We all know the \u201ctraditional\u201d balances of power from our \u201cSchoolhouse Rock\u201d days in 8th<\/sup> grade history. There\u2019s the Legislature that \u201cwrites the laws\u201d, the Executive that \u201cexecutes those laws\u201d, and the Courts that determines whether \u201cthe laws\u201d are allowed under the Constitution or not. But there are less obvious areas of \u201cbalance\u201d that Congress, the President and the Courts have agreed to, usually about issues they think are \u201ctoo important\u201d to politicize. <\/p>\n\n\n\n Money is the obvious example. America doesn\u2019t want the value of its money to become a political football. And since the \u201cvalue\u201d of our money (measured in how much that money can purchase) is no longer linked to a precious metal, like gold or silver (since 1933), the main factor that \u201ccontrols\u201d the value of the dollar is the amount of dollars in supply. <\/p>\n\n\n\n How much money is worth (can purchase) has been a major issue since the founding of the Nation. One of the great debates of the 1880\u2019s and 90\u2019s was that the money, tied directly to gold in the US Treasury, was is in too short a supply. This forced prices down (a good thing) but it also made it difficult to actually have money. It didn\u2019t matter how low prices were; poor Americans couldn\u2019t get any. The average worker wage in 1885 was $589\u2026a year. That\u2019s less than $50 a month, $12 a week, or $.20 an hour. Even if goods were cheap, the average American just didn\u2019t have much money to use.<\/p>\n\n\n\n The debate at the time was about silver. If silver was added to the gold standard regulating American cash supply, then the money supply could be greater. Sure, prices would go up, but average Americans would have access to more cash, to increase their purchasing power. William Jennings Bryan, the Democratic candidate for President in 1896, gave his most famous speech on this subject, advocating for adding silver. It was called the \u201cCross of Gold\u201d Speech. <\/p>\n\n\n\n So why bring up Bryan, other than to quote his stirring final paragraph:<\/p>\n\n\n\n If they dare to come out in the open field and defend the gold standard as a good thing, we shall fight them to the uttermost, having behind us the producing masses of the nation and the world. Having behind us the commercial interests and the laboring interests and all the toiling masses, we shall answer their demands for a gold standard by saying to them, you shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold.<\/em><\/p>\n\n\n\n It seems that most of President Trump\u2019s economic strategy comes right out of the high tariff and no business regulation days of the 1880\u2019s. So it might give us insight into his thinking to look back. But there is no \u201cgold standard\u201d no \u201ccross of gold\u201d, these days. The value of US money isn\u2019t actually regulated by precious metals, it\u2019s \u201ccontrolled\u201d. The Federal Reserve Board, a part of the government but supposedly independent of the President (or the Congress) tries to control our money supply by determining how much it costs banks to borrow money from the Federal Reserve Bank (kind of bank for banks). <\/p>\n\n\n\n If the \u201cFed\u201d raises interest rates (the cost for banks to borrow money), it limits the amount of money in supply, and keeps prices down. If it lowers interest rates, it puts more money in supply (reduces the value) and prices will trend up. For example, during the Covid crisis, the stock market went down by more than a third and millions of Americans were out of work. The supply of money went way down, and the \u201cvalue\u201d of the dollar was up. Sure, prices for some things, like gas, went down. But there were shortages of products (like toilet paper) and those prices went up.<\/p>\n\n\n\n The Fed responded by lowering their interest rates virtually to zero. If you had money, the summer of 2021 was a great time to buy a house, with a 30 year mortgage of 2.8%. But the problem was, like in the 1880\u2019s, many Americans didn\u2019t have the opportunity, because unemployment was up. Americans were worried about paying monthly bills, not buying houses.<\/p>\n\n\n\n The Biden Administration poured money in to \u201cjump-start\u201d the post-Covid economy.\u00a0\u00a0That increased the supply, and reduced the value.\u00a0\u00a0the country got going again.\u00a0\u00a0But prices and wages went up, and Americans experienced major inflation for the first time since the 1980\u2019s.\u00a0\u00a0The Fed moved to slow inflation.\u00a0\u00a0In October of 2023, a 30 year mortgage was 7.7%.\u00a0\u00a0<\/p>\n\n\n\n Trump\u2019s 1880\u2019s style tariff policy jolted the US economy once again. Since tariffs are taxes on imported goods, and since the vast majority of consumer goods in the US are imported, prices are likely to go up. And combined with the Trump draconian immigration program raising the costs of labor as well, America may well be looking at a near future of less development, less expansion, and higher prices, called \u201cstagflation\u201d. It\u2019s the economic recipe that afflicted the 1970\u2019s Carter Administration, and helped elect Ronald Reagan. <\/p>\n\n\n\n So Trump wants the \u201cFed\u201d to lower interest rates, even though it would cause prices to go up, something his tariff policy is already going to do.\u00a0\u00a0And, not surprisingly, the Fed, led by Chairman Jerome Powell, is saying \u201cno\u201d.\u00a0\u00a0It\u2019s an \u201copen\u201d legal question whether the President can fire the Federal Reserve.\u00a0\u00a0It\u2019s one of those \u201cother\u201d checks and balances on the government, outside of the \u201cSchoolhouse Rock\u201d version.\u00a0\u00a0But if Trump did fire Powell, the stock market would plummet, wiping out large \u201csupplies\u201d of US money.\u00a0\u00a0That\u2019s something, at the moment, the President seems unwilling to do.<\/p>\n\n\n\n Donald Trump wants all of the economic \u201clevers of power\u201d in his own hands, from tariffs to employment to Federal Reserve rates. Jay Powell is holding firm, no change in Federal rates yesterday. He\u2019s giving his subtle version of Bryan\u2019s speech: \u201cYou shall not crucify the United States on a cross of tariffs\u201d. We\u2019ll see how long he lasts. And, by the way, that \u201ccross of tariffs\u201d better not be made of Canadian lumber. The tariff on that is scheduled to more than double from 14% to 34%. <\/p>\n\n\n\n It might as well be made of gold.<\/p>\n","protected":false},"excerpt":{"rendered":"Gold Standard<\/h3>\n\n\n\n
Reserve Rates<\/h3>\n\n\n\n
Stag-Flation<\/h3>\n\n\n\n