What Happens Next – Fat Tail Daily | Australian Markets

On Wednesday, Tom reported on a rumor that was unspooling on Wall Street. Donald Trump was stated to be close to to firing Jerome Powell.

This was stated to impress more promoting of US treasury bonds and more shopping for of gold and bitcoin.

The New York Times was on the story:

Trump Has Draft of Letter to Fire Fed Chair. He Asked Republicans if He Should Send It.

The president waved a copy of a draft letter firing Jerome H. Powell at a assembly within the Oval Office with House Republicans. It stays to be seen whether or not he follows by means of together with his menace.

Just hours later, it appeared that firing Powell was “extremely unlikely.” MarketWatch:

Trump gained’t fire Powell as Fed chair, says Treasury chief Bessent

“As President Trump said, he’s not looking to fire chair Powell,” Bessent stated, during an interview with Bloomberg Television.

Bessent understands, maybe higher than anybody, how helpful Powell could be.

But this little contretemps helps us to grasp what might be coming down the pike. In a nutshell, POTUS in all probability gained’t fire Powell. His advisors aren’t idiots…they have to concern a recession/bear market simply as we do. Powell is their fall man. They will tag Powell and his ‘high Fed interest rates’ with no matter occurs.

And that’s when the true hassle begins.

As former Fed governor Richard Fisher put it on Wednesday, “when presidents have interfered with the central bank, we’ve had hyper-inflation.”

Fisher should be recalling the early ‘70s. Back then Arthur Burns was in the Chairman’s chair on the Fed and Richard Nixon was down the road within the White House.

Burns had been a professor at Columbia. It was there that he stabbed his outdated good friend, Murray Rothbard, within the back by rejecting the latter’s doctoral thesis on the ‘Panic of 1819.’ And it was from Columbia that he moved into authorities, rocking up as Fed Chairman in 1970.

The earlier Fed chief, William McChesney Martin, had been unwilling to decrease charges merely to placate the president. Burns was more accommodating. Although he had reservations, he backed Nixon’s notorious 1971 program, during which the greenback was cut free from gold and wage-price controls had been imposed.

The Fed’s key price was dropped from over 9% on the close of 1969 to solely 3.5% in January 1972. Inflation, which had been solely 3% in 1972, rose to hit 12% two years later.

That document in thoughts, it’s not laborious for us to think about what would possibly occur if Donald Trump had been to have direct control of Fed coverage. He’s already stated the Fed ought to cut charges by 300 foundation factors.

Suppose he really did that. How would possibly it come about? Here’s our guess.

Trump will in all probability grow to be proper: the financial system will run into hassle and Powell will turn out to be useful. He will take the blame for no matter occurs. Then, most definitely, a crash within the stock market and/or a recession will give Trump the ‘emergency’ he wants.

The president will come to the rescue simply as he did during the Covid Panic. He will take away Powell’s passkey and escort him off of the premises. In a sequel to the early ‘70s, the new Fed chairman will play Burns to Powell’s Martin; he’ll cut charges dramatically. And Trump will get to repeat these glory days of 2020, when the Covid raged and the president was in a position to hand out stimmies galore.

Too unhealthy about what occurs subsequent.

Regards,

Bill Bonner,
For The Daily Reckoning Australia

All advice is common advice and has not taken under consideration your personal circumstances.

Please search unbiased financial advice concerning your own state of affairs, or if doubtful concerning the suitability of an investment.