Trump’s Fed position befits a banana republic

By Rob Cox
May 6, 2016

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Donald Trump is making the most of a two-day-old presumptive nomination to be the Republican candidate for the White House. In his latest break with the general decorum that once befitted the office he is seeking, the reality-television veteran has said he would aim to change the guard at the Federal Reserve.

It’s not that Janet Yellen is doing a bad job. The Fed’s longstanding easy-money policy – with a federal funds rate now at 0.25 percent – is to Trump’s liking, he told CNBC on Thursday. “I love the concept of a strong dollar,” he said, but it creates havoc in markets and trade, while higher rates would make it more expensive for the country to service its debts.

Instead, Trump says he would invoke his TV catch phrase from “The Apprentice” to tell Yellen “You’re fired” simply because she’s not a Republican. Even in the divisive state of contemporary American politics, this portends a stunning act of partisanship.

The Fed’s credibility is derived in large measure by its independence from the legislative and executive branches of the U.S. government. This autonomy separates the Fed from, say, its counterparts in Venezuela or the People’s Republic of China, and is a significant component of the dollar’s enviable position as the world’s reserve currency.

That’s why presidents have almost never intervened along the lines Trump is suggesting he would with Yellen, whose term ends in 2018. Barack Obama, a Democrat, reappointed Ben Bernanke, a Republican first nominated by George W. Bush, to a second term in 2009, citing a desire for policy continuity. Democrat Bill Clinton did the same, twice, for Alan Greenspan, a Republican. In 1983, Republican Ronald Reagan kept Paul Volcker, a Democrat named by Jimmy Carter, for a second term.

Flipping tradition on its head is, of course, all part of Trump’s iconoclastic campaign for the White House. In the CNBC interview, Trump discussed the need to handle America’s monetary affairs “very, very carefully” because “now you’re talking about something that’s very, very fragile.” In that context, replacing Yellen because of her party affiliation would be an act of extreme carelessness – and probably only one of many that could be expected from a Trump presidency.

3 comments

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Hopefully, once Trump is president, he will do more than fire Yellen, he’ll abolish the Fed. The Fed is a secret cabal of international bankers running (into the ground) our country’s financial system. This is a function that our constitution delegates to the congress which was stolen by the bankers in 1913. They are not working for the people but rather for their banking cronies. It’s time for the Fed to go.

Posted by Yvo_Kerwar | Report as abusive

Like many media commentators and expert analysts that prefer tradition over innovation because they feed from the status quo trough, the author has excluded the paragraph that would remind readers that the US debt is skyrocketing day by day and will soon be to the tune of 21 trillion. That is dwarfed by the US unfunded liabilities of approx 127 trillion, which is being happily set aside for future taxpayers to sort out. With that in mind, any shakeup of fiscal or monetary policy by way of removal of those currently whistling away at the helm while the financial crisis digs America into a hole that will have its citizens wishing they were a banana republic, is unlikely to make things much worse. Who knows? Maybe Trump’s extemporaneous, politically-unpredictable swashbuckling style will surprise the hell out of everyone – especially our overly-educated political leaders who have been doing such a great job steering the world into chaos.

Posted by simonfenn | Report as abusive

Donald Trump is long on insults,short on substance.

Posted by slowpoke | Report as abusive