We use cookies (including third-party cookies such as Google) to remember your site preferences and to help us understand how visitors use our sites so we can improve them. To learn more, please see our privacy policy and our cookie policy.

To agree to our use of cookies, click 'Accept' or choose 'Options' to set your preferences by cookie type.

Options Accept
BullionVault

CHARTS

  • English
  • Deutsch
  • Español
  • Français
  • Italiano
  • Polski
  • 日本語
  • 简体中文
  • 繁體中文
  • Daily audit
  • Help
  • Contact
  • Deposit
  • Login
  • Open account
  • ABOUT US
    • About BullionVault
    • In the press
    • Reviews
    BUY/SELL BULLION
    • Vaulted gold & silver
    • -Live order board
    • -Daily Price
    • Coins for delivery (UK)
    INVESTMENT GUIDE
    • Guide to gold
    • -How to buy gold
    • -Gold investment
    • -Gold investment plan
    • -Investment insurance
    • -Compare asset performance
    • Guide to silver
    • -How to buy silver
    • Guide to platinum
    • -How to buy platinum
    GOLD NEWS
    • Gold news front page
    • -Gold price news
    • -Opinion & analysis
    • -Market fundamentals
    • -Gold/Silver Investor Index
    • -Infographics
    CHARTS
    • Gold price
    • Silver price
    • Platinum price
    • Price alerts
  • Login
  • Open account
  • BUY/SELL BULLION
  • Vaulted gold & silver
    • ⤷
    • Live order board
    • Daily Price
  • Coins for delivery (UK)
  • INVESTMENT GUIDE
  • Guide to gold
    • ⤷
    • How to buy gold
    • Gold investment
    • Gold investment plan
    • Investment insurance
    • Compare asset performance
  • Guide to silver
    • ⤷
    • How to buy silver
  • Guide to platinum
    • ⤷
    • How to buy platinum
  • GOLD NEWS
  • Gold news front page
    • ⤷
    • Gold price news
    • Opinion & analysis
    • Market fundamentals
    • Gold/Silver Investor Index
    • Infographics
  • CHARTS
  • Gold price
  • Silver price
  • Platinum price
  • Price alerts
  • ABOUT US
  • About BullionVault
  • In the press
  • Reviews
  • Help
  • Contact
  • Daily audit
    • English
    • Deutsch
    • Español
    • Français
    • Italiano
    • Polski
    • 日本語
    • 简体中文
    • 繁體中文

Gold News

Live support

NEED HELP? ASK US NOW

Search form

Gold News front page

Gold Price News

SLV Silver ETF Expands Fastest in 18 Months as Biden Moves into White House

More...

Gold Investing In Depth

Learn about gold bullion bars

Learn about gold bullion coins (and costs)

Gold investment: Why & how?

Gold Investment Analysis

  • Latest Gold Investor Index
  • Diversification: Gold as investment insurance
  • 40-year Asset Performance Comparison Table

Gold Articles

Opinion & Analysis

Gold Price News

Investment News

Gold in History

Gold Books

Gold Investor Index

Gold Infographics

Archive

  • January 2021 (14)
  • December 2020 (24)
  • November 2020 (23)
  • October 2020 (25)
  • September 2020 (25)
More...

List of authors

Donald Nixon, Richard Trump

Wednesday, 8/22/2018 09:01

"Gotta think of goosing it..."

HISTORICALLY presidents have refrained from publicly commenting on the Federal Reserve's policy, writes Nomi Prins in Addison Wiggin's Daily Reckoning.

This allows the Fed to maintain its veneer of independence.

However, it is clear that this White House is very different. President Trump is not one to keep his opinions quiet. Trump has publicly expressed frustration with the Fed, believing its rate hikes could negate the impact of the tax cuts impact growth.

During a recent interview with CNBC Squawk Box host, Joe Kernen, Trump said, "I'm not thrilled" about the rate hikes. Why not? The president continued:

"Because we go up and every time you go up they want to raise rates again. I don't really – I am not happy about it...I don't like all of this work that we're putting into the economy and then I see rates going up."

As further indication of how different Trump is from previous presidents, he added these remarks about commenting on Fed policy:

"Now I'm just saying the same thing that I would have said as a private citizen. So somebody would say, 'Oh, maybe you shouldn't say that as president.' I couldn't care less what they say, because my views haven't changed."

Stocks, markets and the Dollar fell on his remarks. Sticking with tradition, the Fed did not comment on them. But here's what Powell has on his mind...

As geopolitical tensions rise, trade wars mount, currency wars spawn and volatility continues to build, it's clear the economy faces increasing pressure that could spiral into recession or worse.

Powell met with senior officials at the Fed recently to consider monetary policy in the wake of Trump's comments (and though he didn't say it, the markets).

After the interview aired, the White House issued a statement in which it "emphasized that Trump did not mean to influence the Fed's decision-making process."

But that's just typical spin. While Powell wants to portray his independence, the fact remains he was still appointed by Trump. That's political influence in the making.

President Trump's indirect pressuring of the Federal Reserve not to raise rates is not unprecedented. He took a page out of another Republican president's playbook – Richard Nixon. When the Fed began raising interest rates during Nixon's term, he also raised objections, although not in public like the current president.

Back then, the US had been in the throes of a recession in the beginning of the 1970s. The Fed had cut rates by half to stimulate the economy. There was no quantitative easing (QE) program during that period. That's because it wasn't a banking crisis preceding that recession, so the level of Fed support wasn't anywhere near as expansive as it has been this past decade.

Fed Chairman Arthur Burns believed that "awful problems" could occur if the Fed didn't raise rates in tandem with the growing economy. On a somewhat lesser scale, that's the position of Jerome Powell today.

He wants to head off what he perceives as inflationary pressures before they jeopardize the current recovery. He doesn't want to play catch-up and have to drastically reverse course down the road.

But Nixon didn't want to risk cooling it off before his 1972 election. As White House audio tapes recorded, Nixon told Burns on March 19, 1971, "We've really got to think of goosing it...late summer and fall of this year and next year."

Subsequent conversations led to a reversal of rate hikes during the fall of 1971. But importantly, what President Trump should know is that Nixon's intervention into the Fed's policies didn't end well.

Burns' reversal inevitably led to one of the highest inflationary periods in US history. And of course the term "stagflation" entered the language during the '70s, with their high inflation and limited growth. I remember the gas lines very well.

But the fact is, we live in different times now.

America was just beginning to move off the gold standard in those days, so the spending restraints it engendered still exerted force. And even with the Vietnam War and the recently initiated Great Society to pay for, the US debt-to-GDP ratio was only about 35% in 1971. It's now about 105%. The last vestiges of the gold standard are long gone.

Most importantly, it was a time before central banks had so much influence over markets. Central banks like the Fed were fixated on macroeconomic stability, not the performance of the stock market.

We live in a completely new monetary and fiscal world today, especially after the 2008 financial crisis. The Fed's balance book went from about $800 billion pre-crisis to a gargantuan $4.5 trillion. That type of move was completely unprecedented.

Now the Fed is raising interest rates and reducing its balance sheet in order to return to "normal".

So far, the Fed has raised rates seven times since December 2015. Under Jerome Powell, it has raised rates twice.

Now, the Fed forecasts another two rate hikes by the end of the year, once in September and then December. While it's likely the second one is much lower than the first, the fact is that both are in play.

Markets are currently wondering if there will be a "Powell put". During Alan Greenspan's reign at the Federal Reserve, a phenomenon dubbed the "Greenspan put" prevailed.

Wall Street's expectation was that if the stock market wobbled, the Fed would save the day by cutting rates (creating money and the need for speculators to then get returns from the stock rather than the bond market).

The Fed has largely played by a similar "put" playbook for the past decade, with low rates and a $4.5 trillion book of assets courtesy of QE. The mainstream media is slow to recognize this. Only now are they beginning to wonder whether the Fed will do what's needed to lift the markets when it becomes necessary.

But, as a recent Bloomberg article suggests, Powell is facing the same pressure to have his own put, "except this time it would be tied to the bond market."

Now, policy makers are increasingly concerned about the possibility of an inverted yield curve – where short-term rates are higher than long-term ones.

If that happens, policy makers and Wall Street would want the Fed to cut rates. An inverted yield curve is probably the most reliable recession indicator out there, with a proven record going back to the 1950s.

The other dynamic at hand is that winning trade wars requires a weaker Dollar and a slower pace of rate hikes. That's exactly what Powell alluded to in recent testimony before Congress.

If Powell adheres to Trump's wishes, it'll be because the economy isn't growing as fast as predicted and because banks remain addicted to cheap central bank credit, which I refer to as dark money. That means more central bank credit to support markets when they hit a rough patch.

The market will continue to enjoy an upside from dark money policy that continues the status quo. Dark money could remain on course until the end of year, which would lift non-trade war associated stocks and weaken the Dollar.

The bubble will eventually burst, but I don't foresee that happening just yet. The bottom line is, dark money is the key to understanding today's rigged and artificial markets.

  • Reddit logo
  • Facebook logo
  • Twitter logo
  • Google logo
  • Yahoo logo
  • LinkedIn logo
  • Digg logo
  • StumbleUpon logo
  • Technorati logo

Publisher of Agora Financial, Addison Wiggin is also editorial director of The Daily Reckoning. He is the author, with Bill Bonner, of the international bestsellers Financial Reckoning Day and Empire of Debt, and best-selling author of The Demise of the Dollar.

Addison Wiggin articles

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

Follow Us

Facebook Youtube Twitter LinkedIn

 

Mobile apps

 - live trading 24/7

 - buy & sell instantly

 - up-to-the-second charts

 

 

 

Daily news email
Go to 'communications settings' 

Get the latest daily gold price news free by email

Latest gold news by email

 

 

 

Gold Investor Index
5 January 2020

Gold Investor Index

Gold investing +58% in NY21

 

 

 

LBMA webinar
21 January 2021

LBMA

London gold trading

 

 

 

International
Investment

16 December 2020

Gold 2021

Gold in 2021

 

 

 

LBMA Alchemist
1 December 2020

Newton

True Gold/Silver Ratio

 

 

 

  •  Email us

Market Fundamentals

  • 'Cut Bullion Duty to Cut Smuggling': India's Gold Industry
  • Platinum Price Hits 4-Year High Even as Electric Beats Diesel Cars in Europe
  • Record Investing Pushes 'Industrial' Silver and Platinum into Deep Deficits
More...
  • Cost calculator
  • Cookies
  • Terms & conditions

©BullionVault Ltd 2005-

  • Twitter
  • Facebook
  • LinkedIn
  • YouTube

Save your cookie preferences

We use cookies to remember your site preferences, record your referrer and improve the performance of our site. For more information, see our cookie policy.

Please select an option below and 'Save' your preferences.

Save

You can update your cookie preferences at any time from the 'Cookies' link in the footer.

Secure auto-logout warning

You have not been active for some time.

For your security you will be logged out in   minutes unless you take action.