Treasury and Fed in Rare Dispute as Trump Seeks to Overthrow the Election

by Greg Valliere, AGF Management Ltd.

THIS CITY — ALREADY ON EDGE OVER AN ATTEMPT TO OVERTURN THE ELECTION — got another jolt yesterday: Treasury Secretary Mnuchin ignited a rare clash with the Federal Reserve by ending several emergency Fed lending programs by year-end. He also called for un-used funds to be returned to Congress.

THIS PROMPTED AN UNPRECEDENTED REBUKE from the Fed, which cited the pressure on the “still-strained and vulnerable economy.” Mnuchin apparently would shut down several programs, including the Main Street lending facility and the municipal lending facility. If the Fed has to give back money to Congress, it could be difficult to reclaim those funds.

WHAT ARE MNUCHIN’S MOTIVES? Does he want to jump-start stimulus talks? President Trump seems disinterested in a deal (Chuck Schumer and Mitch McConnell signaled yesterday that they may resume negotiations, but both sides are far apart on dollar amounts; a breakthrough isn’t imminent).

DEMOCRATS WERE FURIOUS AT MNUCHIN, charging that he was carrying out instructions from Trump, who may want to hamstring the Fed and sabotage the economy as Joe Biden’s presidency begins, they contended.

CRIPPLING THE FED just as covid cases surge seems to be bizarre — and not a positive story for the financial markets, which are hoping for more — not less — stimulus from Washington.

THIS WAS JUST ONE BOMBSHELL that had Washington on edge last night — as Trump sought to overturn the election, directly interfering with state election certification. Constitutional scholars, aghast, predicted that this last-ditch effort would be quickly rejected by the courts.

IN THE MOST BIZARRE EVENT of the day, Rudy Giuliani and others on the Trump legal team accused former Venezuelan dictator Hugo Chavez, who’s been dead for nearly eight years, of working with China to orchestrate a massive U.S. voter fraud. There were several more incredible allegations from Giuliani, as black hair dye streamed down his face.

TRUMP’s LEGAL CHALLENGES HAVE FAILED, so Giuliani apparently has persuaded the president to seek the de-certification of state voting results. Even though Biden won Michigan by 157,000 votes, the president will try to convince the state’s GOP election officials to de-certify Biden.

IN OTHER STATES, Trump is urging GOP-controlled legislatures to send their own electors to Washington when the Electoral College meets on Dec. 14. The claim of widespread fraud centers on a company called Dominion Voting Systems; in a scathing editorial yesterday the generally pro-Trump Wall Street Journal mocked claims that Dominion has orchestrated a massive conspiracy.

THESE ASTONISHING ALLEGATIONS, certain to fail in the courts, raise a very serious issue: what else is Trump prepared to do in the last eight weeks of his presidency? He loathes the pharmaceutical industry, so he’ll propose drug price curbs today; he’s prepared to fire more disloyal officials, and then there’s a really serious threat — geopolitics.

TRUMP’S WITHDRAWAL OF U.S. TROOPS from Afghanistan and Iraq has alarmed allies and incited enemies, and now there’s a firestorm in Washington as McConnell and other hawks say this is ill-advised. Even more serious is the deep antipathy Trump has for Iran, as tensions between Washington and Tehran intensity.

MEANWHILE, THE VIRUS HAS EXPLODED, Thanksgiving won’t be the same, and more lockdowns are likely around the country. The coronavirus task force met yesterday for the first time since July, without Trump — whose behavior in the next eight weeks is totally unpredictable.

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This post was first published at the AGF Perspectives Blog.