Trump’s Big Chance (And Recalling Ronald Reagan)

Comes news that Daniel Tarullo is resigning his post in April on the seven-member U.S. Federal Reserve Board of Governors, the arbiter of nation’s money supply.  That leaves three vacancies.

As noted in this space, despite declining headline unemployment rates, the U.S. economy never really recovered from the 2008 Great Recession. Labor participation rates have never rebounded, home ownership rates have tumbled, and GDP took a 10% (evidently permanent) haircut from potential.

Every year, the U.S. gives up trillions of dollars of lost output, despite inflation being below target. Too-tight money is the primary culprit.

Trump Appointees And Remembering Reagan

The hysteria that has greeted new U.S. President Donald Trump is unprecedented, and, to be sure, Trump often seems his own worst enemy.

Yet amidst the D.C. dung-hurricane, with so many empty slots on the Fed board Trump has a chance to do some real good, or at least avoid harm.

The cardinal mistake to avoid is appointing any tight-money fanatics to the Fed’s Board of Governors.

And Trump may want to review what President Ronald Reagan did: The Great Communicator packed the board with money-easers.

The Day Volcker Threatened To Quit

Long forgotten is how the Reaganauts rankled at then-Fed Chairman Paul Volcker (1979-1987) and wanted him out, and failing that, then packed the Fed Board of Governors with money-easers. Matters come to head in February 1986, when the four recent Reagan appointees on the Fed board voted to cut the discount rate, despite and over Volcker’s heated objections.

Volcker—by then, the very icon of monetary stability—consequently threatened to quit, and the Reaganauts beat a hasty retreat, not wanting the PR mess.

Though Reagan lost that round, the lesson for Trump is obvious: Trump should similarly pack the Fed board, and remember that Chair Janet Yellen has not the stature of Volcker, and her term expires in 2018 anyway (along with Stanley Fischer’s, the vice chair).

Trump can appoint a pro-growth Federal Reserve, if he puts his mind to it. It may be the most important aspect of his Presidency, if he can pull it off.

Going Too Far?

Now, here is an interesting headline from The New York Times, Sept. 18, 1982:


The story starts, “President Reagan today raised the question of whether the Federal Reserve Board should be placed under the authority of the Treasury Secretary.”

The story continues, “Earlier this year, officials at the Treasury Department said they were considering initiating a study of proposals to restrict the power of the Federal Reserve Board. The possibilities cited then included having the board placed under the Treasury Department’s authority, or putting the Treasury Secretary on the board.”

But…let us not give Trump too many ideas. Trump might end up being a protectionist…like Reagan. Or manipulating currency markets to bring about a cheaper dollar…like Reagan. Or running big federal deficits…like Reagan.

But putting the Fed into the Treasury, where it would report the Oval Office?

Leave that idea to Ronald Reagan alone.

For now, anyway.


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