This is a terrible idea.

We know this because persistent White House arm-twisting of the Fed to compel it to keep money policy too loose in the 1970s was certainly politically convenient. But it created runaway inflation, triggered lunatic action by corporations (think: a cereal company buying a gold mine to hedge risk) and caused Treasury bond yields rising to 20% and home loans at 26%–and a resulting decade of economic suffering–before the federal government could retake control of economic growth.

I remember this time very clearly. My wife and I bought our first house in 1981, when mortgage rates were 17%! My wife had a moving subsidy from her employer, so the rate for us was only 11%.

Unless he’s more severely cognitively impaired than is commonly thought, Trump must also remember the enormous pain that putting a lid on inflation caused in the 1980s, the long time it took to get prices back under control and the immense hit to economic growth that runaway inflation delivered. All because the executive branch had routinely interfered in monetary policy.

Nevertheless. Trump seems to want to bring that very dark time back.

The world has seen this movie before. So too the major international banks who have enormous influence in setting exchange rates. Were Trump to fire Powell, as he’s threatening to do, the financial markets reaction I think we’d see would be very ugly:

–a sharp rise in interest rates

–a substantial drop in the value of the dollar and

–a big selloff in the stock market.

My guess is that any reaction that falls short of Trump’s removal from office by Congress would prolong and maybe intensify the selling.

an ethics question:

Which is worse?

–having ICE seize a legal resident, take him away from his wife and child even though he has not committed a crime, imprison him in El Salvador and refuse a court order to return him to his family and job in the US–and doing this over and over, or

–ending the role of the Federal Reserve in maintaining maximum sustainable GDP growth, causing runaway inflation and capital flight from the US.

The former is more concrete, and contains a terror component that is presumably an important part of ICE’s mission. Not great for bringing tourists to the US, either. But the latter is arguably more evil, since it stands to destroy the economic lives of millions of people.