Source: Dolartoday.com (None)
Reporter

If you can’t remember why the United States made the Federal Reserve independent, take a look at Venezuela. If you can’t remember and you happen to be the president of the United States, look twice.

Since the start of 2012, you see, Venezuela’s government has forced its central bank to print so much money that its currency, going by black market rates, has lost 99.9999 percent of its value. In the meantime, the regime’s response has been to lop five zeros off all their money in an attempt to pretend things aren’t as bad as they are. Which, of course, doesn’t solve anything. It’s like trying to lose weight by changing your clothes. It might make you feel better about yourself for a little while, but it’s no substitute for the real solution: not printing any more money.

This, as you can probably tell, is pretty much the worst-case scenario for what can happen when politicians are allowed to make monetary policy decisions. Indeed, it has gotten to the point that the International Monetary Fund has all but admitted that it has no idea how much higher Venezuela’s inflation will go. That’s what increasing your estimate of it from 12,000 percent to 1 million percent is really saying. Well, that and the fact that this is probably the worst inflation the world has seen since Zimbabwe was reduced to printing 100 trillion dollar bills a decade ago.

You don’t have to reach wheelbarrows-full-of-cash levels of inflation, though, for political meddling in central bank decisions to be a problem. Double-digit inflation is more than bad enough, and it can take only a little interference to get there. That’s something we’ve learned firsthand. The stagflation of the 1970s, after all, was in no small part a result of the way President Richard Nixon bullied the Fed into keeping interest rates inappropriately low during his reelection campaign.

The simple story, then, is that it’s better for central banks to be independent, because easier money is always in a politician’s short-term interest, but isn’t always in the economy’s long-term one

This brings us to President Trump’s latest commentary on monetary policy. He actually has a pretty strong argument when he says that the Fed shouldn’t be raising rates at even the moderate pace it has been until inflation starts going up more itself. The reason is that it’s a lot easier to deal with prices that are rising too quickly than it is to deal with an economy that’s not growing quickly enough when interest rates are as low as they are. He’s just making this argument in the worst way possible, making not-so-veiled threats about how he’s “very unhappy with the Fed,” thinks that it’s independent only “in theory,” and that he “should be given some help” by it.

Now, in case you think this is merely a quasi-academic disagreement about the proper pace of rate increases, Trump also reportedly wanted the Fed to print money to cover the United States' now-expanding deficit. Which, as we said before, is exactly what Venezuela did to destroy its currency. It’s as though Trump were pouring water onto the metaphorical slope of criticizing the Fed to make sure we didn’t miss just how slippery it really is.

This story wouldn’t be complete, though, without this final bit of irony: Trump has spent the past few weeks on the campaign trail accusing Democrats of wanting to “turn America into Venezuela.” At least we can say he has some familiarity with the subject.