Even More Idiocracy

 When Trump was inexplicably returned to the White House by a feckless American electorate, I remember a conversation with a colleague about what might be the worst outcomes of Trump 2.0. He and I both agreed that losing the Federal Reserve's independence was high on the list of bad outcomes. 

I'm reading Aaron Ross Sorkin's 1929: Inside the Greatest Crash in Wall Street History - And How It Shattered a Nation. I'm only about a quarter way through it, and I've already learned a lot, including how the Fed tried to rein in the speculative bubble on Wall Street in March of that year. That was news to me. Wall Street kicked back against that effort. I am anticipating that this was a major fuel to the conflagration that erupted in October.

When Jerome Powell retired and was replaced with Kevin Warsh, that was a really troubling development. He's a partisan hack rather than a dispassionate economist. As Krugman notes, Warsh made a statement on Wednesday about the decision to leave rates where they are and that tanked the bond market. Some of that was that there were three dissenters - and that's unusual. Some of it was that Warsh was placed on the Fed to give Trump what he wants, and Trump wants low interest rates. We are experiencing inflation from Trump's misguided tariffs and mishandled war, so we need to get ahead of inflation - the way we did in 2021. In that instance, the Federal Reserve was able to quickly address the Covid inflation and quell that fire without shoving us into a full blown recession.

Now, we have Warsh who is part of the Legion of Dumb surrounding Trump and his statements reinforced the perception that he is not interested in shepherding the economy through an inflationary period, but rather he just wants to assuage the Toddler in Chief with the binkie of low interest rates.

Can we come back to our old role in the world once Trump is gone? Kind of. It will be different, as Europe and the rest of the democratic world has seen that we can no longer be completely trusted. Still, we are a critically important country, and if we return to sanity, that will be welcomed in most corners of the world. 

If Trump really can corrupt the Federal Reserve, though, we might be headed for another economic catastrophe, which will take decades to crawl out from under.