by David Haggith, The Great Recession Blog:
Two weeks ago a former Federal Reserve board member and bank president, William Dudley, wrote an editorial that encouraged the Fed use its powers to defeat Donald Trump’s second bid for the US presidency. I don’t recall choosing presidents as being listed in the Fed’s two mandates — controlling inflation while maximizing employment.
For an organization that has been speaking a lot lately about the importance of its independence from politics, that was the most overtly political statement I’ve heard from a central banker, albeit a former central banker, but one with a lot of influence.
Readers here know from my last article that I’m critical of Trump, but longer-term readers know I was also critical of Obama and have always been critical of the Fed. Since I built my readership during the Obama era, a lot of my own readers may have been Obama haters who were glad I criticized the things his administration did but who are no longer so glad when I turn that criticism on Trump.
Now, during the Trump years, that same criticism has cost me literally thousands of lost readers, and my last article which lampooned president Trump cost me a few patrons as well, I figured it would, but I’m interested in truth about the economy, what is working and what is not, what will work and what will not work. So, I remain an equal-opportunity critic as my site has always claimed.
Now I’m turning that critical lens back on the Fed because I’m also fair in being supportive of Trump when due, such as when I wrote after Trump’s inauguration an exposé on the truly fake news belittling the size of his inauguration, which actually had a hyuge audience. As someone who seeks to be as objective as possible about each party, I feel compelled to point out how out-of-character it was for a former board member and reserve bank president, to publicly advocate for the Fed to no longer make policy decisions based on data and what is good for the country but on what will most likely unseat the currently seated president.
So, fo once, I even have to agree with Krazy Kudlow when he almost drunkenly criticizes William Dudley, saying, “That is the most politicized statement I have ever heard”:
For a moment I thought the Fed was plotting un-armed insurrection. As a Zero Hedge article said in its title, “That A Member Of The Elite Like Bill Dudley Could Open This Can Of Worms Is Quite Staggering.” Dudley half-heartedly walked back the statement a little but not much, and Fed Chair Jerome Powell later said it did not speak for the Fed.
Dudley served as president of the Federal Reserve Bank of New York from 2009 to 2018 and as vice chairman of the Federal Open Market Committee. I suppose since Dudley is no longer part of the Fed, he has more freedom to speak his mind. Still, his statements were staggering, as Larry says, given how reserved Federal Reserve governors usually are.
Dudley called the president’s trade war with China a “manufactured disaster-in-the-making” that “presents the Federal Reserve with a dilemma: Should it mitigate the damage by providing offsetting stimulus, or refuse to play along? If the ultimate goal is a healthy economy, the Fed should seriously consider the latter approach.”
Oddly noting in the same article that “staying above the political fray helps the central bank maintain its independence,” Dudley dove straight into political intervention:
[Fed] Officials could state explicitly that the central bank won’t bail out an administration that keeps making bad choices on trade policy, making it abundantly clear that Trump will own the consequences of his actions…. It would discourage further escalation of the trade war, by increasing the costs to the Trump administration…. I understand and support Fed officials’ desire to remain apolitical. But Trump’s ongoing attacks on Powell and on the institution have made that untenable.
From there, he goes full metal:
Central bank officials face a choice: enable the Trump administration to continue down a disastrous path of trade war escalation, or send a clear signal that if the administration does so, the president, not the Fed, will bear the risks — including the risk of losing the next election..
There’s even an argument that the election itself falls within the Fed’s purview. After all, Trump’s reelection arguably presents a threat to the U.S. and global economy, to the Fed’s independence and its ability to achieve its employment and inflation objectives. If the goal of monetary policy is to achieve the best long-term economic outcome, then Fed officials should consider how their decisions will affect the political outcome in 2020.
While he doesn’t speak for the Fed, this former Fed governor apparently thinks maintaining Fed independence means directly manipulating the economy in order to gain independence from a haranguing president by getting rid of him politically via economic means. It reads to me as if he is saying the Fed should intentionally damage the economy to overthrow the president!
Actually, even current members of the Fed got quite upset with Dudley’s editorial, though perhaps only because it undermines their façade of being politically independent and strictly data dependent in their actions.
Now, here is where I am going to take down my title, though I think it was fair to ask: Ironically, Dudley’s open advocacy for removal of the president indicates the Fed is not conspiring to get rid of the president and did not get him into office in order to take the blame for the Fed’s failed recovery as some conspiracists claim. While I believe the Fed will make fortuitous use of the Donald in that manner, I have always said I don’t think Trump is as likely to be their planned Trojan horse as just a convenient scapegoat.
Here is why: It would hardly be conspiracy if the Fed were so blatant about it as Dudley just was. Dudley has been at the center of the Fed for so many years that he would certainly know if Trump’s presidency was part of a Fed conspiracy to crash the US economy on purpose (wherein the theory says the Fed would need someone to blame its intentional crash on to take the blame off of itself). Dudley certainly wouldn’t be breathing a word about such a plan if it had long been the Fed’s covert attention. Why would you do that and open the Fed up widely to intense public criticism when the president does go down due to the Fed’s failed economy?
I’m sure some savior of the conspiracy theory will now claim that Dudley is really playing 4-D chess here and trying to convince us all that the Fed is not conspiring by telling the public the Fed really should conspire to crash the economy on Trump’s watch for the longterm good of the economy. The theory there would be that it is 4-D chess because no one would do that if they were really going to take down the economy.
However, that is just it: no one would do it. It has never been my observation that people who conspire at high levels to overthrow economies take the risk of going wildly public about doing it in order to take out the duly elected president of the United States. That would be more likely the kind of blabbermouthing a cartel of banksters would kill one of their members over if the member leaked it. The whole benefit of a scapegoat is to let the scapegoat take the blame on himself by his own apparent actions. You don’t point the light at the thing you are actually trying to secretly do (take down the economy) by suggesting publicly you’ll do that very thing in order to take down the president.
Grand conspirators don’t write broadly published editorials about their subversive plans that would risk planting seeds of doubt in the public mind that would shine the spotlight of public scrutiny back on themselves — especially if the plan is to really to use the president as the scapegoat for what is really a planned takedown of the economy, not a takedown of the president. If Dudley has gone rogue and broken the code of silence on a plan that takes the president out of office by manipulating an election, he will soon be mysteriously dead.
Consider also the internal contradictions of what is, at least, the conspiracy theory I’ve most often run up against — that banks want to crash the economy intentionally in order to strip you of your most prized and valuable assets — such as your home. If banks wanted to do that, they could have easily done all of it that they wanted to during the last collapse. Instead of foreclosing on everything they could, however, they did their best to forestall foreclosures because the faster they foreclosed the more they crashed the value of the assets they were seizing, and so the more the market value of their collateral dropped below the face value of their loans. This caused their stocks to plummet more than any industry’s stocks, which caused the entire collapse of behemoth banks like Washington Mutual. Wholesale foreclosures were not good for banks, but brought banks into bankruptcy.