There’s a new effort to install a political hack as Fed Chairman.

A New Line of Attack on Fed Chair Jerome Powell

A dispute over the Fed’s renovation of its headquarters could provide the pretext to attempt the removal of Jerome Powell over interest-rate disagreements.

The Wall Street Journal reports White House Seizes on Fed Renovations as Opening to Oust Powell

Trump told reporters Friday he wasn’t planning to remove Powell, whom he named as Fed chair during his first term, but said he was doing “a terrible job,” and added “he’s costing our country a lot of money.”

The administration formalized its latest challenge Thursday with a letter from Russell Vought, Trump’s budget director. In it, he implied Powell either made false statements to Congress about the $2.5 billion renovation of three office buildings overlooking the National Mall in Washington or failed to comply with permitting rules around capital-area construction.

Trump simultaneously stacked the federal commission that must sign off on major construction projects in the capital with three White House advisers, including James Blair, a deputy chief of staff.

On Friday, Vought told reporters that both his office and the newly installed Trump advisers at the National Capital Planning Commission are “going to be asking very, very tough questions” about Powell’s recent statements and about cost overruns that are “horrifying.”

The Wall Street Journal reported two years ago about cost overruns on the building project. The issue gained political traction in June when Sen. Tim Scott (R., S.C.) pressed Powell about the expenses, including luxury features, during a congressional hearing. Powell disputed media accounts about certain high-gloss finishes, saying they weren’t part of the latest design plan.

“We are in a high-stakes moment in the history of the Federal Reserve,” said Peter Conti-Brown, a Fed scholar at the University of Pennsylvania. “It seems clear to me that the Trump administration, using various mechanisms, [has] now cooked up a post-hoc explanation for Powell’s removal.”

The renovation’s ballooning costs reflect a familiar pattern in Washington construction. Like many federal projects constrained by the capital’s height or other aesthetic restrictions, the Fed had to build expensive underground space instead of adding floors. Congress’s Capitol Visitor Center faced similar constraints and saw costs explode from an initial $71 million estimate to more than $600 million when it opened in 2008.

My Availability to Become the Next Fed Chair

In case you missed it, on July 9 I commented, I Officially Announce my Availability to Become the Next Fed Chair

I listed a 15-point plan. Here are the first five points.

Mish’s 15-Point Fed Plan

1. Explain to the nation why we don’t need a Fed and how independent central banks have created boom-bust cycles of increasing amplitude over time. The main corollary is history shows the one thing worse than independent central banks is a central bank run by politicians, frequently ending in hyperinflation.
2. Surround myself with qualified insiders who understand the Fed but also believe in the mission to end the Fed.
3. Stop paying interest on reserves, phased in over 18 months.
4. Wind down the Fed’s balance sheet totally in 2-3 years.
5. Require that assets available on demand such as checking and savings accounts are truly available on demand. That means demand deposits are parked in overnight US treasuries. This would be phased in over two years. As a result, we would have genuine safekeeping banks.

Point three brought a question from a reader. But deposits are not reserves. Deposits are on bank balance sheets as liabilities.

We Don’t Need to Fix FDIC, We Need a Genuinely Safe Bank

On December 15, 2023, I commented We Don’t Need to Fix FDIC, We Need a Genuinely Safe Bank

Need for a Genuine Safekeeping Bank

A genuine safekeeping bank is one that takes deposits and parks the entire amount in short-term treasuries. It make no loans and there is never any risk.

Deposits would earn a fluctuating interest rate that is the Fed’s overnight rate minus a safekeeping fee that allows the safe bank to pay its bills.

There is no need for FDIC because there is no risk. Under this proposal, banks cannot borrow short and lend long. Nor can they speculate on future interest rates.

Q: Why Don’t We Have a Safekeeping Bank?
A: That’s easy. The Fed doesn’t want one.

Peter Schiff created one and the Fed forced Schiff out. Caitlin Long, CEO and founder of Custodia Bank, wants to create one and the Fed said no.

See the Fed press release: Federal Reserve Board announces denial of application by Custodia Bank, Inc. to become a member of the Federal Reserve System

The Fed does not want competition because it wants to eventually force you at some later date into using its own allegedly safe Central Bank Digital currency.

Meanwhile, expect more Band-Aids.

Legalized Fraud

Silicon Valley Bank, Signature Bank, and First Republic Bank failed due to classic runs on the bank. The banks took customer deposits and speculated on long-term interest rates. When the Fed hiked rates more than expected, bank losses mounted, the banks became insolvent, and customers pulled deposits.

This is a classic example of a duration mismatch scheme that I consider legalized fraud. Money that was supposed to be available on demand was not available on demand.

One cannot legally lease an apartment to two different parties at the same time. Anyone who tried would be quickly arrested. This is in essence what these banks did by investing for years money supposedly available on demand.

Because Custodia Bank does not make loans and because it holds deposits in short term treasuries, a run on Custodia Bank would not cause the bank to fail.

The big irony is the Fed refused to grant FDIC to a bank operating on the safest possible policies but fails to monitor massive speculation (arguably outright fraud) on banks right under its nose.

Silicon Valley Bank Collapses, 93 Percent of Deposits Not Insured! What Now?

On March 10, 2023, I noted Silicon Valley Bank Collapses, 93 Percent of Deposits Not Insured! What Now?

Deposits Not Insured 

Part of what made SVB unique is its client base—the vast majority of its customer’s accounts were too big for full FDIC insurance (though recent deposit flight probably reduced the share). Waiting on the FDIC to see how many uninsured deposits are left and if they can be made whole.

SVB took customer deposits and invested in long-term treasuries. When interest rates rose, a run on the bank was its death.

Under my scheme, banks would have to put demand deposits on overnight treasuries and no run would have happened. But it a run did happen, it would not have mattered at all.

This was the model of Peter Schiff and Caitlin Long. The Fed drove the former out of business and denied FDIC for Long’s Custodia Bank.

The irony is staggering. By parking funds in overnight treasuries, Custodia deserves unlimited FDIC because it isn’t needed at all.

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Anyone for Mish’s Plan?

If so, please notify your representatives because the last thing we need is a central bank beholden to the whims of political charlatans.

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