Fed chair alarms market; Grenada; a GOP moderate

 

Fed chair alarms market; Grenada; a GOP moderate

Brief notes of the week

 

Gordon L. Weil

New Fed chair raises alarm

The new Federal Reserve chair has lost support in financial markets in record time.  The non-financial media and the political world have not caught on, but his moves to recast the Fed’s role is causing reactions approaching alarm.  One leading expert opined that “the bond market puked on him.”

The Fed sets short-term interest rates and buys and sells federal debt to influence long-term rates.   It has huge economic clout, alongside the federal government’s spending and taxing. But Kevin Warsh wants to keep quiet about the Fed’s future thinking on interest rates and to reduce its holdings of federal debt. 

Warsh wants the market to drive the economic policies, uninfluenced by Fed forecasts.  He believes that market participants should “play the game rather than watch the referee.”

That would make the economy a playing field (between what parties?) with the Fed assuring fair play.  Meanwhile, the Fed would say less and, presumably, do less.  The Federal Open Market Committee, composed of Fed Board governors and regional Fed bank presidents, could meet less often.

The market wasted no time in reacting to Warsh’s closed-mouth policy, scolding him for not recognizing that the Fed is a major player not simply a ref.  Left unsure of the Fed’s future thinking, the market lifted interest rates.

FOMC members are independent of the chair, making it likely that his new policy lost him support.  The powerful president of the New York Fed bank quickly sketched his view of the economic future.  Other members split with Warsh on rates.

Ironically, the man Trump sent to lower interest rates finds that the president’s Iran war and his own policy shift increase rates.

Grenada or Greenland

The State Department is reportedly closing several diplomatic offices abroad, including the embassy in Grenada, a small, independent country in the Caribbean, located about 100 miles from Venezuela by sea.

The U.S. invaded it in 1983 when Ronald Reagan was president, because of fears it was coming under the influence of Cuba and Russia.  In more recent years, it has developed a two-party political system with elections resulting in peaceful change.  Grenada’s sovereign is Charles III, the King of Grenada and of the United Kingdom.  Grenada has a population of about 115,000.

Its economy depends on tourism and the export of nutmeg and other spices.  Its major economic problem is the large burden of public debt.  It is avid about the game of cricket, and China has financed a $40 million stadium there.

This year, the U.S. opened a consulate in Nuuk, Greenland, which is an autonomous territory of Denmark.   The U.S. has an embassy in Copenhagen, the Danish capital, to which the consulate is subordinate.  Greenland’s sovereign is King Frederik X of Denmark.

The population of Greenland is about 57,000.  While it has half the population of Granada, President Trump wants to acquire it over the opposition of Greenland, Denmark, the EU and Canada.  Its area is 6,288 times greater than Grenada’s.

Trump worries about China having invested in Greenland, and wants to take overt action.  He is unconcerned about Grenada, where China has also shown interest.  Despite its potentially strategic location, Grenada is not in the running to be the 51st state.

How to be a Republican moderate

A moderate is defined in Congress as a senator or representative who sometimes splits with their party to vote with the other side.  Their vote may be especially telling if they oppose a president of the same party.

In the age of extreme partisanship, acquiring the status of a moderate requires only a handful of votes in opposition to one’s own party.

But there is one step even better, enabling the dissenter to break with the party to justify home-state claims to be a moderate without the vote making any difference.  You can vote against your party when it has enough votes to prevail without your help.

Voters in the home state are supposed to see the independence asserted by the officeholder, which gains them votes.  Party allies in Congress accept the opposing vote, aware of its help to the supposed moderate and the continued loyalty of the senator or representative. You can almost see the nod and wink.

This week, Maine Sen. Susan Collins was the sole Republican to vote with Democrats on an environmental issue.  No matter, the GOP had enough votes to defeat it.  Facing a tough reelection, Collins could add evidence to her claim to being a moderate.

She also announced that she would vote against the confirmation of Todd Blanche as Attorney-General.  By announcing early, she could avoid direct responsibility for being the swing vote.  He would squeak by without her vote.  Maybe her vote would dim memories of her unpopular support for Justice Brett Kavanaugh or Secretary Bobby Kennedy, Jr.