Is New Fed Chief…A “Swamp Critter Extraordinaire”?

November 17, 2017

Is the New Fed Chief Jeremy Powell a “Swamp Critter Extraordinaire”?
– Trump surrounding himself with elites disconnected from everyday society
– Realities of America’s difficulties not recognised by US power makers
– Powell will likely continue to protect Wall Street over Main Street
– Savers should diversify to protect themselves from Fed’s Ponzi policies

Just like many of his other campaign promises, Trump isn’t doing a great job of draining the swamp. His nominee for Fed Chair is Jerome Powell.

Powell is a ‘swamp critter extraordinaire’ so declared by Bill Bonner last week. We’re inclined to agree. Name-calling is poor sportsmanship when it comes to politics, but hey, Trump started it.

When Trump traveled around the United States campaigning for the most privileged position in the country he lashed out at the seemingly abstract promise to ‘Drain the Swamp’ at every opportunity. He used it to criticise anything he didn’t like about the status-quo.

He made the ‘swamp critters’ the fall-guys for every hardship Americans were facing. In many ways he was right.

Yet as has been the case throughout the last eleven months, Trump hasn’t done a great job of turning rhetoric into reality.

He has continued to fill the swamp rather than drain it. Spending by lobbyists has reached levels unseen since 2012. Secretaries are flying in private government jets and Trump uses Republican Party money to fund his own legal expenses.

This is nothing compared to the senior appointments he has made. Trump has taken ‘swamp critters’ and placed them in positions of such power and influence one wonders what his supporters make of it all.

Hypocrisy was a word heard frequently during the Obama Presidency. Obama was great with words and preached peace while practicing war. Trump’s hypocrisy is on a whole new level.

Powell is just his latest appointment. With an estimated fortune of $55 million the likely new Fed Chair  has spent his career in Washington flip-flopping between roles in both regulation and industry. He is now set to take the wheel at a job whose sole role is to steer the US economy. Indeed, some more imperially minded Americans see the job as being to steer the global economy.

Trump is like a school boy with football stickers, keen to make up the set of Team Wall Street. As Vox outlined:

Trump will have in place a Wall Street Fed chair to go with his Wall Street Treasury secretary, Wall Street Council of Economic Advisers chair, and Wall Street slate of bank regulators.

In a country that is set to see 8,000 retail store closings this year (more than in 2008), where not a single person is employed in nearly one out of every five U.S. families and almost 60% of people do not have enough money saved to even cover a $500 emergency expense, can another Washington elite be expected to build an economy that will benefit the many?

Powell, another Swamp dweller or worse, a crony?

Unsurprisingly Powell’s nomination was a step away from the norm for Trump. Previous Presidents have usually renominated the incumbent chair. Given Trump’s ongoing criticism of Yellen a replacement was expected.

One thing that was expected was the financial stature and Wall Street position of a Trump nominee. Powell is a Republican who built a vast wealth as a partner at Carlyle. In Powell’s latest financial disclosure (June 2017) he lists his net worth between $19.7 million and $55 million. Once he is Fed Chair he will be  the richest Fed chair since banker Marriner Eccles, who held the position from 1934 to 1948.

What wasn’t quite expected in this nomination was how similar to Yellen the nominee would be.

Powell has often backed Ms. Yellen on a number of issues from raising interest rates to reducing the Fed’s balance sheet. He has supported every policy decision since joining the Fed, including interest rate increases, and supported its decision to unwind the bond-buying program put in place during and after the 2008 financial crisis.

There might be some difference in bank regulation. Yellen has often given a somewhat skeptical view of the pro-business approach by the current White House. However given Trump’s appointment of Randy Quarles, a dedicated deregulator, as the Fed’s vice chair in charge of regulation, there is likely to be little noticeable change here.

As Bill Bonner explains:

The important thing, from our point of view, is that he can be relied upon to do exactly as expected.

Like Ms. Yellen, he will be in favor of shrinking the Fed’s balance sheet… and raising interesting rates… until the money supply tightens and all hell breaks loose.

Then, he will move heaven and earth to protect the Deep State from bankruptcy… with an aggressive program of QE Encore.

The one area where there is a major difference is the the strong academic background in monetary policy that both Yellen and Ben Bernanke shared. This is where Powell is most certainly lacking. But, given the horrors seen as a result of previous chairpersons, this might not be such a terrible thing.

Where this will backfire is if Powell is easily persuaded by the views of others. Others who might just not have the entire country’s interests at heart, say… everyone else from a pro Wall Street position?

This isn’t an impossible thing to imagine. He reportedly likes to raise any concerns he has in private rather than in public. At first this sounds like a professional approach, but in a political climate where the President will bully publicly we perhaps need a Fed Chair who is willing to shout about any concerns he has. Powell seems to be a people-pleaser.

What the president wanted was a Republican without particularly strong views on monetary policy, someone who would continue with Yellen’s softly, softly approach to raising rates but would be ready to roll back some of the post-crisis regulations imposed on the financial sector. By those criteria, Powell was the perfect choice. The Guardian

In short, Powell comes from the background Trump likes and he seems to have the personality the President can handle. Powell is unlikely to make life difficult for Trump and the rest of the swamp. Worryingly we may be faced with little upset as it will be business as usual but this may result in far more upset in the wider economy.

Far removed from reality 

Powell isn’t the only one who appears to have never looked beyond America’s elite when it comes to life experience. He will no doubt have to have a close working relationship with the US Treasury Secretary whose department works hand in hand with the Federal Reserve to preserve economic stability.

Treasury Secretary Steve Mnuchin is a banker turned Hollywood film producer with little known experience of policy and public finance.

To look at his resume is to basically read a tailor-made mockery of Trump’s pledge to drain the swamp of ‘bankers’ and ‘globalists’.

Prior to becoming Trump’s Chief fundraiser Mnuchin was a banker who had previously worked at hedge funds. During the financial crisis he (along with Soros and others) bought the failing IndyMac bank. It was rebranded to OneWest bank and received some major criticism surrounding its quick approach to foreclosing on homeowners:

Back in 2011, local housing activists and the Occupy movement in Los Angeles camped out on [Mnuchin’s] lawn to save the home of Rose Mary Gudiel, a La Puente, California, resident who faced eviction after being just two weeks late on one mortgage payment. The activists threatened to move all of Gudiel’s furniture into Mnuchin’s $26 million Bel Air estate if the eviction wasn’t stopped. Twenty police officers and a helicopter met the protesters.

Why was Mnuchin’s front lawn the focal point for the protest? Because years after forming Dune Capital in 2004, Mnuchin’s hedge fund purchased the failed lender IndyMac, one of America’s largest home lenders and a leading distributor of Alt-A mortgages, a subprime hybrid which did not require borrowers to accurately state their incomes. After IndyMac failed, Dune led the investment group that purchased it from the Federal Deposit Insurance Corporation (FDIC) in 2009, renaming it OneWest Bank. Mnuchin became OneWest’s principal owner and chairman.

Protected by a federal backstop, OneWest turned $3 billion in profits from 2009 to 2014, off an initial investment of $1.65 billion. They spun $1.86 billion of that out to investors in dividend payments. Meanwhile, the FDIC wound up losing $13 billion on the IndyMac failure, and will pay an estimated $2.4 billion to OneWest for its foreclosure costs.

Things haven’t much improved for the Treasury Secretary’s image since his government appointment. During his time he has gone on to marry actress Louise Linton. Their marriage got off to a rocky start when they came under investigation for requesting a government jet to take them on their honeymoon.

Since then Linton has enjoyed posting snapshots into her designer life by posting on instagram. It’s almost like an Imelda Marcos in waiting.

Of course, a man can’t be blamed for his wife’s lack of taste or subtlety. But his approach to policies should also come under some scrutiny, which isn’t hard given how close to the surface of the swamp they are.

He has repeatedly praised Yellen and flip-flopped on tax reform. He has even expressed an interest in following the lead of other countries by issuing 50–100 year bonds government bonds. As Dr. Joseph Salerno explained in reference to Austria’s 70-year bond, this is a bad and dangerous move that only serves to benefit the elite.

The creation of [long-term bonds] enables the political elite to covertly and repeatedly plunder and impoverish productive savers, capitalists, entrepreneurs and workers, while avoiding the need to incur the wrath of the productive class by raising taxes.

So with untrained, wealthy Powell keen to people-please at every opportunity and Mnuchin showing off his vast wealth and lack of understanding for the poor, things aren’t looking promising when it comes to Making American Great Again.

What is the moral of the story of critters of the swamp?

Sadly the moral is likely to be that we should not trust a government to protect our individual interests. Even if they come to power with the best of intentions, they rarely have the genuine desire of improving the lives beyond the few.

From every political experiment in history there have been few examples where all of the country’s citizens feel they have benefited equally. There have also been few examples of politicians following through on their promises.

In regard to the US the worrying point of concern is that Trump appears to have forgotten the devastating consequences that low interest rates have had on normal people. This is something he campaigned on and yet has almost guaranteed its future presence in the US economy by nominating yet another Yellen-type.

On paper Yellen improved the economy, unemployment has fallen and the US Fed’s balance sheet is set to be reduced. However these ‘improvements’ aren’t being felt by US citizens.

Hard-working individuals, from the upper middle classes downwards are being forced to choose between putting their savings into a bubblicious stock market or receive nothing in return (or worse) from their bank account. Meanwhile the economy is awash with food stamps, untenable personal loans and growing inequality.

The future does not appear to look any different. We stand and watch with curiosity but in the meantime suggest savers take charge of their own finances. Ensuring they are well protected from the damaging policies made in regard to the United States’ economy.

This isn’t just a point to note for those in the U.S.

The power of the U.S. dollar is so extensive that Powell’s leadership will have far-reaching consequences around the world. Powell will likely take instruction from Trump and his Wall Street swampies, suggesting that the world no longer just has to fear Trump’s tweets but also his take on the management of the dollar as well.

The best way to protect yourself from dollar debasement and ongoing devaluation is to invest in gold. This is exactly the approach taken by a number of central banks. They know that gold cannot be devalued by the US Federal Reserve and will only benefit from Trump’s dangerous, Wall St approach to economic and monetary management.

Physical gold held in an allocated and segregated manner protects from counter party risks. The same cannot be said for the paper and digital U.S. dollar and its many counter party risks.

Trump’s appointment of Powell, the latest addition to the Goldman Sachs / Wall Street line-up, confirms Trump’s plans to let the wealthy counter parties take precedence over the masses.

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Mark O'Byrne is executive and research director of www.GoldCore.com which he founded in 2003. GoldCore have become one of the leading gold brokers in the world and have over 4,000 clients in over 40 countries and with over $200 million in assets under management and storage.We offer mass affluent, HNW, UHNW and institutional investors including family offices, gold, silver, platinum and palladium bullion in London, Zurich, Singapore, Hong Kong, Dubai and Perth. 

Due primarily to the California Gold Rush, San Francisco’s population exploded from 1,000 to 100,000 in only two years.