By Robert Romano

Former New York Federal Reserve President Bill Dudley wrote an oped on Bloomberg saying that “the election itself falls within the Fed’s purview,” and that the central bank ought to do whatever it takes to make certain President Donald Trump loses the 2020 presidential election.

In short, Dudley wants to politicize the Fed’s operations.

“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,” Dudley wrote, adding, “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.”   

You can almost cue former President George W. Bush saying during the financial bailouts of 2008 that he had to abandon free market principles in order to save the free market. Here, Dudley’s formulation is that the Federal Reserve must sacrifice its independence from politics in order to somehow preserve it, and that it must hurt the economy now in order to prevent Trump from being reelected in 2020, so that it can save it.

In the immediate instance, it might mean the Fed could hold off on cutting interest rates even if economic conditions — like the relatively strong dollar — warranted such a rate cut. Or to even raise rates at the wrong time to hurt the economy, all for political gain.

Americans for Limited Government President Rick Manning blasted Dudley in a statement, saying, “The audacity the non-elected central bank seeking to impact election outcomes and fiscal policies is only exceeded by the 2016 attempt of the nation’s intelligence agencies and Justice Department to stop the election of Trump and their subsequent efforts to unseat him. Federal Reserve Chairman Jerome Powell needs to denounce Dudley’s remarks immediately and forcefully if the central bank is to retain any shred of credibility.”

That’s right. The problem with Dudley’s brazen call to politicize the Fed’s mission is that reveals members of the unelected administrative state saying they believe it is their job to defy the will of the American people, just like the intelligence agencies and the Justice Department that sought to overturn the outcome of the 2016 election.  No real conspiracy with Russia? That’s fine. They’ll invent one. Need a recession to force a few million Americans to lose their jobs in time for 2020 so they’ll vote against Trump? No problem. The Fed can engineer one.

The real disagreement, of course, is between the financial and political class of Washington, D.C. establishment and President Trump and his push for fair and reciprocal trade agreements with China and other countries. In Trump’s case, he is using authority granted by Congress to levy countervailing tariffs — essentially sale taxes — on Chinese goods, going up to 30 percent on $250 billion of goods and up to 15 percent on the remaining $300 billion of goods.

But the President, under long-standing federal laws, is supposed to set the country’s trade policy, just as Congress and the President set fiscal and budget priorities every year and make changes to tax law. What if the Fed suddenly decided that taxes were too high or too low, or spending too high or too low, and started monkeying around the economy until Congress complied with the central bank’s preferred policies? Where does it end?

This is clearly a breach of the appearance of the Fed’s independence.

Right now, the 10-year, 2-year treasuries spread, a reliable recession predictor, is now fully inverted. It has been a full decade since the last recession, when in the postwar period, the economy has averaged a recession about once every 5 years. Based on past inversions, you might expect a recession by, say, sometime in 2021.

Meaning, we might be seeing the same such inversion even if Hillary Clinton had been elected in 2016 and there was no trade dispute with China. Can Dudley say with any certainty that economic conditions would otherwise be any different if Clinton had won? Maybe we’re simply nearing the end of the business cycle. It is not the Fed’s job to get involved with this sort of counterfactual, hypothetical political analysis.

In the meantime, there are legitimate criticisms that the President is making of monetary policy, namely, the central bank does not appear to care a whit about exchange rates. If the dollar is too strong relative to other currencies like the yuan or euro — an objective measure, it either is or it isn’t — or if monetary policy is too tight, then cut rates. It’s a fact that as the world’s reserve currency, financial institutions and central banks will go into U.S. treasuries and bonds generally in a flight to safety in adverse economic conditions. This has a rate-cutting effect during slowdowns and downturns. If the Fed is too slow to move its policy rate downward, it can inadvertently trigger the very inversions everyone is worried about. In fact, the federal funds rate and 10-year treasuries have been inverted since May, and the Fed has not acted to cure the inversion.

The central bank already waited too long earlier in the cycle to hike the federal funds rate prior the 2016 election, giving the appearance of owing political favors to the incumbent Democrats to have an easier monetary policy to help Clinton win, and then only fully began hiking upward after Trump won. Now, rates are inverting just in time for political season. Even without Dudley’s comments, it already has the appearance of acting politically.

And while the Fed has no business meddling in politics, as an appointed position in the executive branch, there is a clear line of oversight by the President of the Federal Reserve Board of Governors. Under 12 U.S.C. Section 242, “each member [of the Federal Reserve Board of Governors] shall hold office for a term of fourteen years from the expiration of the term of his predecessor, unless sooner removed for cause by the President.” If the President has reason to believe that members of the central bank are acting politically, he can remove them under the law.  Something the Board of Governors should keep in mind when it meets again in September.

Robert Romano is the Vice President of Public Policy at Americans for Limited Government.

Video: China has 3 million people in concentration camps and harvests their organs, so why do we trade with them?

 

To view online: https://www.youtube.com/watch?v=7Cy2QO-q7yA

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Trump makes right pick with Scalia at Labor Department

Aug. 27, 2019, Fairfax, Va.—Americans for Limited Government President Rick Manning, who served as a member of the Donald Trump Labor Department transition team and as member of the George W. Bush administration Labor Department, issued the following statement in support of President Donald Trump’s nomination for the Secretary of Labor, Eugene Scalia:

“Eugene Scalia will be a great Secretary of Labor in the Trump administration. His extraordinary background in employment law, experience in the George W. Bush administration and general temperament will serve the President well as he continues his quest to boost labor participation and enhance employment opportunities among working aged adults across our nation. The Senate should move rapidly to confirm Mr. Scalia’s nomination.”

To view online: https://getliberty.org/2019/08/trump-makes-right-pick-with-scalia-at-labor-department/

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ALG Editor’s Note: In the following featured report from the Washington Free Beacon’s Charles Fain Lehman, thousands of illegal immigrants are being returned to Mexico pending asylum hearings under the recent U.S.-Mexico agreement to secure the southern border:

Thousands returned to Mexico under Trump immigration policy and U.S.-Mexico agreement

By Charles Fain Lehman

Thousands of would-be illegal immigrants are being returned to await asylum hearings in Mexico as part of a program the Trump administration has credited with curbing the recent wave of family migration at the southwestern border.

The Migrant Protection Protocols—more colloquially known as the "Remain in Mexico" policy—are regulations issued by former secretary of homeland security Kirstjen Nielsen in December 2018. Under the MPP, a subset of individuals who claim to be seeking asylum after being apprehended at the border now must await the results of their immigration court hearings in Mexico, rather than being detained—or, more often, released on their own recognizance—in the United States.

Asylum seekers, especially from non-contiguous countries, pose a unique challenge to the immigration system. Preexisting laws and regulations mean that asylum seekers can only be detained for so long before being released, while the large immigration court backlog essentially guarantees that these time thresholds will be passed. The result is a system of de facto catch-and-release, in which an individual can simply claim asylum at the border and then disappear into the interior while his or her case is processed.

The stated goal of the "Remain in Mexico" policy at the time of its implementation was to curb the then-swelling crisis at the southwestern border, which was in no small part a product of this asylum loophole. Individuals apprehended seeking asylum would await the results of their hearings in Mexico, meaning that they could not abscond into the United States before their application is denied. Nearly 90 percent of applications are denied.

How effective have the MPP regulations actually been? New data released Monday by the nonpartisan Transactional Records Access Clearinghouse (TRAC) show that the program has taken off in recent months. Nearly 12,000 people were returned to Mexico in July, compared with about 5,000 in May, and just 15 at the start of the year.

MPP cases make up a small share of the immigration court's total backlog, just 2.7 percent, according to TRAC. But it made up a substantial proportion—22.3 percent—of new cases added to the docket in July. A third of those apprehended traveled from Honduras, 28 percent from Nicaragua, and 22 percent from Guatemala.

The new data support Department of Homeland Security claims that a substantial drop in monthly apprehensions in June and July is partially attributable to the implementation of the MPP. While the protocols have been in place since January, ramped up implementation in May, and their expansion to the Laredo and Brownsville ports of entry, likely drove the dips evident following May's peak.

Notably, the "Remain in Mexico" policy does not work by stopping individuals before they enter at the southwestern border, only returning them back once they cross. This means that to the extent the policy is effective, the MPP reduces immigration by deterring would-be crossers, who may not attempt to enter because they know they are less likely to be able to stay in the country.

The MPP's success suggests two conclusions. One is that at least some individuals migrating north and seeking asylum are doing so explicitly because they know they will likely be able to abscond—a sign that the loopholes in America's asylum rules are known south of the border. The other is that these data supply tentative evidence that immigration reduction policies—such as the administration's now-withdrawn "zero tolerance" prosecution approach—actually work.

Permalink here.

 

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