00:00Hey everyone, it's Spencer Akimian and welcome back to another episode of What's Moving Your
00:05Money. On today's episode, we're going to be talking about President Trump's decision to fire
00:11Fed Governor Lisa Cook, Lisa Cook's subsequent refusal to step down, what this all means for
00:17markets, and most importantly, the precedent that this sets in the United States going forward,
00:23and how this will continuously impact markets as we progress throughout our lives. So stay
00:29tuned and I hope you guys enjoy. So last night, Trump put out a true social post that he was
00:40firing Lisa Cook immediately, and the reason that he had given was that she had supposedly
00:45partook in mortgage fraud. Now these claims are unsubstantiated, but nonetheless, the president
00:51used them as reason to relieve her of her duties effective immediately. This puts the Fed in an
00:58interesting spot because if the Fed continues to let her stay on as a member of the Fed, and if in
01:06the appeals process she loses and it is proven that Trump is allowed to fire her, then this would give
01:13Trump legal capacity to potentially fire everyone else on the Fed for breach of duty. So Powell and
01:20co are in a very complicated situation here. On one end, do they protect their monetary independence?
01:26Do they protect what is an obvious attack against one of their own? Or do they let her go so as to
01:33not open a can of potential legal worms? It is a very good question. And to be honest, it remains to
01:40be seen what the Fed will do. They have not spoken publicly yet as to what their plan of action is,
01:46but I'm going to be looking forward to that very closely. Another thing that's really worth noting is
01:51this is unprecedented. This is the first time in 110 years that a president has fired a member of
01:58the Federal Reserve. Now this comes as Trump has relentlessly attacked the Federal Reserve for what
02:03he believes is incorrect monetary policy, and he has relentlessly attacked them for not lowering rates
02:09fast enough. The direction here is quite obvious. He wants lower rates, whether it is for the better of
02:15the country, for the worse of the country. He wants during the remaining three and a quarter years of
02:19his term as president, he wants lower Fed funds rate. Ironically, what he may not be realizing
02:25is all this jawboning is causing long end yields to rise. It is not as if long end yields have fallen.
02:33Go try and get a mortgage right now. You're going to get quoted in the high six or the low sevens,
02:38depending on your credit score. It is not just the Fed funds that impacts the economy.
02:43As a matter of fact, the Fed funds is a rather small overall interest rate point relative to the
02:50rest of the entire borrowing spectrum. So it is not as if he can just jawbone the Fed into lowering
02:56rates and that will transmit into lowering rates across the curve. In fact, it might even price in
03:01some higher inflation premium and it might cause rates to rise, ironically. So it is not a guarantee
03:07that this aggressive plan of action will even work out for what Trump is attempting to achieve.
03:13So it is curious, but we have to monitor it nonetheless because it moves markets. Now let's
03:18get into what impact this decision had on asset markets last night because the reaction was
03:25immediate and it was substantial across the asset universe. So the most immediate reaction was that
03:32the dollar plunged on the news. And this is fairly obvious. As we lose monetary credibility as a country,
03:39as we have political interference in the monetary process, we get closer and closer to losing reserve
03:47status. And if we are on a path towards losing reserve status, remember, this is not an on-off switch.
03:54This is a continuum that happens over a very long period of time. But it clearly looks like we're on
04:00that path towards losing this status relative to other countries around the world. If this status is lost,
04:07the value of the dollar is lower. There is not enough, there's no longer as much need to hold
04:13on to dollars as there previously was. And as that happens, the dollar falls. And as I keep covering in
04:19prior episodes, this is inflationary. This is actually material to your life. When the dollar falls,
04:25your imports become more expensive. When the dollar falls, your vacation overseas becomes more expensive.
04:32When the dollar falls, your purchase of commodities becomes more expensive. All of the above becomes
04:39more expensive when you have a falling dollar. The next asset that immediately reacted to the news
04:45that Lisa Cook was getting fired was gold. And this is just the other end of that same exact puzzle.
04:51Dollar falls, commodities rise, right? Dollar falls, gold rises. Gold is a, in theory,
04:58finite asset. And dollars are obviously an infinite asset. And as the dollar weakens,
05:04or as more dollars are in circulation, gold improves, gold goes up in value. Remember,
05:09it's not that gold is getting better. It's that the dollar is getting worse. So I always consider
05:14these two sides of the same trade whenever people ask me. The next thing, which was ironic, really ironic,
05:20was that treasuries fell. Long-end treasury yields rose, right? The 10-year, the 30-year, all of those
05:27rates got more expensive last night on this news. And again, as we lose monetary credibility,
05:34the market will begin to assume we will look through inflation, and we will continue to leave rates
05:41lower to pump nominal growth. And as that happens, right, you have to get a higher yield.
05:48If you want to borrow to someone, because you have to factor in the risk that you are not going to get
05:54paid in real terms at this point. So you can't just look at nominal returns, you have to look at real
05:58returns, which is why yields are rising. And finally, equities were roughly flat. Equities are flat because,
06:06yes, in the long run, this is bad for asset prices. This is bad for a country's stock market and for its
06:12financial market. But in the short run, if you are going to artificially lower monetary policy,
06:19if you are going to artificially jawbone the Fed into expanding its balance sheet yet again,
06:24then it's nirvana for stocks. It's 2020, it's 2021, it's 2009, it's all over again, right? The side
06:32effects come next, but the good stuff is going to come first. So stocks may be pricing in a little
06:38bit of that. And again, markets are not ethics machines. Markets are pricing mechanisms. So as
06:44these things happen, we'll just have to pay more attention to it. That's all it is. And I just want
06:48to end this episode talking about the potential moral hazard of these actions. It's not just this one
06:55action. It is the compilation of all the actions of what Trump has done in regards to monetary policy
07:02independence in a few months. In politics, I always say, don't think of a decision in the present day.
07:08Think of a decision based on if the party you dislike makes that decision in the opposite manner.
07:15Would you still support it? Therefore, that's how you can get to having an honest opinion. Is this a
07:20good idea? Imagine if Gavin Newsom wins in 2028. And in 2029, he comes around and he fires all the
07:27right leaning members of the Federal Reserve and replaces them with left leaning economists. How
07:33would that make people respond? For independents like me, for nonpartisans like me, we'd be angry
07:38both times, of course, right? But if you are cheering on this decision, because in the short term,
07:44you believe it is good, or your team, quote unquote, is winning. Think about how often
07:49control changes in Washington every two years, every four years, you name it.
07:53Power changes hands. And once you set a precedent, it is very hard to undo that. Once you set the
08:01president that the president is allowed to pick who he wants to serve on the central bank during his
08:08term. Well, you've made that a permanent fixture of politics now. And we are all going to pay a price
08:14if we do not have monetary policy independence, not just you, not just your company, the whole
08:21country, the whole world will pay for an America that does not have central bank independence. This
08:26is a bad idea. And history will ultimately show that it was a bad idea. But nonetheless,
08:32I welcome all your questions and comments. And I'm looking forward to the next time.
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