chair in two years. Sen­a­tors who vot­ed for her nom­i­na­tion as a gov­er­nor would be hard pressed to vote against her for the cen­tral bank’s top job.

...

Since being con­sid­ered for a Fed gov­er­nor­ship, Shel­ton has pub­licly changed her views on sev­er­al crit­i­cal issues, includ­ing the wis­dom of very low inter­est rates and weak­en­ing the U.S. dol­lar to sup­port exports. It is rea­son­able to be con­cerned that her views have changed to cur­ry favor with Trump. And based on that, it is rea­son­able to be con­cerned that the pres­i­dent might want her as Fed chair when Powell’s term expires. The Sen­ate should keep her off the short list for Powell’s suc­ces­sor by deny­ing her a governor’s seat.

The coro­n­avirus out­break should focus the minds of Repub­li­can sen­a­tors on the need for the leader of the Fed to inspire calm and con­fi­dence dur­ing a cri­sis — and to put in place the right pol­i­cy response. Shelton’s long his­to­ry of crit­i­ciz­ing the Fed’s com­pe­tence, objec­tives and even its exis­tence would pro­vide a shaky foun­da­tion for any cri­sis-man­age­ment efforts. This would be espe­cial­ly true of a Chair Shel­ton.

For exam­ple, in 2009, she asked, “Why do we need a cen­tral bank?” In 2011, she described the Fed as “almost a rogue agency.” As recent­ly as last year, Shel­ton expressed skep­ti­cism that a Fed objec­tive should be pro­mot­ing full employ­ment. “I don’t know that that is real­ly the Fed’s job,” she said in an inter­view with Bloomberg News.

Shelton’s views on mon­e­tary pol­i­cy are far out­side the main­stream. Too far. She has a long his­to­ry of sup­port­ing the gold stan­dard, which has been reject­ed by econ­o­mists and aban­doned by cen­tral banks. (In her hear­ing, she changed her view on this issue, as she has on oth­ers.) The gold stan­dard is a recipe for eco­nom­ic insta­bil­i­ty. It also could dic­tate the wrong course of action in sit­u­a­tions the Fed is like­ly to con­front. As the U.S. entered the Great Reces­sion in ear­ly 2008, com­mod­i­ty prices were increas­ing and the dol­lar was falling. The gold stan­dard sug­gests increas­ing inter­est rates in this sit­u­a­tion — exact­ly the wrong response.
...

And that’s all why the insane nom­i­na­tion of Judy Shel­ton to the Fed board of gov­er­nors remains a sto­ry to watch. Unlike Trump’s two pre­vi­ous gold bug nom­i­na­tions — Her­man Cain and Stephen Moore — Shel­ton looks like she might actu­al­ly be able to make it through the nom­i­na­tion process. All signs are point­ing in that direc­tion, Sen­a­tor Kennedy’s unde­cid­ed sta­tus notwith­stand­ing. There’s noth­ing in Sen­a­tor Kennedy’s back­ground that sug­gests he’s will­ing to be the guy who takes the blame for sink­ing a Trump nom­i­nee. His sup­port is just a mat­ter of time, he’s only look­ing for a good excuse, espe­cial­ly now that Sen­a­tor Shel­by sort of passed the final deci­sion onto him.

So as we watch finan­cial mar­kets con­tin­ue to swing wild­ly as the globe grap­ples with yawn­ing uncer­tain­ty and attempts to comes to terms with the viral new nor­mal, keep in mind that the ongo­ing Trump/GOP push to get an eco­nom­ic lunatic on the Fed board who would be poised to head the Fed in just a cou­ple of years prob­a­bly isn’t help­ing to mit­i­gate that uncer­tain­ty.

Here’s an update on Judy Shel­ton’s nom­i­na­tion to the Fed Board: The Repub­li­can major­i­ty on the Sen­ate Bank­ing Com­mit­tee vot­ed last to send Shel­ton’s nom­i­na­tion up to a vote before the full Com­mit­tee on Mon­day, July 21st. So in a few days it’s the moment of truth for those GOP com­mit­tee mem­bers like Sen­a­tors Pat Toomey and Richard Shel­by who have both sug­gest­ed they might vote for Shel­ton but not enthu­si­as­ti­cal­ly. Nei­ther wants to be the lone hold­out and Toomey sug­gests he’s real­ly inclined to sup­port Shel­ton. If the GOP is seri­ous about putting Shel­ton on the Fed this peri­od while the GOP still has con­trol of the Sen­ate is the last guar­an­teed oppor­tu­ni­ty to put her there in a while. So if they real­ly want her on the Fed Board it’s sort of now or nev­er and if the GOP holds togeth­er it’s going to be now:

The Wash­ing­ton Post

Sen­ate bank­ing pan­el to resume con­sid­er­ing Judy Shel­ton for Fed board
Shelton’s nom­i­na­tion appeared in jeop­ardy before the reces­sion put new pres­sure on the Fed, as the cen­tral bank is fac­ing the worst reces­sion since the Great Depres­sion.

By Rachel Siegel
July 10, 2020 at 3:55 p.m. CDT

The Sen­ate Bank­ing Com­mit­tee plans to move for­ward with the nom­i­na­tion of con­tro­ver­sial econ­o­mist Judy Shel­ton to the Fed­er­al Reserve Board, set­ting the stage for a polit­i­cal bat­tle as the cen­tral bank tries to shore up the econ­o­my dur­ing the worst reces­sion in decades.

The nom­i­na­tion of Shel­ton appeared in jeop­ardy ear­li­er this year as Repub­li­cans and Democ­rats on the bank­ing pan­el expressed con­cerns over her views on the inde­pen­dence of the Fed from the White House, as well as her advo­ca­cy in the past for return­ing the Unit­ed States to the gold stan­dard.

The com­mit­tee on Fri­day announced that a vote on Shelton’s nom­i­na­tion will take place July 21. Democ­rats swift­ly crit­i­cized the move and are call­ing for anoth­er hear­ing. It is unclear whether she has enough sup­port on the Sen­ate Bank­ing Com­mit­tee to advancer her nom­i­na­tion to the full Sen­ate. Push­back by one Repub­li­can on the pan­el could thwart a sim­ple major­i­ty and derail the nom­i­na­tion.

In a let­ter to Bank­ing Com­mit­tee Chair­man Mike Crapo (R‑Idaho), all 12 Democ­rats on the pan­el called for anoth­er hear­ing “to make sure that mem­bers of the Fed­er­al Reserve can take on the chal­lenges of an eco­nom­ic cri­sis capa­bly and inde­pen­dent­ly.”

“We are now in an eco­nom­ic cri­sis worse than the one Dr. Shel­ton was asked about at her con­fir­ma­tion hear­ing,” the sen­a­tors wrote. “Based on her answers at the hear­ing, we are deeply con­cerned that the sit­u­a­tion we are in today would have been worse if Dr. Shel­ton were already sit­ting on the Board of Gov­er­nors.”

In Feb­ru­ary, Repub­li­can sen­a­tors said they were unde­cid­ed about giv­ing Shel­ton one of the two open seats on the Fed’s sev­en-seat board. After a con­fir­ma­tion hear­ing that month, Sen. Patrick J. Toomey (Pa.) and Sen. Richard C. Shel­by (Ala.), among the top Repub­li­cans on the Bank­ing Com­mit­tee, told reporters that they had con­cerns about Shelton’s views.

Toomey said he didn’t know whether Shel­ton could uphold the cen­tral bank’s inde­pen­dence, though he lat­er said he would sup­port her. Shel­by has said Shel­ton “could be an out­lier” for the role.

That was before the coro­n­avirus pan­dem­ic effec­tive­ly shut down the U.S. econ­o­my, putting the Fed under intense pres­sure to blunt the impacts of a dev­as­tat­ing eco­nom­ic con­trac­tion. In March, the Fed slashed inter­est rates to zero and quick­ly moved to flood the mar­kets with liq­uid­i­ty and roll out emer­gency lend­ing pro­grams.

Rober­to Per­li, a for­mer Fed offi­cial and found­ing part­ner and head of glob­al pol­i­cy at Cor­ner­stone Macro, said the nom­i­na­tion of Shel­ton was polit­i­cal­ly moti­vat­ed. If con­firmed as a Fed gov­er­nor, Shel­ton wouldn’t have much pow­er to sway the think­ing of the entire board.

But there is spec­u­la­tion that if Trump is reelect­ed in Novem­ber, he could tap Shel­ton to replace the cur­rent chair, Jerome H. Pow­ell, who has often been a tar­get of Trump’s attacks.

“That’s a whole dif­fer­ent game,” Per­li said.

The Fed has tried to avoid pol­i­tics and focus on steer­ing the coun­try out of the cur­rent cri­sis. How­ev­er, Fed lead­ers, includ­ing Pow­ell, have said that the eco­nom­ic recov­ery will depend more on con­tain­ing the coro­n­avirus, a mes­sage that is often at odds with the views of White House offi­cials who say the econ­o­my is head­ing back on track, even as the nov­el coro­n­avirus con­tin­ues to spread.

Now, Shelton’s nom­i­na­tion could put a spot­light on the polit­i­cal tur­moil sur­round­ing eco­nom­ic pol­i­cy. Shel­ton has spo­ken out against the Fed in the past and argued that the coun­try should return to some­thing sim­i­lar to the long-aban­doned gold stan­dard. She has also called for clos­er ties between the cen­tral bank and the White House. Before the reces­sion, Trump often crit­i­cized the Fed chief as not doing enough to stim­u­late the econ­o­my, though Trump has more recent­ly dubbed Pow­ell his “most improved play­er.”

For years, Shel­ton has been one of the lead­ing pro­po­nents of link­ing the U.S. dol­lar to gold, sil­ver or anoth­er clear bench­mark so that its val­ue fluc­tu­ates less. The nation began to aban­don the gold stan­dard in the 1930s and ful­ly exit­ed it in 1971.

“Let’s go back to the gold stan­dard,” Shel­ton wrote in a 2009 op-ed in the Wall Street Jour­nal. “Under a gold stan­dard, if peo­ple think the paper mon­ey print­ed by gov­ern­ment is los­ing val­ue, they have the right to switch to gold.”

The Bank­ing Com­mit­tee also will vote on the nom­i­na­tion of Christo­pher J. Waller, a St. Louis Fed econ­o­mist, whose nom­i­na­tion by Pres­i­dent Trump has been far less con­tro­ver­sial.

...

———-

“Sen­ate bank­ing pan­el to resume con­sid­er­ing Judy Shel­ton for Fed board” by Rachel Siegel; The Wash­ing­ton Post; 07/10/2020

“The com­mit­tee on Fri­day announced that a vote on Shelton’s nom­i­na­tion will take place July 21. Democ­rats swift­ly crit­i­cized the move and are call­ing for anoth­er hear­ing. It is unclear whether she has enough sup­port on the Sen­ate Bank­ing Com­mit­tee to advancer her nom­i­na­tion to the full Sen­ate. Push­back by one Repub­li­can on the pan­el could thwart a sim­ple major­i­ty and derail the nom­i­na­tion.”

Yes, it’s unclear whether Shel­ton has enough sup­port on the com­mit­tee because we don’t yet know yet if both Shel­by and Toomey pro­vide the sup­port they’ve been hint­ing at in recent months. If we assume the GOP sticks with its track-record of doing the wrong thing at every oppor­tu­ni­ty her nom­i­na­tion seems assured. But whether or not it goes to the full Sen­ate is up to Shel­by and Toomey at this point:

...
In Feb­ru­ary, Repub­li­can sen­a­tors said they were unde­cid­ed about giv­ing Shel­ton one of the two open seats on the Fed’s sev­en-seat board. After a con­fir­ma­tion hear­ing that month, Sen. Patrick J. Toomey (Pa.) and Sen. Richard C. Shel­by (Ala.), among the top Repub­li­cans on the Bank­ing Com­mit­tee, told reporters that they had con­cerns about Shelton’s views.

Toomey said he didn’t know whether Shel­ton could uphold the cen­tral bank’s inde­pen­dence, though he lat­er said he would sup­port her. Shel­by has said Shel­ton “could be an out­lier” for the role.
...

And as Rober­to Per­li reminds us, if Shel­ton’s nom­i­na­tion pass­es and Trump wins reelec­tion, Trump and the GOP are in posi­tion to trans­form the Fed into a far right gold-stan­dard-sup­port­ing insti­tu­tion, for years, by Trump nom­i­nat­ing Shel­ton to become the new Chair of the Fed after Jerome Pow­ell’s term ends in 2022:

...
Rober­to Per­li, a for­mer Fed offi­cial and found­ing part­ner and head of glob­al pol­i­cy at Cor­ner­stone Macro, said the nom­i­na­tion of Shel­ton was polit­i­cal­ly moti­vat­ed. If con­firmed as a Fed gov­er­nor, Shel­ton wouldn’t have much pow­er to sway the think­ing of the entire board.

But there is spec­u­la­tion that if Trump is reelect­ed in Novem­ber, he could tap Shel­ton to replace the cur­rent chair, Jerome H. Pow­ell, who has often been a tar­get of Trump’s attacks.

“That’s a whole dif­fer­ent game,” Per­li said.
...

As we can see, the GOP is ready to move ahead with Shel­ton’s vote. We have no idea if she has the com­plete GOP sup­port on the com­mit­tee that she needs. The last we heard Toomey said he was inclined to sup­port her and Shel­by said he would be the final vote if there were not oth­er GOP hold­outs. The GOP has anoth­er oppor­tu­ni­ty to let the future down by doing some­thing gross­ly irre­spon­si­ble and that’s what it does best so all signs points to Shel­ton’s nom­i­na­tion pass­ing.

That’s the update on Shel­ton’s nom­i­na­tion: her nom­i­na­tion’s pas­sage io the upcom­ing com­mit­tee and full Sen­ate votes rep­re­sents the GOP’s lat­est oppor­tu­ni­ty to let the future down so of course she’s a favorite to make it to the Fed board, where she will be act­ing as both an ide­o­logue and crony for the entire­ty of her 14 year term. Nom­i­nat­ing peo­ple like Shel­ton who will push a far right agen­da only an oli­garch should love to posi­tions of pow­er and influ­ence so they can break things is kind of the point of the GOP these days so send­ing a gross­ly qual­i­fied per­son like Shel­ton to the Fed makes per­fect sense for the GOP. It’s a very on brand move for the par­ty.

Now that Judy Shel­ton’s nom­i­na­tion has passed out of the Sen­ate Bank­ing Com­mit­tee thanks to the full sup­port of the Repub­li­can com­mit­tee mem­bers the big ques­tion is whether or not there’s going to be enough Repub­li­can sup­port across the full sen­ate for Shel­ton’s nom­i­na­tion to get a major­i­ty vote. And with a 53–47 edge in the Sen­ate and Vice Pres­i­dent Mike Pence there to break any ties votes that means she’s going to be join­ing the Fed board unless four Repub­li­can sen­a­tors give her a thumbs down. Is there any indi­ca­tion that Shel­ton might not get the Repub­li­can sup­port she needs? Well, so far we have Mitt Rom­ney and Susan Collins announc­ing they’re vote against Shel­ton. That’s it, which means at this point she does appear to have the sup­port she needs unless two more Repub­li­can sen­a­tors come out in oppo­si­tion to her nom­i­na­tion.

So giv­en that Shel­ton now appears to be poised to get that nom­i­na­tion it’s worth keep in mind some­thing Cather­ine Ram­pell point­ed out in a recent Wash­ing­ton Post piece. It’s a point that applies to the cur­rent nom­i­na­tion but will poten­tial­ly apply to all sorts of oth­er votes between now and the Novem­ber 2020 elec­tion: as long as it looks like Pres­i­dent Trump is like­ly going to lose the Repub­li­cans are going to be incen­tivized to do what they can to sab­o­tage a Biden pres­i­den­cy, espe­cial­ly the econ­o­my. And while nom­i­nat­ing a lunatic like Shel­ton is a great way to accom­plish that kind of sab­o­tage but we should­n’t assume that kind of sab­o­tage is going to be lim­it­ed to actions like nom­i­nat­ing Shel­ton. The clos­er it gets to elec­tion day and the more Trump looks like he’s going to lose that elec­tion the more the Repub­li­cans are going to be look­ing out for ways to ‘salt the earth’ in antic­i­pa­tion of going into per­ma­nent sab­o­tage-mode like the Repub­li­cans do every time there’s a Demo­c­ra­t­ic admin­is­tra­tion. It’s that broad­er con­text of the Shel­ton nom­i­na­tion — that it’s hap­pen­ing dur­ing a time when the Repub­li­cans are going to be active­ly look to ‘salt the earth’ — that makes the nom­i­na­tion fight over Judy Shel­ton extra omi­nous:

The Wash­ing­ton Post

Trump knows he’s going to lose. He’s already salt­ing the earth behind him.

Opin­ion by Cather­ine Ram­pell
Colum­nist
July 23, 2020 at 12:42 p.m. CDT

How can you tell Pres­i­dent Trump thinks he’s going to lose in Novem­ber? Because he has already begun salt­ing the earth behind him.

And his fel­low Repub­li­cans are help­ing by sab­o­tag­ing key insti­tu­tions that the next (pre­sum­ably Demo­c­ra­t­ic) pres­i­dent will inher­it.

On Tues­day, the Repub­li­can-con­trolled Sen­ate Bank­ing Com­mit­tee approved Trump’s lat­est two picks for the Fed­er­al Reserve Board of Gov­er­nors. One of these nom­i­nees, Christo­pher Waller, would be a com­pe­tent, rea­son­able, total­ly qual­i­fied addi­tion to the most pow­er­ful eco­nom­ic body in the world.

The oth­er is Judy Shel­ton.

Shel­ton, a pro­fes­sion­al crank, has pre­vi­ous­ly sug­gest­ed that the Fed shouldn’t exist. She likened the Fed to a “Sovi­et State Plan­ning Com­mit­tee” because the cen­tral bank, rather than the quan­ti­ty of gold, con­trols the mon­ey sup­ply. Shel­ton has spent her career try­ing to bring back the gold stan­dard, a mon­e­tary sys­tem aban­doned world­wide and round­ly reject­ed by econ­o­mists.

Those were her views until recent­ly, any­way. Once Trump nom­i­nat­ed her to the Fed, she changed her tune. Now, the key prob­lem with the cen­tral bank, she says, is that it is not polit­i­cal enough and ought to “pur­sue a more coor­di­nat­ed rela­tion­ship with” the pres­i­dent. Which hap­pens to be exact­ly what Trump wants: a Fed that serves his nar­row polit­i­cal inter­ests, rather than the economy’s.

Nev­er mind that the Fed must be polit­i­cal­ly inde­pen­dent in order to func­tion; as Argenti­na, pre-euro Italy and oth­er bas­ket-case economies have illus­trat­ed many times over, a cen­tral bank can­not cred­i­bly com­mit to sta­ble prices if the mon­ey sup­ply is even mild­ly sus­pect­ed of being con­trolled by politi­cians.

Repub­li­cans have indulged Trump’s choice to install char­la­tans else­where in the exec­u­tive branch. But GOP sen­a­tors had pre­vi­ous­ly drawn the line at unqual­i­fied picks for the Fed. The cen­tral bank was too pow­er­ful, too impor­tant, to leave in the hands of buf­foons and yes men.

So, as with some quacks Trump had advo­cat­ed for the Fed, until quite recent­ly it looked as though Shelton’s nom­i­na­tion would fail. Espe­cial­ly, per­haps, when the econ­o­my hit its worst num­bers since the Great Depres­sion and it became clear the Fed was the country’s only com­pe­tent eco­nom­ic pol­i­cy­mak­ing body.

After all, Shel­ton has long been con­sid­ered fringe even by hard-line Repub­li­cans. In fact, she was pre­vi­ous­ly con­sid­ered too out­landish to mere­ly tes­ti­fy before the com­mit­tee that just approved her for a Fed seat. “The idea of even call­ing her as a wit­ness for some­thing was beyond the pale,” a for­mer Repub­li­can Sen­ate Bank­ing Com­mit­tee aide said as Shel­ton faced con­fir­ma­tion hear­ings ear­li­er this year.

So what changed?

For one thing, Trump’s poll num­bers.

There is, even accord­ing to Repub­li­can law­mak­ers, no eco­nom­ic upside in putting Shel­ton on the Fed. In praise so faint it’s inaudi­ble, Repub­li­can sen­a­tors have sug­gest­ed the best thing about her is ... she’d be just one voice among many and would there­fore be unable to uni­lat­er­al­ly imple­ment her worst ideas, such as rein­stat­ing the gold stan­dard.

That’s their best-case sce­nario: that Shel­ton has no influ­ence what­so­ev­er. The worst: She could cause some chaos, includ­ing by mak­ing dis­cus­sion among (under­stand­ably para­noid) Fed offi­cials less can­did. But per­haps a less func­tion­al Fed is desir­able, if you’re expect­ing Joe Biden to be pres­i­dent come Jan­u­ary.

It’s rea­son­able to sus­pect that Repub­li­cans might advo­cate per­son­nel or pol­i­cy changes dam­ag­ing to the econ­o­my sim­ply because a Demo­c­rat is pres­i­dent. They’ve done so before, when Barack Oba­ma was in office. In the after­math of the finan­cial cri­sis, such advo­ca­cy came in the form of open let­ters and crab­by op-eds fear­mon­ger­ing that low inter­est rates and Key­ne­sian stim­u­lus would stoke (in Shelton’s words) “ruinous infla­tion.”

If Shel­ton is ulti­mate­ly con­firmed to the Fed by the full Sen­ate, those crank calls would be com­ing from inside the house.

Out­go­ing pres­i­den­tial admin­is­tra­tions have engaged in pet­ty, puerile pranks against their suc­ces­sors, such as steal­ing W keys from com­put­er key­boards. This admin­is­tra­tion may be seed­ing some­thing more sin­is­ter, across mul­ti­ple crit­i­cal insti­tu­tions:

This land­mine in the Fed. A hol­lowed-out State Depart­ment. Brain-drained and sci­en­tif­ic agen­cies. A shred­ded social safe­ty net. A gut­ted immi­gra­tion sys­tem, so finan­cial­ly mis­man­aged that about 75 per­cent of its employ­ees are slat­ed for fur­lough in two weeks. A hob­bled high­er-edu­ca­tion sys­tem, once the envy of the world, now strug­gling to attract glob­al tal­ent because the admin­is­tra­tion has made it so dif­fi­cult for that tal­ent to study here. Per­haps a per­ma­nent­ly lost tax-rev­enue stream from the past sev­er­al decades of unre­al­ized cap­i­tal gains.

...

———–

“Trump knows he’s going to lose. He’s already salt­ing the earth behind him.” by Cather­ine Ram­pell; The Wash­ing­ton Post; 07/23/2020

“After all, Shel­ton has long been con­sid­ered fringe even by hard-line Repub­li­cans. In fact, she was pre­vi­ous­ly con­sid­ered too out­landish to mere­ly tes­ti­fy before the com­mit­tee that just approved her for a Fed seat. “The idea of even call­ing her as a wit­ness for some­thing was beyond the pale,” a for­mer Repub­li­can Sen­ate Bank­ing Com­mit­tee aide said as Shel­ton faced con­fir­ma­tion hear­ings ear­li­er this year.”

The idea of even call­ing her as a wit­ness for some­thing was “beyond the pale” just ear­li­er this year accord­ing to a for­mer Repub­li­can Sen­ate Bank­ing Com­mit­tee aide. And now she’s about to join the Fed board. What changed? Trump’s poll num­bers. The more remote his reelec­tion chances get the bet­ter Shel­ton’s nom­i­na­tion chances get. And as long as Trump’s reelec­tion chances appear remote that same nihilis­tic log­ic is going to apply to every deci­sion made by the Trump admin­is­tra­tion and Repub­li­cans in con­gress between now and the elec­tion:

...
So what changed?

For one thing, Trump’s poll num­bers.

...

That’s their best-case sce­nario: that Shel­ton has no influ­ence what­so­ev­er. The worst: She could cause some chaos, includ­ing by mak­ing dis­cus­sion among (under­stand­ably para­noid) Fed offi­cials less can­did. But per­haps a less func­tion­al Fed is desir­able, if you’re expect­ing Joe Biden to be pres­i­dent come Jan­u­ary.

It’s rea­son­able to sus­pect that Repub­li­cans might advo­cate per­son­nel or pol­i­cy changes dam­ag­ing to the econ­o­my sim­ply because a Demo­c­rat is pres­i­dent. They’ve done so before, when Barack Oba­ma was in office. In the after­math of the finan­cial cri­sis, such advo­ca­cy came in the form of open let­ters and crab­by op-eds fear­mon­ger­ing that low inter­est rates and Key­ne­sian stim­u­lus would stoke (in Shelton’s words) “ruinous infla­tion.”

...

Out­go­ing pres­i­den­tial admin­is­tra­tions have engaged in pet­ty, puerile pranks against their suc­ces­sors, such as steal­ing W keys from com­put­er key­boards. This admin­is­tra­tion may be seed­ing some­thing more sin­is­ter, across mul­ti­ple crit­i­cal insti­tu­tions:
...

So that’s all part of why the nom­i­na­tion of Judy Shel­ton is about more than just the threat she pos­es to the US econ­o­my. It’s also about the orgy of nation­al sab­o­tage we should expect in com­ing months. Of course, let’s not for­get that the Repub­li­can par­ty’s nor­mal agen­da of mas­sive tax cuts to the super-rich and mass dereg­u­la­tion and pro-pol­lu­tion/pover­ty poli­cies that the par­ty rou­tine­ly pur­sues could prob­a­bly be fair­ly char­ac­ter­ized as a form of nation­al sab­o­tage so in a sense this is just a typ­i­cal sto­ry of more GOP sab­o­tage as usu­al.

Oh look, the GOP found a new way to sab­o­tage the future. Not new real­ly, but a new oppor­tu­ni­ty to make anoth­er stab at one of the areas of sab­o­tage that, just months ago, even GOP did­n’t appear capa­ble of car­ry­ing out. It’s also the kind of sab­o­tage that strong­ly hints that the GOP is going to be return­ing to eco­nom­ic sab­o­tage-mode dur­ing a Biden admin­is­tra­tion:

The nom­i­na­tion of Judy Shel­ton to the Fed­er­al Reserve board of gov­er­nors is back on the agen­da, thanks to Sen­ate Major­i­ty Leader Mitch McConnell. Not Pres­i­dent Trump. This was McConnel­l’s call.

First, recall how Shel­ton’s nom­i­na­tion made it out of the Sen­ate Bank­ing Com­mit­tee back in July thanks to the full sup­port of the Repub­li­cans on the com­mit­tee, paving the way for a full Sen­ate con­fir­ma­tion vote. At that point it was becom­ing clear that Trump’s inter­est in nom­i­nat­ing some­one like Shel­ton to a posi­tion like this poten­tial­ly rep­re­sent­ed a form of “salt­ing the earth”, eco­nom­i­cal­ly speak­ing, should he lose reelec­tion. And with Trump osten­si­bly on his way out, “salt­ing the earth” is now slat­ed to be a full GOP enter­prise. At least until Trump wins again in 2024.

Now, hav­ing Shel­ton’s nom­i­na­tion move to the floor does­n’t guar­an­tee she’ll get the sup­port she needs. After Repub­li­can Sen­a­tors Mitt Rom­ney and Susan Collins already stat­ed they would­n’t sup­port Shel­ton’s nom­i­na­tion that leaves no room for fur­ther GOP resis­tance. And that’s where we got our sec­ond big piece of news about this mode of sab­o­tage: Alaska’s Repub­li­can Sen­a­tor Lisa Murkows­ki, the top con­tender for being the third nec­es­sary GOP hold out, just sig­naled her sup­port for Shel­ton. So unless there’s anoth­er sur­prise GOP sen­a­tor who decides to oppose Shel­ton’s nom­i­na­tion it’s look­ing like she’s going to be spend­ing the next 14 years (the dura­tion of these terms) on the Fed­er­al Reserve board of gov­er­nors. It’s an exam­ple of how the GOP’s short-term polit­i­cal­ly moti­vat­ed eco­nom­ic sab­o­tage includes quite a bit of long-term sab­o­tage too:

The Wash­ing­ton Post

Sen­ate read­ies vote on Judy Shel­ton, grant­i­ng Trump anoth­er oppor­tu­ni­ty to shape Fed­er­al Reserve
Shelton’s con­fir­ma­tion could mark Trump’s final imprint on the Fed board, just months before the Biden admin­is­tra­tion is inau­gu­rat­ed.

By Rachel Siegel
Novem­ber 12, 2020 at 2:55 PM EST

The Sen­ate is expect­ed to con­firm Pres­i­dent Trump’s con­tro­ver­sial Fed­er­al Reserve nom­i­nee Judy Shel­ton to a seat on the cen­tral bank’s board of gov­er­nors, giv­ing the pres­i­dent anoth­er chance to shape the long-term direc­tion of one of the government’s most pow­er­ful enti­ties.

Sen­ate Major­i­ty Leader Mitch McConnell (R‑Ky.) took pro­ce­dur­al steps Thurs­day to set up a vote on Shelton’s long-pend­ing nom­i­na­tion for as ear­ly as next week. Also on Thurs­day, Sen. Lisa Murkows­ki (R‑Alaska) — a key mod­er­ate whose sup­port had not been assured — said she would back Shelton’s nom­i­na­tion.

Just a few months ago, it was unclear whether Shel­ton had enough sup­port among GOP sen­a­tors to be con­firmed.

Shelton’s con­fir­ma­tion could mark Trump’s final imprint on the Fed board before the Biden admin­is­tra­tion is inau­gu­rat­ed in Jan­u­ary. Trump’s pre­vi­ous picks to fill the Fed’s two cur­rent vacan­cies have faced crit­i­cism from Democ­rats and Repub­li­cans alike, and get­ting his final nom­i­nees con­firmed would be a vic­to­ry before his admin­is­tra­tion leaves office. Some of Shelton’s crit­ics had pre­vi­ous­ly won­dered whether Trump, if reelect­ed, would try to ele­vate Shel­ton to Fed chair. Yet those prospects have all but evap­o­rat­ed with an incom­ing Biden admin­is­tra­tion.

“Judy Shel­ton, Pres­i­dent Trump’s excep­tion­al­ly qual­i­fied nom­i­nee to the Fed­er­al Reserve, has the full back­ing of the White House and we expect she will be con­firmed,” deputy White House press sec­re­tary Judd Deere said in a state­ment Thurs­day.

In Sep­tem­ber, Sen. John Thune (R‑S.D.) sug­gest­ed that Shel­ton did not have the votes to be con­firmed. At the time, Thune said con­ver­sa­tions about Shelton’s nom­i­na­tion “kind of got eclipsed by the coro­n­avirus dis­cus­sion” and relat­ed stim­u­lus nego­ti­a­tions.

...

Shelton’s con­fir­ma­tion also appeared in jeop­ardy ear­li­er in the sum­mer when Sens. Susan Collins (R‑Maine) and Sen. Mitt Rom­ney (R‑Utah) said they would vote against her nom­i­na­tion. In July, Shelton’s nom­i­na­tion nar­row­ly made it through the Sen­ate Bank­ing Com­mit­tee, which vot­ed 13 to 12 along par­ty lines to send the nom­i­na­tion to the floor of the Sen­ate. Some on the pan­el had pre­vi­ous­ly expressed con­cerns that Shel­ton was too much of an out­lier in her views on the Fed’s inde­pen­dence and mon­e­tary pol­i­cy.

Shel­ton advised Trump’s 2016 pres­i­den­tial bid and has been crit­i­cized for her views on the long-aban­doned gold stan­dard. Shel­ton also had called for clos­er ties between the White House and the Fed despite a long-stand­ing tra­di­tion of cen­tral bank inde­pen­dence.

Shel­ton was nom­i­nat­ed along­side Christo­pher J. Waller, a St. Louis Fed econ­o­mist. Waller’s con­fir­ma­tion has been far less con­tro­ver­sial. If both Shel­ton and Waller are con­firmed, the board’s cur­rent vacan­cies will be filled.

“It means Repub­li­cans are tak­ing it very seri­ous­ly and Trump wants to get it done,” said Stephen Moore, an out­side eco­nom­ic advis­er to the White House who aban­doned his own bid to fill one of the Fed’s vacan­cies amid scruti­ny of his past remarks. “Peo­ple said, ‘Well, she’s not in the main­stream with all the oth­er Fed econ­o­mists.’ Well, that’s what we like about her. ... There’s this sense that every­one has to drink the same Kool-Aid at the Fed.”

Still, the make­up of the Fed board of gov­er­nors could change fur­ther once the Biden admin­is­tra­tion is in office. Lael Brainard, the board’s lone Demo­c­rat, also is a top con­tender to Biden’s trea­sury sec­re­tary or, some sug­gest, a suc­ces­sor to Fed Chair Jerome H. Pow­ell if he is not reap­point­ed when his term ends in 2022.

————

“Sen­ate read­ies vote on Judy Shel­ton, grant­i­ng Trump anoth­er oppor­tu­ni­ty to shape Fed­er­al Reserve” by Rachel Siegel; The Wash­ing­ton Post; 11/12/2020

“Sen­ate Major­i­ty Leader Mitch McConnell (R‑Ky.) took pro­ce­dur­al steps Thurs­day to set up a vote on Shelton’s long-pend­ing nom­i­na­tion for as ear­ly as next week. Also on Thurs­day, Sen. Lisa Murkows­ki (R‑Alaska) — a key mod­er­ate whose sup­port had not been assured — said she would back Shelton’s nom­i­na­tion.”

That’s as close to a con­fir­ma­tion as we’re going to get. Unless some Repub­li­can Sen­a­tor decide to defy Trump now, when he’s arrang­ing the Trump clan’s per­ma­nent takeover of the GOP, this is a done deal. Shel­ton is going to be a pro-aus­ter­i­ty per­ma-hawk for the next 14 years. And that entire 14 year peri­od will be a giant oppor­tu­ni­ty for an future Repub­li­can Pres­i­dents to inflict major long-term eco­nom­ic sab­o­tage by appoint Shel­ton to be Chair of the Fed Board. In oth­er words, should Trump actu­al­ly in anoth­er term in 2024, get ready for Fed­er­al Reserv­er Chair­woman Judy Shel­ton some time after the elec­tion of 2028.

Also note how stacked with Repub­li­can appointees the Fed board is already, even with­out Shel­ton’s nom­i­na­tion. There’s a sin­gle remain­ing Demo­c­rat-appoint­ed board mem­ber, Lael Brainard, and she’s pos­si­bly going to leave to become Joe Biden’s trea­sury sec­re­tary. Plus the two open slots, one of which might be filled by Shel­ton:

...
Shel­ton was nom­i­nat­ed along­side Christo­pher J. Waller, a St. Louis Fed econ­o­mist. Waller’s con­fir­ma­tion has been far less con­tro­ver­sial. If both Shel­ton and Waller are con­firmed, the board’s cur­rent vacan­cies will be filled.

...

Still, the make­up of the Fed board of gov­er­nors could change fur­ther once the Biden admin­is­tra­tion is in office. Lael Brainard, the board’s lone Demo­c­rat, also is a top con­tender to Biden’s trea­sury sec­re­tary or, some sug­gest, a suc­ces­sor to Fed Chair Jerome H. Pow­ell if he is not reap­point­ed when his term ends in 2022.
...

So if the Repub­li­can-con­trolled Sen­ate man­ages to approve both Shel­ton and Trumps oth­er nom­i­nee, Christo­pher J. Waller, that leaves poten­tial­ly one open seat for Biden to fill. Except it would­n’t be Biden fill­ing those seats. Biden can nom­i­nate some­one but it’s up to the cur­rent­ly-Repub­li­can-con­trolled Sen­ate to approve nom­i­nees. And if we look at the cur­rent sched­ule for the Fed board, there’s one oth­er board mem­ber, Richard Clar­i­da, who is sched­uled to have is term expire between now and 2024. Jerome Pow­ell’s term of Fed Chair also expires in 2022, although his term on the board remains until 2028. The only seat open­ing up for a Biden first term is Clar­i­da’s seat. And there’s no rea­son to assume that seat will be filled. Fed board seats can remain open for years. So if the GOP retains con­trol of the Sen­ate it will be in a posi­tion to keep Clar­i­da’s seat open for Trump’s grand return in 2024 by sim­ply stalling on all of Biden’s nom­i­nees.

It’s part of what makes the cur­rent fight over Shel­ton’s nom­i­na­tion so much big­ger than just fill­ing one board seat with an eco­nom­ic sabo­teur. The way the Fed nom­i­na­tion sys­tem works, as long as the GOP con­trols the Sen­ate it can keep Fed board seat open for as long as they want. Long enough for a future Repub­li­can pres­i­dent to stack the board with more mon­e­tary lunatics. And with Shel­ton’s con­fir­ma­tion the GOP is poised to sig­nal that mon­e­tary lunatics are OK with the par­ty. Shel­ton’s nom­i­na­tion isn’t just a Trump thing. It’s a GOP thing. This is a new area of extrem­ism for the GOP as a par­ty. It’s Trump’s GOP now, and as long as the GOP con­trols the Sen­ate that means it’s even­tu­al­ly going to be Trump’s Fed too.

Promis­es made, promis­es kept. That was the pledge Don­ald Trump made dur­ing his elec­tion night vic­to­ry speech. A speech filled with mes­sian­ic over­tones, like the claim that “Amer­i­ca has giv­en us an unprece­dent­ed and pow­er­ful man­date,” fol­low­ing his win with rough­ly 50.9% of the pop­u­lar vote.

And while Trump was inten­tion­al­ly quite vague dur­ing his cam­paign about what exact­ly he was promis­ing, we’ve already seen the play­book filled with promis­es. That’s what the whole Sched­ule F/Project 2025 scheme was, after all. A detailed play­book for a sec­ond Trump term. And while it remains to be seen to what extent Project 2025 will be guid­ing the Trump admin­is­tra­tion, it’s not hard to imag­ine a Trump admin­is­tra­tion now imple­ment­ing Project 2025 under the ‘promis­es made, promis­es kept’ mot­to. After all, being able to make a ‘promis­es made, promis­es kept’ slo­gan while imple­ment­ing Project 2025 is prob­a­bly one of the only rea­sons they went pub­lic with the scheme long before the elec­tion in the first place.

And then there’s the few promis­es we did hear direct­ly com­ing out of Trump’s mouth. promis­es like a 20% across-the-board tar­iff on all import­ed goods. Or a sug­gest­ing that Elon Musk could be appoint­ed to a gov­er­ment-cost-cut­ting com­mis­sion, which has already result­ed in Musk not only pledg­ing to cut at least $2 tril­lion from the fed­er­al bud­get but agree­ing with the pre­dic­tion that his cuts will send the US into a tem­po­rary eco­nom­ic cri­sis in response to the shock. Trump can cut tax­es, slash spend­ing, and raise tar­iffs, which will almost cer­tain­ly tank the econ­o­my like Elon Musk pre­dicts. But after that, he’s basi­cal­ly out of gim­micks. At which point the one promise he can real­is­ti­cal­ly keep in jail­ing his oppo­nents and oth­er “ene­mies with­in”.

So with a Trump-induced eco­nom­ic cri­sis loom­ing before the US econ­o­my, and no real­is­tic pol­i­cy response that we can expect from a Trump admin­is­tra­tion beyond more bud­get-bust­ing tax cuts, it’s going to be worth keep­ing in mind one of the oth­er forms of pol­i­cy we should expect over the next four years: cajol­ing the Fed­er­al Reserve into boost­ing the econ­o­my. Because as we saw dur­ing the first Trump term, threat­en­ing Fed­er­al Reserve chair Jerome Pow­ell over rate hikes became nor­mal­ized. And as we also saw, Trump was­n’t just inter­est­ed in pres­sur­ing the Fed into adopt­ing unortho­dox poli­cies in the pur­suit of a short-term eco­nom­ic boost. He was sur­round­ed with advo­cates for return­ing the US to the gold stan­dard. Peo­ple like Lar­ry Kud­low, Stephen Moore, and Judy Shel­ton, with Moore and Shel­ton both get­ting nom­i­nat­ed to the Fed board of gov­er­nors at one point.

Which is why we have to start ask­ing: what are the odds we see a move to rein­state the gold stan­dard over the next four years? Don’t for­get: Trump does­n’t have to run for reelec­tion this time and he’s so old there’s a rea­son­able chance he dies in office. The polit­i­cal reper­cus­sions for extreme poli­cies are going to be min­i­mized.

But there’s anoth­er rea­son we should start won­der­ing about a return to the gold stan­dard: the odds of a major inter­na­tion­al finan­cial cri­sis involv­ing the dol­lar’s role on the world stage are going to be much high­er over the next for years than they have been in decades. Keep in mind how wild­ly dif­fer­ent the US’s fis­cal sit­u­a­tion is in 2024 vs 2016. The deficit-explod­ing Trump tax cuts had­n’t yet been passed. Nor has the tril­lions in pan­dem­ic-relat­ed emer­gency spend­ing tak­en place. The US nation­al debt, which was hov­er­ing just below $20 tril­lion in 2016, is already top­ping $33 tril­lion. And it’s only poised to explode wild­ly under a sec­ond Trump term. What is four years of even faster grow­ing deficits with no pos­si­ble end in sight going to do to the posi­tion of the dol­lar as the world’s reserve cur­ren­cy?

Even worse, imag­ine the kind of stagfla­tion sce­nar­ios Trump is invit­ing with his across-the-board tar­iffs and soci­ety-destroy­ing cuts. Sure, the US might see defla­tion as a result of the eco­nom­ic tur­moil that we can expect. But defla­tion is no guar­an­tee, espe­cial­ly with those tar­iffs. Seri­ous stagfla­tion that the Trump admin­is­tra­tion is sim­ply unable to extract the US out of is a very real pos­si­bil­i­ty over the next for years.

Those grim sce­nar­ios are the back­drop for the fol­low­ing set of arti­cles that give us a hint of what to expect. Because as we’re going to see, the peo­ple who have been whis­per­ing in Trump’s ear about how to approach fis­cal and mon­e­tary pol­i­cy under a sec­ond term of very much of the Stephen Moore/Judy Shel­ton vari­ety. Along with the Project 2025 crew. As the fol­low­ing arti­cle from April of this year describes, ‘infor­mal advis­ers’ were already shap­ing Trump’s views on these mat­ters. Advis­ers from think tanks like the Her­itage Foun­da­tion, Amer­i­ca First Pol­i­cy Insti­tute, Con­ser­v­a­tive Part­ner­ship Insti­tute and the Cen­ter for Renew­ing Amer­i­ca were devel­op­ing white papers and col­lect­ing resumes. Of course, as we’ve seen, those ‘think tanks’ also hap­pen to be the lead­ing enti­ties behind the Sched­ule F/Project 2025 scheme. Recall how the founder of the Cen­ter for Renew­ing Amer­i­ca, Russ Vought, was recent­ly revealed to be active­ly plan­ning on psy­cho­log­i­cal­ly trau­ma­tiz­ing fed­er­al work­ers as part of that scheme, as well as set­ting up a “shad­ow” White House Office of Legal Coun­sel to ensure a new­ly elect­ed Pres­i­dent Trump won’t be dis­suad­ed from mak­ing con­sti­tu­tion­al­ly ques­tion­able actions like invok­ing the Insur­rec­tion Act and call­ing in the mil­i­tary to deal with domes­tic protests.

So what kind of advice was Trump get­ting from these think tanks and oth­er infor­mal advis­ers? Ideas like impos­ing a flat tax, which would obvi­ous­ly blow deficits up even more. Oth­er ideas include penal­iz­ing coun­tries that move away from the dol­lar and cur­tail­ing the inde­pen­dence of the Fed­er­al Reserve. All ideas that, at this point, sound pret­ty plau­si­ble. After all, rail­ing against the Fed’s inde­pen­dence and demand­ing rate cuts was a fea­ture of the first Trump admin­is­tra­tion.

We’re also told a few of these out­sider advis­ers were encour­ag­ing Trump to fire Fed chair­man Jerome Pow­ell before the end up his term in 2026, a move that would direct­ly strike at the Fed’s sta­tus as an inde­pen­dent reg­u­la­tor. Keep in mind that cur­tail­ing the Fed’s inde­pen­dence is obvi­ous­ly direct­ly in line with the whole phi­los­o­phy behind Sched­ule F/Project 2025.

So if Trump does end up replac­ing Pow­ell ear­ly, what kind of replace­ment can we expect? Well, the same peo­ple he was con­sid­er­ing before, pre­sum­ably. Peo­ple like Shel­ton, Moore, or Kud­low. In oth­er words, gold bugs. In fact, in an arti­cle pub­lished last week, we learned that Moore is already pro­mot­ing Shel­ton to Trump as a replace­ment for Pow­ell for a sec­ond term.

Shel­ton, for her part, just pub­lished a new book advo­cat­ing for a return to the gold stan­dard. And she has some more unortho­dox mon­e­tary advise for a sec­ond Trump term: instead of set­ting a 2% infla­tion tar­get, the Fed should set a 0% tar­get. Because 2% infla­tion is too high. Keep in mind that a 0% infla­tion rate is wide­ly viewed by econ­o­mist as being dan­ger­ous­ly close to defla­tion and basi­cal­ly a recipe for the kind of defla­tion­ary eco­nom­ic death spi­rals the US expe­ri­enced dur­ing the Great Depres­sion. Shel­ton instead argues that defla­tion isn’t so bad and a great way to bring prices back down. Keep in mind that while defla­tion on indi­vid­ual goods can be fine and even ben­e­fi­cial, wide­spread defla­tion across the econ­o­my is a very dif­fer­ent sce­nario. But that’s the sce­nario Shel­ton argues is actu­al­ly fine. Also keep in mind that any return to a gold stan­dard would almost cer­tain­ly involve reg­u­lar bouts of wide­spread defla­tion, so when Shel­ton argues defla­tion isn’t so bad, it’s serv­ing as a jus­ti­fi­ca­tion for the gold stan­dard.

But Shel­ton isn’t the only name Moore is float­ing to Trump to replace Pow­ell. Oth­er rec­om­men­da­tions from Moore to head the Fed includes Rea­gan econ­o­mist Art Laf­fer, best known for his debunked “Laf­fer curve” the­o­ry that tax cuts increase tax rev­enues.

Omi­nous­ly, Moore insists that while he’s not inter­est­ing in anoth­er bid for a role on the Fed board of gov­er­nors (he did­n’t made it through his first round of con­fir­ma­tion hear­ings, after all), there’s a role that would­n’t involve con­fir­ma­tion hear­ings that he might be inter­est­ed in: serv­ing on Elon Musk’s giant cost-cut­ting com­mis­sion. This is a good time to recall how Moore com­plete­ly aban­doned his long-time stance of inton­ing against the dan­gers of gov­ern­ment debt when he ful­ly embraced the Trump tax cut and sud­den­ly argued that the spikes in US bud­get deficit were an accept­able price to pay for the high­er long-term growth that the sup­ply-side tax cuts would pro­duce. Also recall how Moore was not just nom­i­nat­ed by Trump to the Fed board of gov­er­nors but, in his nom­i­na­tion hear­ings, admit­ted that he did­n’t actu­al­ly under­stand very much about macro­eco­nom­ics. He did­n’t get the job.

And when we see Moore sug­gest that he might be open to some­thing like Musk’s gov­ern­ment cost-cut­ting com­mis­sion, which sounds more like a mass aus­ter­i­ty com­mis­sion, recall how Moore — a Coun­cil for Nation­al Pol­i­cy board mem­ber — and Laf­fer both sug­gest­ed ‘blue’ states be forced to slash tax­es and reg­u­la­tions in order to get fed­er­al gov­ern­ment assis­tance dur­ing the pan­dem­ic or be forced to lan­guish in a deserved eco­nom­ic depres­sion if they refused. He is extreme­ly eager to evis­cer­ate fed­er­al spend­ing and is demon­stra­bly influ­en­tial on Trump.

So with fig­ures like Moore, Shel­ton, and Kud­low appar­ent­ly once again in a posi­tion to shape the incom­ing Trump admin­is­tra­tion, but a glob­al econ­o­my in far worse shape in 2024 than in 2016 and US deficits poised to explode even fur­ther under Trump’s poli­cies, is it too soon to start ask­ing ques­tions about the dol­lar’s role as the world’s reserve cur­ren­cy? And if we do end up in a major fiscal/monetary cri­sis, what are the odds that some­thing like ‘return­ing to the gold stan­dard!’ ends up being part of the solu­tion? That’s all part of the con­text of the third arti­cle we’re going to look at below describ­ing the grow­ing fears of Nas­sim Taleb, the econ­o­mist best know for his ‘Black Swan’ the­o­ries about the emer­gence of major unex­pect­ed crises, has been warn­ing in recent weeks about an ele­vat­ed risk of a new Black Swan event. This time it will be the dol­lar’s role in the glob­al econ­o­my that’s poised to get Black Swan-ed, a sce­nario where spi­ral­ing US deficits cou­ple with grow­ing fears about the sta­bil­i­ty and safe­ty of the dol­lar as a store of val­ue accel­er­ate the ongo­ing ‘de-dol­lar­iza­tion’ move­ments to set up alter­na­tive reserve cur­ren­cies, with cen­tral banks buy­ing gold in large vol­umes as a kind of de-dol­lar­iza­tion hedge.

Taleb attrib­ut­es those fears over the safe­ty of the dol­lar to the Biden admin­is­tra­tion’s deci­sion to freeze Russ­ian assets in response to the war in Ukraine, call­ing the move one of the top two biggest finan­cial mis­takes in the 21st cen­tu­ry. Which also rais­es the ques­tion: what are the odds Trump isn’t going to be mak­ing sim­i­lar threats? Don’t for­get, part of the advise we are told he receive from his ‘infor­mal advis­ers’ ear­li­er this year is the idea of pun­ish­ing coun­tries that move away from the dol­lar. What are the odds Trump is able to intim­i­date the rest of the world into stick­ing with the dol­lar no mat­ter how high US deficits spike or how bad the US’s econ­o­my gets? Because that sure sounds like a recipe for an aggra­vat­ed accel­er­at­ed process of de-dollarization...and also an excuse to revert to even more extreme ‘solu­tions’ like jump­ing back on the gold stan­dard. Don’t for­get, the more severe the cri­sis, the greater the odds some­thing like the gold stan­dard is con­sid­ered an accept­able response. Espe­cial­ly if run­away stagfla­tion becomes are real­i­ty. And it’s hard to imag­ine a bet­ter recipe for run­away stagfla­tion than an accel­er­at­ed glob­al de-dol­lar­iza­tion trend.

Final­ly, Taleb also warns that US stocks are more over­val­ued than at any point in the last 20–30 years, with stratos­pher­ic val­u­a­tions pred­i­ca­tion on assump­tions of an AI-dri­ven eco­nom­ic boom. So if Taleb is cor­rect in his assess­ment that the dol­lar’s reserve cur­ren­cy sta­tus is already hov­er­ing in ‘Black Swan’ ter­ri­to­ry, what can we expect over the next four years, when the Trump admin­is­tra­tion is almost guar­an­teed to induce a major fis­cal cri­sis that is, in turn, used as a pre­text for mas­sive cost-cut­ting along with doing away with the Fed’s inde­pen­dence and man­dat­ing polit­i­cal­ly con­ve­nient mon­e­tary poli­cies? It’s almost sure­ly going to be an admin­is­tra­tion run via emer­gen­cies and decrees. How big of an eco­nom­ic emer­gency are we going to get? Because, again, the worse this gets, the like­li­er ‘solu­tions’ like a gold stan­dard will be con­sid­ered. And all signs are point­ing towards a major cri­sis, espe­cial­ly if Trump real­ly does take all this advice he’s get­ting:

Bloomberg

Trump’s Eco­nom­ic Con­fi­dants Bat­tle for Sway on Tax, Fed Pol­i­cy

* Pol­i­cy advis­ers in Trump’s orbit clash over eco­nom­ic ideas
* Trump’s team seek­ing to quell unau­tho­rized pol­i­cy pro­pos­als

By Nan­cy Cook, Sale­ha Mohsin, and Cata­ri­na Sarai­va
April 28, 2024 at 6:00 PM UTC

Eco­nom­ic advis­ers in Don­ald Trump’s orbit are clash­ing over their favored pol­i­cy ideas, a fight that is spilling into pub­lic view as they jock­ey for influ­ence over the pre­sump­tive Repub­li­can pres­i­den­tial nominee’s sec­ond-term plans.

In recent weeks, infor­mal advis­ers have float­ed ideas such as penal­ties for coun­tries that shift away from the US dol­lar; a pro­pos­al for a flat tax and reforms to the Fed­er­al Reserve to give the pres­i­dent more con­trol over the inde­pen­dent cen­tral bank.

...

The pub­lic jock­ey­ing and extreme ideas from var­i­ous fac­tions with­in Repub­li­can cir­cles under­cut the strat­e­gy of a remark­ably dis­ci­plined cam­paign that has helped Trump cruise to the party’s nom­i­na­tion even as he’s mired in court cas­es. The plans, which often embrace fringe eco­nom­ic ideas, rein­force Trump’s polit­i­cal unortho­doxy, leav­ing vot­ers — and mar­kets — uncer­tain on what he would do with a sec­ond term.

These eco­nom­ic tri­al bal­loons have infu­ri­at­ed top Trump cam­paign offi­cials and cre­at­ed dis­trac­tions as they pre­pare for the gen­er­al elec­tion. The cam­paign is con­sumed with man­ag­ing Trump’s appear­ances at his ongo­ing crim­i­nal tri­al in New York City involv­ing hush-mon­ey pay­ments, and fig­ur­ing out ways to gen­er­ate polit­i­cal momen­tum from the days in court. They are also busy strate­giz­ing how to win key swing states in Novem­ber and plan­ning fundrais­ers, as they try to close a wide cam­paign cash gap with Pres­i­dent Joe Biden.

...

Pol­i­cy Plans

A hand­ful of con­ser­v­a­tive think tanks have been gen­er­at­ing white papers and col­lect­ing resumes to pre­pare for a return of Trump, includ­ing the Her­itage Foun­da­tion, Amer­i­ca First Pol­i­cy Insti­tute, Con­ser­v­a­tive Part­ner­ship Insti­tute and the Cen­ter for Renew­ing Amer­i­ca.

Trump is also receiv­ing eco­nom­ic advice from for­mer top offi­cials, includ­ing direc­tor of the Office of Man­age­ment and Bud­get Russ Vought, for­mer US Trade Rep­re­sen­ta­tive Robert Lighthiz­er, for­mer head of the Coun­cil of Eco­nom­ic Advis­ers Kevin Has­sett and for­mer Nation­al Eco­nom­ic Coun­cil Direc­tor Lar­ry Kud­low, along with wealthy donors includ­ing John Paul­son and Scott Bessent, both of whom have been float­ed as poten­tial can­di­dates for Trea­sury Sec­re­tary. Many of his key advis­ers don’t sup­port ideas to med­dle with the Fed.

For months, the Trump cam­paign has been try­ing to rein in pro­pos­als from var­i­ous fac­tions with lim­it­ed suc­cess.

“Let us be very spe­cif­ic here: unless a mes­sage is com­ing direct­ly from Pres­i­dent Trump or an autho­rized mem­ber of his cam­paign team, no aspect of future pres­i­den­tial staffing or pol­i­cy announce­ments should be deemed offi­cial,” cam­paign man­agers, Susie Wiles and Chris LaCivi­ta said in a writ­ten state­ment to the media this win­ter.

Mon­e­tary Pol­i­cy Bat­tle

Whether and how to rein in the Fed­er­al Reserve’s pow­er is one of the most divi­sive issues among Repub­li­cans. Dur­ing Trump’s first term in the White House, he often tried to pres­sure the Fed and Chair Jerome Pow­ell to keep inter­est rates low.

It’s an open ques­tion whether Trump in a sec­ond term would select Fed offi­cials and oth­er White House aides that would want to keep the cen­tral bank inde­pen­dent, said Nathan Sheets, the glob­al chief econ­o­mist at Cit­i­group Inc.

“Any kind of pol­i­cy that erod­ed inde­pen­dence in an appre­cia­ble way would be greet­ed by the mar­kets very vig­or­ous­ly and adverse­ly and would be a source of great pres­sure and volatil­i­ty,” he said. “I think it would be such a prob­lem that any gains a polit­i­cal actor might think that they would glean from under­cut­ting Fed inde­pen­dence would be so small com­pared to the poten­tial costs that they might have.”

Trump isn’t the first pres­i­dent to try to exert influ­ence over the Fed by advo­cat­ing for rate cuts and more dovish poli­cies.

Richard Nixon famous­ly called for rate cuts, which made infla­tion roar back to life in the 1970s. In a 1984 White House meet­ing between Pres­i­dent Ronald Rea­gan, White House chief of staff James Bak­er III and then Fed Chair Paul Vol­ck­er, Bak­er pres­sured the cen­tral bank chief not to raise inter­est rates before the elec­tion.

Trump repeat­ed­ly crit­i­cized the Fed and Pow­ell in 2018, when the cen­tral bank was still rais­ing inter­est rates, and into 2019, even threat­en­ing to fire Pow­ell. The Fed start­ed cut­ting rates in the sum­mer of 2019.

Fed Inde­pen­dence

“We act like, ‘Oh my god, this could nev­er hap­pen.’ But it’s not like it hasn’t been attempt­ed or suc­ceed­ed in the past. It’s just that it was always being done through sub­terfuge because no one would have the gall to just come out and do it. But gall is not an issue for Trump,” said Stephen Myrow, a man­ag­ing part­ner at Bea­con Pol­i­cy Advis­ers and a for­mer George W. Bush Trea­sury offi­cial.

A few out­side Trump advis­ers have dis­cussed ways to give the pres­i­dent the pow­er to oust Pow­ell before his term ends in 2026.

Giv­en the Fed’s inde­pen­dence as an insti­tu­tion, Trump can­not fire or replace Pow­ell and instant­ly change mon­e­tary pol­i­cy. All deci­sions made by the Fed­er­al Reserve require approval by the Board of Gov­er­nors, so even one or two poten­tial Trump nom­i­nees could be out­vot­ed.

“The exec­u­tive branch has already tak­en over mon­e­tary pol­i­cy. Janet Yellen has used Trea­sury pol­i­cy to usurp mon­e­tary pol­i­cy and ease finan­cial con­di­tions. Her actions are one rea­son rate hikes have been inef­fec­tive,” Bessent, a Trump donor, said in an inter­view, refut­ing the notion Trump is seek­ing a major change. “Pres­i­dent Trump and his eco­nom­ic team under­stand that the one thing that anchors medi­um and long-term rates is the Fed’s cred­i­bil­i­ty.”

———-

“Trump’s Eco­nom­ic Con­fi­dants Bat­tle for Sway on Tax, Fed Pol­i­cy” By Nan­cy Cook, Sale­ha Mohsin, and Cata­ri­na Sarai­va; Bloomberg; 04/28/2024

“In recent weeks, infor­mal advis­ers have float­ed ideas such as penal­ties for coun­tries that shift away from the US dol­lar; a pro­pos­al for a flat tax and reforms to the Fed­er­al Reserve to give the pres­i­dent more con­trol over the inde­pen­dent cen­tral bank.”

A range of eco­nom­ic pol­i­cy ideas from Trump’s ‘infor­mal advis­ers’. Ideas like penal­iz­ing coun­tries that shift away from the dol­lar (de-dol­lar­iza­tion) or lim­it­ing the inde­pen­dence of the Fed­er­al Reserve. That was the report we got back in April, when Trump was still cruis­ing to a GOP pri­ma­ry vic­to­ry. And as we can see from the rhetoric of Trump donor Scott Bessent, who insists that “exec­u­tive branch has already tak­en over mon­e­tary pol­i­cy”, the argu­ment that it’s only fair that Trump cur­tail the Fed’s inde­pen­dence has already been per­co­lat­ing in Trump’s orbit. Recall how Judy Shel­ton penned an opin­ion piece in Sep­tem­ber of 2016 argu­ing the Fed was already politi­cized and call­ing for a future Trump admin­is­tra­tion to pre­pare for a return to the gold stan­dard. And she framed the gold stan­dard as a means of com­bat­ing unfair trade prac­tices, argu­ing that a gold stan­dard would pre­vent cen­tral banks from engag­ing in cur­ren­cy manip­u­la­tion. Shel­ton was, of course, nom­i­nat­ed by Trump to the Fed board of gov­er­nors in July of 2019, although the nom­i­na­tion did­n’t pan out.

But also note how we are assured that Trump can’t just fire Fed chief Jerome Pow­ell out­right due to the Fed’s struc­ture that requires a vote of approval by the Board of Gov­er­nors. An assur­ance that seems to assume Trump isn’t just going to uni­lat­er­al­ly assert the pow­er to change those rules:

...
A few out­side Trump advis­ers have dis­cussed ways to give the pres­i­dent the pow­er to oust Pow­ell before his term ends in 2026.

Giv­en the Fed’s inde­pen­dence as an insti­tu­tion, Trump can­not fire or replace Pow­ell and instant­ly change mon­e­tary pol­i­cy. All deci­sions made by the Fed­er­al Reserve require approval by the Board of Gov­er­nors, so even one or two poten­tial Trump nom­i­nees could be out­vot­ed.

“The exec­u­tive branch has already tak­en over mon­e­tary pol­i­cy. Janet Yellen has used Trea­sury pol­i­cy to usurp mon­e­tary pol­i­cy and ease finan­cial con­di­tions. Her actions are one rea­son rate hikes have been inef­fec­tive,” Bessent, a Trump donor, said in an inter­view, refut­ing the notion Trump is seek­ing a major change. “Pres­i­dent Trump and his eco­nom­ic team under­stand that the one thing that anchors medi­um and long-term rates is the Fed’s cred­i­bil­i­ty.”
...

Also note how the arti­cle refers to the think thanks like the Her­itage Foun­da­tion, Amer­i­ca First Pol­i­cy Insti­tute, Con­ser­v­a­tive Part­ner­ship Insti­tute and the Cen­ter for Renew­ing Amer­i­ca that have been ‘gen­er­at­ing white papers and col­lect­ing resumes to pre­pare for a return of Trump’. Which basi­cal­ly describes the main enti­ties behind the Sched­ule F/Project 2025. So when we see how Trump has been ‘receiv­ing eco­nom­ic advice’ from key Project 2025 fig­ure Russ Vought — the founder of the Cen­ter for Renew­ing Amer­i­ca who has spo­ken about plans for ‘inflict­ing trau­ma’ on fed­er­al work­ers and call­ing in the mil­i­tary to deal with protests — keep in mind that the folks behind Project 2025 are very much on board with the idea of end­ing Fed inde­pen­dence:

...
A hand­ful of con­ser­v­a­tive think tanks have been gen­er­at­ing white papers and col­lect­ing resumes to pre­pare for a return of Trump, includ­ing the Her­itage Foun­da­tion, Amer­i­ca First Pol­i­cy Insti­tute, Con­ser­v­a­tive Part­ner­ship Insti­tute and the Cen­ter for Renew­ing Amer­i­ca.

Trump is also receiv­ing eco­nom­ic advice from for­mer top offi­cials, includ­ing direc­tor of the Office of Man­age­ment and Bud­get Russ Vought, for­mer US Trade Rep­re­sen­ta­tive Robert Lighthiz­er, for­mer head of the Coun­cil of Eco­nom­ic Advis­ers Kevin Has­sett and for­mer Nation­al Eco­nom­ic Coun­cil Direc­tor Lar­ry Kud­low, along with wealthy donors includ­ing John Paul­son and Scott Bessent, both of whom have been float­ed as poten­tial can­di­dates for Trea­sury Sec­re­tary. Many of his key advis­ers don’t sup­port ideas to med­dle with the Fed.

...

Whether and how to rein in the Fed­er­al Reserve’s pow­er is one of the most divi­sive issues among Repub­li­cans. Dur­ing Trump’s first term in the White House, he often tried to pres­sure the Fed and Chair Jerome Pow­ell to keep inter­est rates low.

It’s an open ques­tion whether Trump in a sec­ond term would select Fed offi­cials and oth­er White House aides that would want to keep the cen­tral bank inde­pen­dent, said Nathan Sheets, the glob­al chief econ­o­mist at Cit­i­group Inc.

“Any kind of pol­i­cy that erod­ed inde­pen­dence in an appre­cia­ble way would be greet­ed by the mar­kets very vig­or­ous­ly and adverse­ly and would be a source of great pres­sure and volatil­i­ty,” he said. “I think it would be such a prob­lem that any gains a polit­i­cal actor might think that they would glean from under­cut­ting Fed inde­pen­dence would be so small com­pared to the poten­tial costs that they might have.”
...

But the talk of end­ing Fed inde­pen­dence isn’t some new Project 2025 agen­da item. As we’ve seen, Trump was reg­u­lar­ly open­ly call­ing on the Fed to cut rates dur­ing his first term. At this point, it would be sur­pris­ing if Trump did­n’t con­tin­ue that pat­tern in his sec­ond term:

...
Trump repeat­ed­ly crit­i­cized the Fed and Pow­ell in 2018, when the cen­tral bank was still rais­ing inter­est rates, and into 2019, even threat­en­ing to fire Pow­ell. The Fed start­ed cut­ting rates in the sum­mer of 2019.

Fed Inde­pen­dence

“We act like, ‘Oh my god, this could nev­er hap­pen.’ But it’s not like it hasn’t been attempt­ed or suc­ceed­ed in the past. It’s just that it was always being done through sub­terfuge because no one would have the gall to just come out and do it. But gall is not an issue for Trump,” said Stephen Myrow, a man­ag­ing part­ner at Bea­con Pol­i­cy Advis­ers and a for­mer George W. Bush Trea­sury offi­cial.
...

Also just note how the oth­er exam­ples of pres­i­dents try­ing to med­dle with the Fed’s inde­pen­dence were all Repub­li­cans:

...
Trump isn’t the first pres­i­dent to try to exert influ­ence over the Fed by advo­cat­ing for rate cuts and more dovish poli­cies.

Richard Nixon famous­ly called for rate cuts, which made infla­tion roar back to life in the 1970s. In a 1984 White House meet­ing between Pres­i­dent Ronald Rea­gan, White House chief of staff James Bak­er III and then Fed Chair Paul Vol­ck­er, Bak­er pres­sured the cen­tral bank chief not to raise inter­est rates before the elec­tion.
...

So with that look back at the kind of chat­ter insid­er the Trump cam­paign about their plans for the Fed back dur­ing the GOP pri­ma­ry, here’s an update for last week. An update about some­one who should sound very famil­iar in the con­text of Trump’s mon­e­tary pol­i­cy pref­er­ences: Judy Shel­ton. The Gold Stan­dard advo­cate is out with a new book. The book advo­cates for return­ing the US to the gold stan­dard, of course.

But as we can see, Shel­ton isn’t just pro­mot­ing her new book. She’s also been com­ing up with pro­pos­als for a sec­ond Trump admin­is­tra­tion. Specif­i­cal­ly, Shel­ton sug­gests the Fed should ditch its 2% infla­tion tar­get and go for a 0% tar­get instead. Just keep in econ­o­my per­pet­u­al­ly on the verge of infla­tion. As Shel­ton argues, all those lessons learned about the his­to­ry of eco­nom­ics how defla­tion can induce self-rein­forc­ing eco­nom­ic doom spi­rals aren’t true. Instead, reg­u­lar bouts defla­tion are a great way to bring prices down, Shel­ton argues. Keep in mind that defla­tion is very much a rou­tine part of a gold stan­dard so Shel­ton is basi­cal­ly refram­ing one of the most noto­ri­ous­ly dan­ger­ous aspects of a gold stan­dard as actu­al­ly a fea­ture.

And while Shel­ton sug­gests she’s not inter­est­ed in replac­ing Jerome Pow­ell as the chair of the Fed when his term is up in 2026, some­one else with a lot of influ­ence over Don­ald Trump has already float­ed her name for just that job: Stephen Moore, one of Trump’s oth­er failed nom­i­nees to the Fed board of gov­er­nors. Accord­ing to Moore, Shel­ton would be a great pick, along with Rea­gan econ­o­mist Art Laf­fer.

It also sounds like Moore, a CNP board mem­ber, isn’t inter­est­ed in anoth­er stab at a Fed board seat. Instead, he has his sights set on anoth­er posi­tion with major eco­nom­ic con­se­quences: Elon Musk’s gov­ern­ment cost-cut­ting board. So while we have yet to see how exact­ly a sec­ond Trump admin­is­tra­tion’s eco­nom­ic pol­i­cy to will take shape, we can be con­fi­dent that the peo­ple who had his ear in his first admin­is­tra­tion are plan­ning on hav­ing his ear one more time:

CNN

Trump’s for­mer pick to join the Fed­er­al Reserve has pro­posed a rad­i­cal solu­tion to solve infla­tion

By Matt Egan, CNN
Updat­ed 10:06 AM EDT, Thu Octo­ber 31, 2024

New York CNN — Mil­lions of Amer­i­cans are frus­trat­ed that their dol­lars aren’t going as far as they once did at the super­mar­ket, on rent or on car insur­ance.

Judy Shel­ton, a con­tro­ver­sial econ­o­mist who has been float­ed as a poten­tial pick by for­mer Pres­i­dent Don­ald Trump to lead the Fed­er­al Reserve if he wins the Novem­ber pres­i­den­tial elec­tion, has pro­posed a rad­i­cal solu­tion: The Fed should aim for no infla­tion at all.

Cur­rent­ly, the Fed tar­gets a sta­ble infla­tion rate, where prices rise at a slow-but-steady pace of just 2%. It’s sup­posed to hap­pen so grad­u­al­ly that peo­ple bare­ly notice it.

A zero per­cent infla­tion tar­get might be pop­u­lar, but it would rep­re­sent a sharp depar­ture – one that main­stream econ­o­mists warn would back­fire.

...

Shel­ton, whom Trump unsuc­cess­ful­ly nom­i­nat­ed to the Fed­er­al Reserve Board in 2020, has long argued that a zero-infla­tion tar­get would help every­day Amer­i­cans who are hurt when their pay­checks fail to keep up with prices.

“Why not just go all the way and make it zero and make life much less com­pli­cat­ed for all of us who have to use the dol­lar and con­stant­ly express things in terms of infla­tion adjust­ed?” said Shel­ton, who has authored a new book about mon­ey titled “Good as Gold.”

How­ev­er, main­stream econ­o­mists and Fed watch­ers cau­tion that a zero-infla­tion tar­get at the Fed would be dan­ger­ous.

“I think it’s a bad idea. It’s mis­guid­ed,” Mark Zan­di, chief econ­o­mist at Moody’s Ana­lyt­ics, told CNN.

The biggest con­cern voiced by Zan­di and oth­ers is that zero infla­tion is uncom­fort­ably close to defla­tion, the falling-price envi­ron­ment that freaks out econ­o­mists and cen­tral bankers alike.

“Defla­tion was a defin­ing fea­ture of the Great Depres­sion,” said Zan­di, not­ing that falling prices made it near­ly impos­si­ble for busi­ness­es and con­sumers to pay down debt. “If his­to­ry is any guide, you don’t want to go down that path. It’s nev­er worked out well.”

‘A spi­ral with no end’

Although defla­tion might sound amaz­ing to con­sumers (who doesn’t like dis­counts?), in prac­tice falling prices cause peo­ple to delay buy­ing stuff.

After all, why spend $300 on a grill today if you think it’ll be cheap­er in a few weeks? And those delays can force prices to fall fur­ther, caus­ing even more delays. Rinse and repeat.

“Defla­tion can become a spi­ral with no end – because there is no way for mon­e­tary pol­i­cy to counter it,” said Justin Wolfers, a Uni­ver­si­ty of Michi­gan econ­o­mist who has endorsed Vice Pres­i­dent Kamala Har­ris.

In fact, one rea­son the Fed set its infla­tion tar­get at 2% is because it’s safe­ly away from that defla­tion-dan­ger zone.

Anoth­er rea­son: Research sug­gests that offi­cial mea­sures of infla­tion are wrong – they may over­state actu­al infla­tion. And that means tar­get­ing zero could trans­late to defla­tion.

“It’s a lit­tle bit like walk­ing along the edge of a cliff. A zero infla­tion tar­get would mean a path right on the edge. A 2% tar­get means a few steps in from the edge. That’s safe because if some­thing does go wrong, you won’t fall off the cliff,” Wolfers said.

Bill Eng­lish, a Yale Uni­ver­si­ty pro­fes­sor and for­mer top offi­cial at the Fed, said defla­tion can be hard to escape because even­tu­al­ly the Fed runs out of room to cut rates.

The Fed has nev­er dropped rates below zero, not even dur­ing the Great Reces­sion.

...

Shel­ton dis­missed the defla­tion fears and the impact on con­sumer psy­chol­o­gy.

“You can have a healthy econ­o­my with some mild defla­tion, and I don’t think it affects people’s deci­sions,” Shel­ton said. “I think we need to trust sup­ply and demand and let peo­ple respond to those price sig­nals and not feel like we’re con­trol­ling their behav­ior.”

Trump advis­er likes Shel­ton but oppos­es zero-infla­tion tar­get

It’s hard­ly the first con­tro­ver­sial posi­tion tak­en by Shel­ton, who has also called for a return to the gold stan­dard and has in the past attacked the Fed’s inde­pen­dence.

“Pres­i­dent Trump announced a Trump-Vance tran­si­tion lead­er­ship group to ini­ti­ate the process of prepar­ing for what comes after the elec­tion. But for­mal dis­cus­sions of who will serve in a sec­ond Trump Admin­is­tra­tion is pre­ma­ture,” Steven Che­ung, Trump cam­paign com­mu­ni­ca­tions direc­tor, said in a state­ment. “Pres­i­dent Trump will choose the best peo­ple for his Cab­i­net to undo all the dam­age dan­ger­ous­ly lib­er­al Kamala Har­ris has done to our coun­try.”

But even some of Shelton’s biggest fans are opposed to her embrace of a zero-infla­tion tar­get.

Stephen Moore, a senior vis­it­ing fel­low at the con­ser­v­a­tive Her­itage Foun­da­tion, told CNN in a phone inter­view that he has pri­vate­ly urged Trump to con­sid­er appoint­ing Shel­ton to replace Fed Chair Jerome Pow­ell when his term expires in 2026.

Moore, who said he doubts Trump would fire Pow­ell when he can just “wait him out” instead, added that his Fed chair wish list includes for­mer Trump White House econ­o­mist Kevin Has­sett and for­mer Rea­gan econ­o­mist Arthur Laf­fer. He said Trump was recep­tive to all three names.

Yet even Moore said he dis­agrees with Shelton’s zero-infla­tion tar­get.

“My wor­ry is if you tar­get zero, and you go neg­a­tive, then you have defla­tion. And defla­tion is real­ly bad,” Moore said. “I’d rather err on the side of too much infla­tion.”

Shel­ton was nom­i­nat­ed by Trump to the Fed’s board in 2020 after Moore with­drew him­self from con­tention.

Moore’s can­di­da­cy implod­ed fol­low­ing rev­e­la­tions by CNN’s KFile about dis­parag­ing com­ments he made about women. (He told CNN at the time the remarks were “a spoof.”)

Moore told CNN he’s not inter­est­ed in any jobs that require Sen­ate con­fir­ma­tion, though he’d be open to oth­er roles such as help­ing to over­see the gov­ern­ment effi­cien­cy com­mis­sion that Elon Musk has float­ed.

“The Sen­ate con­fir­ma­tion process is bru­tal. I am not going through that again,” Moore said.

‘No one got fired’

For her part, Shel­ton dis­missed spec­u­la­tion that she could be nom­i­nat­ed to lead the Fed.

“I real­ly haven’t thought about it…I haven’t put myself for­ward as a can­di­date at all,” Shel­ton told CNN, adding that she would rec­om­mend some­one like Laf­fer or James Grant, founder of invest­ment pub­li­ca­tion Grant’s Inter­est Rate Observ­er.

...

———–

“Trump’s for­mer pick to join the Fed­er­al Reserve has pro­posed a rad­i­cal solu­tion to solve infla­tion” By Matt Egan; CNN; 10/31/2024

“Judy Shel­ton, a con­tro­ver­sial econ­o­mist who has been float­ed as a poten­tial pick by for­mer Pres­i­dent Don­ald Trump to lead the Fed­er­al Reserve if he wins the Novem­ber pres­i­den­tial elec­tion, has pro­posed a rad­i­cal solu­tion: The Fed should aim for no infla­tion at all.”

A zero per­cent infla­tion rate tar­get. That’s Judy Shel­ton’s big idea for a sec­ond Trump term. Inten­tion­al­ly put the US econ­o­my on the edge of defla­tion. It’s not a sur­pris­ing pro­pos­al. Her new book is anoth­er call for a return to the gold stan­dard, which would be a recipe for reg­u­lar bouts of dam­ag­ing defla­tion as a mat­ter of rou­tine, after all. This is more or less the kind of extreme sug­ges­tions we should expect from Shel­ton. But giv­en the eco­nom­ic calami­ties Trump is poised to induce, it’s not hard to imag­ine extreme sug­ges­tions being tak­en very seri­ous­ly. The worse things get, the big­ger the excuse to go along with some sort of grand mon­e­tary exper­i­ment:

...
Shel­ton, whom Trump unsuc­cess­ful­ly nom­i­nat­ed to the Fed­er­al Reserve Board in 2020, has long argued that a zero-infla­tion tar­get would help every­day Amer­i­cans who are hurt when their pay­checks fail to keep up with prices.

“Why not just go all the way and make it zero and make life much less com­pli­cat­ed for all of us who have to use the dol­lar and con­stant­ly express things in terms of infla­tion adjust­ed?” said Shel­ton, who has authored a new book about mon­ey titled “Good as Gold.”
...

And while Shel­ton is remark­ably blasé about the eco­nom­ic dam­age inflict­ed by defla­tion­ary spi­rals, it’s also worth keep­ing in mind that Trump’s pro­posed across-the-board tar­iffs are a recipe for surg­ing infla­tion through­out the econ­o­my. So while Shel­ton might have Trump’s ear and may be in a posi­tion to influ­ence him, keep in mind that stagfla­tion is look­ing much more like­ly than defla­tion for a sec­ond Trump term:

...
Cur­rent­ly, the Fed tar­gets a sta­ble infla­tion rate, where prices rise at a slow-but-steady pace of just 2%. It’s sup­posed to hap­pen so grad­u­al­ly that peo­ple bare­ly notice it.

A zero per­cent infla­tion tar­get might be pop­u­lar, but it would rep­re­sent a sharp depar­ture – one that main­stream econ­o­mists warn would back­fire.

...

How­ev­er, main­stream econ­o­mists and Fed watch­ers cau­tion that a zero-infla­tion tar­get at the Fed would be dan­ger­ous.

“I think it’s a bad idea. It’s mis­guid­ed,” Mark Zan­di, chief econ­o­mist at Moody’s Ana­lyt­ics, told CNN.

The biggest con­cern voiced by Zan­di and oth­ers is that zero infla­tion is uncom­fort­ably close to defla­tion, the falling-price envi­ron­ment that freaks out econ­o­mists and cen­tral bankers alike.

“Defla­tion was a defin­ing fea­ture of the Great Depres­sion,” said Zan­di, not­ing that falling prices made it near­ly impos­si­ble for busi­ness­es and con­sumers to pay down debt. “If his­to­ry is any guide, you don’t want to go down that path. It’s nev­er worked out well.”

...

Shel­ton dis­missed the defla­tion fears and the impact on con­sumer psy­chol­o­gy.

“You can have a healthy econ­o­my with some mild defla­tion, and I don’t think it affects people’s deci­sions,” Shel­ton said. “I think we need to trust sup­ply and demand and let peo­ple respond to those price sig­nals and not feel like we’re con­trol­ling their behav­ior.”
...

And while it’s true that the Fed­er­al Reserve has nev­er dropped rates below zero in an attempt to pull the US econ­o­my out of defla­tion, it’s worth keep­ing in mind that the Euro­pean Cen­tral Bank had neg­a­tive inter­est rates for years in response to the euro­zone cri­sis. It’s not actu­al­ly unthink­able, even if its unprece­dent­ed for the US:

...
Although defla­tion might sound amaz­ing to con­sumers (who doesn’t like dis­counts?), in prac­tice falling prices cause peo­ple to delay buy­ing stuff.

After all, why spend $300 on a grill today if you think it’ll be cheap­er in a few weeks? And those delays can force prices to fall fur­ther, caus­ing even more delays. Rinse and repeat.

“Defla­tion can become a spi­ral with no end – because there is no way for mon­e­tary pol­i­cy to counter it,” said Justin Wolfers, a Uni­ver­si­ty of Michi­gan econ­o­mist who has endorsed Vice Pres­i­dent Kamala Har­ris.

In fact, one rea­son the Fed set its infla­tion tar­get at 2% is because it’s safe­ly away from that defla­tion-dan­ger zone.

Anoth­er rea­son: Research sug­gests that offi­cial mea­sures of infla­tion are wrong – they may over­state actu­al infla­tion. And that means tar­get­ing zero could trans­late to defla­tion.

“It’s a lit­tle bit like walk­ing along the edge of a cliff. A zero infla­tion tar­get would mean a path right on the edge. A 2% tar­get means a few steps in from the edge. That’s safe because if some­thing does go wrong, you won’t fall off the cliff,” Wolfers said.

Bill Eng­lish, a Yale Uni­ver­si­ty pro­fes­sor and for­mer top offi­cial at the Fed, said defla­tion can be hard to escape because even­tu­al­ly the Fed runs out of room to cut rates.

The Fed has nev­er dropped rates below zero, not even dur­ing the Great Reces­sion.

...

Trump advis­er likes Shel­ton but oppos­es zero-infla­tion tar­get
...

And while we have no idea at this point if Shel­ton will be play­ing a major role under the sec­ond Trump admin­is­tra­tion, note who has been whis­per­ing about her in Trump ear late­ly: Stephen Moore. Recall how Moore com­plete­ly aban­doned his long-time stance of inton­ing against the dan­gers of gov­ern­ment debt when he ful­ly embraced the Trump tax cut and sud­den­ly argued that the spikes in US bud­get deficit were an accept­able price to pay for the high­er long-term growth that the sup­ply-side tax cuts would pro­duce. Also recall how Moore was not just nom­i­nat­ed by Trump to the Fed board of gov­er­nors but, in his nom­i­na­tion hear­ings, admit­ted that he did­n’t actu­al­ly under­stand very much about macro­eco­nom­ics. He did­n’t get the job.

But Shel­ton isn’t the only name Moore is float­ing to Trump to replace Pow­ell. Oth­er rec­om­men­da­tions from Moore to head the Fed includes Rea­gan econ­o­mist Art Laf­fer, best known for his debunked “Laf­fer curve” the­o­ry that tax cuts increase tax rev­enues. While we don’t know who Trump will select, but we don’t entire­ly have to spec­u­late either. Trump already tried to appoint both Moore and Shel­ton to the Fed once:

...
It’s hard­ly the first con­tro­ver­sial posi­tion tak­en by Shel­ton, who has also called for a return to the gold stan­dard and has in the past attacked the Fed’s inde­pen­dence.

...

But even some of Shelton’s biggest fans are opposed to her embrace of a zero-infla­tion tar­get.

Stephen Moore, a senior vis­it­ing fel­low at the con­ser­v­a­tive Her­itage Foun­da­tion, told CNN in a phone inter­view that he has pri­vate­ly urged Trump to con­sid­er appoint­ing Shel­ton to replace Fed Chair Jerome Pow­ell when his term expires in 2026.

Moore, who said he doubts Trump would fire Pow­ell when he can just “wait him out” instead, added that his Fed chair wish list includes for­mer Trump White House econ­o­mist Kevin Has­sett and for­mer Rea­gan econ­o­mist Arthur Laf­fer. He said Trump was recep­tive to all three names.

Yet even Moore said he dis­agrees with Shelton’s zero-infla­tion tar­get.

“My wor­ry is if you tar­get zero, and you go neg­a­tive, then you have defla­tion. And defla­tion is real­ly bad,” Moore said. “I’d rather err on the side of too much infla­tion.”

Shel­ton was nom­i­nat­ed by Trump to the Fed’s board in 2020 after Moore with­drew him­self from con­tention.

Moore’s can­di­da­cy implod­ed fol­low­ing rev­e­la­tions by CNN’s KFile about dis­parag­ing com­ments he made about women. (He told CNN at the time the remarks were “a spoof.”)
...

And when we see Moore sug­gest that he might be open to some­thing like Elon Musk’s gov­ern­ment cost-cut­ting com­mis­sion which sounds more like a mass aus­ter­i­ty com­mis­sion, recall how Moore — a CNP board mem­ber — and Laf­fer sug­gest­ed ‘blue’ states be forced to slash tax­es and reg­u­la­tions in order to get fed­er­al gov­ern­ment assis­tance dur­ing the pan­dem­ic or be forced to lan­guish in a deserved eco­nom­ic depres­sion. So while Moore points to the lack of a nom­i­na­tion process as part of his moti­va­tion, he clear­ly has oth­er moti­va­tions:

...
Moore told CNN he’s not inter­est­ed in any jobs that require Sen­ate con­fir­ma­tion, though he’d be open to oth­er roles such as help­ing to over­see the gov­ern­ment effi­cien­cy com­mis­sion that Elon Musk has float­ed.

“The Sen­ate con­fir­ma­tion process is bru­tal. I am not going through that again,” Moore said.
...

And that omi­nous pre­view of what kind of fis­cal and mon­e­tary pol­i­cy to expect under a sec­ond Trump term brings us to the fol­low­ing warn­ing issued by ‘Black Swan’ econ­o­mist Nas­sim Taleb, who warns that the US dol­lar’s role in the world is already veer­ing into ‘Black Swan’ ter­ri­to­ry. Taleb specif­i­cal­ly warned about the role the US deci­sion to freeze Russ­ian dol­lar-denom­i­nat­ed assets in response to the 2022 con­flict in Ukraine as one exam­ple of the kind of poli­cies that can dri­ve the de-dol­lar­iza­tion glob­al trend while not­ing how the US’s dete­ri­o­rat­ing bud­get sit­u­a­tion is only exac­er­bat­ing that trend. Taleb also argues that US stocks are more vul­ner­a­ble than they’ve been in the past 20–30 years thanks to years of ultra-low rates and asso­ci­at­ed investor com­pla­cen­cy. So with a sec­ond Trump admin­is­tra­tion loom­ing before the US, with all of the eco­nom­ic and fis­cal dam­age we can expect to fol­low, at the same time the dol­lar’s role as the glob­al reserve cur­ren­cy of choice is already under stress, what are the odds anoth­er ‘Black Swan’ event can be avoid­ed over the next for years giv­en that Trump’s one eco­nom­ic ‘spe­cial move’ — cut­ting tax­es — is poised to be the next Black Swan trig­ger:

For­tune

‘The Black Swan’ author is real­ly afraid of what’s hap­pen­ing to the U.S. dol­lar

BY Jason Ma
Octo­ber 13, 2024 at 12:24 PM CDT

Nas­sim Nicholas Taleb, who wrote the book The Black Swan about unpre­dictable events, is wor­ried about the role of the U.S. dol­lar in glob­al finance.

His con­cern over the dol­lar stems from West­ern sanc­tions that froze Russ­ian assets after Vladimir Putin ordered the inva­sion of Ukraine in 2022. In an inter­view on Bloomberg TV on Fri­day, he called the move a “con­fis­ca­tion” and said it’s one of the top two biggest finan­cial mis­takes in the 21st cen­tu­ry.

...

The dol­lar remains dom­i­nant as a method of pay­ment, and is used in 88% of for­eign exchange trans­ac­tions.

But its posi­tion as the top reserve cur­ren­cy has been erod­ed. While the trend has been going on for decades, with the green­back account­ing for 58% today ver­sus 71% in 2000, the sanc­tions on Rus­sia sparked a rush to alter­na­tives.

Gold in par­tic­u­lar has been snapped up by cen­tral banks around the world as they look to diver­si­fy away from the dol­lar.

“So I’m real­ly afraid of a pro­gres­sive loss of the role of the dol­lar,” Taleb said, adding that “peo­ple nom­i­nal­ly con­duct trans­ac­tions in dol­lars, but they don’t store it in dol­lars, and that is what the prob­lem is.”

This de-dol­lar­iza­tion trend comes as the U.S. gov­ern­ment is going deep­er into debt, with inter­est expens­es alone sky­rock­et­ing and wors­en­ing the bud­get deficit.

As fed­er­al spend­ing con­tin­ues to far out­pace rev­enue, the Trea­sury Depart­ment must issue greater vol­umes of bonds, many of which are bought by for­eign investors. But if they’re wor­ried about the safe­ty of dol­lar-denom­i­nat­ed assets, will they keep financ­ing U.S. debt?

“That’s exact­ly why I’m afraid,” Taleb added. “I’m afraid of what the cur­rent admin­is­tra­tion has done in 2022 when they con­fis­cat­ed assets. It doesn’t encour­age peo­ple to invest in your cur­ren­cy.”

He said lat­er, “That is harm­ing the Unit­ed States enor­mous­ly.”

Taleb, who serves as dis­tin­guished sci­en­tif­ic advi­sor at Mark Spitznagel’s Uni­ver­sa Invest­ments, also warned mar­kets are more frag­ile than they have been at any point in the past 20 to 30 years.

He cit­ed the hand­ful of tech giants that have dri­ven the S&P 500’s ral­ly on AI hopes. While AI in gen­er­al could turn out to be a great invest­ment oppor­tu­ni­ty, the com­pa­nies that have been surg­ing may not be the ones that rep­re­sent the sector’s long-term growth, he explained.

The cur­rent envi­ron­ment is sim­i­lar to what exist­ed dur­ing pre­vi­ous col­laps­es, Taleb said, point­ing to com­pla­cen­cy in the mar­ket and the ear­li­er era of low rates that taught peo­ple to avoid con­ser­v­a­tive invest­ments.

Now, val­u­a­tions are “crazy” and built on a lot of hope, while the econ­o­my looks “very con­fus­ing” as data have been send­ing mixed sig­nals late­ly.

...

———–

“‘The Black Swan’ author is real­ly afraid of what’s hap­pen­ing to the U.S. dol­lar” BY Jason Ma; For­tune; 10/13/2024

“This de-dol­lar­iza­tion trend comes as the U.S. gov­ern­ment is going deep­er into debt, with inter­est expens­es alone sky­rock­et­ing and wors­en­ing the bud­get deficit.”

De-dol­lar­iza­tion has been a long­stand­ing pos­si­ble eco­nom­ic booga­boo for the US econ­o­my. And for that entire time the US econ­o­my has large­ly avoid­ed see­ing those de-dol­lar­iza­tion forces gain the upper hand. But it would be fool­ish to assume past is pro­logue for a sec­ond Trump term. Fol­low­ing the fis­cal dis­as­ter of the first Trump admin­is­tra­tion and the heavy gov­ern­ment spend­ing need­ed for the pan­dem­ic response, we’re enter­ing unchart­ed ter­ri­to­ry regard­ing the role of the US dol­lar as the glob­al reserve cur­ren­cy. Sure, the dol­lar is still the dom­i­nant cur­ren­cy used for inter­na­tion­al trans­ac­tions, but its role as a store of val­ue has been declin­ing, with grow­ing sus­tained US deficits only exac­er­bat­ing this trend. What kind of appetite for US bonds by for­eign investors can we expect under surg­ing struc­tur­al deficits we can expect under a sec­ond Trump admin­is­tra­tion? Don’t for­get what Elon Musk pre­dict­ed: mas­sive eco­nom­ic tur­moil send­ing finan­cial mar­kets tum­bling in response to the eco­nom­ic shock Trump is plan­ning on intro­duc­ing, before the US soon regains its foot­ing. What if that foot­ing isn’t quick­ly regained? What hap­pens to the then?

...
The dol­lar remains dom­i­nant as a method of pay­ment, and is used in 88% of for­eign exchange trans­ac­tions.

But its posi­tion as the top reserve cur­ren­cy has been erod­ed. While the trend has been going on for decades, with the green­back account­ing for 58% today ver­sus 71% in 2000, the sanc­tions on Rus­sia sparked a rush to alter­na­tives.

Gold in par­tic­u­lar has been snapped up by cen­tral banks around the world as they look to diver­si­fy away from the dol­lar.

“So I’m real­ly afraid of a pro­gres­sive loss of the role of the dol­lar,” Taleb said, adding that “peo­ple nom­i­nal­ly con­duct trans­ac­tions in dol­lars, but they don’t store it in dol­lars, and that is what the prob­lem is.”

...

As fed­er­al spend­ing con­tin­ues to far out­pace rev­enue, the Trea­sury Depart­ment must issue greater vol­umes of bonds, many of which are bought by for­eign investors. But if they’re wor­ried about the safe­ty of dol­lar-denom­i­nat­ed assets, will they keep financ­ing U.S. debt?

“That’s exact­ly why I’m afraid,” Taleb added. “I’m afraid of what the cur­rent admin­is­tra­tion has done in 2022 when they con­fis­cat­ed assets. It doesn’t encour­age peo­ple to invest in your cur­ren­cy.”

He said lat­er, “That is harm­ing the Unit­ed States enor­mous­ly.”
...

And as Taleb also warns: present stock val­u­a­tions are pred­i­cat­ed on some sort of AI-dri­ven eco­nom­ic boom. This is at the same time Musk has warned that they are plan­ning on send­ing US finan­cial mar­kets into a *hope­ful­ly* tem­po­rary tail­spin under his mas­sive cost-cut­ting pro­gram. What kind of dis­as­ter are they about to unfurl?

...
Taleb, who serves as dis­tin­guished sci­en­tif­ic advi­sor at Mark Spitznagel’s Uni­ver­sa Invest­ments, also warned mar­kets are more frag­ile than they have been at any point in the past 20 to 30 years.

He cit­ed the hand­ful of tech giants that have dri­ven the S&P 500’s ral­ly on AI hopes. While AI in gen­er­al could turn out to be a great invest­ment oppor­tu­ni­ty, the com­pa­nies that have been surg­ing may not be the ones that rep­re­sent the sector’s long-term growth, he explained.

The cur­rent envi­ron­ment is sim­i­lar to what exist­ed dur­ing pre­vi­ous col­laps­es, Taleb said, point­ing to com­pla­cen­cy in the mar­ket and the ear­li­er era of low rates that taught peo­ple to avoid con­ser­v­a­tive invest­ments.

Now, val­u­a­tions are “crazy” and built on a lot of hope, while the econ­o­my looks “very con­fus­ing” as data have been send­ing mixed sig­nals late­ly.
...

Will present day val­u­a­tions based on sky-high hopes for the future pan out? Time will tell. But it’s hard to imag­ine those val­u­a­tions were fac­tor­ing in a sec­ond Trump admin­is­tra­tion’s plans to inten­tion­al­ly trig­ger a mas­sive eco­nom­ic and fis­cal cri­sis that would send mar­kets tum­bling ‘for the greater’. With much grander back­up plans to cap­i­tal­ize on the first plan’s inevitable fail­ure.