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Trump loves low interest rates. And he really really Really I want a deep stemper in the Federal Reserve. As Claire Jones reported in Mainft Over the weekend.
Donald Trump said that he would only choose a new chairman of the Federal Reserve, who will reduce the US interest rates because he asked the central bank to reduce the credit costs to 1 percent.
Did we see this film again?
No, not this film.
Sure, it can be Lessons of President Erdoğan’s Dekadal defamation with the attempt to have the interest rates of Türkiye and whether this was causal with the increasing inflation rates of the country, collapse and the Schwaner banking system.
But our thoughts went to the drama for the birth of the modern Fed in 1951. The story was told with Gusto by Robert Hetzel and Ralph Leach in one Narrative report Over 20 years ago. And while the readers were well served by reading the whole, we pulled out some highlights from what was later known as the Treasury Feed Accord.
As soon as the United States entered the Second World War, inflationary concerns were put on one side in favor of national security. The short -term interest rates were set at 0.375 percent, and Rendite curves have been implemented -with a cap on long -standing income of 2.5 percent.
But while the short interest rates in 1947 could and became, the US Ministry of Finance insisted that the FED was able to maintain the upper limit for long-term bond income. For President Truman, it was a moral question to protect the market value of the war bonds bought by patriots (he had been himself flushed When he had to sell $ 100 of a Liberty loan in the First World War for 80 US dollars when he returned from France.
The Federal Reserve Board was not happy. Because after the first post -war bust the inflation became Yippy again.
The Fed wanted to increase the short interest rates, but the 2.5 percent long string return impaired their ability to do so. Higher short interest rates prompted the market to sell long -term bonds and forced the Fed to defend the upper limit. All of this – it expects – drove inflation.
But at that time, monetary policy was still in the hands of the President and the US Ministry of Finance. This became a tempting instrument that broke out in 1950 when Hetzel and Leach noticed:
Truman had convincing reasons to freeze interest rates. On January 25, 1951, he solidified wages and prices, apart from agricultural prices. Freezing wages was poison, especially for home mortgages, especially at mortgages at home. It was even more important that Truman was faced with the possibility of the First World War in January 1951. . . Truman and (Secretary of the Ministry of Finance) Snyder wanted to reduce the cost of financing the deficits that would result from a broader war.
When the war in Korea escalated, consumers hurried to buy goods that bought raw material prices, and the CPI inflation in the three months to February 1951 – ran with an annual rate of 21 percent. Yikes.
Truman therefore not only called the chairman McCabe, but also the entire federal brand committee of the federal government to the White House in order to impress her patriotic duty to maintain trust in government values in a time of the national crisis. The white house followed with one Press release explain that:
The Federal Reserve Board has promised President Truman to maintain the stability of government shoots as long as the emergency takes.
Unfortunately, the FOMC hadn’t done anything like that. Maintaining public ambiguities in relation to their commitment to further create the command of the Ministry of Finance was one of the few cards they had. And fed governors Marriner Eccles made sure that the New York Times and the Washington Post knew it.
Perhaps it is not surprising that the sharpness with FOMC members became more and more clearer-and with a constantly increasing volume-that increasing inflation was the direct result of the earnings limit forced by the Ministry of Finance.
When the finance minister John Wesley Snyder took a cataract surgery on February 11, negotiations with the FED were officially handed over to a deputy deputy secretary William McChesney Martin. The assumption (perhaps even the instruction) was to pause the escalating crisis for a few weeks until Snyder returned.
Martin – A financial child prodigy who had become President of NYSE at the age of 31 more than a decade before, but moved quickly.
Martin struck an agreement between the Fed and Ministry of Finance. It was a Grand debt swap that calmed the bond lovers of their option for money (which Qe forced to feed on a non-willing) Exchange with the ability to exchange them for a higher voucher Government bonds under the new GelD regime. Somehow he sold the plan to his boss, which was still bound in the hospital.
If this sounds like a win of the Fed, it must be weighed against what could be considered a price: McCabes resignation as chairman of the Fed.
Truman could use be Man at the Fed – a loyal treasury type. Someone who understood his bigger picture. A woofer. Who did he choose? Of course William McChesney Martin.
The initial reaction of the board and the Fed’s employees was that “the Fed had won the fight, but lost the war,” said Leach, an economist from the US Central Bank at that time. The FED might have been free from the Ministry of Finance, but then the Ministry of Finance “recovered through the installation of its own husband”.
Low rates Martin was confirmed by the Senate on March 21st and in his First statement as chairman He proclaimed this:
. . . (u) Ness inflation is checked that it could prove to be even more serious for the vitality of our country than the more spectacular aggression of enemies outside of our borders. I hope to support all appropriate measures to maintain the shopping performance of the dollar.
Wait, what? Martin became a back with low installments and became a violent defender of the independence of the central bank, articulate the job of the Fed “The companion who ordered the Punch Bowl only when the party really warmed up.”
He wandered the rates and inflation (although he was convinced that the long and variable delays in monetary policy was convinced that the fall did only Martin’s). Today the agreement that Martin Engineered considers is the birth of the modern independent US central bank.
How did Truman take that?
A few years later, Martin met a street in New York City Harry Truman. Truman stared at him, said a word “traitor” and then continued.
What is Trump lesson? If you really want a woofer to appoint a real, bitter housing and more of a new Martin.
