What game are we talking about? The game that affects all our lives as well as our near term future. The game is money mixed with politics. Look what we had suggested back on February 2, 2019:
- “So we propose that the Federal Open Markets Committee (“FOMC”) have, by congressional act if necessary, one representative of the President & one representative each from the House & Senate Financial Services committees.”
Which people did we have in mind?
- “Our immediate choice is Larry Kudlow as a representative of President Trump. That is easy to explain & justify.”
Larry Kudlow, appointed by President Trump, is the Director of the National Economic Council. He is in total agreement with President Trump about the immediate need to lower interest rates that were raised 9 consecutive times by the Federal Reserve, the “independent” Federal body that governs America’s monetary policy. So his choice was simple.
But what about a representative from the other side? From the political left, from the working class? Who was our choice back on February 2, 2019?
- “… we think Alexandria Ocasio-Cortez should be the representative of the House on the FOMC.”
Man, how much flak did we get on that one? Appoint a young flame thrower without any formal training or experience to the most Ph.D. filled institution in America? To the one institution that controls the supply and access to money of all Americans? We must be nuts, we were told.
But our reasoning was simple:
- Just think! Who would be better at articulating the impact of interest rates on the middle class, on millennials? Who would be better in ridiculing the Ph.D. staff of the Federal Reserve for their insularity & arrogance? Just think of the common ground between Larry Kudlow & Ocasio-Cortez. It would be a powerful team indeed.
How nuts were we to think there might ever be any common ground between Larry Kudlow & AOC? But, to paraphrase John Le Carre, Kudlow, AOC & Powell don’t play this monetary-politics game. The game plays them. And the game often brings opposing players together in a weird but critical alliance against jointly inimical interests.
This week the game brought AOC & Larry Kudlow together to the side of President Trump in his determined drive to make the Federal Reserve act in the economic interests of the American middle class. Look what Larry Kudlow said of AOC’s 5-minute Q&A with Fed Chairman Powell during his Congressional Testimony:
- “I know I’m a supply side conservative and so forth, but I want to note in the hearings yesterday with Fed Chairman Jay Powell, it was Ms. AOC who asked him about the Phillips curve, … I’ve got to give her high marks for that. She got that out of the chairman. By the way, that’s been my position. That’s been the president’s position. Strong growth does not cause higher inflation,”
Watch her 5 minutes below to see how measured polished and razor sharp AOC was. You could see the surprise of Fed Chairman Powell at the direct smartness of her questioning & how he had no choice but to concur with her even though that meant going directly against the orthodoxy of the Federal Reserve & its 600+ Ph.D. staff.
Understand why Fed Chairman Powell had to concur with Ms. AOC.
He is already under intense attack from President Trump for his obdurate & destructive campaign to raise interest rates 8 times & for withdrawing $50 billion every month from US financial markets. To protect himself, he counted on the Congress-given Fed independence & the support of the Republican Old Guard.
But he simply cannot afford to also have the Democrat House against him & against his destructive policies. And he knows the power of what the AOC-Tlaib wing of the Democrat party can unleash against him. If that group can take on House Speaker Nancy Pelosi by calling her a “racist”, what can they say about Powell, an older white man who radiates the back-room old boy white money aura?
If the AOC-Tlaib wing joins with President Trump to ask for Powell’s resignation, he is toast we think & with him goes the cherished & vaunted “independence” of the Fed. There is no chance Pelosi would fight AOC-Tlaib to save Powell & there is no chance McConnell & Co would fight Trump-Kudlow to save Powell.
The only way to avoid the above is for Fed Chairman Powell to be as dovish as necessary to keep the US Economy strong & to keep the employment levels strong. Not only does he need to fight like hell to do so but he also has to be seen & heard to fight like hell.
We also urge readers to watch the 5-minute exchange between Congresswoman Rashida Tlaib & Chairman Powell. Tlaib has opened a new front against the Fed, a front that is beneficial to the joint pro-middle class & pro-worker agenda of President Trump and the AOC-Tlaib wing. Ms. Tlaib asked a very simple but incredibly powerful question – If the Fed could buy financial obligations of US corporations during the 2008 crisis, why can’t the Fed buy municipal bonds of state & local governments during the next financial crisis?
Even Powell understood the enormous political & economic importance of this question from Tlaib. He agreed with her in principle & then tried to deflect it. But Tlaib has sounded a trumpet & Powell knows it. Do not be surprised if this becomes a war cry in Michigan, Ohio, Pennsylvania in 2020.
Seriously, what can the pro-worker House Democrats run on in 2020? They can’t blame President Trump who has done more for employment & the workers than any President in the past 30 years. In any case, the House Democrats are not running for President. They are running to keep control of the House. What better target can they run against than Fed Chairman Powell who even looks & smells old style Republican? And what better platform to run on than making the Federal Reserve more responsive & accountable to the American people instead of American big-money & big corporations?
Isn’t that what President Trump been saying for over a year? Hasn’t he demanded the same from Fed Chairman Powell? So you could see a convergence between President Trump’s platform & that of the left “socialist”-type AOC-Tlaib Democrat wing.
See, how interesting the game has become? But how has it become more momentous?
The Real Fight To Come – Powell vs. Draghi-Lagarde?
We all see that President Trump established a truce or at least a cease-fire with China at the G20 meeting in June. The stock market sensed that & rallied. But was that truce mainly to focus on the real threat to America, a financial & economic threat from a region we all think of as an ally? Look what President Trump tweeted on June 18, 2019:
- Donald J. TrumpVerified account @realDonaldTrump – 18 Jun 2019 – Mario Draghi just announced more stimulus could come, which immediately dropped the Euro against the Dollar, making it unfairly easier for them to compete against the USA. They have been getting away with this for years, along with China and others.
Then he added on June 26, 2019, per Politico
- “What Europe did with Draghi, is they’re forcing money in, … We’re doing the opposite. … We should have Draghi instead of our Fed person.”
How messed up is Europe? Instead of doing the sensible rational thing of making Germany launch a big fiscal stimulus, they are going deeper & deeper into monetary insanity. We could simply wish them luck & leave them to their mess.
But we can’t. Because their contagion seeps into US financial markets & infects our economy. But US patience may be coming to an end. Look what one smart analyst tweeted this week:
- Albert Edwards@albertedwards99 – The eurozone is now President Trump’’s very clear target. Any further ECB easing will be likely to cause an explosion of anger. And you know what? I think Trump has a point. He is going to drive the dollar way lower as the global currency war
Do not take lightly President Trump’s comment about having Draghi as the Fed chairman. It is almost a directive to Chairman Powell to fight ECB fire with fire. Let us also not forget that it was US Fed Chairman Bernanke who launched the QE game. ECB’s Draghi merely took it to new heights. And it is Fed Chairman Powell who has put us in this mess by raising rates 8 times instead of stopping in September 2018. Then he did nothing & has done nothing for the past 10 months except promising this week to lower rates at the end of July.
Now President Trump is fed up & virtually demanding that the Fed do what it takes to close the gap between the US Dollar and the Euro. In other words, Powell needs to take on Draghi & his successor Lagarde the way Bernanke took on China & EM.
Ask yourselves – What would the AOC-Tlaib Democrat wing support? Weaken the Dollar and thereby add more stimulus to the US Economy or Keep the Dollar strong to defend the investment portfolios of the wealthy? Wouldn’t the Pelmer Democrats also support weakening the Dollar to benefit America’s un-wealthy?
Yes. This probably makes Powell virtually puke because he came in to end the Fed QE bubble & raise rates and now finds himself in survival mode trying to do just the opposite. The big question is can he do it or does he need to step down & bring in Larry Kudlow as the next Fed Chairman?
See how momentous the game became this week in addition to becoming much more interesting?
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