SHORT-CHANGING THE ECONOMY FOR POLICY GOALS, IS FINANCIAL SUICIDE!

In a recent post, I warned against Donald Trump taking control of the Federal Reserve Board, our central bank, and then directing it toward his own politically biased agenda.  The link for that post is: https://thetruthoncommonsense.com/2017/02/09/dont-mess-with-the-fed/?iframe=true&theme_preview=true.  Since then, one Fed Governor resigned unexpectedly, thus giving Trump a couple of seats to fill, and then he can nominate his own Chairman, as of February 2018.

The manner in which Donald Trump and his Regime manages the economy, will indeed, have major effects on our Society, in general. Income-inequality, divisiveness and widespread frustration with the government, can have a major effect on Who and What America becomes!

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The Role of the Federal Reserve Board, our central bank, is to foster economic conditions that achieve both stable prices and maximum sustainable employment.  The optimum is referred to as the Goldilocks Economy, similar to the mid-to-late 1990s:  “Not too hot, not too cold, but just right.”  The Fed’s goal, in effect, is to manage for Balance.

Republicans in Congress have always wanted to have greater control over the Fed, which would, in effect, politicize it.  If the economy were destined to fluctuate between the policies of one party, and then shift to the other party’s goals, the general results would surely be disastrous for the overall Health of the Economy.

Donald Trump has already announced that he will replace Fed Chair Janet Yellen, when her Chairmanship expires.  With less than one month in office, Trump has already been trying to browbeat the Fed not to raise rates.  There is a reason why democracies insist on their central banks remaining apolitical: wrong moves, especially on purpose, in either direction, or if postponed, may lead to an even more horrendous economic situation.

An interest rate increase, or cut, are usually made after careful economic analysis, based on comprehensive reports, collected from the twelve regional federal reserve banks.  Those reports provide the rationale for monetary policy.  Arbitrarily cutting the “Funds Rate”, or failing to increase it when appropriate, might result in an overheated economy—and high inflation—on the up-side. Improper moves in the other direction, could result in deflation—price implosion—and a similarly dysfunctional economy.

When the Fed’s monetary policy committee raised rates in December, to a range of 0.50%-to-0.75%, it estimated that a 0.25% rate hike was necessary to keep the economy from accelerating.  Balancing the economy assumes that minor adjustments are best, rather than waiting for the economy to either over-inflate on the up-side, or to deflate or the down-side.

Now that Steven Mnuchin has been sworn-in as Secretary of the Treasury, Donald Trump might just turn his attention more toward the Fed nominations.  The key question here, is whether Secretary Mnuchin will work smoothly with the Fed, or merely follow Donald Trump’s incongruous agenda.  Hopefully, he will cooperate with the Fed, and focus on maintaining a stable economy, for all America!

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  1. #1 by cheekos on February 17, 2017 - 1:36 AM

    The linked article, from the Miami Herald, provides an update of what went on, mostly between House Republicans and Fed Chair Janet Yellen, as she met separately with the Senate Banking Committee, on Tuesday, and the House Financial Services Committee, yesterday. There is a mandate for her to testify before each committee, twice annually.

    The link is as follows: http://www.miamiherald.com/news/business/article132843229.html.

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