Good News! President Trump May Finally Have Control Over the Fed and Jerome Powell’s Insane Economic Policies
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March 29, 2020
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It’s reported over the weekend that the US Treasury and the Fed have joined forces in an effort to save the economy. This action may provide President Trump the ability to manage the economy as he would have liked these past few years while Jerome Powell from the Fed did all he could to hurt the US economy.
We reported on March 16th that just when President Trump saved the US economy, crooked Jerome Powell and the Fed shocked the markets by lowering rates to zero on a Sunday.
President Trump gave an impressive presentation from the White House about the economy and the markets rose 2,000 points. After the President’s calming press conference on that Friday the markets ended the day with the largest one day increase in history. The DOW was up almost 2,000 points.
But over the weekend, on a Sunday, Powell lowered the rates as much as he could to nearly zero. This was unprecedented – lowering rates on a Sunday – to rock bottom. The markets responded by crashing on the following Monday.
Had the Fed held off and lowered rates in small amounts during normal business hours the impact and response would have been positive. It was as if again, Powell was trying to damage the US economy.
The Fed and its Head – Jerome Powell – have mandates to”promote stable prices” and “maximum employment” and to ensure a “healthy economy”. However, the Fed’s actions over and over these past three years of Trump’s Presidency have been the opposite.
The Federal Reserve states on their website that two of its functions are to conduct monetary policy and promote financial system stability.
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But the Fed under Powell is doing the opposite.
Just look at the Fed’s rate increases since President Trump won the 2016 election. The Fed lowered interest rates to 0% for the Obama Administration and kept these rates at 0% for the first 7 years of Obama’s time in office. Finally, the Fed increased the interest rates 0.25% in late 2015 for the only increase during Obama’s Presidency up to the 2016 election.
After President Trump won the November 2016 election, the Fed began a steady program of increasing interest rates. This program continued through April 2019. In total, the Fed increased rates 8 times after Trump won the Presidency. The Fed finally began lowering rates in 2019.
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Top US economist Stephen Moore discussed the Fed’s actions in December 2018 –
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Unfortunately, if you cut engine power too far on a jetliner, it will stall and drop out of the sky.
On Wednesday, December 19, 2018, despite the numerous market-based alarms that were sounding in the cockpit, Chairman Powell and his co-pilots on the FOMC voted to raise the Fed Funds rate to 2.50%. This sucks more dollars out of the economy at a time when the world demanding more dollars – thanks to Trump’s Tax cutting and deregulation policies.
Chairman Powell has been entirely tone deaf to the financial markets he seeks to protect. The Dow Jones Industrial average, which had risen by 382 points on hopes that the Fed would listen to President Trump and stop cutting power, plunged by 895 points after the 2:00 PM announcement, and closed the day down 352 points (1.49%). Poof, trillions of dollars of wealth vanished.
Since its peak on October 3, which, not coincidentally, was right after Chairman Powell gave a speech suggesting that the Fed might be through tightening money, the Dow has fallen by more than 3,500 points [now 4,500]. Market fears about his bad judgment have cut the value of all U.S. stocks by about $4.5 trillion, which is enough to buy 16,000 Boeing 787 Dreamliners.
The Fed economists use twisted logic that the economy is “strong enough” to absorb the rate hikes – which is simply an admission that their policy will slow growth.
The markets were up nearly 50% after a year and a half into President Trump’s Presidency. Then in early October 2018, the Fed Chief announced more interest rate hikes. After that the markets collapsed. The markets were down about 20% by the end of 2018 and the Fed nearly put the US into a recession.
President Trump challenged the Fed in May 2019. While China is doing all it can to protect its economy, the Fed is doing the opposite in the US –China is adding great stimulus to its economy while at the same time keeping interest rates low. Our Federal Reserve has incessantly lifted interest rates, even though inflation is very low, and instituted a very big dose of quantitative tightening. We have the potential to go…
— Donald J. Trump (@realDonaldTrump)
April 30, 2019
….up like a rocket if we did some lowering of rates, like one point, and some quantitative easing. Yes, we are doing very well at 3.2% GDP, but with our wonderfully low inflation, we could be setting major records &, at the same time, make our National Debt start to look small!
— Donald J. Trump (@realDonaldTrump)
April 30, 2019
The Fed’s 2.25% interest rates on the federal debt increased the annual debt by $500 billion annually or more than $1 trillion in US debt.
The Fed finally lowered rates in 2019 which led to more stock market all-time highs before the coronavirus panic.
Now over the weekend it is reported that the Fed and the Treasury Department are joining forces to save the economy.
Bloomberg reported:In just these past few weeks, the Fed has cut rates by 150 basis points to near zero and run through its entire 2008 crisis handbook. That wasn’t enough to calm markets, though — so the central bank also announced $1 trillion a day in repurchase agreements and unlimited quantitative easing, which includes a hard-to-understand $625 billion of bond buying
a week going forward. At this rate, the Fed will own two-thirds of the Treasury market in a year.
But it’s the alphabet soup of new programs that deserve special consideration, as they could have profound long-term consequences for the functioning of the Fed and the allocation of capital in financial markets. Specifically, these are:
- CPFF (Commercial Paper Funding Facility) – buying commercial paper from the issuer.
- PMCCF (Primary Market Corporate Credit Facility) – buying corporate bonds from the issuer.
- TALF (Term Asset-Backed Securities Loan Facility) – funding backstop for asset-backed securities.
- SMCCF (Secondary Market Corporate Credit Facility) – buying corporate bonds and bond ETFs in the secondary market.
- MSBLP (Main Street Business Lending Program) – Details are to come, but it will lend to eligible small and medium-size businesses, complementing efforts by the Small Business Association.
To put it bluntly, the Fed isn’t allowed to do any of this. The central bank is only allowed to purchase or lend against securities that have government guarantee. This includes Treasury securities, agency mortgage-backed securities and the debt issued by Fannie Mae and Freddie Mac. An argument can be made that can also include municipal securities, but nothing in the laundry list above.
So how can they do this? The Fed will finance a special purpose vehicle (SPV) for each acronym to conduct these operations. The Treasury, using the Exchange Stabilization Fund, will make an equity investment in each SPV and be in a “first loss” position. What does this mean? In essence, the Treasury, not the Fed, is buying all these securities and backstopping of loans; the Fed is acting as banker and providing financing. The Fed hired BlackRock Inc. to purchase these securities and handle the administration of the SPVs on behalf of the owner, the Treasury.
In other words, the federal government is nationalizing large swaths of the financial markets. The Fed is providing the money to do it. BlackRock will be doing the trades.
This scheme essentially merges the Fed and Treasury into one organization. So, meet your new Fed chairman, Donald J. Trump.
Hat tip Greg Rubini
