When the International Marketplace No Longer Trusts US Government Reports & Controls

When the International Marketplace No Longer Trusts US Government Reports & Controls

Even Russia has “elections,” but nobody trusts their projected statistics

“The Federal Reserve is a uniquely structured, quasi-private entity that follows in the distinct historical tradition of the First and Second Banks of the United States." 

Unsigned Supreme Court order in Trump vs Wilcox, Supreme Court (May 2025), not allowing the President to fire members of the Fed Board

To most Americans, the machinations and operations of all those bureaucratic money thangs remains a mystery which they generally do not understand. But those “thangs” can destroy an economy and decimate our credibility in a very, very bad way. Over a century ago, the Federal Reserve was created by Congress to act as a fully independent central bank, primarily overseeing the banking industry, overseeing monetary supply and setting federal interest rates within a neutral and credible forum. The idea was to make our financial credibility able to withstand differing election results and to temper those fiscal and monetary changes that were relegated to Congress and the President. For example, the Fed cannot veto congressional budget allocations or limit deficit spending. Until Trump 2.0, the United States set the gold standard for reliable financial data and statistics for all central banks worldwide. We were really trusted.

What the Fed does that allows the government to approve federal budgets with big deficits is to provide objective and reliable data that those we are asking to lend us that deficit shortfall (through the sale of US treasury bonds) have faith in government statistics. And the Fed itself relies on accurate reporting from other federal agencies, like the Bureau of Labor Statistics (BLS), to set its rates and regulations. What it cannot survive is when an elected official, almost always the President, attempts to mandate what the Fed decides. The ability of someone outside of the Fed to intervene and supersede the Fed’s normal neutral operation destroys the US government’s international credibility, and like any bank that does not trust a borrower’s numbers, lenders (those who buy US treasury bonds) either do not lend or, if they do, they jack up the interest rate to cover the increasing risk based on this unreliability factor.

Even as Donald Trump believes if he could force Fed rate (the interest rate the Fed charges federally insured banks, which impacts the overall debt marketplace in various and complex ways) to drop significantly, that would stimulate the economy while reducing borrowing costs, ultimately for consumers. But as Trump has fired the heads of the BLS because he did not like the recent jobs report and has attempted to discharge and preempt Fed Chair Jerome Powell because he won’t drop the fed rate by a large number, the international marketplace, which bully Trump cannot control (he cannot force foreign investor to buy our treasuries at any price he were to set), the international marketplace began quivering, rating agencies were downgrading our credit rating, and we are now forced to pay higher interest yields to make up the difference.

That's reality, which Trump has no power to change. Nations that manipulate financial controls and reported statistics – like Argentina, Iran, Sudan, Nigeria, Zimbabwe, etc. – often watch their annual inflation rates soar, sometime over 100% or more in a single year. One of the major contributors to WWII was the German reaction to hyper currency devaluation as that post-WWI loser nation struggled to pay war reparations to France and other victorious allies. The resulting instability often is reflected in violent civil unrest, where differing factions pledge unrealistic policies to reduce inflation, or outright war. It’s never pretty.

If Trump were able to fire Federal Reserve Board members, he would have the clout to dictate Fed policy and thus decimate its reputation for neutrality. Jerome Powell fought back and, at least until recently, was able to keep those international financial wolves from destroying that cherished gold standard neutrality. Trump then figured all he really needed to do is successfully fire any Fed board member, because if he could fire one, he could fire any of the for “cause.”

Trump, who has been personally held legally responsible for bank fraud, has used a very flimsy excuse of mortgage “fraud” against individuals (particularly an issue for government employees and elected officials who have lived in one jurisdiction but now are forced to work in another, in determining what is a “principal residence). He has used that premise to attack California Senator Adam Schiff and now to attempt to fire Federal Reserve board member, Lisa Cook.

That latter attempt to fire Ms Cook (she refused to go) really shook the international markets, as this report from the August 26th Fortune magazine illustrates: “Markets sold off worldwide after President Trump announced plans to fire Fed governor Lisa Cook and threatened steep tariffs on China, raising fears about Fed independence and the dollar’s role as a reserve currency. S&P futures were down this morning. However some hopes emerged as investors focused on the Fed’s institutional strength.

“There was a global selloff in the markets today [8/26] and every major index—U.S. futures, Asia and Europe—was down this morning. Two major factors drove the negativity: President Trump’s announcement last night that he will fire U.S. Federal Reserve governor Lisa Cook, thus calling into question the economic independence of the world’s most important central bank; and Trump remarking that he may impose 200% tariffs on China if Beijing restricts the U.S.’s access to supplies of rare earth minerals that are 90% controlled by China.” Christopher Rugaber, writing for the August 26th Associated Press, expands, explaining what happens when a weak Fed chair succumbs to political pressure:

“The Fed wields extensive power over the U.S. economy. By cutting the short-term interest rate it controls — which it typically does when the economy falters — the Fed can make borrowing cheaper and encourage more spending, accelerating growth and hiring. When it raises the rate — which it does to cool the economy and combat inflation — it can weaken the economy and cause job losses… Economists have long preferred independent central banks because they can more easily take unpopular steps to fight inflation, such as raise interest rates, which makes borrowing to buy a home, car or appliance more expensive.

“The importance of an independent Fed was cemented for most economists after the extended inflation spike of the 1970s and early 1980s. Former Fed Chair Arthur Burns has been widely blamed for allowing the painful inflation of that era to accelerate by succumbing to pressure from President Nixon to keep rates low heading into the 1972 election. Nixon feared higher rates would cost him the election, which he won in a landslide.

“Paul Volcker was eventually appointed chair of the Fed in 1979 by President Carter, and he pushed the Fed’s short-term rate to the stunningly high level of nearly 20%. (It is currently 4.3%). The eye-popping rates triggered a sharp recession, pushed unemployment to nearly 11% and spurred widespread protests… Yet Volcker didn’t flinch. By the mid-1980s, inflation had fallen back into the low single digits. Volcker’s willingness to inflict pain on the economy to throttle inflation is seen by most economists as a key example of the value of an independent Fed.

“Investors are watching closely… An effort to fire Powell would almost certainly cause stock prices to fall and bond yields to surge, pushing up interest rates on government debt and raising borrowing costs for mortgages, auto loans and credit card debt. The interest rate on the 10-year Treasury is a benchmark for mortgage rates.” Trump supporters believe that because Donald Trump is perceived as a successful businessman, he knows what he is doing. Perhaps he knows that his tariff program combined with his tax cuts for the rich has been the largest upward shift in wealth (at the cost of everyone else) in recent memory. But he clearly does not understand that tampering with the independence of the Fed may appear to be a path to lower US interest rates… but it a rather dramatic path to rampant inflation, for the reasons noted above, at levels consumers have not witnessed in almost a half a century.

I’m Peter Dekom, and those little mysterious goings-on in our financial world, if not properly contained, can inflict a whole lot of hurt for all but the richest in the land who have the assets (some overseas) to withstand Trump’s pending horrific mistakes… but rising unemployment, a real estate crash and hyper inflation are lurking right around the corner.