Donald Trump has sharpened his focus on US Federal Reserve chair Jerome Powell. Late last week the US president said Powell should resign immediately. This is unsurprising. Attention was drawn in this column to the likelihood of this happening three months ago.
Trump’s targeting of Powell is driven by two main objectives. One is to more fully implement the deployment of Maga cadres, and the other is to change the way the US role in global financial and monetary affairs is seen. This type of deployment occurred in Nazi Germany, empowered by The Enabling Act of March 1933. It was also a feature of the Soviet creation of the nomenklatura (cadre deployment) after 1917. We recognise this in SA too. But none of this is of specific concern here now. It serves as historical context and to demonstrate continuities.
What does warrant attention is the strong likelihood that a US withdrawal from and/or Washington’s rearrangement of the deckchairs of liberal internationalism may destabilise the global financial system (the flow of money) and the monetary system (the institutions and regulations that manage the transnational flow of money). These two systems may be elided, for the sake of convenience and ease of reading, as the global financial system.
Like most arrangements that rely on co-operation, co-ordination and harmonisation, the global financial system relies heavily on predictability, continuity and above all on trust. This is taught in basic economics courses (“virtually every commercial transaction has within itself an element of trust”, wrote Kenneth Arrow in the early 1970s), but I have always been partial to the political economy of Karl Polanyi.
Polanyi reminded us that the economy, such as it is, was fundamentally embedded in society with its range of relations — and with trust at its core. Public policy, he explained, ought necessarily be directed towards “the conservation” of humanity and of nature “using protective legislation, restrictive associations and other instruments of intervention as its methods”.
The Trump world that has been taking shape since January this year is notable for its shift away from “humanity” or “nature”, towards national socialisation of protective legislation, restrictions and instruments — ostensibly to make the US great again. From the Atlantic seaboard to the freshwaters of Chicago there have been commentaries of Trump’s policies as “proof of man’s inhumanity to man” (Chicago Tribune, July 6). The Atlantic made reference to Trump’s “malignant cruelty” during his first term, and The American Prospect wrote about his “politics of cruelty”, and “sadism” in March.
Altogether, it seems Trump cannot be trusted to intervene, as Polanyi may have suggested, to make the world a better place for everyone. While his assault on the global exchange has been mainly through tariffs, his shift to global finance may lead to fragmentation, especially, as he has intimated that the US will circumvent global or multilateral institutions, those “associations” and “instruments” Polanyi referred to that rely so heavily on trust.
This fragmentation is likely to occur when the dollar recedes in global power, especially when transactions (payment systems) are made in different currencies. Trump’s trysts with cryptocurrencies holds the (further) prospect of transnational ruptures, seemingly counterintuitive to the inseparable dimension(s) of digital currencies, and are in effect unaccountable to national banking regulators and to global institutions. Under Trump, the US has increasingly ignored or simply overridden international law and global institutions.
If the Trump world becomes fully formed — a world in which the US is no longer lender of last resort, when domestic consumption relies increasingly on debt, and all that remains is US military power (whether it is exercised) — and that country can no longer be trusted, the threat of fragmentation increases.
Removing Powell as head of the Federal Reserve may well be Trump’s second attack (after his tariff wars) on the global political economy, and as the IMF noted in its “Global Financial Stability Report” in April, his second term has come with significant global instability not seen since the Great Depression.
• Lagardien, an external examiner at the Nelson Mandela School of Public Governance, has worked in the office of the chief economist of the World Bank as well as the secretariat of the National Planning Commission.
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