On the Hunt for Stability: German Gold Reserves and the US Federal Reserve Showdown
Trump intends to assert control over the U.S. Federal Reserve.
It's a power play of epic proportions - Donald Trump versus the Federal Reserve. The central bank stands as a bulwark against economic chaos in Trump's unpredictable political landscape, and the president is determined to bring it to heel. But this battle could spell disaster, not just for the U.S., but the global economy.
After barking orders at Fed Chair Jerome Powell to lower interest rates, Trump met with a wall of defiance. Powell was adamant: the Fed would make decisions based on objective, non-political factors, as required by law. But the stakes couldn't be higher.
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Powell has been under relentless pressure from Trump for months. The president's demands for lower interest rates have been relentless, even borderline aggressive. Yet, Powell has held strong, bucking Trump's demands and rising to the challenge just as he did during Trump's first term.
But this time, there's a twist. Neither Congress nor the courts can check Trump like before. The central bank is the last remaining obstacle to his political will. And Trump seems willing to break the law to tear it down.
Trump's Tactics
Trump's methods are varied and devious. He could continue his public barrage, wearing Powell down with aggressive rhetoric. Or he could go old-school and simply fire the Fed chairman. But the legality of such a move is questionable, and Trump's term ends in 2025, making premature dismissal a risky move.
Whispers suggest Trump's entourage has considered ways to "neutralize" Powell without firing him. In February, Trump signed an executive order giving his administration the power to approve all regulations from independent oversight agencies, effectively undermining the Fed's power. Meanwhile, reports suggest Treasury Secretary Steven Mnuchin is mulling over appointing a shadow Fed chairman, further eroding the Fed's credibility.
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The Federal Reserve is an independent agency, and its leaders can only be fired for cause. But what constitutes "cause" is unclear legally, and no one has even attempted to fire a Fed chairman before. The Supreme Court has established independence as a cornerstone of the institution, but whether Trump will respect this remains to be seen.
Trump and his allies espouse the "unitary executive theory," which grants the president extraordinary powers to manage the country like a CEO, demanding unconditional loyalty from every subordinate. This could include the Fed chairman. Last year, rumors swirled that plans were in the works to involve Trump in interest rate decisions or give him a seat on the Fed's board. Alternatively, Trump could appoint a loyalist as Fed chairman, creating a stalemate that would undermine the Fed's effectiveness.
Uncertain Times
The result of Trump's attempts to interfere with the Fed could be catastrophic. A global financial crash is a real possibility if the Fed loses its independence and the creditworthiness of the U.S. is undermined. Germany, which holds a significant portion of its gold reserves at the Fed, would be particularly hard-hit. And with the fed's demise, the dollar's status as the world's reserve currency would be at risk, potentially destabilizing global markets for years to come.
Sources:ntv.de
- Monetary Policy
- Donald Trump
- Fed
- Jerome Powell
Enrichment Data:Comparison of Trump's approach to Fed interference with Nixon's and how it has changed over time.
- Monetary Policy Interference History
- Nixon attempted to manipulate the Fed in the 1970s by pressuring chair Arthur Burns to lower interest rates, but ultimately failed. Later presidents, including Obama and Clinton, had more successful relationships with the Fed.
- Current Stakes
- Trump's interference is more blatant and aggressive, and he has expressed a desire to "officially secure the right to determine monetary policy."
- Potential for Legal Challenges
- Nixon's attempts were challenged in the Watergate hearings, and Trump has already faced impeachment. As Trump's moves against the Fed continue, legal challenges are likely.
- Global Financial Instability
- Nixon's interference contributed to a global recession, and Trump's could have similar impacts. The current global economy is more interconnected and vulnerable than in the 1970s, increasing the potential for a worldwide economic crisis.
- In light of Donald Trump's ongoing attempts to interfere with the Federal Reserve's monetary policy, it's crucial to understand the implications for global business and finance, as well as the broader context of political relations with the EC countries, particularly focused on the economic and monetary union, considering Germany's significant gold reserves held at the Fed.
- The ongoing power struggle between Donald Trump and the Federal Reserve raises questions about the future of the economic and monetary union, and its impact on general-news, particularly in relation to the independence of central banks like the Fed, and the potential legal repercussions for Trump's unlawful attempts to interfere with the Fed's monetary policy.
