McMaken: Congress Should Fire Jerome Powell

Authored by Ryan McMaken via The Mises Institute,

There were a few seemingly tense moments at the FOMC press conference on Thursday when two reporters asked Jerome Powell about the prospect of Donald Trump asking Powell to resign.

The first reporter asked “would you resign if asked to do so by Donald Trump?”

To this, Powell responded with a resounding “no” followed by silence.

A few moments later, Powell was asked by another reporter if it was lawful for Trump to either remove or “demote”—that is, remove Powell as chairman, but leave him on the Board of Governors—Powell.

To this, Powell responded with a forceful “not permitted under the law.” 

Apparently, Powell wished to leave no ambiguity whatsoever about this position that he cannot be removed or demoted by a sitting president. 

It would agree that the spirit of the law here is that a president not be able to remove a  Fed chairman, except for some kind of misconduct. But, ambiguity remains. Even Alan Blinder, a proponent of the myth of “Fed independence,” admits that in the world of political reality, Trump could potentially remove Powell:

Experts who spoke to ABC News acknowledged that some legal ambiguity looms over what type of conduct warrants sufficient cause for removal, but they said a policy dispute is unlikely to meet such a standard. Still, Trump could attempt to push out Powell and test how courts interpret the law, experts added, noting that the case could end up with the conservative-majority Supreme Court.

“Trump could try and he might try,” Alan Blinder, a professor of economics at Princeton University and former vice chairman of the Federal Reserve. “It’s very unlikely that he has that authority, but if he takes this to the Supreme Court, I don’t know what to think of the Supreme Court.”

Instead, Trump could leave Powell in his position on the Fed’s 7-member Board of Governors but demote him from his role as chair, Blinder said.

“That’s a subtle question that has never been tested,” Blinder said, acknowledging a lack of clarity about whether it would be allowed. “We can’t answer that quite as definitively.”

In any case, Trump would likely have to expend some serious political capital if he wants to remove Powell via presidential power. 

Yet, Powell’s defiance ought to provoke us to ask why wealthy, pampered, out-of-touch technocrats like Jerome Powell get to act like their removal constitutes some sort of transgression. Central bankers are just bureaucrats, and their removal ought to be regarded with no more trepidation than the removal of an undersecretary of agriculture. 

Congress Should Fire Powell, and Not Stop There

Regardless of what Trump’s legal powers may be, it is clear that Congress has the power to remove Powell, just as Congress has the power to abolish the central bank altogether. 

The Congress ought to abolish the Fed entirely, of course, but if members lack the stomach for that heroic act, Congress can begin with amending the Federal Reserve Act to make it clear that the chairman of the Fed is not a Holy Person, untouchable by the mere mortals who are actually elected to run the federal government. There are many ways Congress could approach this issue. For example, Congress could rewrite the law to allow Congress to remove the Fed chairman with a majority vote in either house. It doesn’t really matter, so long as central bankers get the message that they’re not special. 

While Congress is at it, it could make a few other crucial changes as well. Congress should prohibit the Fed from buying any assets of any kind. This would end the Fed’s habit of buying up mortgage-backed securities and government securities to prop up the banker class and Powell’s buddies—i.e., Janet Yellen—at the Treasury. It would also end the Fed’s ability to manipulate interest rates since the Fed’s main tool here is its “open market operations.”

A second key change that is very necessary is removing the Fed’s so called “dual mandate.” As the Fed likes to often mention, the Fed has a dual mandate of both “stable prices” and “maximum employment.” Congress should immediately abolish the mandate for “maximum employment” because the only purpose this has ever served has been as an excuse for the central bank to inflate the money supply. As is abundantly clear from Fed press conferences and publications, the Fed routinely justifies its dovish policy in terms of fulfilling its mandate to maximize inflation. That is, the Fed often says something to the effect of “we’re embracing easy-money policy because our dual mandate to maximize employment says we have to.” Congress should just delete the mandate. 

(By the way, the Fed actually has a third mandate. It’s to ensure “moderate long-term interest rates.” Getting rid of the Fed’s power to purchase assets probably nullifies this mandate in any case, but Congress might as well remove any doubt and totally prohibit the Fed from manipulating interest rates of any kind.)

Fed Independence Has Never Been Used for Good Things

Of course, if Congress were to attempt any of this, Fed simps in the media and in Congress will try to talk about how such things are unprecedented and we must respect “Fed independence.” Media stories in the Fed often claim that attempts by elected officials to rein in Fed technocrats violate “long-standing norms” that respect Fed independence. 

This is a fantasy version of history. There is not now, and there has never been, any such thing as Fed independence because the Fed always willingly helps the regime get what it wants. 

Early on, Fed independence didn’t even exist in theory, and was explicitly limited in law. Prior to 1935, the Comptroller of the Currency and the Secretary of the Treasury sat on the Fed’s Board, thus ensuring a direct line from the White House to the Fed. 

In 1933, of course, Franklin Roosevelt issued an executive order abolishing the gold standard and ordering the Fed to turn over all its gold to the Treasury. So much for “Fed independence” under the Left’s favorite twentieth-century president. 

Even after 1935, it was understood that the Fed would always assist the Treasury with funding whenever necessary. This again became obvious during the Second World War when the Fed essentially helped launder funds for the war effort. The Fed agreed in 1942 to peg interest rates on government securities. The Fed also engaged in a variety of price control measures and regulations designed to assist the White House. 

Only since the Monetary Accord of 1951 has there been a de jure nod to giving the Fed autonomy on policy. The Fed has never used any of this alleged autonomy to do anything good, however. We’ve seen this proven countless times since the Fed has always gladly done its part to ensure the Treasury gets what it wants. From the Fed’s efforts to finance federal deficits in the 1970s, to the Plaza Accord in 1985, and to the flood of easy money since 2008, the Fed has never used its so-called independence to actually rein in federal profligacy. 

What Matters to the Fed Is Protecting the Banking Class

Central bankers have never cared about Fed independence as a way of limiting state power.

According to its own historical narrative, the Fed has now allegedly been “autonomous” for sixty years or more. Has inflation and federal spending been more restrained during that time? Obviously not.

The Fed has always and everywhere been happy to enrich the state, regardless of whatever levels of self-governance it might achieve. 

The real reason the Fed wants more independence is so the Fed can also more easily enrich the banker class while also making the Treasury happy.  That is, the banking cartel that works hand in glove with the Fed cares deeply about having control over who gets onto the Board of Governors and who gets to be chairman. The elite bankers are perfectly willing to effectively serve the Treasury so long as the cartel gets to have its own people in charge. This is how the banker class ensures that its monopolistic powers are protected, the competition is crushed, and the bailouts are guaranteed. 

If the Fed pushes back against the elected government, it’s only if the priorities of the elected government conflict with the Fed’s priority, which is serving the interests of the banker class. Experience makes it abundantly clear that central bankers are fine with endless price inflation. But, the Fed wants to inflate in a way that most suits the Fed and the banking cartel. That’s why Powell and the Fed are so opposed to the idea of being removed from office. There is no higher principle here. There is only power. 

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Originally Posted at; https://www.zerohedge.com//


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Trump Appointments Signal Aim To Boost US Energy Investment And Production

Trump Appointments Signal Aim To Boost US Energy Investment And Production

By Ed Crooks of Wood Mackenzie

“Personnel is policy.” That aphorism about the realities of US presidential government was coined by Scot Faulkner, who was director of personnel for Ronald Reagan’s triumphant election campaign in 1980. What he meant was that, while US presidents can do almost anything, they can’t do everything. The day-to-day business of the administration is carried on by appointed officials. And if presidents want to make real progress towards their policy objectives, they need to make sure that their officials are as committed to those goals as they are.

That is why President-elect Donald Trump’s first two picks to be his senior energy officials are particularly significant. There is still a great deal of uncertainty around exactly how energy policy will play out in his second administration. But the announcements he has made give a clear sense of the direction he wants to set and the objectives he wants to achieve during his four-year term.

Last week, President-elect Trump named Chris Wright, the chief executive of oilfield services company Liberty Energy, to be his energy secretary, and Doug Burgum, governor of North Dakota, to be the interior secretary and head of a new National Energy Council at the White House.

The common thread in the thinking on energy expressed by both Wright and Burgum is that they want to boost production of all types of energy, including fossil fuels. They do not deny that human-caused climate change is a real threat that needs to be addressed. But they argue that there are other priorities for policy that are more important and more urgent, and that oil and gas can continue to play the central role in the global energy system into the indefinite future.

If they get to take the reins of energy policy-making under the Trump administration, they will undoubtedly aim to help the oil and gas industry in every way possible. But several low-carbon sectors could also benefit, or at least not be hit as hard as they might have feared.

Meet Chris Wright and Governor Doug Burgum

Announcing their nominations, President-elect Trump said that Wright and Burgum would be working on cutting red tape, enhancing private sector investment and focusing on innovation, with the aim of boosting energy production to cut prices and “win the AI arms race with China (and others)”.

Chris Wright has become one of the highest-profile CEOs in the industry thanks to his tireless advocacy for American energy in general, and oil and gas in particular. He has made his case in a variety of public forums, including YouTube videos and in a 180-page report titled ‘Bettering human lives’.

That report makes its argument in 10 key points, which include: “Global demand for oil, natural gas, and coal are all at record levels and rising — no energy transition has begun” and “Zero Energy Poverty by 2050 is a superior goal compared to Net Zero [emissions] 2050.”

Wright summarises his position on climate change like this:

“Climate change is a real and global challenge that we should and can address. However, representing it as the most urgent threat to humanity today displaces concerns about more pressing threats of malnutrition, access to clean water, air pollution, endemic diseases, and human rights, among others.”

Tackling those other more pressing problems, he argues, would be helped by the strongest possible growth in US oil and gas production. This would displace supplies from authoritarian regimes and geopolitical rivals of the US and substitute for dirtier fuels, including coal and traditional biomass.

On policy, Wright warns that the 2022 Inflation Reduction Act (IRA), which extended and expanded tax credits for a range of low-carbon energy technologies, “appears poised to drive the U.S. electricity grid along the European path [to] higher prices and more grid stability problems”.

He is not opposed to all forms of low-carbon energy, but says the world needs a massive increase in research and innovation, as opposed to subsidies for existing technologies. His company has worked on low-carbon energy sources, including advanced geothermal, small modular nuclear reactors (SMRs) and sodium-ion batteries. The world needs more and better energy, which means contributions from “all viable energy technologies,” Wright says.

One of the peculiarities of the US system of government is that the energy secretary – the job that Chris Wright is being proposed for – does not have primary responsibility for many of the decisions most relevant to the energy industry. A US energy secretary does have responsibility for overseeing energy policy, but the most vital part of the job relates to nuclear weapons. The secretary is tasked with “maintaining a safe, secure and effective nuclear deterrent” for the US, and reducing the threat of nuclear proliferation.

Many of the key decisions related to energy, such as oil and gas leasing programmes, lie with the Department of the Interior. So the proposal that Governor Burgum of North Dakota should head that department, as well as the new White House energy council, is also highly significant for the industry.

Governor Burgum, like Wright, has a record of recognising the need to act on climate change while also aiming to boost oil and gas production. In 2021, he set a goal of reaching net zero emissions for North Dakota – described as “carbon neutral status” – by 2030. That is a much more ambitious schedule than California’s – the Golden State is aiming for net zero by 2045.

Another crucial difference is that Governor Burgum has envisaged his state reaching net zero largely through carbon capture and storage (CCS). As he has pointed out, North Dakota hit the “geologic jackpot” in its potential for sub-surface storage of carbon dioxide. Its estimated capacity of 250 billion tons could take all of the US’s carbon dioxide emissions from energy for almost 50 years.

In a sign of North Dakota’s enthusiasm for CCS, the state’s Public Service Commission last week voted unanimously to approve the route permit for Summit Carbon Solutions’ proposed US$8 billion carbon dioxide pipeline system, which would take captured emissions from ethanol plants for storage.

But despite his support for decarbonisation, Governor Burgum has also been a strong critic of the Biden administration’s energy policies. He signed up to a joint statement with other Republican governors in June, arguing that the president’s “rhetorical and regulatory hostility towards traditional energy” was holding back US oil and gas production.

One sector that could be particularly favoured under the new administration is gas-fired power generation. President-elect Trump said in the statement announcing Governor Burgum’s nomination that he wanted to “undo the damage done by the Democrats to our Nation’s Electrical Grid, by dramatically increasing baseload power”. That will certainly mean acting on his pledge to scrap President Biden’s emissions rules for power plants, which could potentially have ended up forcing gas-fired generation to shut down. But he could go further. A national version of the Texas system that subsidises gas-fired power plants is possible.

Wood Mackenzie view

Some of the critical issues for energy policy under the second Trump administration remain highly uncertain. The future of the IRA tax credits for low-carbon energy is likely to be decided by a tight vote in the House of Representatives, given the Republicans’ slender majority there. Energy industry leaders – including Darren Woods, chief executive of ExxonMobil, who last week attended the COP29 climate talks in Azerbaijan – have urged President-elect Trump not to sweep away all of President Biden’s energy policies.

“I don’t think the stops and starts are the right thing for businesses,” Woods told the Wall Street Journal. “It is extremely inefficient.”

But while the prospect of a sharp reversal in policy is a concern, the appointment of two senior officials who have been champions for investment in energy, with a brief to continue that work in the federal government, will be welcomed by many in the industry.

The power and renewables sector is threatened by the potential curtailment or elimination of the production and investment tax credits (PTC and ITC) for wind, solar and storage. But it could benefit from other changes under a Trump administration, including permitting reform and regulatory changes that could make it easier to add new transmission capacity.

Wood Mackenzie’s “severe downside scenario” represents a worst-case outlook, with total installations of wind, solar and storage over the next decade about 30% lower than in our previous base case forecast. But for that to play out, several factors have to turn against the industry, including not only a phase-out of the PTC and ITC, but also increased permitting challenges. If the new administration lives up to its rhetoric about supporting investment in all kinds of energy, permitting and regulation could become easier, not harder.

However, the new administration’s plans raise important questions about the balance of supply and demand for energy, and especially for natural gas. President-elect Trump has promised to end immediately the “pause” on approvals for new LNG export projects, which will add to demand for US gas over time. A surge in gas-fired power generation, which the new administration sees as important for supplying new data centres for AI, would add additional demand pressure.

On the supply side, Wood Mackenzie analysts think government regulations and access to acreage are not the most important issues. US oil and gas production is determined principally by commodity prices, cash flows and corporate capital allocation strategies. The federal government can take actions that will help, including expediting investment in new pipeline infrastructure. But it cannot guarantee that additional production will flow.

Those conditions, with stronger demand but a limited supply response, would be bullish for energy prices. Although President-elect Trump’s stated goal is to drive down energy costs for American consumers, it is possible that his policies could have the opposite effect.

COP29 makes little progress in its first week

The election victory for President-elect Trump, who plans to take the US out of the Paris climate agreement for a second time, cast a shadow over the first week of the COP29 climate talks in Baku, Azerbaijan. There were more signs of disharmony among the assembled nations, with Argentina withdrawing its official delegation, and France’s environment minister choosing not to attend after a diplomatic spat with the hosts Azerbaijan.

Meanwhile, behind the scenes, negotiators are attempting to secure a global agreement on climate finance, which could pledge more than US$1 trillion a year in investment, loans and grants to low- and middle-income countries to support emissions reductions and adaptation to the impacts of climate change. So far, there appears to have been little movement on agreeing a deal.

The conference began with an announcement of significant progress towards finalising the rules for international carbon markets under Article 6 of the Paris agreement. But on that issue, too, much work remains before the market can start working as intended.

One group of leading figures in international climate policy has argued that the entire process of COP negotiations is “no longer fit for purpose”.

Tyler Durden
Thu, 11/21/2024 – 06:30

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