Trump poised to take control of the Federal Reserve

[timosman]

https://www.cnbc.com/2018/07/20/trump-poised-to-take-control-of-the-federal-reserve.html

20 July 2018

President Donald Trump has multiple reasons as to why he should take control of the Federal Reserve. He will do so both because he can and because his broader policies argue that he should do so. The president is anti-overregulating American industry. The Fed is a leader in pushing stringent regulation on the nation. By raising interest rates and stopping the growth in the money supply it stands in the way of further growth in the American economy.

First, He Can

The Board of Governors of the Federal Reserve is required to have seven members. It has three. Two of the current governors were put into their position by President Trump. Two more have been nominated by the president and are awaiting confirmation by the Senate. After these two are put on the Fed’s board, the president will then nominate two more to follow them. In essence, it is possible that six of the seven Board members will be put in place by Trump.

The Federal Open Market Committee has 12 members and sets the nation’s monetary policy. Seven of the 12 are the members of the Board of Governors. Five additional are Federal Reserve district bank presidents. Other than the head of the Fed bank in New York, who was nominated by the president, the other four can only take their positions as district bank presidents if the board in Washington agrees to their hiring. One of these, the Fed Bank president in Minneapolis, Neel Kashkari, is already arguing for no further rate increases.

Second, Regulation

Following the passage of the Dodd Frank Act in July 2010, the Fed was given enormous power to regulate the banking industry. It moved quickly to implement a number of new rules. The Fed set up a system that would penalize banks that failed to obey its new rules. These rules included setting limits as to how big an individual bank could be; how much money the banks had to invest in fed funds and Treasurys as a percent of their assets; which loans were desirable and which were not; where the banks had to obtain their funding and many, many, more up to and including how much a bank could pay its investors in dividends.

These rules have meaningfully slowed bank investments in the economy (the Volcker Rule) and they have had a crippling effect on bank lending in the housing markets (other agencies have had an impact here also).

Thus, of all of the government agencies the Fed has been possibly the most restrictive. The president has already moved to correct these excesses by putting in place a new Fed Governor (Randal Quarles) to regulate the banking industry.

Three, Killing Economic Growth

In the second quarter of 2018, the growth in non-seasonally adjusted money supply (M2) has been zero. That’s right, the money supply did not grow at all. This is because the Fed is shrinking its balance sheet ultimately by $50 billion per month. In addition, the Fed has raised interest rates seven times since Q4 2015. Supposedly there are five more rate increases coming.

This is the tightest monetary policy since Paul Volcker headed the institution in the mid-1980s. It will be recalled his policies led to back-to-back recessions. Current Fed monetary policy is directly in conflict with the president’s economic goals.

Moreover, the Treasury is estimating it will pay $415 billion in interest on the federal debt in this fiscal year. A better estimate might be $450 billion if rates keep going up. There are a lot of bridges and tunnels and jobs that could be created with this money.

Then there is inflation. It is likely to rise if the Fed eases its policies. If that happens paying down the federal debt becomes easier. On a less desirable note, higher interest rates lower real estate values. Lower rates that stimulate inflation increase real estate values.

Bottom Line

The president can and will take control of the Fed. It may be recalled when the law was written creating the Federal Reserve the secretary of the Treasury was designated as the head of the Federal Reserve. We are going to return to that era. Like it or not the Fed is about to be politicized.

 

[DamianTV]

Couldnt have happened to a nicer corrupt system!

I hope like hell this pans out as the Fed is killing what is left of America. However, the last president that went against the Fed was JFK...

 

[RonZeplin]

Jimmy & Donald's easy money - Runaway Inflation

President Trump is following in the footsteps of his financial guru Jimmy Carter who pushed runaway inflation to double-digit levels, averaging 11.3% in 1979 and 13.5% in 1980. Easy money only makes things worse. End the FED!

Toxic waste, one term presidents.

 

[Madison320]

https://www.cnbc.com/2018/07/20/trump-poised-to-take-control-of-the-federal-reserve.html

That's one of the dumbest things I've read lately. As bad as the Fed is, letting the government control the money supply is way worse. I'd argue that the main reason the Fed has been too easy has been influence from the executive branch. The writer is arguing that what we need is MORE printing and borrowing??? That's not what causes economic growth. It's savings and investment. What we need is much less government spending and higher (market set) rates so that people will save and businesses can invest.

If the government had control of the printing press they'd hyperinflate the dollar out of existence within a short period of time.

 

[devil21]

That's one of the dumbest things I've read lately. As bad as the Fed is, letting the government control the money supply is way worse. I'd argue that the main reason the Fed has been too easy has been influence from the executive branch. The writer is arguing that what we need is MORE printing and borrowing??? That's not what causes economic growth. It's savings and investment. What we need is much less government spending and higher (market set) rates so that people will save and businesses can invest.

If the government had control of the printing press they'd hyperinflate the dollar out of existence within a short period of time.

Gee, you don't think that's the goal, do ya?

Naaaa couldn't be.

 

[TheCount]

I hope like hell this pans out as the Fed is killing what is left of America.

You hope this pans out? He explicitly wants the Fed to give out more money.

 

[timosman]

You hope this pans out? He explicitly wants the Fed to give out more money.

He wants them not to raise interest rates. How was your trip to Dagobah system?

 

[Zippyjuan]

President Donald Trump has multiple reasons as to why he should take control of the Federal Reserve. He will do so both because he can and because his broader policies argue that he should do so.

Trump can nominate people to the Federal Reserve to replace openings (with the usual "advise and consent of the Senate"). He cannot fire them or tell them what to do. His choices so far have been "middle of the road" as far as their known positions on interest rates goes. His replacement for Yellen as Chairman said he would continue her policies of raising rates to target inflation.

the secretary of the Treasury was designated as the head of the Federal Reserve.

The Fed is not run by the Secretary of the Treasury but by the Chairman of the Federal Reserve Board.

 

[timosman]

The Fed is not run by the Secretary of the Treasury but by the Chairman of the Federal Reserve Board.

That's how the law was written in 1913 according to OP. When did it change?

 

[Zippyjuan]

You hope this pans out? He explicitly wants the Fed to give out more money.

He wants the "mother of all bubbles". On the other hand, his tariffs are working to counter that.

 

[Zippyjuan]

That's how the law was written in 1913 according to OP. When did it change?

1936 (it was changed in 1935 and took effect in 1936). That made the Fed more independent of the government.
https://www.federalreserve.gov/aboutthefed/bios/board/boardmembership.htm

Leadership Structure: 1936-Present

The Banking Act of 1935 made several changes in the nomenclature and the structure of the Board. The Banking Act of 1935 renamed the "Federal Reserve Board" as the "Board of Governors of the Federal Reserve System," the "governor" of the Board as the "chairman" and the "vice governor" as the "vice chairman" of the Board, and renamed "members" of the Board as "governors." The Banking Act of 1935 also made the following more structural changes:

increased the number of members of the Board appointed by the President from six to seven

required the President to designate one of the persons appointed as "chairman" of the Board and one as "vice chairman" of the Board, each to serve in such role for a term of four years

specified that the appointive members in office on the date of the act should continue to serve until February 1, 1936, or until their
were appointed and had qualified; thereafter, the members' terms should be 14 years

specified that the ex officio members in office on the date of the act (the Secretary of the Treasury and the Comptroller of the Currency) were to continue to serve as ex officio members only until February 1, 1936, but made no further provision for ex officio members
provided that the "chairman of the Board, subject to its supervision, shall be its active executive officer"

The Federal Reserve Reform Act of 1977 required the President to designate one of the persons appointed as "Chairman of the Board," by and with the advice and consent of the Senate, and one as "Vice Chairman of the Board," by and with the consent of the Senate. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 required the President to designate, by and with the advice and consent of the Senate, a new "Vice Chairman for Supervision," who "shall develop policy recommendations for the Board regarding supervision and regulation of depository institution holding companies and other financial firms supervised by the Board and shall oversee the supervision and regulation of such firms." A 2015 statute required that the President, in selecting members of the Board, "shall appoint at least one member with demonstrated primary experience working in or supervising community banks having less than $10 billion in total assets."

 

[timosman]

https://www.federalreservehistory.org/essays/banking_act_of_1935

President Franklin D. Roosevelt Signs the Banking Act of 1935​

 

[DamianTV]

You hope this pans out? He explicitly wants the Fed to give out more money.

I will agree that its the money printing that has gotten us into our problems to begin with, but what I am hoping is if there is a measure of control against the Fed, perhaps we have a better chance of shutting it down permanently. I doubt Trump himself will do that, but may very well open a door for us to finally slay this monster. Just looking for a silver lining, hopefully it isnt just painted lead.

 

[Galileo Galilei]

Trump is setting things up so President Rand Paul can end the Fed in 2025.

 

[Zippyjuan]

Trump is setting things up so President Rand Paul can end the Fed in 2025.

Of course that would require an act of Congress to end it. Think you can ever get two thirds of them to agree to do so?

 

[devil21]

Of course that would require an act of Congress to end it. Think you can ever get two thirds of them to agree to do so?

No it wouldn't. The Fed can be dissolved by several different routes. Hell, the Fed can dissolve itself. Do you even Federal Reserve Act, bro? Something about shareholders voting to dissolve the corporation, just like any other corporation.

You agree that the Fed is a corporation made up of shareholders, yes?

 

[Zippyjuan]

No it wouldn't. The Fed can be dissolved by several different routes. Hell, the Fed can dissolve itself. Do you even Federal Reserve Act, bro?

Link?

Something about shareholders voting to dissolve the corporation, just like any other corporation.

You agree that the Fed is a corporation made up of shareholders, yes?

Not in a corporate shareholder sense. The "shares" in the Federal Reserve are really membership fees. The shares cannot be bought or sold and carry no voting powers- they have no say in what the Fed does. When a bank wants to join the Federal Reserve System they are required to put up 10% of their total assets to join. In exchange, they are given "shares" and are paid a six percent dividend on those shares.

https://www.federalreserve.gov/faqs/about_14986.htm

Who owns the Federal Reserve?

The Federal Reserve System is not "owned" by anyone. Although parts of the Federal Reserve System share some characteristics with private-sector entities, the Federal Reserve was established to serve the public interest.

The Federal Reserve derives its authority from the Congress, which created the System in 1913 with the enactment of the Federal Reserve Act. This central banking "system" has three important features: (1) a central governing board--the Federal Reserve Board of Governors; (2) a decentralized operating structure of 12 Federal Reserve Banks; and (3) a blend of public and private characteristics.

The Board of Governors in Washington, D.C., is an agency of the federal government. The Board--appointed by the President and confirmed by the Senate--provides general guidance for the Federal Reserve System and oversees the 12 Reserve Banks. The Board reports to and is directly accountable to the Congress but, unlike many other public agencies, it is not funded by congressional appropriations. In addition, though the Congress sets the goals for monetary policy, decisions of the Board--and the Fed's monetary policy-setting body, the Federal Open Market Committe--about how to reach those goals do not require approval by the President or anyone else in the executive or legislative branches of government.

Some observers mistakenly consider the Federal Reserve to be a private entity because the Reserve Banks are organized similarly to private corporations. For instance, each of the 12 Reserve Banks operates within its own particular geographic area, or District, of the United States, and each is separately incorporated and has its own board of directors. Commercial banks that are members of the Federal Reserve System hold stock in their District's Reserve Bank. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. In fact, the Reserve Banks are required by law to transfer net earnings to the U.S. Treasury, after providing for all necessary expenses of the Reserve Banks, legally required dividend payments, and maintaining a limited balance in a surplus fund.

https://www.stlouisfed.org/in-plain-english/who-owns-the-federal-reserve-banks

Member banks hold stock in the Federal Reserve Banks and earn dividends. Holding this stock does not carry with it the control and financial interest given to holders of common stock in for-profit organizations. The stock may not be sold or pledged as collateral for loans.

 

[devil21]

It's amazing how many times "we" have had this argument Zip. There's multiple ways to dissolve the Fed, detailed throughout the FRA. The Federal Reserve System is made up of member bank shareholders. If every bank closes up shop, the Fed itself is then effectively dissolved. That would be a vote of the shareholders! If the Fed Board engages in criminal activity it can be dissolved by act of court. If the Fed Board or member banks do not comply with the FRA the charter is forfeited and therefore dissolved. Finally, Congress can also repeal the FRA outright and dissolve the Fed without cause.

 

[Zippyjuan]

It's amazing how many times "we" have had this argument Zip. There's multiple ways to dissolve the Fed, detailed throughout the FRA. The Federal Reserve System is made up of member bank shareholders. If every bank closes up shop, the Fed itself is then effectively dissolved. That would be a vote of the shareholders! If the Fed Board engages in criminal activity it can be dissolved by act of court. If the Fed Board or member banks do not comply with the FRA the charter is forfeited and therefore dissolved. Finally, Congress can also repeal the FRA outright and dissolve the Fed without cause.

So you think that there is a chance that every bank will close up shop? A bank can also chose to leave the Federal Reserve System. Some have. https://www.bizjournals.com/washing...e-bank-leaving-federal-reserve-oversight.html

Finally, Congress can also repeal the FRA outright and dissolve the Fed without cause.

Yes, that is possible- though it would take two thirds to agree.

 

[devil21]

(Im going to stop quoting you in replies, just answer, in case you're paid-per-reply)

No one said anything about what the chances of it occurring are, only whether that is a possible way to dissolve the Fed. The answer is YES, that is a possible way to dissolve the Fed, as I stated before....and of course you disagreed and are now moving the goalposts.

As always, Congress will do what they are told to do.