Apr 22 • General discussion
Trump Vs Powell
Here's an interesting aricle from shared by one of our M3 members Diogenes...
Us Debt and Trump
If you’re paying attention to President Trump and you have an open mind as to his intentions, you know that his biggest focus is on the US debt, as it should be. Keynesian economics has backed the entire world into a corner walled in by ballooning debt bubbles and few options and little political resolve to deal with the coming crisis.
With US debt at 130% of GDP or 750% of average tax revenue, even the interest payments to maintain the debt have ballooned and are now a major component of government spending on par with military spending. There’s a number of long-term solutions to this problem, none of them without their downsides. However, the immediate problem is the 2T in US debt that is set to mature this year and has to be refinanced because we can’t afford to pay it off.
Much like households back in the 2000’s before the great recession would juggle their credit cards, paying one off with another until they ran out of credit and defaulted. Well, the problem Trump has is interest rates are prohibitively high, if he refinances this debt right now, he’ll pay an estimated 400+ billion more than if the interest rates were at 0%. That isn’t an option if Trump is going to get a handle on the US debt.
The Debt and Powel
This is where Fed Chair Powel comes in, as you should know by now Powel is the head of the Federal reserve banking system, they control the interest rates on federal money lending. Thus, they control liquidity in the system to a certain extent and the borrowing costs of everyone who operates on the dollar system. So, if Powel controls interest rates on lending and Trump needs interest rates to drop in order to refinance debt without digging us into a bigger debt hole.
Then Trump needs Powel to play ball, unfortunately for everyone Powel doesn’t seem interested in playing nice with Trump. If you watch the last FOMC meeting or read comments from other FED chairs you’ll see a pattern of Trump blaming. In the last FOMC for instance Powel admits that the labor market is looking stable though it is declining, and that interest rates are now near target.
However, he signaled that their will be no rate cuts due to the ‘Fear of Trump related inflation’. The previous meeting the FED had to cut QT by 80% because they could see market liquidity was vanishing and it could blow up the bond market and other sectors.
So, the FED is aware that they’re overly restrictive policies are causing damage to the market, this isn’t Powels first QT rodeo, he was there for the 2019 repo market blowout which I have previously written about.
Trumps Options
So, what are Trumps options, well I believe he’s tried moving the bond market in order to force a reaction from the FED. However as of writing this has appeared to have failed, the swing down was interrupted by the basis trade unwind, as previously written about, and the basis trade unwind wasn’t violent enough to implode the repo market, yet.
So, unless there is a change in the bond market that isn’t showing on the charts Trump has to consider other options, which I believe he already has.
Consider that Trump has openly called for the FED to cut rates, while at the same time questioning Powels competence. Even before Trump was sworn into office the rumor that Trump would remove Powel from office has persisted, though officially denied. Powel on the other hand has sworn he will serve out his term no matter what the president wants.
FDR and Trump
So, we come to an impasse, Powel refuses to support Trumps efforts to try and “fix” the economy and Trump can’t just fire him… can he?
To answer that we need to take a trip through history and then re-examine some of Trump’s actions thus far. I am more and more of the opinion that Trump is channeling the ghost of FDR, both considered tyrants in their time, both presiding over an era of financial crisis. In this instance we want to look specifically at how FDR dealt with uncooperative “independent department leaders” so we need to take a look at the Supreme Court decision known as Humphrey’s Executor.
In that case from 1935, FDR fired the head of the Trade Board, after the fact the court unanimously held that presidents cannot fire independent board members without cause. So where does that put us today, and what is the ghost of FDR whispering in trumps ear.
Well currently the Trump administration, after firing 2 independent board members, has requested a re-evaluation from the supreme court of the powers the president has in regards to personnel in the executive branch.
This case could last well into 2026, however recently Chief Justice John Roberts signed an order Pausing the reinstatement of the 2 board members while the case is deliberated, most likely because as the attorneys in the case argued that ‘allowing the 2 board members to hold office while litigation continues will force the president to deal with members of the executive branch that are openly hostile to his policy changes while the court deliberates’.
In further confluence with this stay order, Chief Justice John G. Roberts Jr. also wrote in 2020, that “the executive power belongs to the president, and that power generally includes the ability to supervise and remove the agents who wield executive power in his stead.”
These 2 actions by Roberts support my mounting suspicion that Trump will indeed fire Powel. What does FDR have to say on the issue, I believe that Trump has learned from FDR that all he needs is “due cause”, and he is letting Powel dig himself a hole.
Every time Powel comes out and blames Trumps policies for his own inactions, he is showing that:
1. He is no longer capable of separating politics from his job and decision making.
2. That because of this he is unable to fulfil his duties and is causing damage to the economy. I believe that at some future date, perhaps after May 7th if we don’t get a rate cut, Trump having found ‘due cause’ to fire Powel.
Summary
So, what does this mean for the market, on the one hand volatility and uncertainty are bad for the market. However, I believe, that a decisive move from Trump coupled with rate cuts maybe the catalyst the markets need to reignite the bull run and stave off a recession for a little longer.
Will this happen, we’ll just have to wait and see, until then keep watching your charts.
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Trump Vs Powell
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