Lisa Cook treats it like it’s no big deal, like a parking ticket or something like that, but it’s actually a federal crime. So if you’re looking for some reason to go after a Fed board governor with cause, this is a good cause. So I think Trump will prevail in this particular case, but it will have to be decided, most likely by the Supreme Court.
What’s important here, Jan, there’s a lot more at stake than just this one regulation about residences and mortgages. It has to do with whether and to what extent the Fed is actually accountable to the President of the United States. That’s what’s at issue.
What’s striking to me about this is that the Fed has been around since 1913. This question has never really been asked at this level, much less answered. For all these years, this country, we’ve pretended as if there’s such a thing as an independent central bank, and everybody knows what that is. Well, there’s another word for independence that is unaccountable.
JAN JEKIELEK: Right.
JEFFREY TUCKER: Independence sounds great. Unaccountable sounds bad. Well, the Fed’s unaccountable. They’ve not been held to account for any outside audits in its entire history. Any political intervention is widely seen by financial markets as something like a catastrophe. You’re risking the nation’s financial stability and so on and so on.
But in the end, we are governed by this document called the Constitution, and we’re a nation of laws. And the Constitution has three buckets. It has judiciary, has a legislative branch and an executive branch. In the org chart of the federal government printed by the federal government that everybody agrees is true, the Federal Reserve is under the executive branch and reports to the President. You can see it. The org chart is very clear about that. You can say it’s independent. Is that just sort of a norm, that we just have a hands off policy?
The Question of Precedent and Independence
JAN JEKIELEK: Well, this is what I was going to ask because certainly in the judiciary, precedent is hugely important. It impacts a great many things. Is that the case here? Because clearly, as you’ve outlined the precedent has been independence.
JEFFREY TUCKER: So we don’t really know in a constitutional sense what that means. And you’d think that we did, we would know, but we don’t actually know what it means for there to be an independent agency under executive department.
So what’s exciting about the times in which we live is that we’re finally getting answers to these questions. The Supreme Court’s been very clear up to now that the President is in charge of the agencies, executive agencies. So let’s just say the Department of Labor or USAID or Department of Energy, Department of Agriculture or HHS, they can in fact fire employees now. Five years ago, we didn’t know the answer to this question. I mean, I think we’ve had these discussions for a while. We didn’t actually know whether the President was really in charge of executive agencies.
The Supreme Court in a series of cases has been very clear. The President is in charge of executive agencies. But now Trump is taking on the great question of American life, which is the status of the Federal Reserve under the law. That is an unanswered question. So this is a taboo topic. We’ve never been here before. No president since 1913 has taken on the Fed the way Trump has taken it on now. And the Supreme Court I think, is going to have to decide that this is an executive agency.
Why Take on the Fed Now?
JAN JEKIELEK: And maybe give me a little background here. Why, for those that are uninitiated, why would the President feel right now that he needs to take on the Fed?
JEFFREY TUCKER: Well, President Trump’s annoyed the Fed because he thinks that they’re keeping interest rates too high. You can agree or disagree with that. I happen not really to agree with that, but I do agree that you need some accountability for the central bank. I mean, you can’t just have this floating financial institution, arguably the most important institution in the United States, the most impactful institution in the United States.
JAN JEKIELEK: By extension the world.
JEFFREY TUCKER: Yeah, that’s right, the globe. Because we’re on a world dollar standard. So the Federal Reserve is the most powerful institution, arguably in the world. And it’s just this free floating agent out there that nobody knows to whom it reports, if it reports to anybody.
The Constitutional Foundation of Money Power
But under the Constitution, the Founding Fathers were not idiots. They knew the monetary issue was an important issue for any country. But they addressed a lot of things in specifics in the Constitution. They addressed copyrights and patents. They addressed even the post office, all sorts of specific issues. Trade, for example, is in there. But one of the issues they address in Article I, Section 8 is the money power. And they specifically grant to Congress the job of coining currency, to managing currency and coining money. So that belonged to Congress.
Well, very quickly after—and that’s for a reason, because they understood that monetary power is quite frequently abused by the executive: kings, coin clipping. Hundreds and thousands of years of abuse of the monetary financial system by big shot executives, whether it’s pharaohs or kings or princes, whatever. So they wanted it to belong to the Congress, which is, say the people. That was a specific decision made for a specific reason. Very wise.
And they also even restricted the states from making anything other than gold and silver as money because they wanted to mitigate against the problems of inflation, depreciating currency because they knew this had led to upheavals in the past. You can read the Founding Fathers on money. They had a lot of views on this topic.
Thomas Paine’s most famous for having written “Common Sense” and railing against the ermine robes of King George, whatever, but actually he has a lot of writing on the monetary question too. He hated paper money. He said paper money was the source of great evil that leads to inflation and business cycles, trade cycles of booms and busts. He had very sophisticated economic understanding. And I’m not saying that Tom Paine was some sort of unique figure. This whole generation understood that bad money can ruin a country and a society and send the entire culture into upheaval.
So they wanted sound money and they wanted hard money. They wanted the money to belong to the people, guarded by the people, for the people. That’s why they had, in Article I, Section 8, they granted to Congress the power to coin money and restricted even the states. Now we had a 10th amendment, so states have a lot of rights, but they did not have the right to create paper money. That’s in the Constitution. So that’s how serious they were about this topic.
The Evolution from National Banks to Free Banking
Now, soon after the founding, there was an effort to create a national bank and it didn’t last long. Now keep in mind when we say so, we had the First National bank and the Second National Bank. And throughout the 19th century, in the first half of the 19th century, keep in mind a national bank is different from a central bank in important respects. A national bank is really a bank for the government. It’s like Congress makes debt. The national bank buys it and holds it, maybe prints money to buy the debt. And so they have this relationship between the bank for the government and the government has its own bank. I mean, that’s the national bank.
Now famously subject to all sorts of corruption, as even from my description, bond rackets, debt scams, profligate spending. There’s bad stuff associated with national banks. And so it was kind of inconsistent with the American ethos. This was not a central bank. It was just a bank for the government. That’s what it was. And so it went away, then it came back, then it went away again. Andrew Jackson famously railed against it as a monster.
So a lot of the debates about money in the first half of the 19th century surrounded this issue of the national bank. So then we had a long period of what’s called free banking. It lasted for many years. And there were changes in the kind of regime that the relationship of the treasury to the money. What we’re going to have money, we’re going to have a gold standard, a silver standard, bimetallism. There are all sorts of acts coming up from Congress regulating this stuff.
But during the 1870s and the 1880s and 1890s, we had growing outrage against what was called wildcat banking. So we had railroads going through the country, and everywhere the railroads went, property values would rise and business would start popping up. And of course, banks popped up at that area, too, and they started lending money to everybody. And that if the railroad failed or didn’t actually show up at all, the banks would go belly up and take everybody’s deposits and people get angry. So that was called wildcat banking. Lots of booms and busts.
Banks were regarded as normal institutions like grocery stores or newspapers or just another market institution. They could fail, they could succeed, but it was determined by the markets. Now, that’s a little fraught from the depositors point of view.
JAN JEKIELEK: You got to pick well.
JEFFREY TUCKER: Yeah, you got to pick well. But there was competition between banks, and bad bankers went out of business. Good bankers thrived. I mean, it’s kind of a decent system overall, but maybe not incredibly popular for people who lost their deposits, that sort of thing. But there’s a lot of pressure during this period to stabilize the institution.
The Safety-First Society
JAN JEKIELEK: Something that just strikes me, Jeffrey, I can’t help but think that in a society that’s very focused on safety, that prioritizes safety, this is something that really wouldn’t work in the kind of society that we’re in today, for example.
JEFFREY TUCKER: Yeah, even in the world. It was an unusual situation. America had a uniquely free system. There were other examples of free banking in this period of history, but America had a pretty darn free system. It was imperfect, but it was pretty good. No real guarantees, at least not from the center. So it was a pretty good system.
And look, you have to grant that, whatever you can complain about system, but it actually was a kind of handmaiden or shepherd of the greatest period of growth in industrial history. Really what happened to the American economic structures between 1860 and, say, 1910 was a marvel for all the world.
It was during this period where we got the commercialization of steel. We created new cities with skyscrapers. We had sound recording and photography and flight and electricity lighting up homes and cities and communication telephones. The most marvelous period of invention and expansion of incomes, democratization of prosperity that we saw in America made America famous all over the world. I mean, in the second half of the 19th century, there was a growing sense of, in the entire planet Earth that whatever America was doing, they were doing it the right way.
JAN JEKIELEK: Democratization of prosperity. I love that term.
The Gold Standard Era: America’s Economic Golden Age
JEFFREY TUCKER: Well, all the incomes are rising and across all classes. It’s not like the tales that you hear from the Gilded Age, which the rich got richer and the poor got poor. No, I mean, all the data shows that everybody was growing wealthier systematically. Yes, some more than others, but everybody was better off.
And the monetary system we had was free banking of Hearst. And then we had a codified gold standard after the Civil War, and that was a government imposition. The beautiful thing about the gold standard is it restrained congressional spending. There was no ability to print. The existence of physical gold restrained credit expansion. It put money in the hands of the people. Gold and silver circulated among the people.
So this was a hard money country, you know, gold coins dangling in your pockets, you know, and banks, if they were issuing notes, which they did, they would keep gold in their vaults, you know, and it was a good system. It was a brilliant system.
Remarkably, during this period between after the gold standard and then all the way up to, say, 1910 or so, what happened to prices? Well, the value of the money gradually grew. I mean, imagine that you save money and then after five years, you go back to that money that’s in your mattress and you find that it’s more valuable than it was when you put it in.
JAN JEKIELEK: Right.
JEFFREY TUCKER: That’s a remarkable thing. We call that deflation now. But at least under the gold Standard. It meant that the propensity to save was even apart from the interest you earn, you would be rewarded for your prudence, for your frugality, right? And so America became a country of frugality and saving. Saving was always rewarded, prosperity, invention, creation. I mean, it was glorious.
It’s no wonder, you know, the 1890s, almost all of European politics said, “Well, you know, we’ve tried the aristocracies, we’ve tried our monarchies, we’ve tried our kings and queens and multinational big shots running everything in our empires, but let’s face it, we’re all going to eventually be Americans. Look at what they’re doing over there.”
And so this experience really did inspire the entire planet Earth. And America was never more confident than it was under the gold standard in those years. It was also in those years that we developed all of our civic pride stories of the founding Fathers, our national holidays, the music that we associated, the marches and the flags and the signs and symbols, American pride, and you could say even patriotism was born during this period and for good reason.
And I guess my point is that this is all very interesting, but that the monetary regime, being hard money, money belonging to and controlled by the people and by independent enterprises, was a major reason for that. So now we have to fast forward to the Fed, because that’s where things really began to change.
The Birth of the Federal Reserve: 1913
JAN JEKIELEK: And so, you know, this is now we’re talking about 1913. And so what? Just very briefly, why?
JEFFREY TUCKER: Well, a lot of it had to do with the panic of 1907. But like in all politics, sometimes the crisis is exaggerated for a reason. But there was something like a frenzy after 1907. “We can’t stand this system anymore. Ups and downs and bank failures and panics and, oh, we don’t know if the money is there. This is a problem. We don’t know if the debt holders are even going to be paid. We need to bring science to monetary policy.”
So one of the things that was part of the ethos of the time, you could look at the prosperity that unfolded over those 30 or 40 years and say, “That’s a miracle of entrepreneurship, enterprise and freedom.” Or you could look at that and say, “Wow, this is a consequence of good managers, excellent engineers, excellent science, the primacy of rationality over randomness,” Right? There’s two interpretations you could give.
So as time went on, that second interpretation prevailed. So there’s a growing sort of valorization of expertise and management. And they said, “Look, we should bring the spirit that’s given us all these great inventions in the private sector to government itself. Let’s put the experts to work on banking and money.”
And the experts did come together famously at Jekyll island and put together this new institution. It’s a funny institution with a funny name because it’s actually not a national bank. Yes, it is national bank, but it was more than that. It became a kind of regulatory cartel, owner of all banks in the country.
So you could not be a bank unless you were a member of the Federal Reserve. Federal Reserve was going to be responsible for clearing systems, how we got paid. When do you finally get the thing that you’re going for? When the money arrives at the institution that it’s intended for, that’s called clearing. And that was going to be entirely charged by the Fed. That was entirely managed by the Fed.
And so there wasn’t going to be any. No more wildcat banking, no more independent banking. Banks were not going to be this free enterprise operations where they just pop up and go away. No, no, it’s going to be controlled by the Fed. So it was both a national bank and a private banking cartel granted special rights by the federal government. So it exists in this strange place. And that was in 1913.
The Public-Private Nature of the Fed
JAN JEKIELEK: How is it private?
JEFFREY TUCKER: Well, it’s entirely privately owned. I mean, these are privately owned banks. They’re privately owned banks with a federal charter from the government.
JAN JEKIELEK: The banks being all the members.
JEFFREY TUCKER: Yeah, well, all the banks are privately owned, sure. Yeah. And so it’s a private cartel. It’s like the banks, the biggest banks leaned on Congress to codify a centralized system that would retain their private status while forbidding competition from outsiders, from wildcat banks and random people. So the system itself is kind of is privately owned, or you could say it’s a quasi public private. I don’t know what to compare it to. I’m sure there’s a good comparison there.
JAN JEKIELEK: Well, clearly the Board of Governors is not private, right?
JEFFREY TUCKER: That’s right. So this is where we get into a lot of ambiguity. So this is where it gets really interesting. Is it public or is it private? This is where and if it is public, who controls it? The voters? Congress? Supreme Court, The President, who? What does it mean to be an independent agency? We know from the Supreme Court that these don’t really exist in other areas of the federal bureaucracy. We know now that the President’s in charge of them. Well, what about the Fed? But that was always ambiguous in the law.
So what happened was this is the way it’s normally described. Congress decided in its wisdom to take its powers over monetary matters, Article 1, Section 8, and delegate those to this new institution called the Federal Reserve.
The Clever Naming of the “Federal Reserve”
Now, you should just reflect for just two seconds. You know, you and I are both interested in words. The word Federal Reserve is by itself funny because it doesn’t say central bank. Americans hated the idea of a central bank because that was more like Germany and Bismarck or whatever. They didn’t want that. Central bank is not an American institution. So they called it something completely different. It’s actually kind of genius.
They called it first the word federal, federal, meaning decentralized, you know, consistent with the 10th Amendment. You know, we’re these United States. We don’t have a central government. We. We have a federal system where we, you know. And so to accomplish that federal piece, the new central bank had branches, you know, had Minneapolis Fed, an Atlanta Fed, a Dallas Fed, Chicago Fed, San Francisco Fed. So there’s many Federal Reserve banks around the country, and for no apparent reason, really, except to create the illusion of decentralization.
Okay, so there was that. And even now they’re gigantic. And they employ all these researchers and they say interesting things, but there’s no, really, there’s no reason for all these Feds around the country.
The second part, this word reserve is funny when you think about it, because it implies that they have something that they’re in the possession of. “We have the reserves. Just in case we need them. We have the reserves. If there’s a crisis, we’re going to be there to help you. You can have confidence in the system because we have reserves,” you know, whatever. In those days, it was gold. “Yeah, you don’t need to worry. Finally, we have a system that’s stable and functioning and scientific.”
Now, the science part of this thing is also interesting because it comes along at the same time that macroeconomic theory was sort of developing. And the idea was that the Fed eventually, not initially, but eventually the Fed would guarantee, would seek low inflation and high employment or at least low unemployment and some sort of economic stability. So they had this sort of mission, a big, broad mission, managerial mission over the whole country.
The Original Fed’s Good Intentions
The original Fed, keep in mind. So the founders of the Fed and the ethos of the time was they’re tired of the chaos. They’re tired of the chaos of the markets. They’re tired of the bank failures. “We’re going to stop that, but we’re also going to guarantee low inflation.” I mean, this is widely believed.
Now, there’s plenty of people out there that think the Fed is just a big demonic conspiracy. Racketeers, maybe there’s an element of that or whatever. But what I see in the founding of the Fed is a sincere, an authentic desire to stabilize the system, bring intelligence, rationality, managerial prowess and expertise to a sector of society that had long been subject to waves of chaos. I think they had every intention of doing good work.
The founders of the Fed weren’t all. They weren’t bad guys. Many of them wanted sound money. In fact, some of them wanted to stop the credit expansion. They didn’t like the way these wildcat banks, you know, you’d have a bank pop up, Bob’s Bank. “Oh, the railroad’s coming along. Here’s your money, here’s your money.” It’ll lend the money, they’ll collect the money and then the bank goes belly up and people lose their deposits, you know, and then the bandits would be on the run. They didn’t like that.
They were kind of stodgy old timers in a way. “Let’s have gold and a frugal, thrifty middle class and stop with all this nonsense.” Right. So this is sort of the ethos of the first Federal Reserve. But the problem, the problem is that in the end, despite its name, despite the intentions of the founders, it was a central bank.
The Evolution of “Federal” in American Language
JAN JEKIELEK: And if I may just, you know, talking about words and words changing meaning, you know, even growing up, you know, hearing about Federal Reserve or federal anything, it didn’t never occurred to me, you know, and of course I grew up in Canada, I wasn’t taught these things.
JEFFREY TUCKER: Right.
JAN JEKIELEK: That federal meant decentralized. I in fact thought precisely the opposite. That federal meant centralized, that it’s a function of the federal government.
JEFFREY TUCKER: Yeah. Well, this traces to an ambiguity in American history over the word.
JAN JEKIELEK: Well, and it’s just, it’s very interesting because that maybe the shift in the understanding of that word maybe reflects, you know, the shift of how at least some aspects of our society think about how we should be governed.
JEFFREY TUCKER: Yeah. You know, even in the founding period before the Constitution, there was a lot of mix up about these words because they were the Federalists, you know, And a lot of people look to the Federalists and say, “You’re not federalists, you don’t believe in a federation of states. You’re centralists. You want a central government.”
The people who objected to the Constitution came to be called the anti Federalists. Now that’s funny because of course they were the real Federalists. I mean, if you believe the anti Federalists, they believed themselves to be the real federalists. And what was called the Federalists were really centralists. So this is where the ambiguity comes from.
But I think generally we use the word federalism to mean a decentralized system. And in American history that means granting to states rights. And we still have many, many states. States rights. We still have a Federalist style system.
JAN JEKIELEK: 100%.
JEFFREY TUCKER: Yeah, 100%. And you know, Lord Acton said that federalism was the only true great innovation of American political life. The idea that you would have an overseeing kind of structure that was severely restricted in this power. But most of the powers belonged to. To the historical political units called the states. Lord Axon said that was the great achievement of American history.
Modern Examples of Federalism
JAN JEKIELEK: Well, the famous term is right, that they’re the laboratories of democracy. And indeed, you know, I’m just thinking right now about Dr. Joe Latipo in Florida declaring that he’s going to get rid of all mandates in Florida law.
JEFFREY TUCKER: And he can do that.
JAN JEKIELEK: And there’ll be other states that, you know, you could call them Supermandates that believe, you know, this is kind of, kind of the opposite of that. And in fact, some have even declared that in response to this, something in that vein. But there you go, there’s that opportunity. You can see how does this.
JEFFREY TUCKER: A great example, right? Yeah, it’s a great example.
JAN JEKIELEK: We’re kind of, we’re deviating here.
JEFFREY TUCKER: Let’s go back to that. But it’s important and it connects to our topic because of the very name Federal Reserve. I mean, this thing never would have gotten through under any circumstances under a different name. If it had been called the Third National Bank. It would have been dead in Congress in no time. But because it was called a Federal.
The Federal Reserve’s Progressive Origins
JEFFREY TUCKER: Central reserve or the central bank, like the Bundesbank or the Bank of England, these were central banks. But in America we didn’t have that. We had a Federal Reserve. And they created all these branches around the country just to underscore the point.
And in those days, progressivism, what came to be called progressivism, was an ethos alive in the country. The belief that we would take the tools of science and apply them to public policy, to engineer progress. This was the essence of progressivism. And that revealed itself in a number of ways which we now I think find regrettable.
Like eugenics policy was a progressive kind of policy. Prohibition of alcohol was kind of this mandatory uplifting the population, a consequence of progressivism. But 1913 was a remarkable year because you had another aspect of progressivism was the income tax.
I mean, before 1913, just imagine every penny you earned, you got to keep. It didn’t belong to the federal government at all. I mean they had no access to any of your income before 1913. And so we had the constitutional amendment that enabled the income tax.
We had really a shocking amendment to the Constitution that eliminated the bicameral Congress and forced the Senate to be elected by the people in the states instead of being appointed by the state legislature. It’s fundamentally changed the structure of the U.S. Senate and eliminated the bicameral structure of the Founding Fathers and replaced it with what was essentially an experiment.
Well, what I’m saying is that the Federal Reserve was the same kind of experiment. It was a progressivist experiment and the application of expertise and science to the sound management of the monetary system of the country.
The Inevitable Abuse of Central Banking Power
But what’s interesting is that of course, anybody would have predicted this. I mean Thomas Jefferson certainly would have, Thomas Paine, this whole generation would have predicted if you get anything like a central bank, a national bank, a central bank, it will be abused. It will be abused, no matter the intentions, it’ll be abused.
So what presented itself soon after the Fed was founded? The war in Europe, The Great War. It was a mess, a terrible mess and Americans wanted nothing to do with it. But at some point, what kept America out of war for the most part was, well, we just didn’t want to afford it, we didn’t have the money. You know, solve your own problems. We’re over here on the other side of the world, we can mind our own business over here and we don’t have money.
Well now with the Fed, you have the money. You’ve got a printing press, you’ve got this weird power of this one institution to buy and hold government created debt with money that didn’t previously exist. A check, you know, a credit, the nation had a credit card with an infinite balance on it, you know, infinitely high limit. What could go wrong?
And again, I think the founders of the Fed didn’t really imagine this. They thought, “Well, we’re all, look at it, we’re responsible guys, we know what’s what. We would never do something like that.” Well, they lost control of it right away.
And so the Fed was probably the reason why the US entered the Great War. That was probably the reason. And certainly, and there’s been a lot of empirical research about this, the Great War would never have happened without central banks in Europe funding it. The entire Great War was the central bank funded fiat money, debt financed project made possible by central banks, among which The Fed.
The Fed didn’t invest itself as heavily in war as, say, the Bundesbank or the Bank of England or something like that, or the Russian Central Bank. But still, I don’t think the US would have ever entered that war were it not for the Federal Reserve.
Post-War Inflation Crisis
And then the problems began. You know, people don’t understand this, but soon after the war ended, the US experienced one of the worst inflations. Between 1918 and 1921, the dollar lost. Now, the data is a little unclear on this. As best we can tell, the data lost as much as half its value.
JAN JEKIELEK: The dollar lost half of its value.
JEFFREY TUCKER: Yeah, yeah. And this was not entirely because the Fed was going into the open market and buying government debt and printing money because we were under this gold standard. But because the US had involved itself so much in lending to foreign governments, they paid back this in the form of gold. So we experienced a huge influx of gold to the country which did two things. It reduced the value of all existing stock of money.
JAN JEKIELEK: Right?
JEFFREY TUCKER: That’s the way inflation works. So a huge importation of gold from abroad led, just like it did in the Spanish Empire. An importation of gold leads to inflation. So we experienced this big inflation in part because of the war and then a big business boom that resulted in a huge business cycle bust in 1921.
Now, fortunately, in those days, we weren’t yet disciples of John Maynard Keynes and we weren’t using the power of the federal government to try to reverse the economic downturn. There was a complete laissez faire, hands off policy, who cares? And the thing corrected itself. In 18 months, we were back again.
That was the very first crisis of the Federal Reserve happened very, very quickly afterwards, inevitably. Now, at that point, they should have said, “You know what, let’s unplug this stupid money machine. For all the problems, the wildcat banks is better than this, better than total war, conscription, mass death, and the upheaval over Europe that these central banks caused.”
But they didn’t do that. The Fed went back to trying to run a sound business policy. But five years later, they couldn’t fix the problem. And the credit expansion extended. It continued.
Presidential Pressure on Interest Rates
And then the Fed faced another problem. Every president wants lower interest rates, right? We have four years, we get a new president in. He inhabits this sort of world. He gets annoyed. He wants to see rising prosperity. He wants to see economic growth so he can get credit for that. And a major inhibitor of that always is the limitations of the financial system.
And if the Federal Reserve has the power to determine the lending rates between itself and its member banks, which it does, it can set any rate it wants. Then the Fed bears responsibility for the interest rates all the way up and down the yield curve throughout the entire country and can drive growth or it can drive pullback on growth and hence.
JAN JEKIELEK: The President taking big issue with the credit right now.
JEFFREY TUCKER: And again, you know, I don’t, I’m not here to agree with Trump’s evaluation of this, although, you know, in his defense, you know, he’s a businessman and he’s worked in debt and banks all of his life, you know, raising huge empires all over the place of business and dealt with banks. And he always wants the best rate.
As a businessman, he’s not going to accept the rate that’s given to the hoi polloi. He wants the best rate for the money that he’s getting. He believes in debt, he believes in leverage. As a businessman, he came of age in the day age of leverage. So he believes in leverage and he believes in low rates. So he’s using that model and applying it to the entire country.
So I get it. I think it’s reckless, but I get it. So this may not be the ideal conditions under which to challenge the Fed’s so called independence, but I am nonetheless a lot about it. I think this is a reckoning we have to have. Who’s in charge of this thing that we call the Federal Reserve?
The Fed’s Role in America’s Debt Crisis
JAN JEKIELEK: Well, and so in terms of, you know, there’s a great number of institutions in this country that are involved in finance, right? Private, private, public, public. And we do have this astonishingly large debt in America right now that’s kind of been accelerating right through the interest payments and so forth. How much of a responsibility does the Fed have for this reality in your mind, in the grand scheme?
JEFFREY TUCKER: Yeah. So big question. I do recall that when I was a sophomore in college as an economics major, when I discovered the power of the central bank in terms of its capacity to drive prosperity, drive inflation, send whole societies into upheaval, French Revolution, Bolshevik Revolution. I mean, you go through it, you look at the Weimar inflation of Germany, you know, arguably, without which we would never have seen a Hitler.
You realize that the monetary piece of public policy is huge. It’s gigantic. It’s something that once you start looking into it, you become obsessed with it. And I did, I did. I wrote my undergraduate thesis on the Federal Reserve, in fact, and on the gold standard. And it was the longest thesis in the history of the academy where I attended, because I just got obsessed with it because I think it is really important.
Lots of people argue for a constitutional amendment to balance the budget. A lot of people want their Congress to cut spending and so on and so on. But until you unplug the Fed’s capacity to just print money and cover up for all the profligacy of Congress, we’re never going to get there. We need sound money or we’re never going to get anything remotely like a balanced budget. It’s the Fed that makes it all possible.
It is the Fed provides a moral hazard that results in ever bigger government, ever more debt forever. And, you know, I’m cautious about people who always want to paint the chairman of the Federal Reserve as some sort of demonic devil guy. I don’t think that’s really true. A lot of these guys have every aspiration to run a good policy.
Jerome Powell’s Dilemma
I mean, I think Jerome Powell. Let me phrase this. I think Jerome Powell knows what’s right, and I think he wanted to run a sound policy. He inherited Ben Bernanke’s policy of zero interest rates, which is a grotesquely irresponsible policy. It never should have been imposed after 2008, and it bloomed up. The assets the Federal Reserve had owned, they wanted to normalize the balance sheet.
And Jerome Powell had every intention of doing that. And that’s what he did do. He started cranking up interest rates a little bit of time, wanted to normalize Federal Reserve policy, make it more responsible, clean up the Fed’s balance sheet, get all these bad mortgages off the books and set us back on a good policy. He is a sensible, reasonable human being.
But they came to him in early 2020 and said, “Mr. Powell, you may be a good manager of the monetary system, you may be a good and respected head of the banking system. You also have responsibilities to larger issues like the priorities of the federal government, too. And we’ve got a virus on the way and we’re going to have to deal with this in a big way. This campaign you have to raising interest rates has got to stop right now. Starting now.”
I don’t have a transcript. I don’t know for a fact this happened. But you can look at it in the data they got to them. Said you have to serve the cause. Right now you are federally chartered. You have a responsibility to the government here. We want these interest rates to fit and match what’s about to happen.
So sure enough, I think it was about March 12, maybe March 10, he slammed the rates back down to flat zero and accommodated trillions and trillions of dollars of congressional spending for the coronavirus and created more money in those 18 months to two years than we’d ever seen really in American history, certainly since World War II. I mean, it was an unbelievable thing.
This is not what Powell wanted, but it’s what he had to do because he was being pushed from every end, we don’t know who, and because the structure existed, to actually do it, because it was possible. You know, you can send your college kid off with a credit card with an unlimited balance on it and tell him to be frugal and be careful about his spending, but he’s probably not going to be.
That’s essentially what we’re dealing with with the Federal Reserve. We’ve got the whole federal government on this Fed credit card and they just can’t stop. They can’t stop it.
JAN JEKIELEK: And it also just strikes me that the way. And just please comment on this. But the way it’s structured strikes me that the locus of responsibility seems to be diffuse or unclear. Yeah, right.
The Federal Reserve’s Unaccountable Power
JEFFREY TUCKER: So this is right, and this is what I think we’re going to have to get settled. And this is why I admire what Trump’s done so much. I think what Trump’s done here with this Lisa Cook thing is just brilliant. I mean, he found a way in to test the powers of the people’s elected leader over this central bank that has lived for more than 110 years in this kind of obscure, floating realm of independence.
And, you know, we don’t really have access to their books. We don’t really know what goes on with the Fed yet. They have to present reports to Congress. The government can audit them like they audit the Pentagon or anybody else, but they’ve never been exposed to an outside audit like any big company would be. They’ve never been outside audit. Even the Rand Paul’s interest legislation, his father before him, going back decades to audit this thing, it still has not been audited.
So there’s weird stuff going. It’s an unaccountable institution. It’s really a beast. It’s responsible for the financialization of the US Economy, the explosion of the capital goods sector at the expense of the consumer goods sector. It’s arguably been the reason for the blow up of the managerial state and for the puffiness and frothiness of the corporate world, the centralization of business, the persistence and rise of the media. It’s a lot of things.
The “Frothiness” of Corporate America
JAN JEKIELEK: What’s the frothiness of the business world?
JEFFREY TUCKER: Oh, just ever since ZIRP since 2008. We have a whole sector of society of people inhabiting high level corporate positions, getting paid very high salaries because of their resumes and don’t actually do anything.
JAN JEKIELEK: That’s the frothiness.
JEFFREY TUCKER: This is well documented and it’s a shock really. And I think the Fed bears most responsibility for that. That was zero interest rate policy. When money is free, you’d be crazy not to carry debt. You’re crazy. If you make any money at all, you’re going to be making more than it costs you to borrow money.
JAN JEKIELEK: Right, but that only works for people who have the ability to access that money.
JEFFREY TUCKER: That’s right. So it’s big business. Big business. That’s the reason why big box stores are taking over everything. We’ve got a weird situation in this country. We no longer have small businesses that are happy to do small businesses. Most businesses are started these days to be acquired by another business. And those businesses are acquired in hopes of being acquired again. It’s a crazy thing.
This is especially true in the world of finance. You would never start a fund with the expectation to hand this off to a fund off to your kids or their kids. No. Your goal is to impress buyers who buy you and their goal is to impress even the higher buyers. Everybody wants to be Goldman Sachs. It’s terrible.
JAN JEKIELEK: Well, and just on that note, you know, I know a number of scenarios where people who understand exactly how this works have built small businesses so that those numbers look just right for the people that are going to be doing the acquisitions. It’s astonishing. Right? But the actual sort of the inherent value is not very interesting, if that makes sense. It creates this weird…
Constitutional Questions About Fed Independence
JEFFREY TUCKER: It’s very strange. And a lot of it is because of the leverage and the debt for finance and the financialization that’s taken place. There’s so much fakery in the world because of the central bank, you know, which creates a real… So we’re at a very interesting time because we are maybe on the verge of solving this problem.
What is central bank to whom is it accountable? Is it an executive agency like the Org charter, the federal government says? Or is it somehow, I don’t know, independent? I don’t know. By the way, can Congress really give up its powers? It was given control in Article 1, Section 8 over the money and the coinage. That’s what the Constitution said. This is your job, Congress. Can they really just write a legislation and go, “Yeah, we don’t like this so much” and toss it over to the executive department? Can they really do that? Can you just delegate whatever you want?
I mean, how do we know that the Federal Reserve act was even constitutional? Do we know that? Has it ever been tested? It’s never been tested. I’m not sure they can really do that. And if they’re going to do that, then they have to expect that the head of the executive departments, you know, the head of the executive branch, will expect to have some sort of managerial control over the central bank.
Because Article 2, Section 1, says the US President is the head of the executive branch. The Federal Reserve lives under the executive branch. It’s not complicated. The Constitution says this power belongs to Congress. Congress punted, gave it to the President. Well, now the President’s going to be in charge. I think it’s the way it’s going to be.
Is the Supreme Court really going to say, “Yeah, I know there are three branches of government and all that kind of stuff, but the central bank, we’re just going to let that float around?” You know, that’s not… You can’t say that. There’s nothing in law that would seem to make it possible for the Federal Reserve to forever claim to be some independent floating, all powerful hegemon.
The Challenge of Reform
JAN JEKIELEK: And if I may comment, you know, I’m just kind of thinking through here, everything that you’re saying, and it’s not entirely clear to me, you know, and I’m always thinking of, you know, what Alan Dershowitz calls the “shoe is on the other foot test.” Just think, what are the ramifications of a decision in the future with different people, with different ideologies, different approaches dealing with it. It’s not clear to me which of these solutions actually is the one that makes most sense.
JEFFREY TUCKER: Yeah, yeah.
JAN JEKIELEK: This one, including even the, I mean, I suppose the independent floating one is when you don’t, you really don’t want. Because you end up with this situation where you have, for example, in the UK, these independent NGOs kind of making decisions for the executive.
JEFFREY TUCKER: In effect, that’s what the founders feared the most. They feared an unaccountable central bank. That’s why it never really gained traction.
JAN JEKIELEK: That’s an unlikely route.
JEFFREY TUCKER: Let’s leave that one out.
JAN JEKIELEK: Does it look like Congress taking control of monetary policy? What does that actually… What would that even look like? And does it…
Mapping Possible Solutions
JEFFREY TUCKER: Yeah, I don’t really have an answer to that. You know, part of the problem is, and I wrote an article for the Epoch Times a couple days ago, thank you, by the way, for publishing that. I, at the outset of the article, warned everybody. It’s the most boring article you will ever read. But I did a taxonomy of monetary regimes, 10 possible policy priorities and systems that you could have in this country as systems, and also possible routes of reform, paths to reform.
So I can map out to you right now what I think is the ideal system. And I think we had that in this country. It was free banking combined with a congressionally established and presidentially enforced gold standard. I think that was beautiful. It’s not so simple to say, let’s go back to that. I don’t know how you would do that. I don’t know how you get from here to there.
But look, we have what we have right now. We’re going to get something different soon, right? Probably as a result of a court decision over this very, very provocative, but I think quite brilliant move by Trump to go after a Federal Reserve Board governor, fire her for cause, and then just see what happens. I don’t know. I don’t know how it’s going to end up. I can see dangers in all directions.
The Need for Accountability
I will tell you this. I think it’s time for some accountability and it’s time for some clarity about what this thing we call the Federal Reserve is, to whom it’s accountable, and whether and to what extent the voters have any place or role in oversight and controlling it. If we don’t, you know, we’re going to continue to lose our economic freedom, our independence, our aspirations for an enterprise and economy with frugal people who can save money and be rewarded for doing so. There has to be a change.
We live in times of great nostalgia, where people want to recapture what we’ve lost as a nation. Freedom, independence, frugality, prosperity, families that can live off one income and so on. None of this is going to be possible unless we can figure out a way to restrain the Federal Reserve.
I think in a circuitous and sometimes fumbling way, President Trump gets that intuitively. He understands that this institution must be held to account. It must be accountable to the people and to the people’s representatives. And I think that’s a good decision. I think it’s a good step to see how it turns out.
JAN JEKIELEK: Well, Jeffrey Tucker, it’s such a pleasure to have had you on.
JEFFREY TUCKER: My pleasure. Thank you, Jan.
The Gold Market and Investment Opportunities
JAN JEKIELEK: So, everyone, before we finish, I want to try something a little different. I met a new friend, Andrew Sorcini, over at Beverly Hills Precious Metals. He’s been working with someone I trust very well on purchasing gold, silver, other things. It’s actually a huge opportunity to learn about what’s happening. I’ve been watching the gold market and I think it’s the highest price ever, actually, that it’s at right now. Can you just tell me what is going on and what does that mean for investment?
By the way, just as a caveat, I am myself deeply invested in gold. Not with Andrew’s company, but I see that as an excellent place to put wealth these days.
ANDREW SORCINI: Oh, yes. So for the past five years or so, the BRICS nations, which are Brazil, Russia, India, China, South Africa, and now a whole slew of other countries, they’re trying to de-dollarize the globe, meaning they don’t want the world’s trade to work on the dollar. And what this has done is they’ve been hoarding the earth’s gold in record amounts with the idea of coming out with some sort of a central bank digital currency that’s gold backed. That’s been the single driving force on why gold has been blasting off recently. And really, it feels like there’s no end in sight.
JAN JEKIELEK: Well, that’s interesting, but isn’t this sort of working? Are you basically saying if I’m investing in gold and silver and precious metals, that I’m actually working against the United States here?
ANDREW SORCINI: No. So what happens is that when Donald Trump actually gave his inauguration speech, the first words out of his mouth were, “the golden era of America begins right now.” And he keeps throwing out these gold innuendos and a recent one actually ties into what’s happened this week. So a little while back, he actually tweeted on X it said, “he who holds the gold makes the rules.” And on that day, gold went to $3,500 an ounce. Then over the next couple of months, it did go down below $3,300. Today, it’s sitting at $3,550 per ounce.
And I believe that we are going to one up what the BRICS nations are doing with our own gold holdings. There’s a good chance that gold could be revalued, meaning it could have a new spot price significantly higher almost overnight. And for people out there that might be watching, you can Google that. Not that everything on Google is true, but you can get a general consensus as to whether or not this is possible and why it would benefit countries.
And just to close out this thought here in the United States, this would be a way that we could wipe out the national debt by reevaluating the gold spot price. It could happen because if we’re not doing that, there’s no way for us to ever eliminate that 30-something trillion dollar debt.
The Gold Standard and Market Dynamics
JAN JEKIELEK: Well, right. I mean gold is kind of fascinating. You know one of the big theories I remember back in the day was when basically America went off the gold standard. There was this kind of weird expectation among people that gold was just going to bottom out to industrial prices. But frankly that didn’t happen. It went in the exact opposite direction. Right. So gold has this very strange staying power. I don’t know if this is the reason for President Trump’s particular fascination with it, but what do you think?
ANDREW SORCINI: I agree with it 100%. And just talking about the Fed reserve for people out there that might be seeing that Trump’s been battling with the Fed reserve chairman trying to get him out of there, it’s not a reserve. So all it is is something that was put in place when we went off of the gold standard which has been a little bit over 50 years ago and actually it was last July that we really took a big hit in America. And this didn’t hit the so called mainstream media. We went off of the petrodollar in July of last year. Saudi Arabia’s 50 year contract on the petrodollar ended in July and they just chose to not renew it. So technically our dollar is not backed by anything real at this point.
I mean we’ve sort of known that for a while. And also a news article came out this week where the foreign bank holdings now for gold exceed their treasury holdings. That means that the foreign banks are no longer investing in the dollar. They would prefer to invest in gold right now?
JAN JEKIELEK: Well no, in fact I was just actually looking at a graph that actually speaks to this. I mean there isn’t a ton of trust in the euro either or even less. But there is this increased interest in gold as the place where people store value.
ANDREW SORCINI: Yeah, all the currencies out there for pretty much every country. Many of these countries are like America where they do have a big national debt or their currency just doesn’t have the value anywhere close to other countries currencies. So I believe that the way that we spend money is about to change forever. So we’re probably going to go to something digital. Like for me I like sports, I live in Los Angeles, I go to Dodger games, they don’t take cash there. So people want to use their phone to pay for things. So if we’re going to be doing that, why don’t we have some sort of currency that is digital that’s based on something that’s real, like gold and, or silver. And for people like us that own gold or silver, you’re in on the ground floor on something that could really only go up in value if the whole world is using it as a currency.
JAN JEKIELEK: Again, the reason that I shifted the holdings that I have into gold mostly is because I view it as a kind of a safe store. This is what’s interesting. It is at a record high price right now. But generally you don’t hear that you want to buy high. Generally you hear buy low, sell high, that kind of thing. I’m not looking to buy and sell. I’m looking to have a place where I have safety.
Silver Investment Opportunities
ANDREW SORCINI: Yeah, absolutely. So talking about the idea of buying higher, okay, I talk about gold a lot. But when I say that something, when I talk about gold, what’s good for gold is great for silver. And silver is something that’s been heavily manipulated for years. Meaning that the big banks out there would not allow silver to break out of a $20 to $25 per ounce range. So it would literally go from $20 an ounce to 25, back down to 20, up to 25 and just continue. And it was all these people were investing in silver hoping that it could get back up to $50 an ounce, which is the all time high, and exceed that at some point.
Even in 2011, silver hit $49 an ounce. Gold was $1,900 an ounce. Today, gold is at $3,550 an ounce, and silver’s at $41 an ounce. So if you were to, if you look at the ratio, silver should be a lot higher right now than it is. But the good news for silver is that it has broken out of that $20 to $25 range. And the odds of it going past $50 an ounce and into an area that we’ve never seen it go before are very strong. So at this point, I do like investing in silver with it being at a higher spot price than say, before, because people have waited years for it to break out of that $20 to $25 range. So I think that for precious metals, it’s now.
JAN JEKIELEK: Well, no, And I appreciate you clarifying around silver because I always had this question in my mind. Why would I do silver at all? Right. I mean, I’m very simple in this respect. Okay. You have to forgive me here.
Retirement Account Rollovers and Precious Metals
ANDREW SORCINI: Yeah, yeah. It’s one thing that people can do to own gold and silver is people oftentimes will do a cash purchase. And when they contact us for a cash purchase. They go on our website, they fill out an online form and they ask us to contact them. And we do. And we’re not super pushy. We give people time to be able to speak with their family members, financial advisor, or even pray about it. So we’re not going to berate somebody because they can’t make a decision to make a purchase on a 10 minute phone call. So we’ve been doing this for a very long time.
But people should reach out to us because they can roll over a portion of their retirement account to hold physical gold and silver that’s stored at a third party depository where it’s fully insured, it’s not stored at our office and it’s not a taxable event. And these rollovers, that’s what they’re called, they only take about 10 days to get going. We’re having more people contact us now than at any time in the 40 years that I’ve been doing this.
JAN JEKIELEK: Tell me a little bit more about this retirement aspect because I’m also, I’m Canadian. We have our own system. Right. Of how things work. Give me the kind of the nuance of the distinction if you’re putting it into a retirement type account versus just buying casually.
ANDREW SORCINI: Okay. So it really, it only works for the US based retirement accounts. But if you have an IRA, say at Fidelity, okay, I’m just using them as an example. And let’s say you have $100,000 in that retirement account and you want to own gold and silver in that retirement account, then you would reach out to us, we’ll help you do a rollover. What happens is we do an onboarding appointment with our IRA custodian, which is not Fidelity, and our custodian will ask Fidelity to send, let’s say if you’re doing $20,000, they would send $20,000 over to our custodian. Once it funds, okay, then we contact you and we say, hey, $20,000 there, now it’s time to get you some gold and silver. Then we do the gold and silver purchase and it’s not considered a distribution, it’s not a taxable event. And now you have physical gold and silver that you can see on a quarterly statement or daily online at any given point.
If you live off of your retirement account or you pull from it regularly, you’re able to do that. All you have to do is either leave enough cash in it to do it or sell us back a little bit at a time. People do both options and it does. It’s not just IRAs. If you have a 401k from a company that you no longer work at, or if you’re currently working at a company that you do have a 401k and you’re over 59 and a half, those can be rolled over. You might have a government TSP account, an inherited IRA. You can have a simple IRA. Those can all be rolled over into precious metals IRAs.
Market Impact and Historical Perspective
JAN JEKIELEK: And so. But, you know, let’s say everybody were to listen to you. What would that look like?
ANDREW SORCINI: I love that question. So earlier I mentioned that really only 1 to 2% of Americans understand this and understand how gold and silver can help their portfolio. It’s my estimate that if that were to somehow bump up to 10%, that that would probably wipe out all of the physical gold and silver that’s available, and it would probably drive the price sky high. The people here don’t really get it, but it’s. I’m trying. I’m out there spreading the word. And it’s great because it’s helped so many people over time.
I mean, I’ve had Beverly Hills precious metals since 2010. And so for more than 15 full years, I’ve been helping people with retirement accounts and in, like a call center format. But prior to that, since 1985, it was my first job working in the coin business. And I remember early on, I couldn’t understand why these men would walk in with wads of cash, trade cash for stacks of gold. And I just remember asking the boss there, like, why would they want gold more than cash? And he told me, he said, “the cash isn’t worth anything. It’s just paper with numbers on it. The gold is worth something.” And ever since then, I got it.
JAN JEKIELEK: Well, you know, I was chatting with Jeffrey Tucker, and one of the things we were talking about is coin stores. And, you know, something amazing about coin stores is that they’re actually kind of a. These coins are a physical representation of, you know, actually a freedom of people’s freedom, of people being able to hold wealth themselves in their own hand in their own way.
ANDREW SORCINI: There was a time when owning an actual $10 gold note or a $10 gold coin were the same because the coins backed the note. But now that is no longer the case. So to me, when you invest in gold and silver, you are investing in history. You’re investing in part of what made America such a great country. And we’re still a great country. We just need to revamp how we spend money. And to me, gold and silver is where it’s at.
JAN JEKIELEK: Well, wonderful. Listen, I appreciate you taking the time, and as I said, you’ve come very, very well recommended, and I hope some of our viewers will have the chance to work with you.
ANDREW SORCINI: Oh, me too. Me too. So, hope to be back.
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