Why Trump attacking the Fed is dangerous

An honest evaluation of President Trump is that he says and does a lot of things. Some are good. Some are bad.

This one falls squarely in the Bad Trump category.

To understand why, you need a basic framework for how the modern monetary system works.

Here’s the concise version:

• Credit is the lifeblood of the modern economy and banks are the circulatory system, creating + moving that credit through lending

• Banks operate on a fractional reserve system, meaning they create more loans than they have deposits backing them

• If everyone tries to withdraw their money at once, banks fail — that’s a bank run

• Confidence is therefore not optional. We run on a massive ponzi-scheme that we all have to believe in for it to (kinda) work.

• In the early 1900s, J.P. Morgan repeatedly had to personally step in to stabilize the banking system during panics

• The Federal Reserve was created to institutionalize that backstop, acting as lender of last resort

• Today, the Fed also influences financial conditions by setting the overnight rate, which anchors the broader interest-rate complex

Now to the real issue: incentives.

If politicians control interest rates, they will always push them lower.

That incentive is no different from their incentive to increase spending and cut taxes — it helps them get reelected.

But artificially suppressing interest rates doesn’t eliminate market forces. It distorts them.

When rates are pushed too low:

• Capital reallocates inefficiently
• Asset bubbles inflate
• The currency weakens
• Longer-term rates rise as investors demand compensation for inflation and risk

History is very clear on this point.

Countries where political leaders directly influence central banks always debase their currency more aggressively, undermine credibility, and eventually trigger financial instability.

Independent central banking isn’t about perfection.
It’s about channeling incentives.

Undermining that independence for short-term political gain is how you guarantee systemic collapse.

#FreeJayPowell