President, I invite you to see your big
beautiful face on a banner in front of
the Department of Labor because you are
really the transformational president of
the American worker.
>> That is the Secretary of Labor, but she
is not alone.
>> Well, Mr. President, first of all, thank
you for the opportunity to work for you.
>> I'm thrilled to be here to work with
you.
>> So, thank you, President Trump, for for
your leadership. All 23 cabinet members
seized their chance to show feelalty to
Donald Trump
>> and our country has never been so secure
thanks to you.
>> Abraham Lincoln called his cabinet a
team of rivals. This is more roundroin
of syphancy.
>> This is just such a great opportunity
really to recognize your leadership as
>> it went on for over three hours and
Trump didn't look bored.
>> The climax may well belong to his
billionaire bestie turned envoy to
everywhere. And there's only one thing I
wish for.
>> Steve Whipov,
>> that that Noble committee finally gets
its act together and realizes that you
are the single finest candidate since
the noble piece, this noble award was
ever talked about,
more Kim Jong-un than leader of the free
world. In another era, these would have
been embarrassing open mic moments. But
in another era, there would also have
been less gold
>> in the cabinet room and the Oval Office.
>> Mr. Prime Minister, thank you very much.
>> Notice the makeover from February to
this month.
>> Great people, great people.
>> America's power on the world stage may
be diminished, but Trump's power to make
his peers sacrifice their dignity in
public is perhaps unrivaled.
>> I really want to thank you, uh,
President of the United States, dear
Donald,
>> the the path is open. You opened it.
>> Something has changed. Thanks to you.
>> But I digress. What's all this got to do
with Lisa Cook? Civil rights veteran
turned decorated economist and one of
the seven governors of the Federal
Reserve, the body that sets America's
interest rates.
>> Cook, an economist and the first black
woman to serve on the Federal Reserve
Board.
>> Trump sacked her yesterday, citing an
irregularity with her mortgage
declaration. But no, she uh seems to
have had an infraction and she can't
have an infraction especially that
infraction because she's in charge of if
you think about it mortgages and we need
people that are 100% above board.
>> Making an unprecedented move.
>> An obscure reason and she's fighting
back. But this is really about who gets
to control the building currently under
reconstruction. The Fed sets interest
rates and it's been independent since
1951.
>> We're with the chairman as you know.
Chairman, come on over. The prime
guardian of its independence is its
chairman Jay Powell, appointed by Trump
himself eight years ago. Trump tried to
sack him over an alleged overspend of
the renovation.
>> It looks like it's about 3.1 billion. It
went up a little bit or a lot. Uh so the
2.7 is now 3.1.
>> I'm not aware of that.
>> But the dirt hasn't stuck. And the idea
that the Fed could be controlled by any
president, let alone this one, has
alarmed the markets. But who will have
the courage to tell him?
>> Well, let's cross over to New York and
Financial Times columnist Jillian Ted,
who's also the head of King's College
Cambridge. Jillian, it's great to have
you back on the program. How serious is
this battle for the independence of the
Fed?
>> It is incredibly serious. Um, and as
you've said, there are strong political
reasons why this is happening because
Donald Trump is trying to centralize
power in almost every aspect of
Washington today. However, there's also
a really critical economic issue as well
because Donald Trump wants interest
rates to be dramatically lower than
where they are at the moment. Most
economists think the kind of interest
rate level he wants is completely mad
and that is already causing investors in
the markets to get very nervous about
future inflation. Of course, the Fed can
only lower short-term rates, but
long-term rates are set by the markets
and those are going up already. And
behind all this are two words that
anyone interested in this needs to know
about. One is fiscal dominance and the
other is financial repression which
sounds a bit sort of weird and nerdy or
a bit kinky even. Um but it basically
means that the US debt is growing so
rapidly that there's enormous pressure
right now on the White House to find a
way to lower rates so that the interest
payments won't essentially blow the
whole system up. It's a bit like having
a mortgage with a variable mortgage. And
as you know when interest rates go up
the squeeze is much worse. And sometimes
it gets so bad you eventually go bust.
And that's what essentially the White
House and others are really worried
about. So, President Trump is
desperately trying to get the Fed to
lower rates to make the debt problem
more manageable. But the danger is, and
that's a strategy economist call fiscal
dominance. The danger is that it will
end up creating inflation and a market
crisis.
>> You've also given us a new definition of
kinky there, Jillian. But the one
example that's always mentioned, someone
who tried something similar is President
Exactly. President Erdogan of Turkey. He
tried something like that and it went
badly wrong.
>> Absolutely. I mean, we have in the
Financial Times running tomorrow. It's
up on the website now. An astonishing
opinion piece from Janet Yellen, the
former Fed governor, um the Fed chair,
who says this, "History offers a blunt
lesson. Chaos follows when leaders
capture their central banks and force
them to buy government debt or cut
interest rates to hold down debt service
expenses. Germany in the 1920s, we all
know how awful that was. Hungary after
the Second World War, Argentina and
Turkey quite recently. The point is that
we have so many examples from history
where governments try and do this and it
goes very very badly wrong. And that's
essentially what people in the markets
are starting to worry about. The White
House says, "Don't worry, it's going to
be fine."
>> Sorry.
>> Okay. And what does this mean for the
world economy if he's successful?
>> Well, if he forces down interest rates,
essentially what you're going to see is
right around the world, people in the
short term become more optimistic about
growth because having lower rates is
usually a bit like fl throwing, you
know, gasoline or petrol onto a bonfire
when it's already burning. It flares up
dramatically. So we'll probably have
higher growth in the short term, but in
the longer term, you'll also see people
getting increasingly concerned about
inflation and frankly the
creditworthiness of the US going
forward. And that is not good because
something that people in Britain should
know is that the way that guilt prices
move, long-term UK government bonds, is
becoming increasingly closely tied to
how US government bonds move as well.
And so essentially what happens in
America will almost certainly come
across to British shores as well.
>> And Jillian, there's also an issue of
governance here, isn't there? Because he
was trying to look for dirt in Lisa
Cook's record. He had been trying to
look for dirt in Jay Powell's record. I
mean, this is also new territory for how
America's governed.
>> Absolutely. I mean, this is really a
sort of pattern we're more used to
seeing in emerging markets. And some of
the big asset managers I've been
speaking to recently are starting to
treat America as if it was an emerging
market because of how politics is
increasingly shaping economic policy.
And the reason why Lisa Cook is so
important is that essentially there are
seven voting members on the Fed board at
the moment. Um, and at the moment he has
three under his control. If he gets a
fourth one, then of course he has a lot
more ability to try and set rates and as
we look to the future, what is also very
ugly about what's going on and the
reason why Janet Yellen wrote the
opinion piece in the FT, which is
absolutely remarkable, unprecedented for
a Fed governor to do this with such
strong language.
>> But what's so important is that Lisa
Cook is the first black female governor
of the Fed. The other Fed governor
around that table will be feeling really
nervous.
Okay, going to leave it there. Jillian
Tet in New York, thank you so much. Back
to Cathy.