David Raymond Amos @DavidRayAmos
Methinks even Trump knows
that only a fool would trust what a former governor of the Bank of
Israel has to say about anything N'esy Pas?
https://davidraymondamos3.blogspot.com/2018/12/facebook-twitter-reddit-linkedin-email.html
https://davidraymondamos3.blogspot.com/2018/12/facebook-twitter-reddit-linkedin-email.html
https://www.cbc.ca/radio/thecurrent/the-current-for-december-28-2018-1.4953902/don-t-do-it-trump-s-criticism-of-central-bank-could-backfire-warns-former-vice-chair-1.4959918
'Don't do it': Trump's criticism of central bank could backfire, warns former vice-chair
Comments
David R. Amos
Methinks even Trump knows
that only a fool would trust what a former governor of the Bank of
Israel has to say about anything N'esy Pas?
Joseph Cluster
Stanley Fischer has been counting beans for a longtime and has a track record that Mr. Trump should listen to.
Adam Karab
@Joseph Cluster He also works for the interests of Israel.
David R. Amos
@Joseph Cluster Nope
David R. Amos
@Adam Karab YUP
John Bouy
@Joseph Cluster fischer is part of the cabal that bankrupted the planet - I'm sure he knows what he's doing
John Bouy
@Joseph Cluster ya Fischer is
a real serious person as he advises us that the fed would raise
interest rates because Trump upset the money masters at the fed. This
type of talk is knee-jerk bs from an unaccountable person at the top of
the financial heap essentially threatening every american with
retaliation from the fed! demonstrating the feds adversaria relationship
with people at large
John Bouy
@Joseph Cluster funny hearing
Fischer call an 'independent' central bank to be part of what is passed
off as democracy. You know who those European and Central American
countries are.
keith stanley
Amazing that American fed
rate policy doesn't get more comments . like it or not their interest
rate policy directly affects Canadians .Our Bank rate will have to go up
unless Powell reverses from tightening to easing
David R. Amos
@keith stanley Methinks everybody knows why dudes such as Frank McKenna love this guy N'esy Pas?
John Bouy
@David R. Amos because he's a corrupt, greedy, unethical, capitalist exploiter?
'Don't do it': Trump's criticism of central bank could backfire, warns former vice-chair
Stanley Fischer says U.S. president is challenging Federal Reserve's independence
When it comes to U.S. President Donald Trump's criticism of the Federal Reserve for hiking interest rates this year, a former vice-chair of the central bank has one message for him: "Don't do it."
Trump's remarks could backfire on him by encouraging a further rise in interest rates, rather than a decline, Stanley Fischer told The Current's guest host Piya Chattopadhyay
"When you criticize the Fed in the way you do, you challenge its independence," said Fischer. "And when you challenge its independence, it has to demonstrate its independence."
Trump, who personally selected Jerome Powell as chairman of the Fed, has repeatedly lambasted Powell and the central bank this year, at one point calling the Fed "my biggest threat."
- Trump's attacks on central bank rate hikes risk creating future economic trouble: Don Pittis
- Global dread of rising rates makes stark choice for central bankers: Don Pittis
"We know full well that if if inflation gets out of control, the Fed will be blamed," Fischer said. "And that is one of the things that it has to take into account."
To learn more about the role of the Federal Reserve in the U.S. economy and central banks in general, Chattopadhyay spoke to:
- Stanley Fischer, former vice-chair of the Federal Reserve from 2014-2017, and former governor of the Bank of Israel.
- Livio Di Matteo, professor of economics at Lakehead University.
Written by Kirsten Fenn. With files from CBC News. Produced by Richard Raycraft and Sarah-Joyce Battersby.
The Current Transcript for December 28, 2018
Host: Piya ChattopadhyaySTORIES FROM THIS EPISODE
Prologue
[Music: Theme]Back To Top »
'Don't do it': Trump's criticism of central bank could backfire, warns former vice-chair
Guests: Stanley Fischer, Livio Di Matteo
PIYA CHATTOPADHYAY: Hi I'm Piya Chattopadhyay and this is the Friday edition of The Current.
SOUNDCLIP
TRUMP: I think the Fed is making a mistake. They are so tight. I think the Fed has gone crazy.
TRUMP: My biggest threat is the Fed, because the Fed is raising rates too fast.
TRUMP:
But I think the Fed is far too stringent and they're making a mistake
and it's not right. And it's despite that we're doing very well, but
it's not necessary, in my opinion. And I think I know about it better
than they do. Believe me.
PC:
The U.S. president has been taking runs at the head of the U.S. Federal
Reserve. Blaming the Fed for bad economic news has come in handy for
Donald Trump. The Federal Reserve has raised interest rates four times
this year and the president is complaining those hikes are too high and
are coming too fast. Like the Bank of Canada, the U.S. Federal Reserve
is independent from the government in deciding the interest rate and
money supply. But President Trump has publicly criticized Fed Chair,
Jerome Powell, and privately mused about firing the man he nominated to
lead the American Central Bank. And that sparked a legal debate about
whether a president can even remove a Federal Reserve Chair. Stanley
Fischer is watching all of this unfold from a unique vantage point. He
was vice-chair of the Federal Reserve from 2014 to 2017, serving under
presidents Barack Obama and Donald Trump. Before that he was governor of
the Bank of Israel. And we've reached Stanley Fischer in New York City.
Hello to you.
STANLEY FISCHER: Hi, how are you?
PC: I'm okay. When you hear President Trump say those things about the Federal Reserve what do you want to say to him?
STANLEY FISCHER:
You're making a mistake. When you criticize the Fed in the way you do,
you challenge its independence, and when you challenge its independence,
it has to demonstrate its independence. And that may lead to the
interest rate being higher, rather than lower, as a result of the
criticisms you make. Don't do it. First of all you don't know. Secondly,
it's not the Fed that is the cause of everything that's going on. The
fact that you are overthrowing a world order that has existed
successfully on average, since the end of World War II, is fundamental
to what is going on now. The Canadians would know that NAFTA suddenly
disappeared to be replaced by something else that is close to NAFTA and
this sort of thing is going on all over the place. And if we get
ourselves into the world - which we seem to be doing - in which it is
okay to impose tariffs on everything, to give subsidies everywhere, we
will be in a world of the 1960s and 70s in which we were struggling to
get out of the aftermath of World War II and the Great Depression.
PC:
Okay so clearly you're clearly not on side with the president's
assessment of what's really going on in the U.S. economy. But let me put
this to you. You know he does have his defenders and they say look
raising interest rates, the Fed doing that, is putting stress on lower
and middle class Americans. So how does the Fed justify the increases
would be the question.
STANLEY FISCHER:
The Fed justifies the increase is because it's defined in law is to
keep the economy-- is to maintain full employment and to end low
inflation. We are in that situation now as a result of the policies
pursued since the great financial crisis. And the problem with his
arguments are he assumes that monetary policy works immediately. It
doesn't. It takes time. So they've got to ask themselves where - if the
economy continues on the path most people think it will - where will we
be six months to a year to a bit later from now, if we don't take action
now to deal with the fact that the economy is very strong. And that's
the problem. With due respect people from the real estate sector always
think interest rates are too high.
PC:
And so the Federal Reserve, like all central banks, plays a long game
when it comes to setting policy, right. It isn't tied to a circle of
elections and re-election and all those things. It's looking long game.
So how do you think this particular team at the Fed is doing right now?
STANLEY FISCHER:
I think they are doing well under difficult circumstances. When the
president decides to attack you ,for some reason or the other, you are
placed before a dilemma; do you do the right thing professionally or do
you try and make peace with the powers that be? You have to do the right
things professionally. That is what they are doing.
PC:
There are some reports that the head of the Fed, Jerome, Powell may be
seeing the president, the U.S. President in January, that meeting may
take place and that of course raises the question of the independence of
the Federal Reserve which it is built in to the infrastructure that the
central bank is independent. Do you think that that kind of meeting
might at least send the wrong message at least perception wise?
STANLEY FISCHER:
Well the president will of course expect that interest rates come down
immediately afterwards. They won't. They'll be kept on a course that has
been discussed for a long time and has been talked about within the Fed
at every single meeting of the Fed since certainly when I was there, a
year and a half ago and is part of the way the Fed does business. It
looks ahead and asks what it ought to do. So it's not going to change
the polls very much. J. Powell is a very good banker. He's a very
reasonable person. And whenever I've read or listen to what he has to
say, I say well that makes sense. And I think this is making sense now.
And that meeting could go very badly from the viewpoint of the
president. If he attacks Powell in the meeting in the way he's attacked
others in meetings, Powell is going to have to find some way of
demonstrating that he is continuing down the professional road that he's
on right now, and that he will not be shaken by the president. Because
we know full well that if inflation gets out of control the Fed will be
blamed. And that is one of the things that it has to take into account.
PC:
You worked at the Fed under this president, Donald Trump, and the
previous one, Barack Obama. What differences did you see from the inside
in terms of these administration, in terms of how central bankers were
expected to go about their jobs?
STANLEY FISCHER:
Oh I think that what you see is a remarkably professional organization.
I found it amazing when I joined the Fed that it very rarely was
necessary for me, if I needed to understand effect to understand
something that was happening in the economy, to go beyond the
professional stuff we had. Of course we listened to the everybody who
was talking about the economy, discussed what they had to say. But it is
an outstanding group of people. And the interesting thing is that this
board of the Fed, the monetary policymaking group, is actually very
strong. And this is a board that was appointed by the president. He may
feel unhappy about it now, but his initial choice was the right one.
PC:
And so given what you've just said, what is the optimal balance, the
relationship between politics and economics in the Central Bank?
STANLEY FISCHER:
The Fed can't cannot look at the political situation and say this will
make us popular. It's got to figure out what is the right thing to do.
It's got the law defines its goals, its goals to maintain full
employment and [unintelligible] stable prices. And I think you and
Canada have roughly similar goals. And that's what they have to do and
that's what they do and that's what the discussion is about. I didn't
hear any politics going on. I'd heard about criticisms but I didn't hear
anybody saying, "Well we've got to really take that into account". Many
many a politician has learnt a lesson that if you attack the Fed, you
get yourself into a big problem because you'll be getting inflation down
the road if what you want is low interest rates. And when you get that
somebody is going to ask, "Well whose idea was that?" The answer will be
whoever was pushing and succeeding perhaps, not in this case they
weren't succeeding, to push the Fed, the interest rate sitting group in a
direction it didn't want to take. It shouldn't do that.
PC:
Just to put the America
n situation in context. When you look around the
world, do you see other countries where the central bank is being
criticized by its leader or a high level politician and vulnerable to
volatile politics?
STANLEY FISCHER:
Yes I think when you look, there is a set of countries - I'm not going
to get into this in detail - but there's a set of countries in the world
who are behaving now according to assumptions and principles that
essentially reject the world to which we've evolved or which we had
evolved, in the previous American administration and in most of the
industrialized world. And those countries which do not follow principles
in which they allow the central bank to be independent--.
PC: Like which countries?
STANLEY FISCHER:
I am not going to get into, as former Fed person, criticizing which
countries. But you know who I'm talking about. Some of them are in
Europe. Many of them once were Latin America. They are not there now.
They have given central banks independence. And in other countries in
the world. So that is a sign of a weak and non-democratic government.
That's what's going on.
PC: Stanley Fischer we'll have to leave it there. Thank you very much.
STANLEY FISCHER: Thank you very much.
PC:
Stanley Fischer is a former vice chair of the U.S. Federal Reserve and
he's also the former governor of the Bank of Israel. We reached him in
New York City. Well heated debate over the central bank in America isn't
exactly new in the United States. A fight from 1790 is being revived
now on stage in the hit Broadway musical Hamilton.
SOUNDCLIP
Ladies and gentlemen
You coulda been anywhere in the world tonight
But you're here with us in New York City
Are you ready for a cabinet meeting?
The issue on the table
Secretary Hamilton's plan
To assume state debt
And establish a national bank
Secretary Jefferson, you have the floor, sir
Life, liberty and the pursuit of happiness
We fought for these ideals
We shouldn't settle for less
These are wise words
Enterprising men quote 'em
Don't act surprised, you guys, cuz I wrote 'em
Ladies and gentlemen
You coulda been anywhere in the world tonight
But you're here with us in New York City
Are you ready for a cabinet meeting?
The issue on the table
Secretary Hamilton's plan
To assume state debt
And establish a national bank
Secretary Jefferson, you have the floor, sir
Life, liberty and the pursuit of happiness
We fought for these ideals
We shouldn't settle for less
These are wise words
Enterprising men quote 'em
Don't act surprised, you guys, cuz I wrote 'em
PC:
In Cabinet Battle Number One founding father Thomas Jefferson argues
against Alexander Hamilton's proposal for a central bank. That battle is
one of many colorful stories in the history of central banks. And fill
us in, I'm joined by Livio Di Matteo he's a professor of economics at
Lakehead University in Thunder Bay. Hello.
LIVIO DI MATTEO: Good morning to you.
PC:
Let us start with those days of Hamilton What were the conditions that
led to the debate over the creation of a U.S. central bank?
LIVIO DI MATTEO:
Well this was in the aftermath of the birth of the American republic.
There was a lot of Revolutionary War debt. And there was also a debate
between those who wanted I guess a stronger federal and more central
government - I guess federalists - and the other side which I guess you
would term anti federalists, by the standards of the time. So if you
look at the debate between Jefferson and Hamilton, Alexander Hamilton
basically wanted a bank of the United States, a central bank to
consolidate the debt and issue a national currency. And the reason he
wanted that was to create financial stability which in turn would lead
to investment and economic growth Foster manufacturing development, etc.
On the other side you had Thomas Jefferson. He basically thought a
central bank in a sense would favor Eastern banks and creditors and that
would basically create a concentration of financial power and Jefferson
was more of a de centralist. You know his vision of the republic in the
ultimate sense was a sort of a nation of Stout Yeoman in
decentralization. And so the debate in the sense also outlined the
powers under the Constitution. So I mean a central bank wasn't
specifically enumerated in the U.S. Constitution. And so much of the
debate was whether the creation of a central bank was implied under
something called the necessary and proper clause. And I don't want to
get into too much detail. I'm not a U.S. constitutional expert. But in
the end the bank was created but it was tenuous. The first bank was
created about 1791. The second one in 1816 and after that in the 1930s,
interestingly enough a populist president Andrew Jackson under his
tenure the bank ended. And so you had basically a more free banking so
to speak until the creation of the Federal Reserve in 1913. And the
Federal Reserve in the end its creation also sort of reflected that
tension between centralization and decentralization and distrust of
Eastern banking interests. Because in the end they went to sort of
regional system as opposed to the I guess the decaying system where you
have one central bank. They have a Federal Reserve System.
PC: So I'm glad you mentioned Canada because when and why did we get our central bank?
LIVIO DI MATTEO:
We were late comers. The first central banks actually start to emerge
as market economies start to develop although interesting enough the
reason they developed was to finance government war expenditures and war
debt, and act as sort of marketers of that debt. So you know the first
banks, central banks, are the Swedish central bank 1668, the British
banks 1694. Then in the 19th century you get a number of them and
France. The Bank of Japan, the Bank of Italy the Reichsbank. Canada is
rather late. We emerge during the Great Depression in 1935. And so we
come about sort of at the tail end of the 20th century and our bank sort
of comes about under the rubric of price stability and maintaining full
employment. There is a responsibility for the money supply and the
credit system currency, and it's bankers bank also, the bank for the
federal government.
PC:
I want to ask you about - because we're talking about you know tensions
between politicians and central banks - and we've talked to both the
U.S. and its president butting on monetary policy. What's the situation
like in Canada? Like have we had a dispute between the government and
the central bank?
LIVIO DI MATTEO:
Well our banks since the late 1960s has been an independent central
bank. Day to day operations are free of political influence. However
that role in a sense is legislated by the government. I mean the Bank of
Canada is created by an act of parliament. So in a sense the
independence has been granted by politicians and as defined by the
political system. So our central bank like many Central Banks are
independent in government but are not independent of government right.
So it's a fine line that governments have have to play. Now in our case
the major incident that we had is late 1950s early 1960s in which the
then governor of the Bank of Canada, James Coyne, began speaking out on
government fiscal policy. And so his argument was that the government of
the day which is the Diefenbaker government, also by Canadian standards
I guess an early populist government in some respects, was running
deficits and spending too much and that this would fuel inflation. And
so that was resented by the prime minister of the day. And so there was
also pressure on the Bank of Canada to basically not raise interest
rates. The Bank of Canada wanted to keep its interest rates given
policy. So in the end what happened there-- there was also a bit of a
personality conflict I believe between the two gentlemen. But in the end
the House basically declared the Bank of governors a position vacant.
The Conservatives had a majority declare position vacant. The Senate
basically turned that down. However once the government of the day has
expressed a sort of lack of confidence in the office of the governor of
the Bank of Canada he resigned. The aftermath of that was the 67 Bank
Act basically laid down the rules in that the central bank is
independent on a day to day basis. But the ultimate responsibility for
monetary policy and direction does lie with the government. However
that's the ultimate responsibility on a day to day basis and even over
the longer term. The Bank of Canada has a pretty free rein to basically
set long term policy, and that's how it should be and that governments
benefit from that. I mean politicians benefit from having an independent
central bank because when unpopular actions are taken such as raising
interest rates to tame inflation they can point at the bank and say well
we're not doing it the bank is independent. But I mean most politicians
often [unintelligible] both ways. Then if there's some type of downturn
they would like the bank to stimulate the economy and they said you
don't mind if the bank lowers interest rates to stimulate the economy
during a downturn. But then when the economy improves and inflation
starts to pick up they're probably not keen when the bank raises
interest rates in order to restrain inflation.
PC: Okay. Livio Di Matteo, we'll have to leave it there. Thank you very much.
LIVIO DI MATTEO: Oh you're quite welcome.
PC: Livio Di Matteo is an economics professor at Lakehead university and we reached him in Thunder Bay, Ontario.
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