What would Donald Trump do with the Federal Reserve

The most important topic discussed during Monday night's Presidential debate had to do with the Federal Reserve (not President Obama's birth certificate). Donald Trump correctly stated the following:

Now, look, we have the worst revival of an economy since the Great Depression. And believe me: We’re in a bubble right now. And the only thing that looks good is the stock market, but if you raise interest rates even a little bit, that’s going to come crashing down.

We are in a big, fat, ugly bubble. And we better be awfully careful. And we have a Fed that’s doing political things. This Janet Yellen of the Fed. The Fed is doing political — by keeping the interest rates at this level. And believe me: The day Obama goes off, and he leaves, and goes out to the golf course for the rest of his life to play golf, when they raise interest rates, you’re going to see some very bad things happen, because the Fed is not doing their job. The Fed is being more political than Secretary Clinton.

David Stockman, Ronald Reagan's former budget director, validates Mr. Trumps comments and also rejects the merits of the Federal Reserves zero percent interest rate policy.

The Donald Nailed It: “We Are In A Big Fat Ugly Bubble” - David Stockman's Contra Corner, September 28, 2016  

To wit, after 94 months on the zero bound the Fed has executed the most massive income and wealth transfer in American history. Upwards of $2.5 trillion has been extracted from the hides of main street savers and retirees over that eight year period (@ $300 billion per year). All of that and then some was gifted to the banks and Wall Street speculators.

The mainstream media have journalists like Jeff Reeves who actually think Mr. Trump doesn't understand the Federal Reserve.

Opinion: Donald Trump simply doesn’t understand the Federal Reserve - Marketwatch, September 27, 2016    

Note: Donald Trump can be called a lot of things but he is not stupid. Mr. Reeves goes on to state that the Fed has no duty to help savers:

Those who deride the Fed these days are quick to say it’s “punishing savers.” But if the Fed has no loyalty to savers, it’s because it’s not supposed to. The purpose of the Fed, according to most economists, is the “dual mandate” created in 1977 via an amendment to the Federal Reserve Act. That amendment dictates that the Fed “promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates.” That balance between modest inflation and low unemployment is, in essence, the purpose of the Fed — not to make sure your savings account yields 5%. Much of the focus since the financial crisis has been on the “maximum employment” part of that mandate, which has meant lower interest rates for savers, but the Fed is not doing that capriciously.

So, is he saying the Federal Reserve should go ahead and blow big asset bubbles with the hope there can be maximum employment? I guess so, until the bubble pops and then everyone goes broke!

Ron Paul, the de-facto leader of Libertarians, has advocated for the ending of the Federal Reserve and instituting sound money (i.e. currency backed by hard assets like gold or silver). Mr. Trump's criticism of the Federal Reserve does give him an opening to move closer to the Libertarian position. Going back to 2011, he has generally said good things about Ron Paul.

But, Mr. Trump has never advocated for the abolishing of the Federal Reserve or backing the US dollar with gold. He has in fact promoted a large infrastructure program (as part of his platform) that would require major deficit spending and which would be in conflict with the sound money concept. It seems like Mr. Trump knows the game is rigged but is willing to keep it going if it moderately improves the status quo. Either he doesn't think sound money is a viable alternative or he doesn't see it as politically beneficial to take a stand.

Regardless, China very much understands the current financial landscape and has made plans for the Chinese yuan and gold to take on a greater role in international finance by taking these steps:

1. China’s yuan inclusion in the International Monetary Fund’s currency basket (begins on October 1, 2016)
2. China International Payments System (CIPS) is an alternative payments system to SWIFT
3. Asian Infrastructure Investment Bank (AIIB) is an international financial institution that will finance infrastructure projects in the Asia region
4. Bilateral Currency Swap Lines completed between China and over thirty counterparties to enable greater oversees trade of the yuan
5. Silk Road Gold Fund to facilitate gold purchase for the central banks of member states
6. Shanghai Gold Exchange launched to set a new benchmark price for gold bullion

China would be in support of Charles de Gaulle, who made the following statement in 1965 warning of the dangers of the US dollar holding reserve currency status:

‘The fact that many countries accept as a principle dollars being as good as gold for the payment of the differences existing for their advantage in the American balance of trade. This very fact leads Americans to get into debt, and get into debt for free at the expense of other countries at least in part with dollars only they are allowed to emit. Considering the serious consequences a crisis would have under such a system we think that measures must be taken in time to avoid it. We consider necessary that international trade be established as it was before the great misfortunes of the world on an indisputable monetary base, one that does not bear the mark of any particular country. Which base? In truth, who can see, how one can have any real standard criterion, other than gold?’

Now that the financials of the US, Europe, Japan and China are in immediate peril (The Most Dangerous Time Ever – World Financial System Now At The Edge Of A Black Hole - King World News, September 25, 2016), we should expect a new monetary system to be set up if not in years, possibly in days.

Whatever preference Mr. Trump has for monetary policy, should he win the election, he will probably not have much of a choice.