© 2018 by Robert Person.  The views expressed on this website are my own and do not represent the official policy of the U.S. Army, Department of Defense, or U.S. Government.

Apr 16

Criticism Mounts of Trump Pick for U.S. Federal Reserve



A political confrontation between President Trump and the Senate continues to simmer over the President's nominations for two vacant seats on the Federal Reserve Board. President Trump nominated Stephen Moorea and Herman Cain; the former, a conservative economic commentator, the latter, a former CEO who ran for the Republican presidential nomination in 2012. Senators and political commentators alike have criticized President Trump's picks as openly partisan, especially for a position that historically has been nonpartisan. While it is unlikely that Cain will be appointed by the Senate, there is still a chance for Moore's nomination to pass through. In 2015, Moore has called for both the U.S. Dollar to return to the gold standard; recently, he has rescinded that opinion and instead publicly claims he wants to lower interest rates to weaken the value of the dollar.


Should the Senate appoint Mr. Moore (and his policy proposals were enacted), there would likely be two effects, one short-term and one long-term. In the short term, it is possible that Mr. Trump and/or the Republican Party will be able to score a victory for their political base of lower-middle class workers in the Heartland of America. With a weak dollar (and a floating exchange rate), import-competing industries (like steel, chemicals, and manufacturing) will benefit greatly, as foreign goods will be more expensive, allowing the domestic industries to sell more comparatively and increase its revenues. As most of President Trump's base is tied to domestic industries, by weakening the dollar President Trump is able to invigorate his political base just before the 2020 election cycle. However, the long-term effects are less positive. By breaking the precedent of an apolitical Fed, President Trump may open the door for future administrations to nominate more political appointees. In doing so, it would likely be difficult for the Fed to maintain a consistent monetary policy, as each political appointee would try and use their influence to strengthen or weaken the dollar as their political party sees fit, often for electoral purposes. The constant political adjustments to the dollar and the bond rate would likely decrease investor confidence in the United States, as it increases volatility in a currency that is the world's reserve currency because of its notable stability.



New Posts
  • In his article for Foreign Affairs David Cohen talks about the Trump administration's policy towards sanctions. He talks about how the conditional sanctions the Trump administrations has placed on Iran and now Venezuela will be ineffective because the changes the administration is trying to coerce will essentially mean regime change for the two nations. Cohen goes on to state that these will be ultimately ineffective because the relative cost of the sanctions is lower than the cost of losing power. This means that the leaders of Iran and Venezuela are more willing to bear the pain of the sanctions than lose the regime. This goes along with the lesson we had on sanctions in a couple of ways. First we learned that sanctions are used either as a method of deterrence or coercion. This means that the sanctions inflict financial and economic pain to make the target of the sanctions take or not take an action. These sanctions are meant to cause political changes that will in essence mean a change of regime which is why they will fail. They are effective in causing pain; however, there is not enough sanctions in the world to make it worth losing power. Article link: https://www.foreignaffairs.com/articles/united-states/2019-04-29/sanctions-cant-spark-regime-change
  • https://www.nytimes.com/2019/05/09/us/politics/china-trade-tariffs.html Just before a scheduled round of trade negotiations began on Friday, President Trump announced that he was still going to levy additional tariffs on Chinese imports valued at approximately $250 billion. President Trump claimed that these tariffs would bring billions of dollars back to US manufacturers, but the main focus seems to be inflicting pain on China, as opposed to bringing prosperity to the US. China and the US have not been able to reach an agreement that would minimize or end outright the "trade war" between the two, which stems from the Trump Administration's belief that China is not doing all it can to protect American investments and intellectual property in China, as well as the belief that a large trade deficit with China is inherently bad. The Trump Administration's use of tariffs as a negotiating tool is inelegant, but effective. Unilateral tariffs immediately affect the Chinese export industry, whose products become less competitive in US markets. While this inflicts pain on Chinese exports, whose largest market is the US, it also affects US consumers, who have to pay higher costs for consumer goods. Additionally, because China retaliates with target tariffs (on politically-relevant goods like Kentucky Bourbon and soybeans from the Heartland), US exporters are equally hurt by the trade war. The only immediate winner is the US, who collects revenue from the applied tariffs; however, long-term, US domestic industry should improve, as they will become more competitive when Chinese imports are more expensive. Slowly, we are starting to see this happen: Dan DiMicco, the chairman of a lobby group "Coalition for a Prosperous America," explained that American manufacturing is already experiencing gains in their domestic market shares.
  • https://www.washingtontimes.com/news/2019/may/8/feds-release-168k-illegal-immigrant-family-members/ In Stephen Dinan's article in the Washington Times, he explains the unforeseen immigration due to illegal border crossings. ICE border patrol has released 168,000 illegal immigrant family members this fiscal year, and the number is expected to increase as the border situation increases in volatility (Dinan). Dinan reports that 87% of families in this new pilot program skip their court hearings, and with an ill-equipted government to track them down judges deport them in absentia (Dinan). Dinan argues that this increase in illegal immigration in family units is caused by a 2015 court ruling that stated parents who travel with children must be released in 20 days. Since this is too little time try them in court, the families are set free (Dinan). This article is very relevant to this block in IPE as it highlights a crucial phase that the world is going through. As policies towards free and open borders begin to gain more and more traction, we can expect the number of border crossings into the country to continue. As we talked in class, this may actually be a good thing for the economy, as low skill labor is substituted due to a higher rate of college attenuation and graduation. Dinan says that most migrants interviewed are not criminals, they are just seeking jobs, and know that if they bring children they will find asylum in the US (Dinan). One of the unintended consequences is that some of these migrants are being used to smuggle drugs and weapons into the country, and in some extreme cases, children are being sold to impersonate children of felons migrants of south american countries to gain access with ease. As globalization brings countries closer together and as the trend for free an open borders continues incentivizing cheap labor, it will be interesting to see the effects of these policies 10-15 years in time.