The Lisa Cook Firing
Controversy
JAN JEKIELEK: This is American Thought Leaders, and I'm Jan Jekielek. Jeffrey Tucker, so good to have you back on
American Thought Leaders.
JEFFREY TUCKER: My pleasure. Good to be here, Jan.
JAN JEKIELEK: Let's start with this recent firing of the
Federal Reserve governor,
Lisa Cook. Is this something that
can happen? This is something that's wildly contentious in
our society and people are coming in on either side.
What's
your take?
JEFFREY TUCKER: Well, she refuses to resign, believing that
it can't happen, that she's untouchable in some sense. The
president cannot do this.
The problem is that the law as
written by Congress, the implementation legislation of the
FED says that the president can fire a Federal Reserve Board
governor "with cause." That's what it says, which implies
that the president is in charge. The president is what keeps
the FED accountable.
Now,
Trump believes this, and so he found somebody on the
board that he can fire with cause. The allegation - I have to
say allegation, because that's the way we talk, but actually
it's true - she named two separate primary residences in her
mortgage applications.
You can't have two primary
residences. The advantage for doing that is that you get
favorable interest rates because on your primary residence
there's less risk, so you get a more favorable loan rate. So
she got two favorable loan rates.
And then you've got really interesting problems concerning
the deductibility of interest. You can only deduct the
interest that you pay on a loan from your primary residence.
If you buy the second, third and fourth house, that's on
you.
So actually, this is a federal crime to do this. And maybe
it's common. Maybe it goes on all the time. We don't really
know. Maybe there's a certain class of borrowers who just do
this routinely.
Lisa Cook treats it like it's no big deal, like a parking
ticket or something like that, but it's actually a federal
crime. So if you're looking for some reason to go after a
FED board governor with cause, this is a good cause. So I
think Trump will prevail in this particular case, but it
will have to be decided, most likely by the Supreme Court.
What's important here, Jan, there's a lot more at stake than
just this one regulation about residences and mortgages. It
has to do with whether and to what extent the FED is
actually accountable to the President of the United States.
That's what's at issue.
What's striking to me about this is that the FED has been
around since 1913. This question has never really been asked
at this level, much less answered. For all these years, this
country, we've pretended as if there's such a thing as an
independent central bank, and everybody knows what that is.
Well, there's another word for independence that is
unaccountable.
JAN JEKIELEK: Right.
JEFFREY TUCKER: Independence sounds great. Unaccountable
sounds bad. Well, the Fed's unaccountable.
They've not been
held to account for any outside audits in its entire
history. Any political intervention is widely seen by
financial markets as something like a catastrophe. You're
risking the nation's financial stability and so on and so
on.
But in the end, we are governed by this document called the
Constitution, and we're a nation of laws. And the
Constitution has three buckets.
It has judiciary, has a
legislative branch and an executive branch. In the org chart
of the federal government printed by the federal government
that everybody agrees is true, the Federal Reserve is under
the executive branch and reports to the President. You can
see it. The org chart is very clear about that.
You can say
it's independent. Is that just sort of a norm, that we just
have a hands off policy?
The Question of
Precedent and Independence
JAN JEKIELEK: Well, this is what I was going to ask because
certainly in the judiciary, precedent is hugely important.
It impacts a great many things. Is that the case here?
Because clearly, as you've outlined the precedent has been
independence.
JEFFREY TUCKER: So we don't really know in a constitutional
sense what that means. And you'd think that we did, we would
know, but we don't actually know what it means for there to
be an independent agency under executive department.
So what's exciting about the times in which we live is that
we're finally getting answers to these questions. The
Supreme Court's been very clear up to now that the President
is in charge of the agencies, executive agencies.
So let's
just say the Department of Labor or USAID or Department of
Energy, Department of Agriculture or HHS, they can in fact
fire employees now.
Five years ago, we didn't know the
answer to this question. I mean, I think we've had these
discussions for a while. We didn't actually know whether the
President was really in charge of executive agencies.
The Supreme Court in a series of cases has been very clear.
The President is in charge of executive agencies.
But now
Trump is taking on the great question of American life,
which is the status of the Federal Reserve under the law.
That is an unanswered question. So this is a taboo topic.
We've never been here before. No president since 1913 has
taken on the FED the way Trump has taken it on now.
And the
Supreme Court I think, is going to have to decide that this
is an executive agency.
Why Take on the FED Now?
JAN JEKIELEK: And maybe give me a little background here.
Why, for those that are uninitiated, why would the President
feel right now that he needs to take on the FED?
JEFFREY TUCKER: Well, President Trump's annoyed the
FED
because he thinks that they're keeping interest rates too
high. You can agree or disagree with that. I happen not
really to agree with that, but I do agree that you need some
accountability for the central bank.
I mean, you can't just
have this floating financial institution, arguably the most
important institution in the United States, the most
impactful institution in the United States.
JAN JEKIELEK: By extension the world.
JEFFREY TUCKER: Yeah, that's right, the globe. Because we're
on a world dollar standard. So the Federal Reserve is the
most powerful institution, arguably in the world.
And it's
just this free floating agent out there that nobody knows to
whom it reports, if it reports to anybody.
The Constitutional
Foundation of Money Power
But under the Constitution, the Founding Fathers were not
idiots. They knew the monetary issue was an important issue
for any country. But they addressed a lot of things in
specifics in the Constitution.
They addressed copyrights and
patents. They addressed even the post office, all sorts of
specific issues. Trade, for example, is in there.
But one of
the issues they address in
Article I, Section 8 is the money
power. And they specifically grant to Congress the job of
coining currency, to managing currency and coining money. So
that belonged to Congress.
Well, very quickly after - and that's for a reason, because
they understood that monetary power is quite frequently
abused by the executive:
kings, coin clipping.
Hundreds and
thousands of years of abuse of the monetary financial system
by big shot executives, whether it's pharaohs or kings or
princes, whatever. So they wanted it to belong to the
Congress, which is, say the people.
That was a specific
decision made for a specific reason. Very wise.
And they also even restricted the states from making
anything other than gold and silver as money because they
wanted to mitigate against the problems of inflation,
depreciating currency because they knew this had led to
upheavals in the past. You can read the Founding Fathers on
money. They had a lot of views on this topic.
Thomas Paine's most famous for having written "Common Sense"
and railing against the ermine robes of King George,
whatever, but actually he has a lot of writing on the
monetary question too.
He hated paper money. He said paper
money was the source of great evil that leads to inflation
and business cycles, trade cycles of booms and busts. He had
very sophisticated economic understanding. And I'm not
saying that Tom Paine was some sort of unique figure.
This
whole generation understood that bad money can ruin a
country and a society and send the entire culture into
upheaval.
So they wanted sound money and they wanted hard money. They
wanted the money to belong to the people, guarded by the
people, for the people.
That's why they had, in Article I,
Section 8, they granted to Congress the power to coin money
and restricted even the states. Now we had a 10th amendment,
so states have a lot of rights, but they did not have the
right to create paper money. That's in the Constitution.
So
that's how serious they were about this topic.
The Evolution from
National Banks to Free Banking
Now, soon after the founding, there was an effort to create
a national bank and it didn't last long. Now keep in mind
when we say so, we had the First National bank and the
Second National Bank.
And throughout the 19th century, in
the first half of the 19th century, keep in mind a national
bank is different from a central bank in important respects.
A national bank is really a bank for the government. It's
like Congress makes debt. The national bank buys it and
holds it, maybe prints money to buy the debt.
And so they
have this relationship between the bank for the government
and the government has its own bank. I mean, that's the
national bank.
Now famously subject to all sorts of corruption, as even
from my description, bond rackets, debt scams, profligate
spending. There's bad stuff associated with national banks.
And so it was kind of inconsistent with the American ethos.
This was not a central bank. It was just a bank for the
government. That's what it was. And so it went away, then it
came back, then it went away again. Andrew Jackson famously
railed against it as a monster.
So a lot of the debates about money in the first half of the
19th century surrounded this issue of the national bank. So
then we had a long period of what's called free banking. It
lasted for many years. And there were changes in the kind of
regime that the relationship of the treasury to the money.
What we're going to have money, we're going to have a gold
standard, a silver standard, bimetallism. There are all
sorts of acts coming up from Congress regulating this stuff.
But during the 1870s and the 1880s and 1890s, we had growing
outrage against what was called wildcat banking. So we had
railroads going through the country, and everywhere the
railroads went, property values would rise and business
would start popping up.
And of course, banks popped up at
that area, too, and they started lending money to everybody.
And that if the railroad failed or didn't actually show up
at all, the banks would go belly up and take everybody's
deposits and people get angry. So that was called wildcat
banking. Lots of booms and busts.
Banks were regarded as normal institutions like grocery
stores or newspapers or just another market institution.
They could fail, they could succeed, but it was determined
by the markets.
Now, that's a little fraught from the
depositors point of view.
JAN JEKIELEK: You got to pick well.
JEFFREY TUCKER: Yeah, you got to pick well. But there was
competition between banks, and bad bankers went out of
business.
Good bankers thrived. I mean, it's kind of a
decent system overall, but maybe not incredibly popular for
people who lost their deposits, that sort of thing.
But
there's a lot of pressure during this period to stabilize
the institution.
The Safety-First
Society
JAN JEKIELEK: Something that just strikes me, Jeffrey, I
can't help but think that in a society that's very focused
on safety, that prioritizes safety, this is something that
really wouldn't work in the kind of society that we're in
today, for example.
JEFFREY TUCKER: Yeah, even in the world. It was an unusual
situation. America had a uniquely free system.
There were
other examples of free banking in this period of history,
but America had a pretty darn free system. It was imperfect,
but it was pretty good. No real guarantees, at least not
from the center. So it was a pretty good system.
And look, you have to grant that, whatever you can complain
about system, but it actually was a kind of handmaiden or
shepherd of the greatest period of growth in industrial
history. Really what happened to the American economic
structures between 1860 and, say, 1910 was a marvel for all
the world.
It was during this period where we got the commercialization
of steel. We created new cities with skyscrapers. We had
sound recording and photography and flight and electricity
lighting up homes and cities and communication telephones.
The most marvelous period of invention and expansion of
incomes, democratization of prosperity that we saw in
America made America famous all over the world. I mean, in
the second half of the 19th century, there was a growing
sense of, in the entire planet Earth that whatever America
was doing, they were doing it the right way.
JAN JEKIELEK: Democratization of prosperity. I love that
term.
The Gold Standard Era:
America's Economic Golden Age
JEFFREY TUCKER: Well, all the incomes are rising and across
all classes. It's not like the tales that you hear from the
Gilded Age, which the rich got richer and the poor got poor.
No, I mean, all the data shows that everybody was growing
wealthier systematically. Yes, some more than others, but
everybody was better off.
And the monetary system we had was free banking of Hearst.
And then we had a codified gold standard after the Civil
War, and that was a government imposition. The beautiful
thing about the gold standard is it restrained congressional
spending.
There was no ability to print. The existence of
physical gold restrained credit expansion. It put money in
the hands of the people. Gold and silver circulated among
the people.
So this was a hard money country, you know, gold coins
dangling in your pockets, you know, and banks, if they were
issuing notes, which they did, they would keep gold in their
vaults, you know, and it was a good system. It was a
brilliant system.
Remarkably, during this period between after the gold
standard and then all the way up to, say, 1910 or so, what
happened to prices?
Well, the value of the money gradually
grew. I mean, imagine that you save money and then after
five years, you go back to that money that's in your
mattress and you find that it's more valuable than it was
when you put it in.
JAN JEKIELEK: Right.
JEFFREY TUCKER: That's a remarkable thing. We call that
deflation now. But at least under the gold Standard. It
meant that the propensity to save was even apart from the
interest you earn, you would be rewarded for your prudence,
for your frugality, right? And so America became a country
of frugality and saving. Saving was always rewarded,
prosperity, invention, creation. I mean, it was glorious.
It's no wonder, you know, the 1890s, almost all of European
politics said,
"Well, you know, we've tried the
aristocracies, we've tried our monarchies, we've tried our
kings and queens and multinational big shots running
everything in our empires, but let's face it, we're all
going to eventually be Americans. Look at what they're doing
over there."
And so this experience really did inspire the entire planet
Earth. And America was never more confident than it was
under the gold standard in those years.
It was also in those
years that we developed all of our civic pride stories of
the founding Fathers, our national holidays, the music that
we associated, the marches and the flags and the signs and
symbols, American pride, and you could say even patriotism
was born during this period and for good reason.
And I guess my point is that this is all very interesting,
but that the monetary regime, being hard money, money
belonging to and controlled by the people and by independent
enterprises, was a major reason for that.
So now we have to
fast forward to the FED, because that's where things really
began to change.
The Birth of the
Federal Reserve: 1913
JAN JEKIELEK: And so, you know, this is now we're talking
about 1913. And so what? Just very briefly, why?
JEFFREY TUCKER: Well, a lot of it had to do with the panic
of 1907. But like in all politics, sometimes the crisis is
exaggerated for a reason. But there was something like a
frenzy after 1907.
"We can't stand this system anymore. Ups
and downs and bank failures and panics and, oh, we don't
know if the money is there. This is a problem.
We don't know
if the debt holders are even going to be paid. We need to
bring science to monetary policy."
So one of the things that was part of the ethos of the time,
you could look at the prosperity that unfolded over those 30
or 40 years and say,
"That's a miracle of entrepreneurship,
enterprise and freedom."
Or you could look at that and say,
"Wow, this is a consequence of good managers, excellent
engineers, excellent science, the primacy of rationality
over randomness,"
Right? There's two interpretations you
could give.
So as time went on, that second interpretation prevailed. So
there's a growing sort of valorization of expertise and
management.
And they said,
"Look, we should bring the spirit
that's given us all these great inventions in the private
sector to government itself. Let's put the experts to work
on banking and money."
And the experts did come together famously at Jekyll island
and put together this new institution.
It's a funny
institution with a funny name because it's actually not a
national bank. Yes, it is national bank, but it was more
than that. It became a kind of regulatory cartel, owner of
all banks in the country.
So you could not be a bank unless you were a member of the
Federal Reserve. Federal Reserve was going to be responsible
for clearing systems, how we got paid. When do you finally
get the thing that you're going for?
When the money arrives
at the institution that it's intended for, that's called
clearing. And that was going to be entirely charged by the
FED. That was entirely managed by the FED.
And so there wasn't going to be any. No more wildcat
banking, no more independent banking. Banks were not going
to be this free enterprise operations where they just pop up
and go away.
No, no, it's going to be controlled by the
FED.
So it was both a national bank and a private banking cartel
granted special rights by the federal government.
So it
exists in this strange place. And that was in 1913.
The Public-Private
Nature of the FED
JAN JEKIELEK: How is it private?
JEFFREY TUCKER: Well, it's entirely privately owned. I mean,
these are privately owned banks. They're privately owned
banks with a federal charter from the government.
JAN JEKIELEK: The banks being all the members.
JEFFREY TUCKER: Yeah, well, all the banks are privately
owned, sure. Yeah. And so it's a private cartel.
It's like
the banks, the biggest banks leaned on Congress to codify a
centralized system that would retain their private status
while forbidding competition from outsiders, from wildcat
banks and random people.
So the system itself is kind of is
privately owned, or you could say it's a quasi public
private. I don't know what to compare it to. I'm sure
there's a good comparison there.
JAN JEKIELEK: Well, clearly the Board of Governors is not
private, right?
JEFFREY TUCKER: That's right. So this is where we get into a
lot of ambiguity.
So this is where it gets really
interesting.
Is it public or is it private?
This is where
and if it is public, who controls it?
The voters?
Congress?
Supreme Court, The President, who?
What does it mean to be
an independent agency?
We know from the Supreme Court that
these don't really exist in other areas of the federal
bureaucracy. We know now that the President's in charge of
them. Well, what about the FED? But that was always
ambiguous in the law.
So what happened was this is the way it's normally
described.
Congress decided in its wisdom to take its powers
over monetary matters, Article 1, Section 8, and delegate
those to this new institution called the Federal Reserve.
The Clever Naming of the "Federal Reserve"
Now, you should just reflect for just two seconds. You know,
you and I are both interested in words. The word Federal
Reserve is by itself funny because it doesn't say central
bank.
Americans hated the idea of a central bank because
that was more like Germany and Bismarck or whatever. They
didn't want that. Central bank is not an American
institution.
So they called it something completely
different. It's actually kind of genius.
They called it first the word federal, federal, meaning
decentralized, you know, consistent with the 10th Amendment.
You know, we're these United States. We don't have a central
government. We. We have a federal system where we, you know.
And so to accomplish that federal piece, the new central
bank had branches, you know, had Minneapolis FED, an Atlanta
FED, a Dallas FED, Chicago FED, San Francisco FED.
So
there's many Federal Reserve banks around the country, and
for no apparent reason, really, except to create the
illusion of decentralization.
Okay, so there was that. And even now they're gigantic. And
they employ all these researchers and they say interesting
things, but there's no, really, there's no reason for all
these Feds around the country.
The second part, this word reserve is funny when you think
about it, because it implies that they have something that
they're in the possession of.
"We have the reserves. Just in
case we need them. We have the reserves. If there's a
crisis, we're going to be there to help you. You can have
confidence in the system because we have reserves," you
know, whatever. In those days, it was gold.
"Yeah, you don't
need to worry. Finally, we have a system that's stable and
functioning and scientific."
Now, the science part of this thing is also interesting
because it comes along at the same time that macroeconomic
theory was sort of developing.
And the idea was that the FED
eventually, not initially, but eventually the FED would
guarantee, would seek low inflation and high employment or
at least low unemployment and some sort of economic
stability.
So they had this sort of mission, a big, broad
mission, managerial mission over the whole country.
The Original Fed's Good
Intentions
The original FED, keep in mind.
So the founders of the FED
and the ethos of the time was they're tired of the chaos.
They're tired of the chaos of the markets. They're tired of
the bank failures.
"We're going to stop that, but we're also
going to guarantee low inflation."
I mean, this is widely
believed.
Now, there's plenty of people out there that think the FED
is just a big demonic conspiracy. Racketeers, maybe there's
an element of that or whatever.
But what I see in the
founding of the FED is a sincere, an authentic desire to
stabilize the system, bring intelligence, rationality,
managerial prowess and expertise to a sector of society that
had long been subject to waves of chaos. I think they had
every intention of doing good work.
The founders of the FED weren't all. They weren't bad guys.
Many of them wanted sound money. In fact, some of them
wanted to stop the credit expansion.
They didn't like the
way these wildcat banks, you know, you'd have a bank pop up,
Bob's Bank.
"Oh, the railroad's coming along. Here's your
money, here's your money."
It'll lend the money, they'll
collect the money and then the bank goes belly up and people
lose their deposits, you know, and then the bandits would be
on the run. They didn't like that.
They were kind of stodgy old timers in a way.
"Let's have
gold and a frugal, thrifty middle class and stop with all
this nonsense."
Right. So this is sort of the ethos of the
first Federal Reserve.
But the problem, the problem is that
in the end, despite its name, despite the intentions of the
founders, it was a central bank.
The Evolution of
"Federal" in American Language
JAN JEKIELEK: And if I may just, you know, talking about
words and words changing meaning, you know, even growing up,
you know, hearing about Federal Reserve or federal anything,
it didn't never occurred to me, you know, and of course I
grew up in Canada, I wasn't taught these things.
JEFFREY TUCKER: Right.
JAN JEKIELEK: That federal meant decentralized. I in fact
thought precisely the opposite. That federal meant
centralized, that it's a function of the federal government.
JEFFREY TUCKER: Yeah. Well, this traces to an ambiguity in
American history over the word.
JAN JEKIELEK: Well, and it's just, it's very interesting
because that maybe the shift in the understanding of that
word maybe reflects, you know, the shift of how at least
some aspects of our society think about how we should be
governed.
JEFFREY TUCKER: Yeah. You know, even in the founding period
before the Constitution, there was a lot of mix up about
these words because they were the Federalists, you know, and
a lot of people look to the Federalists and say,
"You're not
federalists, you don't believe in a federation of states.
You're centralists. You want a central government."
The people who objected to the Constitution came to be
called the anti Federalists. Now that's funny because of
course they were the real Federalists. I mean, if you
believe the anti Federalists, they believed themselves to be
the real federalists.
And what was called the Federalists
were really centralists. So this is where the ambiguity
comes from.
But I think generally we use the word federalism to mean a
decentralized system. And in American history that means
granting to states rights. And we still have many, many
states. States rights.
We still have a Federalist style
system.
JAN JEKIELEK: 100%.
JEFFREY TUCKER: Yeah, 100%.
And you know, Lord Acton said
that federalism was the only true great innovation of
American political life. The idea that you would have an
overseeing kind of structure that was severely restricted in
this power. But most of the powers belonged to. To the
historical political units called the states.
Lord Axon said
that was the great achievement of American history.
Modern Examples of
Federalism
JAN JEKIELEK: Well, the famous term is right, that they're
the laboratories of democracy. And indeed, you know, I'm
just thinking right now about Dr. Joe Latipo in Florida
declaring that he's going to get rid of all mandates in
Florida law.
JEFFREY TUCKER: And he can do that.
JAN JEKIELEK: And there'll be other states that, you know,
you could call them Supermandates that believe, you know,
this is kind of, kind of the opposite of that.
And in fact,
some have even declared that in response to this, something
in that vein. But there you go, there's that opportunity.
You can see how does this.
JEFFREY TUCKER: A great example, right? Yeah, it's a great
example.
JAN JEKIELEK: We're kind of, we're deviating here.
JEFFREY TUCKER: Let's go back to that. But it's important
and it connects to our topic because of the very name
Federal Reserve.
I mean, this thing never would have gotten
through under any circumstances under a different name. If
it had been called the Third National Bank. It would have
been dead in Congress in no time.
But because it was called
a Federal.
The Federal Reserve's
Progressive Origins
JEFFREY TUCKER: Central reserve or the central bank, like
the Bundesbank or the Bank of England, these were central
banks.
But in America we didn't have that. We had a Federal
Reserve. And they created all these branches around the
country just to underscore the point.
And in those days, progressivism, what came to be called
progressivism, was an ethos alive in the country. The belief
that we would take the tools of science and apply them to
public policy, to engineer progress.
This was the essence of
progressivism. And that revealed itself in a number of ways
which we now I think find regrettable.
Like eugenics policy was a progressive kind of policy.
Prohibition of alcohol was kind of this mandatory uplifting
the population, a consequence of progressivism.
But 1913 was
a remarkable year because you had another aspect of
progressivism was the income tax.
I mean, before 1913, just imagine every penny you earned,
you got to keep. It didn't belong to the federal government
at all. I mean they had no access to any of your income
before 1913. And so we had the constitutional amendment that
enabled the income tax.
We had really a shocking amendment to the Constitution that
eliminated the bicameral Congress and forced the Senate to
be elected by the people in the states instead of being
appointed by the state legislature.
It's fundamentally
changed the structure of the U.S. Senate and eliminated the
bicameral structure of the Founding Fathers and replaced it
with what was essentially an experiment.
Well, what I'm saying is that the Federal Reserve was the
same kind of experiment. It was a progressivist experiment
and the application of expertise and science to the sound
management of the monetary system of the country.
The Inevitable Abuse of
Central Banking Power
But what's interesting is that of course, anybody would have
predicted this.
I mean Thomas Jefferson certainly would
have, Thomas Paine, this whole generation would have
predicted if you get anything like a central bank, a
national bank, a central bank, it will be abused. It will be
abused, no matter the intentions, it'll be abused.
So what presented itself soon after the FED was founded? The
war in Europe, The Great War. It was a mess, a terrible mess
and Americans wanted nothing to do with it. But at some
point, what kept America out of war for the most part was,
well, we just didn't want to afford it, we didn't have the
money.
You know, solve your own problems. We're over here on
the other side of the world, we can mind our own business
over here and we don't have money.
Well now with the FED, you have the money. You've got a
printing press, you've got this weird power of this one
institution to buy and hold government created debt with
money that didn't previously exist. A check, you know, a
credit, the nation had a credit card with an infinite
balance on it, you know, infinitely high limit.
What could
go wrong?
And again, I think the founders of the FED didn't really
imagine this. They thought, "Well, we're all, look at it,
we're responsible guys, we know what's what. We would never
do something like that." Well, they lost control of it right
away.
And so the FED was probably the reason why the US entered
the Great War. That was probably the reason. And certainly,
and there's been a lot of empirical research about this, the
Great War would never have happened without central banks in
Europe funding it.
The entire Great War was the central bank
funded fiat money, debt financed project made possible by
central banks, among which The FED.
The FED didn't invest itself as heavily in war as, say, the Bundesbank or the Bank of England or something like that, or
the Russian Central Bank.
But still, I don't think the US
would have ever entered that war were it not for the Federal
Reserve.
Post-War Inflation
Crisis
And then the problems began. You know, people don't
understand this, but soon after the war ended, the US
experienced one of the worst inflations. Between 1918 and
1921, the dollar lost. Now, the data is a little unclear on
this. As best we can tell, the data lost as much as half its
value.
JAN JEKIELEK: The dollar lost half of its value.
JEFFREY TUCKER: Yeah, yeah. And this was not entirely
because the FED was going into the open market and buying
government debt and printing money because we were under
this gold standard.
But because the US had involved itself
so much in lending to foreign governments, they paid back
this in the form of gold. So we experienced a huge influx of
gold to the country which did two things. It reduced the
value of all existing stock of money.
JAN JEKIELEK: Right?
JEFFREY TUCKER: That's the way inflation works. So a huge
importation of gold from abroad led, just like it did in the
Spanish Empire.
An importation of gold leads to inflation.
So we experienced this big inflation in part because of the
war and then a big business boom that resulted in a huge
business cycle bust in 1921.
Now, fortunately, in those days, we weren't yet disciples of
John Maynard Keynes and we weren't using the power of the
federal government to try to reverse the economic downturn.
There was a complete laissez faire, hands off policy, who
cares? And the thing corrected itself. In 18 months, we were
back again.
That was the very first crisis of the Federal Reserve
happened very, very quickly afterwards, inevitably.
Now, at
that point, they should have said,
"You know what, let's
unplug this stupid money machine.
For all the problems, the
wildcat banks is better than this, better than total war,
conscription, mass death, and the upheaval over Europe that
these central banks caused."
But they didn't do that. The FED went back to trying to run
a sound business policy. But five years later, they couldn't
fix the problem.
And the credit expansion extended. It
continued.
Presidential Pressure
on Interest Rates
And then the FED faced another problem. Every president
wants lower interest rates, right? We have four years, we
get a new president in.
He inhabits this sort of world. He
gets annoyed. He wants to see rising prosperity. He wants to
see economic growth so he can get credit for that. And a
major inhibitor of that always is the limitations of the
financial system.
And if the Federal Reserve has the power to determine the
lending rates between itself and its member banks, which it
does, it can set any rate it wants.
Then the FED bears
responsibility for the interest rates all the way up and
down the yield curve throughout the entire country and can
drive growth or it can drive pullback on growth and hence.
JAN JEKIELEK: The President taking big issue with the credit
right now.
JEFFREY TUCKER: And again, you know, I don't, I'm not here
to agree with Trump's evaluation of this, although, you
know, in his defense, you know, he's a businessman and he's
worked in debt and banks all of his life, you know, raising
huge empires all over the place of business and dealt with
banks.
And he always wants the best rate.
As a businessman, he's not going to accept the rate that's
given to the hoi polloi. He wants the best rate for the
money that he's getting. He believes in debt, he believes in
leverage.
As a businessman, he came of age in the day age of
leverage. So he believes in leverage and he believes in low
rates. So he's using that model and applying it to the
entire country.
So I get it. I think it's reckless, but I get it. So this
may not be the ideal conditions under which to challenge the
Fed's so called independence, but I am nonetheless a lot
about it. I think this is a reckoning we have to have.
Who's
in charge of this thing that we call the Federal Reserve?
The Fed's Role in
America's Debt Crisis
JAN JEKIELEK: Well, and so in terms of, you know, there's a
great number of institutions in this country that are
involved in finance, right? Private, private, public,
public.
And we do have this astonishingly large debt in
America right now that's kind of been accelerating right
through the interest payments and so forth. How much of a
responsibility does the FED have for this reality in your
mind, in the grand scheme?
JEFFREY TUCKER: Yeah. So big question. I do recall that when
I was a sophomore in college as an economics major, when I
discovered the power of the central bank in terms of its
capacity to drive prosperity, drive inflation, send whole
societies into upheaval, French Revolution, Bolshevik
Revolution.
I mean, you go through it, you look at the
Weimar inflation of Germany, you know, arguably, without
which we would never have seen a Hitler.
You realize that the monetary piece of public policy is
huge. It's gigantic. It's something that once you start
looking into it, you become obsessed with it. And I did, I
did. I wrote my undergraduate thesis on the Federal Reserve,
in fact, and on the gold standard.
And it was the longest
thesis in the history of the academy where I attended,
because I just got obsessed with it because I think it is
really important.
Lots of people argue for a constitutional amendment to
balance the budget. A lot of people want their Congress to
cut spending and so on and so on. But until you unplug the
Fed's capacity to just print money and cover up for all the
profligacy of Congress, we're never going to get there.
We
need sound money or we're never going to get anything
remotely like a balanced budget. It's the FED that makes it
all possible.
It is the FED provides a moral hazard that results in ever
bigger government, ever more debt forever. And, you know,
I'm cautious about people who always want to paint the
chairman of the Federal Reserve as some sort of demonic
devil guy. I don't think that's really true.
A lot of these
guys have every aspiration to run a good policy.
Jerome Powell's Dilemma
I mean, I think Jerome Powell. Let me phrase this. I think
Jerome Powell knows what's right, and I think he wanted to
run a sound policy.
He inherited Ben Bernanke's policy of
zero interest rates, which is a grotesquely irresponsible
policy. It never should have been imposed after 2008, and it
bloomed up. The assets the Federal Reserve had owned, they
wanted to normalize the balance sheet.
And Jerome Powell had every intention of doing that. And
that's what he did do. He started cranking up interest rates
a little bit of time, wanted to normalize Federal Reserve
policy, make it more responsible, clean up the Fed's balance
sheet, get all these bad mortgages off the books and set us
back on a good policy.
He is a sensible, reasonable human
being.
But they came to him in early 2020 and said,
"Mr. Powell,
you may be a good manager of the monetary system, you may be
a good and respected head of the banking system.
You also
have responsibilities to larger issues like the priorities
of the federal government, too. And we've got a virus on the
way and we're going to have to deal with this in a big way.
This campaign you have to raising interest rates has got
to stop right now. Starting now."
I don't have a transcript. I don't know for a fact this
happened.
But you can look at it in the data they got to
them. Said you have to serve the cause. Right now you are
federally chartered. You have a responsibility to the
government here. We want these interest rates to fit and
match what's about to happen.
So sure enough, I think it was about March 12, maybe March
10, he slammed the rates back down to flat zero and
accommodated trillions and trillions of dollars of
congressional spending for the coronavirus and created more
money in those 18 months to two years than we'd ever seen
really in American history, certainly since World War II. I
mean, it was an unbelievable thing.
This is not what Powell wanted, but it's what he had to do
because he was being pushed from every end, we don't know
who, and because the structure existed, to actually do it,
because it was possible.
You know, you can send your college
kid off with a credit card with an unlimited balance on it
and tell him to be frugal and be careful about his spending,
but he's probably not going to be.
That's essentially what we're dealing with with the Federal
Reserve. We've got the whole federal government on this FED
credit card and they just can't stop.
They can't stop it.
JAN JEKIELEK: And it also just strikes me that the way. And
just please comment on this. But the way it's structured
strikes me that the locus of responsibility seems to be
diffuse or unclear.
Yeah, right.
The Federal Reserve's
Unaccountable Power
JEFFREY TUCKER: So this is right, and this is what I think
we're going to have to get settled.
And this is why I admire
what Trump's done so much. I think what Trump's done here
with this Lisa Cook thing is just brilliant. I mean, he
found a way in to test the powers of the people's elected
leader over this central bank that has lived for more than
110 years in this kind of obscure, floating realm of
independence.
And, you know, we don't really have access to their books.
We don't really know what goes on with the FED yet. They
have to present reports to Congress. The government can
audit them like they audit the Pentagon or anybody else, but
they've never been exposed to an outside audit like any big
company would be.
They've never been outside audit. Even the
Rand Paul's interest legislation, his father before him,
going back decades to audit this thing, it still has not
been audited.
So there's weird stuff going. It's an unaccountable
institution. It's really a beast. It's responsible for the financialization of the US Economy, the explosion of the
capital goods sector at the expense of the consumer goods
sector.
It's arguably been the reason for the blow up of the
managerial state and for the puffiness and frothiness of the
corporate world, the centralization of business, the
persistence and rise of the media. It's a lot of things.
The "Frothiness" of
Corporate America
JAN JEKIELEK: What's the frothiness of the business world?
JEFFREY TUCKER: Oh, just ever since ZIRP since 2008. We have
a whole sector of society of people inhabiting high level
corporate positions, getting paid very high salaries because
of their resumes and don't actually do anything.
JAN JEKIELEK: That's the frothiness.
JEFFREY TUCKER: This is well documented and it's a shock
really. And I think the FED bears most responsibility for
that.
That was zero interest rate policy. When money is
free, you'd be crazy not to carry debt. You're crazy. If you
make any money at all, you're going to be making more than
it costs you to borrow money.
JAN JEKIELEK: Right, but that only works for people who have
the ability to access that money.
JEFFREY TUCKER: That's right. So it's big business. Big
business. That's the reason why big box stores are taking
over everything.
We've got a weird situation in this
country. We no longer have small businesses that are happy
to do small businesses. Most businesses are started these
days to be acquired by another business. And those
businesses are acquired in hopes of being acquired again.
It's a crazy thing.
This is especially true in the world of finance. You would
never start a fund with the expectation to hand this off to
a fund off to your kids or their kids. No.
Your goal is to
impress buyers who buy you and their goal is to impress even
the higher buyers. Everybody wants to be Goldman Sachs. It's
terrible.
JAN JEKIELEK: Well, and just on that note, you know, I know
a number of scenarios where people who understand exactly
how this works have built small businesses so that those
numbers look just right for the people that are going to be
doing the acquisitions.
It's astonishing. Right? But the
actual sort of the inherent value is not very interesting,
if that makes sense. It creates this weird…
Constitutional
Questions About FED Independence
JEFFREY TUCKER: It's very strange. And a lot of it is
because of the leverage and the debt for finance and the financialization
that's taken place.
There's so much fakery in the world
because of the central bank, you know, which creates a
real... So we're at a very interesting time because
we are maybe on the verge of solving this problem.
What is central bank to whom is it accountable?
Is it an
executive agency like the Org charter, the federal
government says?
Or is it somehow, I don't know,
independent? I don't know.
By the way, can Congress really
give up its powers?
It was given control in Article 1,
Section 8 over the money and the coinage.
That's what the
Constitution said. This is your job, Congress. Can they
really just write a legislation and go, "Yeah, we don't like
this so much" and toss it over to the executive department?
Can they really do that?
Can you just delegate whatever you
want?
I mean, how do we know that the Federal Reserve act was even
constitutional?
Do we know that? Has it ever been tested?
It's never been tested. I'm not sure they can really do
that.
And if they're going to do that, then they have to
expect that the head of the executive departments, you know,
the head of the executive branch, will expect to have some
sort of managerial control over the central bank.
Because Article 2, Section 1, says the US President is the
head of the executive branch. The Federal Reserve lives
under the executive branch. It's not complicated. The
Constitution says this power belongs to Congress. Congress
punted, gave it to the President.
Well, now the President's
going to be in charge. I think it's the way it's going to
be.
Is the Supreme Court really going to say,
"Yeah, I know
there are three branches of government and all that kind of
stuff, but the central bank, we're just going to let that
float around?"
You know, that's not... You can't say that.
There's nothing in law that would seem to make it possible
for the Federal Reserve to forever claim to be some
independent floating, all powerful hegemon.
The Challenge of Reform
JAN JEKIELEK: And if I may comment, you know, I'm just kind
of thinking through here, everything that you're saying, and
it's not entirely clear to me, you know, and I'm always
thinking of, you know, what Alan Dershowitz calls the "shoe
is on the other foot test."
Just think, what are the
ramifications of a decision in the future with different
people, with different ideologies, different approaches
dealing with it. It's not clear to me which of these
solutions actually is the one that makes most sense.
JEFFREY TUCKER: Yeah, yeah.
JAN JEKIELEK: This one, including even the, I mean, I
suppose the independent floating one is when you don't, you
really don't want.
Because you end up with this situation
where you have, for example, in the UK, these independent
NGOs kind of making decisions for the executive.
JEFFREY TUCKER: In effect, that's what the founders feared
the most. They feared an unaccountable central bank. That's
why it never really gained traction.
JAN JEKIELEK: That's an unlikely route.
JEFFREY TUCKER: Let's leave that one out.
JAN JEKIELEK: Does it look like Congress taking control of
monetary policy? What does that actually... What would that
even look like? And does it…
Mapping Possible Solutions
JEFFREY TUCKER: Yeah, I don't really have an answer to that.
You know, part of the problem is, and I wrote an article for
the Epoch Times a couple days ago, thank you, by the way,
for publishing that. I, at the outset of the article, warned
everybody.
It's the most boring article you will ever read.
But I did a taxonomy of monetary regimes, 10 possible policy
priorities and systems that you could have in this country
as systems, and also possible routes of reform, paths to
reform.
So I can map out to you right now what I think is the ideal
system. And I think we had that in this country. It was free
banking combined with a congressionally established and
presidentially enforced gold standard.
I think that was
beautiful. It's not so simple to say, let's go back to that.
I don't know how you would do that. I don't know how you get
from here to there.
But look, we have what we have right now. We're going to get
something different soon, right?
Probably as a result of a
court decision over this very, very provocative, but I think
quite brilliant move by Trump to go after a Federal Reserve
Board governor, fire her for cause, and then just see what
happens. I don't know. I don't know how it's going to end
up.
I can see dangers in all directions.
The Need for Accountability
I will tell you this. I think it's time for some
accountability and it's time for some clarity about what
this thing we call the Federal Reserve is, to whom it's
accountable, and whether and to what extent the voters have
any place or role in oversight and controlling it.
If we
don't, you know, we're going to continue to lose our
economic freedom, our independence, our aspirations for an
enterprise and economy with frugal people who can save money
and be rewarded for doing so. There has to be a change.
We live in times of great nostalgia, where people want to
recapture what we've lost as a nation. Freedom,
independence, frugality, prosperity, families that can live
off one income and so on.
None of this is going to be
possible unless we can figure out a way to restrain the
Federal Reserve.
I think in a circuitous and sometimes fumbling way,
President Trump gets that intuitively. He understands that
this institution must be held to account. It must be
accountable to the people and to the people's
representatives.
And I think that's a good decision. I think
it's a good step to see how it turns out.
JAN JEKIELEK: Well, Jeffrey Tucker, it's such a pleasure to
have had you on.
JEFFREY TUCKER: My pleasure. Thank you, Jan.
