An Independent FED? DOJ Subpoenas Powell

Two Things are Certain in Life: The FED and Taxes

1913 was by far the worst year in American history.

Two very important things happened that year which have utterly transformed America, giving us the behemoth government we now have.

First, there was the passing of the 16th amendment which created the federal income tax. A tax which has since been used to facilitate the endless growth of federal and state governments by stealing the fruits of hardworking Americans to feed an extra-legal bureaucracy, and grow a humble republic into a world empire.

Then, there was the creation of the Federal Reserve.

The brainchild of Senator Aldrich, the particulars of the Federal Reserve Act were hashed-out during a secret meeting on Jekyll Island, and was attended by some of America's most powerful bankers.

Since the beginning, the FED has reliably debased the American dollar to finance the regime when milk from the income tax cash cow stops flowing. As a testament to their wickedness, through it all the FED has managed to cause 14 recessions, 6 financial crises, and bail-out the owners of the FED at Americans' expense (Yes, literal owners. The FED is a joint stock company. Members become members by buying shares).

Every decision the FED makes reeks of bias and partisanship, and its very inception proves that it was always meant to be that way.

Yet FED Chairman Jerome Powell––like all his predecessors––insists that America's banking cartel is interested only in the common good...

"I have carried out my duties without political fear or favor, focused solely on our mandate of price stability and maximum employment."

Sure.

And also, just so everyone is clear, the FED doesn't have a "dual" mandate. It has four mandates. Price stability. Maximum employment. Moderate long-term interest rates. And lender of last resort. Notice it's only ever managed to fulfill its last mandate.

Anyway, the real reason Powell is upset is because President Trump is violating the gentleman's agreement that has existed between the FED and the Presidency for over a century. 

The agreement says: 

"We at the FED will assist you by artificially lowering interest rates to create the illusion of a booming economy if things get bad. We will also ensure that your deficits are financed. In return, you will never, ever reveal what we are actually doing, and never try to upset the banking class's apple cart. In public, you will say the FED is independent, and we will say we are nonpartisan."

Yet Trump has repeatedly demanded, in public, that Powell lower interest rates, and has also threatened to remove Powell if he does not obey. But the gentleman's agreement insists on maintaining the illusion of independence. What Trump has done is draw attention to the undeniable fact that the FED is not and has never been an apolitical, independent institution.

Powell's mistake with Trump was not to lower interest rates when asked in private. And ultimately the FED did deliver 3 cuts, just not to the satisfaction of the president. Trump's mistake in this regard was to ignore chronic price inflation and ask for too low of rates, instead of being happy with what he got.

Trump is clearly envious of the 0% rates enjoyed by Obama and Biden, but these were horribly mistaken policy choices that prolonged the '08 and '20 recessions, and have succeeded only in propping-up a financial house of cards. If Trump isn't careful, slashing rates would amplify price inflation, lead to more malinvestment, and increase the federal government's cost of servicing the debt––debt which the treasury has already had difficulty selling (Because of this, the FED announced that it would be purchasing $40 billion worth of treasuries every month, thus resuming QE).

And as for price inflation, yes, prices are still red hot and on the rise.

As a result of the scrap between Trump and Powell, the DOJ has launched an investigation of and served subpoenas to the FED, claiming that Powell lied to congress about the cost of the FED's building renovations.

Great. Investigate waste, fraud and abuse. That's the MAGA platform. But can we get an audit too? If $2.5 billion for a building renovation is grounds for investigation, what does that make this?

The FED can own more federal debt than the top 6 countries combined, no questions asked? Which of their mandates permits that? Does the strength of the U.S. economy depend on the government's ability to run perpetual deficits that amount to $37 trillion in outstanding debt? What else do they own and where does the counterfeit money go when the FED decides to run its balance sheet up to $9 trillion?

For that matter, where in the constitution is the FED allowed?

In any case, the single greatest thing that can come from this investigation is the possibility of unmasking the FED. If Powell gets rattled and submits to Trump's demands, and the DOJ's investigation suddenly falls through, there will be little choice but to acknowledge that the FED chairman––a presidential appointee––is not, in fact, an apolitical figurehead of the world's greatest "independent" institution.

A little history about the Federal Reserve Act helps drive this point home. In the original draft of the Act, the Secretary of the Treasury would also have served as the FED Chairman. That, as well as the centralized Board tasked with coordinating all twelve district banks, was one of the principal reasons folks like Wisconsin representative Robert M. La Follette opposed the Act (and the subsequent Great War which the FED would later finance). Rep. La Follette managed to succeed on the latter point, but the Board was later instituted in short order, and now sits at the New York FED.

So the FED isn't even close to being independent. They certainly would like to be, but they are an institution created by congress, and thus serve at their pleasure. Despite this, the congress has never exercised control over the institution, or even investigated whether their actions are actually in the interest of the public. With the exceptions of Ron Paul and Thomas Massie, no one has ever bothered to audit the FED's books––and likely for good reason.

If an audit were conducted, Americans might discover that the FED does much more than "manage the economy." They might find transfer payments to foreign regimes and insurgencies, hundreds of billions of dollars sent to bankrupt companies, and private correspondences between Wall Street firms and FED officials, the former directing the latter on what target rate to pursue.

So let's hope that Trump's vendetta bears fruit, but not the kind that would result in lower interest rates and an acceleration of price inflation.