The horizon is not so far as we can see, but as far as we can imagine

Federal Reserve Seal

Trump’s Coming Confrontation with Yellen and the Federal Reserve

Okay, so the Federal Reserve, coincidentally, now that Trump has been elected, has decided that the economy is at full employment and they’ve raised rates.

The funny thing is, it’s true. Sort of. The unemployment rate (u-1) is low enough to be considered “full employment.” What that means is that the labor market is tight enough that, for the first time in Obama’s reign, workers actually got raises in 2015.

According to the economic policy regime which has run the Federal Reserve, and the US, since Greenspan, that can’t be allowed. The moment employment starts causing “wage push inflation” (wage increases faster than the general rate of inflation) it must be stopped.

Of course, out of Obama’s era, there has been only one good year so far (though 2016 will probably come in as decent), and the only reason the unemployment rate has improved is because millions of Americans gave up on finding a job. As a percentage of the population, there are about as many jobs as there were at the bottom of the last recession.

There was quite a bit of growth, but it didn’t make it into wages. The only way it will do so is if the labor market stays tight for years, because there are years (decades, really) to make up for almost all the gains going to the top few percent.

So, Yellen probably “should” have raised rates six months or so ago. She didn’t, probably because she’s Obama’s appointee–the same way that Bernanke didn’t when he “should” have because he was Bush’s appointee, and wanted a Republican to replace Bush.

Under Barack Obama, the deficit (how much the US pays on its debt) dropped, but the debt increased by $7.917 trillion (not including the first year, which he didn’t control). The deficit dropped because the Federal Reserve kept interests rates extremely low for years and years and bought up a pile of debt as well.

But the debt is higher than it has been, in relative terms, since the WWII debt splurge. And if Yellen raises rates, debt service charges will start to increase (not immediately, much of it is in longer term instruments).

More to the point, higher interest rates are meant to make sure that wages increases stop, the unemployment rate increases, and that (in effect) the economy never actually recovers from the financial crisis.

So Trump has a problem. He needs cheap money if he’s to have a good economy, and Yellen is ending the cheap money era–just as he’s been elected.

It’s not completely a coincidence, but it’s not entirely not a coincidence, and if I were Trump or his team, I’d be livid, and it looks like they are.

Worse, Trump has a big stimulus plan. It’s a bad plan, but it’ll still create some jobs, and Yellen has said:

“I would say at this point that fiscal policy is not obviously needed to provide stimulus to help us get back to full employment,” Yellen said.

That’s Fed speak for “spend the money if you want, but we’ll neutralize every dollar you spend.” Which, by the way, has been orthodox Fed policy since Greenspan and arguably Volcker–almost 40 years.

So, Trump (and Bannon) if they want a good economy and their stimulus to work, have a problem: Yellen and the Federal Reserve Board. And Yellen has stated she won’t step down till her term ends, in 2024.

They can do two things. The first is to wait, not for Yellen, but for the terms of other Federal Reserve members, to expire. Two slots of the six (seven with Yellen) are currently empty, he can fill those. That gives him two. One, Powell, is a Republican and may be amenable; and Fischer’s term expires June 2018. So by late 2018, Trump might have a Fed willing to cooperate with him–or at least not sandbag him.

BUT that’s quite a while, and assumes that Powell is amenable. It gives Trump only two years to make the economy work how he needs it to work, and means his first two years will be sandbagged by the Fed. Trump’s followers are not going to care what the reason is, they expect results.

The other option is hardball. Governors can be removed for cause. Trump can say they have performed badly (it’s not a hard case, and people who voted Trump and many others will agree) and remove them. This can then go to the Supreme Court, which, if Trump is smart, will then be firmly in Republican hands.

I will be frank: I would absolutely do this. I would have done it as Obama to Bernanke (if Obama had actually wanted a good economy, or to have banks go under) and I would do it as Trump. For four decades, the Federal Reserve has sandbagged wages and made sure the rich got richer. This is not even in question, and the financial crisis was only the largest proof of it, not nearly the only one.

I think this is coming. The Federal Reserve bows (and Yellen has been very clear she won’t) or the resisting Governors get booted.

There will be screams from Democrats and “liberals” and I will ignore most of them. As with ending the Trans-Pacific Partnership, this is the right thing to do, and it’s something that should have been done decades ago. Appointed technocrats sandbagging Congress’s fiscal policy and deliberately crushing wages was always evil.

Get out your popcorn, folks.

Oh, and these sort of stakes are why there is such a huge effort, abetted by the CIA (and opposed by the FBI) to make sure that Trump doesn’t take office.

Like it or hate it, he’s going to have to destroy much of how DC has done business for the last 40 years, and many people in power really, really don’t want this.

Don’t defend the Federal Reserve if you claim to care about workers, the middle class, or anyone under the top 10 percent or so. They have acted unutterably evil for decades, and if it takes another evil person to destroy their power, I’m fine with it. Frankly, the Federal Reserve should be placed under direct control of Congress with four year terms at most, and every central bank in the world should lose its “independence.” They have misused that independence to do little more than make the rich richer for decades and they are profoundly anti-democratic.

It’s a pity so much that has to be done will likely be done by someone like Trump, and that he’ll do much of it the wrong way to support terrible policies like tax cuts, but that’s what happens when the Left allows the Right to be the populist party, and chooses to be the party of bailouts and technocrats.

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If People Want To Use “Ze” As A Gender Neutral Pronoun, Whatever


The Lies at the Heart of Our Dying Order


  1. brian

    the age of martyrs is here.

  2. Synoia

    Trump has a precident to remove Yellen.

    The decision on the CFPB where the Supremes decided that the head of the agency had to sever “at the pleasure of the president,” as do all heads of the executive branch.

    Or the R congress can change the law.

    Should “acted unutterably evil” be “acted unutterably evilly” or “been unutterably evil?”

  3. Max

    The Federal Reserve is not “just printing” money. The Federal Reserve is handing out money in exchange for assets — bonds, Treasuries, mortgages, etc. — in an effort to prevent deflation. They have very sensitive measures of the money supply, and if their measures show inflation starting up, they can then start *selling* those assets, thereby un-printing the money. But given that tens of trillions of dollars have evaporated from the economy over the past six yearsdue to the collapse of the mortgage industry, lockup of credit markets, collapse of housing prices, etc., the Federal Reserve’s efforts are quite appropriate.

  4. Ian Welsh

    Very good Max. You have learned well.

  5. Peter

    Excellent post, Ian. Trump is facing a wall of opposition and more sabotage now with promises of further Fed sabotage that will punish everyone who uses credit cards to undermine his infrastructure jobs plans.

    I also reflexively reject the notion of reducing corporate taxes but Trump has made a case that might be convincing if it is part of a tax agenda. He has stated that US businesses including his own use the tax code to reduce their tax burden well below the 39% nominal rate and some huge corps pay no taxes at times. If the rate is reduced to 15% and corporations are required to pay that amount there might be some positive returns from this change.

    The other target of this change is the $trillions of corporate profits sitting offshore that might be returned and taxed generating more tax revenue immediately and in the future.

  6. If you are unemployed, you remain so.

    Will the next group of proles please report to their afternoon flogging….

    (Julia – Vienna 1912 )

  7. Effem

    Here is the challenge – in our current system you have to raise corporate profits by 2x to achieve x gain in wages. You can only tighten this labor market via greater inequality…at least given how we currently do things. Obviously “new” policies could alter this (improve labor bargaining power, limit immigration etc).

  8. Ian Welsh

    It’s fairly easy to set up policies where raising corporate tax rates increases wages. Different post, but it can be done. People didn’t elect that guy, though.

  9. Effem

    Agree. However i’m not sure higher wages will alleviate frustration much if it comes with greater inequality. Be careful what you wish for.

  10. Max

    >Very good Max. You have learned well.

    More deflation is a good thing to you? The whole problem is that the fed can’t simulate the economy, however getting them to stop what little they’re doing would cause huge depression, allowing the rich to buy up more assets and en-serfive the population.

    I didn’t say the current situation is perfect. The Fed has made it far too attractive for lenders to deposit and hold their money, since they’re betting that the future price of money will be higher, which with depression/inflation it will.

  11. Max

    Deflation, not inflation. We don’t want a fire-sale of American assets.

  12. Billikin

    The Republican Congress does not want to stimulate the economy or build infrastructure. So if Trump clashes with the Fed, those who have railed against the Fed may join the chorus, but Congress is unlikely to take any meaninful action in Trump’s favor. They can use the Fed as an excuse for inaction.

  13. Some Guy

    Right as (almost) always Ian. Will Trump actually confront the Fed? I guess we will see.

    It will be interesting because typically if someone tries this sort of thing (deposing the independent central bank to create wage gains) in a country which is not the U.S., the U.S. leads the international effort to bring them down, but if it is the U.S. itself doing it, then … yes, the stakes are high on this one.

  14. Hugh

    Yellen et al were going to raise the baseline interest rate regardless of economic conditions. They have talked about it so long they felt they needed to do it just to show they could.

    But let’s look at some of the economic data. I’ve been studying the jobs reports for years. The unemployment rate was always a dubious number. First, unemployment is defined on an active job seeker model, as in without job but have looked for one in the four weeks before the survey usually conducted in the week containing the 12th of the month. If you do not meet this criterion but have no job, then you are not considered unemployed: you “chose” to leave the labor force. Second, it has gotten very difficult to measure those without a job but who want one (a definition more in keeping with what most of think “unemployed” means). You have many boomers in their 60s. How many are voluntarily retiring as opposed to being pushed out of the labor force? Third, the household survey is used to determine the unemployment rate. It is a lot smaller than the business survey with a much larger margin of error. Fourth, all the “official” numbers are seasonally adjusted. That is they are trendline numbers, i.e. not real. They are based in part on the expectation of future economic activity. They are used by economists, politicians, and the MSM to predict future activity when they are often themselves predictions of future economic activity. This is circular.

    I used to say, add 4% to the official unemployment rate to get a truer idea of the real unemployment rate, but mostly I have given up on it. Nowadays, I tend to look principally at seasonally unadjusted data, the larger business survey of jobs, and within that, private sector jobs. I also concentrate on data for production and nonsupervisory workers, i.e. the lower 80%, actually 82.36% of workers. There are caveats here too as with the seasonally unadjusted reliance on the birth-death model, but at least it reflects current economic activity.

    In October, there was an unexplained spike in wages. Let’s just say the timing was interesting coming just before the election. Anyway that blip disappeared in November. Seasonally unadjusted in November, production and nonsupervisory workers saw their average year over year hourly wages increase by 1.92%. Their weekly wages year over year however only increased by 0.43%, that is less than inflation. They lost ground.

    As I have said numerous times, 2016 will create fewer jobs than 2015 which created fewer jobs than 2014. The December data which will be released in early January will not change this. December is a nothing burger as far as job creation is concerned. On economic grounds, there was zero justification for a rate hike, but the Fed and Yellen do not serve the interests of the country but those of the rich.

    Finally, the stock market has been soaring. This happened in part because Wall Streeters realized that Trump was one of their own, but mostly because tens of billions in end of the year bonuses are coming up and they too need to be “justified”.

    I doubt that Trump will be able to enact much at all of his populist agenda. It’s not just the Fed, but Republicans (and probably Democrats) who will sabotage him, this before we even get to some of his proposals not making sense. If you can make zillions in the stock market and keep your wealth liquid, why would you tie it up for years in relatively low paying public-private partnerships that would tie it up for years? But that’s another story.

  15. Hugh

    Re inflation, the Fed can print a lot of money without causing classic inflation because that money is going into a bubble in the virtual economy of Wall Street and other bubbles around the world. These bubbles actually have a negative effect on the real economy, and when they burst, even more so. Yellen makes vague statements about pushing inflation up to 2%, but always some time in the indefinite future.

    Re offshore corporate profits, those trillions are in US banks. It’s the shells that are offshore.

  16. Ian Welsh

    No, Max, what they’re doing and what they did is prop up the rich, not the poor.

  17. Jib Halyard

    Be careful what you wish for, Mr Welsh. We are talking about clowns who would happily abolish the Fed entirely and replace it with a gold standard. Which would be a million times worse.

  18. hidflect

    I hope your right, Ian. The Fed is a monster. I was a Bernie Bro and it was a shorter distance to travel to support Trump than it was Hillary. If T smashes the Fed’s autocratic power I’ll be happy.

    BTW – tried to donate but gave up after 5 tries. It kept hanging up on the phone number entry. No matter how I entered the digits.

  19. Peter


    I suppose it doesn’t matter where the digital money that represents those offshore profits resides. Wherever it exists it can’t be distributed to shareholders/employees without being taxed.

    I don’t know if I can agree with your money printing vs. classic inflation theory although it may be slow to percolate through the economy. Many of the things I purchase such as high end tools and auto restoration products have steadily and significantly increased in cost over the last eight years, some doubling in price. Sirloin steak at my meat market costs almost three dollars more a pound than it did a few years ago. Even import clothing prices have risen noticeably in the last few years.

  20. Tom

    Gold standard would actually be a massive improvement and prevent the shenanigans that destroyed the economy in 08. Its no surprise America’s greatest years of Middle Class Prosperity were in the age of the Gold/Silver Standard as the Fed couldn’t arbitrarily change the market value of gold and silver which prevented overheating of the economy and bubbles.

  21. Max

    why did the Federal Reserves actions from 2008 to now, which involved printing trillions of dollars, not cause this virtuous cycle that Milton Friedman predicted? Why, when you look at the Fed’s flow of funds data, did all that money end up taking one turn through the financial system then go right back onto the Fed’s ledgers as deposits, doing little to create financial activity?

    There’s two answers to that. The first is that banks, and debt-free consumers, viewed the future value of the money to be greater than its current value. The banks expect that interest rates will at some point go up, which means they can make more profit lending later rather than lending now. Debt-free consumers are fearing for their jobs, meaning that they view the future value of their money (once they lose their job) as being more than the present value that they could obtain by spending the money now. So consumers are depositing into banks rather than spending, and banks are depositing with the Federal Reserve rather than lending. After all, if the future value of an item is going to be greater than its current value, you’re going to hold on to that, like some guy who bought a 1979 Beetle Cabriolet

    The second is that too many consumers were overextended. Any additional money they received due to monetary stimulus went to pay down their debts and get their balance sheet back in order, not to consume.

    So, the next question is this: Does this business cycle — banks refusing to lend during a recession, consumers refusing to spend during a recession — have anything to do with the Federal Reserve?

    Again, the answer to that question is “No!”. The various “panics” of the 19th century occurred well before the Federal Reserve was conceived and showed the same pattern, except even worse because banks weren’t backstopped by the Federal Reserve.

  22. Max

    he biggest problem with gold-backed money is that it does not address the root cause of the inflationary/deflationary pressures inherent in the business cycle: fractional reserve lending. During the era of gold-backed money in the United States, we saw repeated inflation-deflation cycles that served to strip wealth from average Americans and transfer it to a group of oligarchs as debts taken out in cheaper inflated dollars could not be repaid in more expensive deflated dollars and thus the oligarchs took ownership of the real assets which secured the debts. The inflation-deflation cycles are inherent in the business cycle as banks expand lending during up times (thereby reducing their fractional reserves and thus inflating the money supply via the fractional reserve multiplier effect) and step back on lending in order to build up their reserves to cover losses during down times (therefore increasing their fractional reserves and thus deflating the money supply via the fractional reserve money multiplier). In short, a gold-based money supply in any economy that has fractional reserve lending is a recipe for transferring the wealth of the masses to a few oligarchs. Only a fiat money supply where money is printed during down cycles to prevent deflation, and where money is taken out of the money supply during up cycles, can prevent this inflation-deflation boomerang cycle if you wish to preserve fractional reserve lending as a part of your economy.

  23. someofparts

    You know, adding insult to injury, those touted low unemployment figures are cooked right up in the usual liar’s kitchens.

    I don’t have time to find the link where someone broke it down and explained how the head-fake was executed, but it was. If I have time today I’ll try to find it.

    So yeah, Russian election hacking, low unemployment – lies, lies more lies and, hey … would you like a side of lies with your burger?

    Fuck the bastids, as my boy Charlie Pierce would say.

    Thanks as usual, Ian, for an eye-opening breakdown of something vitally important that the rest of the media voices are too busy swapping trifling lies with each other to notice.

  24. sinister

    Good post, but aren’t you overlooking an obvious problem? The billionaires in Trump’s Cabinet and most of Congress don’t want wages to rise. They think it’s bad for profits. Can’t have that. Now Trump can fire members of his Cabinet but he needs a majority in Congress.

  25. I agree with Max. The problem isn’t the existence of central banking, and if you don’t have inflation then you need high wealth taxes, because past earnings cannot be an eternal, unchanging claim on the future, as Ian has pointed out in the recent past. The problem is the political independence of central banking and the use of central banking as an opposing force against fiscal policy. One prominent economist recently suggested that this disharmony be resolved by putting the overall fiscal expansion power also under a central-bank like structure, thereby immunizing the whole economy from the conflicts of democracy, which would then merely be relegated to allocating a given public purse.

    The idea of harmonizing these institutions is correct, the question is merely one of control. The central bank should instead be brought under the management of elected authorities.

  26. Max

    >. One prominent economist recently suggested that this disharmony be resolved by putting the overall fiscal expansion power also under a central-bank like structure, thereby immunizing the whole economy from the conflicts of democracy, which would then merely be relegated to allocating a given public purse.

    Noice, as the Australians say. The purse will have to be huge though, and the taxes should be ala eisenhower era.

  27. V. Arnold

    @ Max
    The purse will have to be huge though, and the taxes should be ala eisenhower era.

    Fat chance that, no?
    My financial mantra is, cash rules (a little gold can’t hurt), debt sucks hind tit, don’t go there, period.
    And avoid the banking sector at all costs; credit unions rule, however, be cautious there; do your due diligence.
    Obviously, my POV is based on a pragmatic (hard lessons learned) living; and not the technicals of economics. Hopefully, common sense.

  28. Exactly. The point is that Keynesian management of demand, whether through fiscal or monetary policy, is impossible without tight control of borders. Changing the balance between the two is not going to help.

    I do however agree that a massive fiscal stimulus just now is misguided. It will only suck in thousands more immigrants thereby keeping the labour market loose and wages down. You need to balance migration and trade first, which themselves will have inflationary consequences which have to damped down, and only then put your foot on the accelerator.

  29. Tom


    The panics of the 19th Century weren’t due to fractional reserve banking, but war, and gold was key to getting out of them.

  30. Hugh

    Peter, what makes you think companies that offshore their profits want to distribute them to anyone? Money percolating through the economy from the top down is called trickle-down economics. It hasn’t worked in 35 years but it keeps getting renamed and comes back like a zombie. Most people don’t buy sirloins or high end products. So these will have almost no effect on the overall inflation rate.

    Tom, the Federal Reserve has only been around since 1913. Throughout the 19th century, there were periodic depressions brought on by the reliance on the gold/silver standard. Basically, gold put a fixed limit on the money supply. There would be calls on the loans of Western farmers by Eastern banks. The Westerners starved of cash would go broke, and depression would ensue. There was the Long Depression (1873-1879) after the Civil War. It is important to remember Lincoln was able to finance the Civil War using “green backs”, that is fiat currency not convertible to gold, and Section 4 of the 14th Amendment following the war made this clear: “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.” The country went officially on to a gold only standard in 1900. That is paper and silver currency were redeemable in gold.

    In the 20th century, there was the Great Depression, made much worse by the gold standard because it limited the money supply precisely at the moment it needed to be expanded to counteract the economic contraction. The result was a deflationary spiral. FDR ended up nationalizing the gold reserves held by the regional Feds and inflating the price of gold by 40%. Nowadays, the euro in Europe acts as a de facto gold standard, and it is slowly and surely tearing both the European Union and its economies apart. So I am missing where the gold standard is better in say the last two hundred years.

    Max, some of the money the Fed lent out went straight back into its ledgers as deposits by banks. They were paid interest on this essentially free money, and this represented a backdoor subsidy of banks. Most of the money, however, found its way into the Wall Street casino where the endless supply of free money from the Fed’s various iterations of QE created and stoked a huge bubble in stocks and spilled over into investments in emerging markets in the rest of the world, not the US.

    We have a credit based banking system. Fractional reserve lending is something from another era. It is one of the few points MMT gets right: Banks don’t need deposits to make loans.

    I agree with Mandos that the Fed should be returned to the control of the Treasury. The Federal Reserve Act of 1913 was blatantly unConstitutional. This is one that the otherwise batshit crazy libertarians got right but for the wrong reasons. They want to return to the gold standard.

  31. The unemployment rate (u-1) is low enough to be considered “full employment“. . . the labor market is tight enough [that] workers received raises in 2015.

    Since shifting to the framework of the “Reagan economy” in 1981, the national “Unemployment rate” has become almost irrelevant as a meaningful measure of the state of the economy and of the national employment picture.

    The “EMPLOYMENT Rate:” In the post-1981 era of regressive taxation, lower wages, poverty level minimum wages, and federal policy mandated trickle-up wealth distribution, relying on the rate of people who are “employed” is a far more crucial number than the number of people who have recently lost their employment.

    At a minimum, “unemployment rate” figures are meaningless without an “employment rate” figure for side-by-side comparison.

    However, even comparing “employment and unemployment” rates, these two figures are also inadequately demonstrate the overall job/employment situation for U.S. workers. Meaningful employment/unemployment rates also require a rate adjusted (adjusted upward for “unemployment” and downward for “employment”) based on how many hours worked are worked at a livable wage. For example, 40 weekly hours worked at 1/2 of a livable wage is, in fact, halftime employment, not full employment.
    Full employment = 40 hours of wages AND 40 hours of work.

    I suspect the overall “employment rate” (“employment” = 40 hours a week at livable wage) has steadily decreased since 1981. In fact, the issue is not how much the employment rate has steadily dropped since 1981; but rather the issue is how much has the national employment rate has steadily decreased since 1981.

  32. StewartM

    Its no surprise America’s greatest years of Middle Class Prosperity were in the age of the Gold/Silver Standard as the Fed couldn’t arbitrarily change the market value of gold and silver which prevented overheating of the economy and bubbles.

    Excuse me?

    1) The “greatest years of Middle Class Prosperity” are probably from the late 40s to early 70s, when we were no longer on the gold standard (FDR took us off of it);

    2) Are you aware of the estimated metrics of economic performance of the US, and colonial America during those supposedly wonderful precious metal standard times? We had periods of long-term unemployment (like decade-long) estimated c. 15 %, and spikes of inflation upwards of 40 %. Using precious metals as a standard prevented neither from happening, despite the fetishes of those advocating this.

  33. S Brennan

    Good post, with an interesting & oblique POV. Nice one Ian.

  34. Peter


    I wasn’t referring to trickle-down but to inflationary pressure passing through the system. I don’t know much about economics but I do know that my money buys less now than it did a few years ago while the government tells us there is little inflation. Sirloin is at the low end of the steak continuum but it relates to the general increase in meat prices and even bacon is $6.50 a pound now.

    I wonder what you think corporations do with their profits, no one can get their share including the bosses until it is distributed and subject to taxes.

  35. XFR

    Ian, I ask at the risk of seeming rather presumptuous, to say nothing of ragingly alarmist and silly, would you consider making this comment of mine at NC into an, admittedly very short, guest post? (Changing the first line to “On the slim chance that one of the Democratic whistleblowers who leaked the Podesta emails […]”, for the sake of clarity.)

  36. Pelham

    What about the trillion-dollar coin?

    In 2011, when Republicans were threatening not to raise the US budget limit, it was suggested by even a number of mainstream economists that the Treasury simply mint a few trillion-dollar coins — perfectly within the Treasury’s power to do — and solve the problem.

    It’s all very entertaining for the Fed to monkey around with interest rates to manipulate money supply, but the fact is that we have a sovereign currency. And at the sovereign level, money is only a lubricant to get the economy moving and, ideally, ensure that all productive resources, including workers, are in use.

    If Trump or any president wants to dispense with the Fed’s authority, the Treasury secretary has perfectly reasonable means at his disposal.

  37. StewartM

    @Caoimhin Laochdha

    Agreed with everything you say about how dicey our labor stats are, but I think it\’s more complex than that.

    In regards to the labor participation rate, here is the historical data:

    (click on \”max\” to get the history since 1950)

    You can see that the labor particpitation rate is higher than it was in, say, 1960. Does that mean we have a better economy for everyone then? I don\’t think so, and I bet neither would you. In the 1950s and 1960s people could earn enough to support having a non-working spouse who made significant economic contributions yet did not show up in our economic indices (they were highly useful, as feminists once quipped, \”housewives: everyone should have one\”). Likewise, in when I started my job, many moons ago, the retirement and health care plans offered by major companies were good enough that people could afford to retire and leave the workforce in their mid-50s to early 60s. Nowadays, the norm is that a two-income family is required, you have people working multiple jobs to keep up, and you see the elderly in their 60s working as greeters at Walmart, and serving you burgers at MacDonald\’s. Most of this is not by choice.

    Our *somewhat* lower labor participation rate (compared to the maxima of the 1990s) was the cause behind Romney\’s \”47 %\” quip, and as one coworker quipped in return, the proper reply to is: \”Yeah, I\’m going to tell those kindergarten students that after I get back from the nursing home and finish telling those old folks to stop using Alzheimers as an excuse and get to work, I expect them all to have jobs when I get back!\”. Labor participation rates by itself does not correlate to \”good times\”; in fact, our high participation rate now is not a good thing, as what it is really doing is showing more people are having to work longer and more to make up for low pay.

    What we need is higher wages; better retirement income, and truly universal health free care (one of the reasons people keep working is to keep their health care). Part of what constitutes the \”good economy\” would be the ability to be something else than a profit-making machine for someone else. In our political economy, I think it noteworthy that it used to be students, and old people, who were the most politically active (because it\’s a fact that many workers feel that they don\’t dare publicly cross their boss\’s politics); some degree of financial independence was needed to truly be free. But now student debt has largely choked off student protests and they\’re going after old people\’s incomes too to keep them serfs to a \”boss\” as long as possible, until their health deteriorates to the point that they can\’t be activists either.

  38. Hugh

    For those interested the idea for the trillion dollar coin came from a blogger named beowulf who described himself as a conservative. The rationale for it is that in 1913 Congress in the Federal Reserve Act ceded virtually all of its power of money creation to the regional Feds. The regional Feds are essentially cartels made up of private banks. It is this cession of authority which many find unconstitutional. The only power of money creation which the Treasury retained was that of producing coins. This production accounts for only a few percent of total money creation, and the value of the coins produced in all cases, except one, was related to the cost of the metals/materials which comprise them. The exception were coins made from platinum as stated in 31 USC 5112(k):

    “(k) The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.”

    A set of trillion dollar coins or a single multi-trillion dollar coin made of platinum deposited in the Treasury’s account at the Fed would be a way within existing law for the Treasury to re-appropriate part of the Federal government’s power to create money and finance its operation not through debt (which through interest on it is largely another subsidy to banks, the rich, and foreign governments) but through issuance of new money.

    Peter, overseas profits can still be used to invest (which doesn’t happen much anymore), buy companies (rather than compete with them), engage in stock buybacks which raise the stock price (making profits for investors and CEOs via their stock options), and pay C-class executies exorbitant salaries.

  39. Peter


    Some of the things you describe may be true for some companies but it’s their profit to do with as they please. If Intel does stock buyback that increases their stock price I get higher dividend payments and many companies have to return some of their profits as dividends.

    Some of these actions may not be good for the economy but no one has the power to stop these legal dealings at least no one with power will use their power to change this fact. Trump could, if he was unwise, try to confront this power and change the laws and he would more than likely fail or he can make deals using carrots because he lacks a stick and recover substantial tax revenues and see at least some of this profit recycled through the economy. 10% in hand is still better than 35% in the bush.

    I followed the MMT discussions as well as I could at FDL and all I could take away from the discussions was that they were selling Magic Beans/Coins never envisioned by anyone at the Treasury.

  40. Hugh

    Peter, corporations are socially sanctioned entities. If they do not serve some useful social purpose, and certainly if they are socially destructive, they have no reason to exist, and every reason not to exist. So no, it is not “their” profits to do as they please. This is one of many things that the powers that be in our neoliberal kleptocratic world never want us to remember or act on.

  41. Hugh

    MMT makes some good points. But that said, it is a horribly constructed theory by people with zero understanding of how theory actually works, sort of like having someone build you a house who doesn’t know how to nail two boards together. Many of its assertions are false or need to be so heavily caveated that they lose almost all meaning. Its partisans tend to be cultish and close-minded, and they never seem to get that beyond the hoopla many of its guiding lights remain surprisingly traditional, even neoliberal, in their outlook. But as I said above, sometimes even libertarians who come first to mind when I think “batshit” can get it right on occasion.

  42. Patrick W. Watson (@PatrickW)

    This is a great rant. You are mistaken about Yellen’s term at the Fed, though. Chair and governor are two different things. Her term as governor expires Jan 31, 2024. Her term as chair ends Feb 3, 2018. She can remain one of the seven governors even if Trump does not reappoint her to chair. She specifically noted that fact in this week’s press conference, too, which was interesting.

    Likewise, Stanley Fischer’s governor term goes through Jan. 31, 2020 though his term as vice chair ends June 12, 2018.

    More in this article I wrote:

  43. edmondo

    So, Trump (and Bannon) if they want a good economy, and their stimulus to work, have a problem: Yellen and the Federal Reserve Board. Yellen has stated she won’t step down till her term ends, in 2024.

    Yellin’s term ends on February1, 2018, a mere 12 months after Trump takes office. He’s a patient man. I doubt she’ll be around on February 2nd.

  44. The bittersweet and “split personality syndrome” rules reality.

  45. When the Fed tightens monetary policy or as they say “takes the punch bowel away ” it makes new debt (money) more valuable. Higher interest rates also eliminates demand from the bottom of the economy, because of affordablity reasons. The middle class and the working poor are priced out of the economy. The reduced demand causes unemployment rates to increase. Without jobs the middle class and the working poor poor lose assets. The people with money are not affected as much by interest rates raising. The people with money to invest have been investing in things that people need to eat and live in and not enough in the production of these things and the assets that the middle class and working poor are losing and can no longer afford. As you say, “the economy and the Fed is set up too benefit the top percentage of the economy.”

    The Federal Government created the problem in the tax code by not changing the tax code as the economy goes through its economic cycles of recession and inflation. We have the power to change the system if enough of the population can be motivated to learn how they have been used to dampen the excesses of the people with money to invest. What I am talking about is “irrational exuberance.” Increasing the unemployment rate has been used for years to manage “irrational exuberance.” We have boom/bust policies guiding our economy which is destroying our economy and the middle class.

    Instead of higher interest rates being used to manage irrational exuberance we should be using the income tax code. By using the income tax, in the correct manner, to manage irrational exuberance, excess demand would be reduced from the top of the economic ladder. By reducing demand from the top of the economic ladder there would be less buyers in the Main Street economy driving up prices. With less price increases above an annual rate of 2%, wages would not need to increase more than 2% a year. The wealth of our economy would increase as our exports would become more price competitive in the world markets.

    Correctly using the tax code is a better way to manage our economy than relying on the Federal Reserve. We can take some of the power from the Fed by automatically changing the tax code before the Fed must use higher interest rates and unemployment to manage irrational exuberance. We can fix our economy and get it off the boom/bust economic roller coaster with the 2% Appreciation/Inflation Taxation Policy. Read more:

  46. zot23

    It would be great if Trump took on the FED and neutered (or destroyed?) it. It might be one of the only silver linings from his Cabinet of Deplorables and the great twenty-teen teardown. I have a hunch that this might be his “only Nixon could go to China” moment, only Trump and rabid Republicans can destroy the FED’s power. If a Democrat or (God forbid) a Progressive like Sanders tried to do this, they would reflexively line up against the effort and fight tooth and nail for the bloated FED machine. Not looking forward to the incredible instability that will ensue from such actions, but all that seems to have been baked into the pie long ago. The choice for massive inequality ensures economic collapse and social unrest, we’re just choosing the deck chair positions at the inception of crisis.

    I don’t know if there really are any more votes or elections after this, but if Trump spends a year or two taking on the FED and chewing up his resources, I would love to see a Progressive president next entering office with a non-existent FED and a host of banks (and financial institutions) on life support. Lemons and lemonade (if we are extremely lucky IMO.)

  47. Just Passing By

    Indict (all the way back at least to Geithner/Maiden Lane).
    Perp walks.
    No bail.
    Nine-figure fines and prison sentences, not in white collar resort prison, but in federal PMITA prison.

  48. LorenzoStDuBois

    I think you contradict yourself a bit, saying the establishment will oppose, and then that the Supremes will rule in favor of Trump. I think the Supremes are on the wrong side of the Republican schism for this, and the left minority will only need a couple of swing votes.
    Roberts has tended to side with the Dems when it’s pro-business (see the ACA).

  49. Peter


    I suppose some people still cling to the quaint notion that society/government have any power to pull corporate charters for whatever reasons. Our government was created to assist and protect corporate interests and so long as the corporations pay some taxes and supply some jobs they meet their requirements.

    The profits we were discussing are held by foreign entities connected to US corporations and our society/government has absolutely no jurisdiction or power over those foreign entities. Even when the profits are returned and taxed here they are private property.

    Trump is threatening some of these corporate profits indirectly with his clever tariff on products sold here but manufactured outside the country to serve the society’s need of good jobs in the homeland. The society can’t take corporate profits but through the government it can penalize corporations for actions that damage society.

    The Clintonites including Obama along with most of the republican forces sided with the corporations and promoted policies to damage society but now we have someone who thinks society needs a break.

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