Continuing this lovely little series (#733580, #752441) after a little, um, political/electoral hiccup (#757365) —everyone's attention was elsewhere.
...but maybe we can marry the two themes, politics + monetary economics = love.

In the Fed press conference yesterday, Chairman Powell was asked whether he’d step aside if Trump asked/demanded he did.
“No.”
…followed by an awkward silence. After a follow-up question he clarified that it was “not permitted under the law.”
Powell seemed pretty annoyed. He is usually much more relaxed and open even to stupid journalist questions. Here he was unusually direct, short, and I even sensed a tinge of frustration and defiance. (That’s probably why every outlet from CNN to BBC in addition to the financial outlets picked up on it and reported it broadly.)
Look, I’m a money guy—I have no knowledge of law and can’t speak to the legal options for Trump to somehow get rid of Powell. My understanding is that he probably can’t fire Powell or oust him from the Federal Reserve Board. Perhaps, maybe, there’s a way to demote him, BUT, since there are no vacancies on the board for a few more years, Trump would have to nominate a chair from one of the current board members—achieving the sum total of nothing in terms of influence over Fed decisions.
These ideas have been circulating for a while. WSJ reported in April 1:
“The group also contends that Trump, if he returns to the White House, would have the authority to oust Jerome Powell as Fed chair before his four-year term ends in 2026, the people familiar with the matter said, though Powell would likely remain on the Fed’s board of governors.“
So, WTH is Fed "independence"?
Simply put, it’s the idea of checks-and-balances and insulating monetary decisions from executive/legislative ones.
All that independence means is there are no formal levers the president can pull to have the Fed make different policy decisions. For all the criticism we may levy at the Fed and its existence, a monetary spigot directly controlled by the executive is worse. (Google “political business cycle,” but I wager most Stackers have a pretty good idea of what this entails in terms of short-term juicing up an economy before an election 2)
Practically, Fed independence is enshrined by:
  • not having a budget from Congress (Fed finances itself from seigniorage, a fancy word for the profits from money printing 3)
  • its board members and chairman having long, fixed-length appointments (Powell’s chairmanship ends in 2026)
  • Importantly, president can’t just fire such a member.
What independence doesn’t mean is that the monetary and fiscal/executive powers never agree, never address the same realities, never react to one another, are never on a call or in a meeting. Those things are inevitable. The Fed chair also routinely reports to Congress twice a year and gets barraged questions from Representatives in the House.
In Bitcoin circles, Fed/Treasury get a lot of slack for “faux independence.” Now, while the Fed isn’t explicitly operating on Treasury orders or sucking up to the president, if two people make choices independently of one another but are exposed to the same information and, more importantly, a similar set of values or worldview, is it so strange that they come to similar conclusions?
Now, if we move past “independence” narrowly—can Presidents lean on Fed chairs, pester them in public or contact them in private to make their sentiments known? Indeed. Many presidents have done so, not least the very same Trump on the very same Powell in 2017 and 2018. (Powell didn’t budge back then, either, so I imagine he’s a little tired of this prospective déjà vu.)
Precedent? Plenty.
In 1951, President Truman kind of fired the sitting Fed chair, telling him in no uncertain terms that his services weren’t “satisfactory” 4. Instead of resisting, which Thomas McCabe legally probably could have done, he resigned.
Another well-known Fed independence lore is LBJ in the 1960s, who had the then-Chair of the Fed, William McChesney Martin, flown down to his Texas ranch and lambasted about the Fed’s too-hawkish stance—and apparently physically assaulted him. Changed the policy outcomes? Maybe a little.
It’s hard to imagine Powell acquiescing to something similar, changing policymaking on soft threats or voluntarily stepping aside from loud Trumpian bullying. ESPECIALLY since we’ve already been through one round of that, when Trump went after Powell publicly to no or little effect.

Tl;dr: Under current monetary regimes, Fed independence is pretty important, and Trump probably doesn’t have a way to make a dent in that.
That's today's little money lesson. Peace, J

Footnotes

51 sats \ 1 reply \ @freetx 8 Nov
Lets be honest: If they would install a "good fed chairman", who was interested in "long term US health" he would need to raise rates to 7-10% for a prolonged time to root out inflation and fix all the malinvestment brought on by 30 years of printing.
Short/Mid term that would collapse most of the zombie economy. Would cause massive unemployment. Most of gov itself would collapse and layoff millions of workers.
Consumer spending would likewise collapse, perhaps by 70+%. Housing + Food + Electricity + Gas would be the only real spending people would engage in. Entertainment and travel would collapse. 70% of restaurants would close....etc..etc.
Long term (10+ years) we would come out of this much stronger and would set ourselves up for another 100 year run of prosperity.
Another causality of all this would probably be bitcoin. I don't mean that it would "die", but price would get crushed 70+% for a long long time. An uncomfortable reality is that "bad economic policy" is the fertile ground that bitcoin has been growing in.
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14 sats \ 0 replies \ @Cje95 8 Nov
Its giving BIG Paul Volcker energy! He was the one that cranked those bad boys up when he took over in the late 70's and drove it down. Our debt though would freaking SKY though and I am not sure it would end up working out long-term.
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12 sats \ 9 replies \ @OT 8 Nov
Who's really in charge here?
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Not sure. What's your best hypothesis?
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10 sats \ 0 replies \ @OT 8 Nov
No idea
I did think it was pretty funny though. They will continue to fight and argue as usual until one side gets their way.
In Australia the central bank is also meant to be independent from government. I doubt it really works that clearly though
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The rentseeking bankers who own the FED.
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It isn't. #745581
This is a hill i will freakin die on
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So the member banks of the Fed restricting membership is not the member banks protecting their exclusive fiat debt issuance privilege?- They have refused banks who have provided banking to 'crypto' businesses Fed membership - protecting their monopoly. Ownership and control may be different but controlling who is allowed into the club is a powerful tool for the banks who are members- it enables them to protect and maintain their fiat debt slavery issuance monopoly... https://www.federalreserve.gov/newsevents/pressreleases/orders20230127a.htm
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To the extent this is right (a very small extent) that yields oligopolistic rents -- so I guess "cartel" is allowed -- but it's not the reason for "fiat debt slavery issuance"
That's on a much bigger, government cabal level.
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The vast majority of fiat debt issuance is done by private banks, not governments.
As most 'money' today is in the form of bank private bank deposits, which are created via fiat debt issuance/fractional reserve banking.
It is a long time since a majority of the money in circulation was in physical form without debt.
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While "true", also beside the point.
Banks create private L2 money on top of government L1 money. They're pretty constrained/dependent on overall monetary conditions
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The banks enjoy the vast majority of fiat issuance and the debt slavery it delivers...and the profits that flow from it. It is the most profitable government backed rigged market in existence. They in practice operate, control and profit from the fiat debt based monetary system that government imposes. Through the Fed they enjoy this...and can exclude other from it. The only constraint is imposed by themselves via the Fed which gives them their privilege and maintains their extraordinary privilege. They literally control and direct the core function of capitalism- the issuance and allocation of capital via fiat debt issuance.
I recall reading a quote from a Fed Chairman along the lines of "We have to do what the president wants, in order to maintain our independence."
Now I'm having trouble finding it. Was that just apocryphal?
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I thought it was Arthur Burns, but it didn't come up quickly in my searches.
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Not a bad guess. He's usually considered a weak chair, letting inflation run away before Volcker came in and crushed it basically
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30 sats \ 1 reply \ @Diego 8 Nov
I like this money class series. What’s the easiest way for me to read them in order? I went to all your items but it’s also got all the comment relies.
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Not sure, actually. Do you know a convenient way for me to list them all in order?
Maybe in the SN bio?
Otherwise, go to items and filter for posts. Maybe there's a territory filter (all money class posts were under ~econ)
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For all the criticism we may levy at the Fed and its existence, a monetary spigot directly controlled by the executive is worse.
Very important point.
As much as one can critique governmental bodies, their utility, impartiality, efficacity... independence is important where proper checks and balances make sure everything behaves well in a continuum without having to fear the whims of the executive.
You're much better with words than I am, so I'll stop my comment here.
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You're doing great, sir! Nicely smashing "continuum" into a sentence isn't anything I can recall having ever done
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My Physics background probably explains the use of the word continuum. Next time I'll use discrete if occasion permits ;)
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i mean... if the president can have "muslim terrorists" who are american citizens assassinated by drone, i don't see why the president couldn't have a "financial terrorist" who's an american citizen assassinated by drone (or some equivalent).
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Mayhaps, but I can't point to one.
Maybe Epstein?
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First, does everyone forget that Trump is who installed Powell? they're in cahoots and this is all a psyop
Second, who's really gullible enough to think the Fed is actually independent of whoever is in control of the national security apparatus? Independence is just a platitude to stonewall the opinions of people that don't know how this system really works... its deniability theater
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Who's that?
Gimme the dark room, the smoking gun, the evil mastermind behind all
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dark room
It's called a SCIF and it's classy
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"We're not even thinking about thinking about raising rates."
Seriously fuck that guy. I understand that Trump can't fire him, but that doesn't make Powell any less of an incompetent piece of shit.
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"incompetent" depends on what his actual job is. Maybe he's really, really good at it...?
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I hate that you're correct.
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It’s hard to imagine Powell acquiescing to something similar, changing policymaking on soft threats or voluntarily stepping aside from loud Trumpian bullying. ESPECIALLY since we’ve already been through one round of that, when Trump went after Powell publicly to no or little effect. Tl;dr: Under current monetary regimes, Fed independence is pretty important, and Trump probably doesn’t have a way to make a dent in that.
Wild! Bitcoin is independent tho!
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