US central bank governor to sue Trump

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1:11Hello and welcome to Business Matters. I'm Roger Hearing. On the programme today, Donald Trump says he's sacked one of the Fed governors. She says he doesn't have the authority. What's going to happen in this confrontation? Also today, India counts down to 50 % tariffs on many of its exports to the United States. And we'll have a look at the South African movie industry. And I'll be joined throughout the programme by two guests on opposite sides of the world. Andy Shi, an independent economist who normally speaks to us from Shanghai. But Andy, you're currently in Kamamoto in Japan having a holiday.

1:46A very good morning to you there. Good morning, Roger. Yes, I'm in Kamamoto. And you're working, you're talking to us on your holiday. That can't be right. Well, yeah, well, that's okay. As long as you're there and talking to us, we're very happy about that. Anyway, let's also introduce Takara Small, National Technology Columnist for CBC, who's joining us on the line from Toronto. So, Takara, very good evening to you. Good evening. Good to have you both there. We'll start, as we always do, by getting a sense of, well, what's on your agenda. Now, Andy, obviously you're not in China at the moment, but I know you've been taking quite a bit of interest in what has been happening there, I think, in terms of tourism, because tourism is a big thing now, isn't it?

2:32Oh, yeah. I think that China has done well in tourism, both on the domestic side and international. International rivals are rising at 40 % this year. So it's a huge boom for the country. And I'm really glad that China has opened up. It's happening because China has made a visa-free access to about 50 countries and a 10-hour transit visa for another 50 countries. So the country has really opened up. Well, I'll let you into a little secret. One of those tourists right now in China is my son. So he's been there for about a month. Wonderful. Yes. In fact, I think he's in Shanghai and you're not. So I don't know what that says.

3:20But it's an interesting time. And he's having a great time and really enjoying it there. Anyway, Takara, let me bring you in. And I know you've been doing a lot of looking into the way that sort of I. I can't even say it. AI is working at the moment and what its implications are for the future. Yes. I mean, there's a recent report by MIT that highlighted a large chunk of the generative AI programs and services and initiatives that we're seeing actually aren't working out. There's not a real return on investment. So I'm delving into the AI hype, what's real, what's not real. And I think it's a little bit of cold water on what many people assumed would be this technology that out the gate would change everything and anything.

4:05Well, I'm so old I can remember the dot-com bubble when that all disappeared. Could we be in for another bubble, do you think? A little bit of a bubble. There's been a lot of hype that doesn't match the reality, but, you know, people have made millions in the interim. And I think they still will. We'll see how that works out, but it's interesting to get that perspective. But now let's talk about things that are happening a little bit further south from where you are, Takara, in the US, because the standoff between Donald Trump and the US Federal Reserve has moved into a new phase. Now, he says he's fired one of the governors of the Fed, Lisa Cook.

4:40He accused her of making false statements on mortgage agreements. She denies those allegations. A statement by her lawyers said Mr Trump had no authority to sack her, and now she says she's actually going to sue the president. Well, all this involves the latest moves in the president's attempts to take control over the US central bank. Mr Trump has long called for the Fed, which is seen as independent of politics, to slash interest rates. And he's threatened to remove the chair as well, Jerome Powell. Well, in the last few hours, the president was asked about Lisa Cook. But no, she seems to have had an infraction, and she can't have an infraction, especially that infraction, because she's in charge of, if you think about it, mortgages, and we need people that are 100 % above board.

5:25Well, we have some very good people for that position, and I think we have some very good people. we're down to, I mean, I think I maybe in my own mind have somebody that I like, but I deal with Scott and I deal with Howard and we're dealing with a lot of people actually that are going to be involved in that decision. It's a very important decision. As we see, I mean, I got a bad recommendation when I went with Jerome too late. You know, he's too late. Donald Trump speaking a few hours back. Well, I got some more details about all this from our North America correspondent, Anthony Zerka. I asked him first, what exactly are these claims against Lisa Cook?

6:05Well, there are two mortgage applications that she filed about four years ago. The first was in Michigan. And on that application, she claimed the home she was buying in Michigan as her permanent residence. Then several weeks later, she submitted a mortgage application for another condo in Georgia. And on that, apparently, it also indicated that she was buying her permanent residence. So Donald Trump is saying that this is fraud because you get benefits from claiming a personal residence on a mortgage application, a lower interest rate, for instance. And he says that that was fraud and that there was no way that Lisa Cook would be able to fill out those forms without knowing that she was doing something wrong.

6:46And there was a criminal referral brought by a government agency. And that's the basis for Donald Trump saying that he could fire her with cause. Because she hasn't been charged as yet with anything, and she certainly hasn't been convicted of anything, and she hasn't admitted that any of this is even true. Exactly. It's a criminal referral, which is not an indictment, not a charge, certainly not a conviction. And she said she's contesting this, that she is happy to explain her mortgage documents from four years ago, but she is not going to be stepping down any time soon. Is this, Anthony, pretty much a naked grab to get someone who is, I suppose, sympathetic to Donald Trump's views onto the committee that decides interest rates?

7:30Is it really as basic as that? I think you could certainly see it that way. Donald Trump has been sharply critical of the Federal Reserve long before any of these allegations about Lisa Cook were made. He has been very critical of Jerome Powell. You heard it in that clip you played. He criticizes the Fed for not lowering interest rates fast enough. He thinks if they lowered interest rates faster, there'd be more economic growth. Mortgage rates would be down. People would be able to afford homes more with lower interest rates. So this could be viewed as all part and parcel of his attempts to get a friendly Federal Reserve that will be more willing to go in the direction that he wants.

8:09But that cuts against decades, almost a century worth of precedent in this country. And of course, this could, I guess, end up in the Supreme Court, which kind of is reminiscent in a way because we've talked in the past about how Donald Trump has attempted to make sure those appointed to the Supreme Court are very much on the conservative side. Is this in terms of the policy committee of the Fed stacking it in a way between hawks and doves? He wants more doves on there. Is there a parallel there? You could see a parallel, certainly. I mean, Donald Trump has a friendly Supreme Court now. He's appointed four out of the Supreme Court justices on this court.

8:47So it's a large number. Lisa Cook says she is going to challenge this. She's going to file suit. It's not clear who she's going to sue because at least so far, the Fed doesn't seem to be enforcing this firing by all indications. She still has a job at the Fed. I guess we'll know more by the middle of September when the next Fed meeting is if she's sitting at that table or not. But this could go all the way up to the Supreme Court. and the court has issued decisions recently saying the president does have authority to fire people on independent agencies, but they carved out explicitly that the Fed doesn't count, that the Fed is even more removed from political influence.

9:24So this could be a very real test for that Supreme Court, even with all of those Trump-appointed justices on it. Anthony Zerka. Andy, what do you make of this? It's very involved, very sort of into Washington, but it has huge implications. Yeah, I think that Trump wants to fire Jerome Powell. And this is a trial balloon. And because of the Supreme Court head judgment kind of reaffirming the Fed's independence. So this is like using this kind of criminal referral to test the court, I think. that if you find this kind of so-called infraction, will the president be able to find someone at the Fed?

10:12So he could find something wrong with Jerome Powell. That's the key. He wants to find Jerome Powell. Jerome Powell makes the decisions. Yeah, well, he's part of the committee that does it, but he obviously directs them. But gosh, yes, I mean, who knows where this will go. So Takara, I mean, it seems like another position which Donald Trump is moving the goalposts, really. It does. And I mean, I'm kind of catching up and coming to terms with everything. I mean, this has been kind of a roller coaster. Trump has not been shy about wanting to see interest rates drop. I think from a Canadian perspective, looking at all of this, there's just a lot of concerns about, you know, if she is removed and Trump does get his wish to lower interest rates, what that means to Canadians, which is not good because that on top of tariffs and more inflation, I mean, we'll see just skyrocketing.

11:01It's a bad mix, isn't it? Let's talk a little bit more about the legal position in this, because the law says the president can remove a governor if he has, in quotes, cause. What does that mean? I asked Don Moynihan, professor of the Ford School of Public Policy at the University of Michigan. Cause means typically if you have engaged in malfeasance, incompetence or wrong on the job. And so if that has been demonstrated, the president can fire you. The problem is in the statute that established the Federal Reserve Act, it doesn't really detail what cause is, nor does it provide an appeals process or other sorts of due process that would allow someone on the board to say, no, I'm being treated unfairly here.

11:52And so we're very much in an unprecedented space, also because no president has tried to remove a member of the board for cause in the last 112 years. Now, you said about malfeasance in office, as it were, and I think the allegations against Lisa Cook, and we should say that she is not admitting that any of this is accurate so far, was nothing to do with her office and didn't happen before she was in office. So it would be quite a stretch, wouldn't it? It would be, yeah. So the Trump administration has not really made a credible claim that she has not been doing her job or has been doing her job poorly because of this.

12:35She was confirmed by the Senate twice. And these actions occurred before she took the role that she currently occupies. So it's certainly a stretch to go backwards and say, I'm firing you for calls for actions that took place before you even started the job. Okay, so clearly, this is going to go through the court system and be tested. Initially, I suppose, a federal court will look at this or will it go straight to the Supreme Court? It really does depend on what happens the next time the Federal Reserve meets. So if the Trump administration wants to resolve this quickly, they can bring the matter to the court, to the Supreme Court, which they've done quite a bit in their first seven months in office.

13:25When they have tried to resolve a question, they will often ask the Supreme Court to intervene quickly. And typically the court has been willing to let them do that. And so I think it is reasonable to assume we're going to see a standoff here that will go to the Supreme Court relatively quickly. But as we stand, Lisa Cook can go to the next meeting of the Fed committee and make her vote, even though she has been told on social media by the president that she's fired. She can still function. Is that right? It is. And we may be moving towards something like a constitutional crisis here where the president is saying she's fired and she is saying, I have not been fired.

14:07And we may be getting to questions of whether she can physically get access to her office or whether she can log on to her computer. And this is not unknown. For example, Doge took over parts of the federal government where it had very ambiguous authority. simply by getting security guards to give them access to the building and then locking other people out. And so we could just be getting to the point where can Lisa Cook physically go to the Federal Reserve becomes the determining factor here of whether she's still an active member of the board. And if Donald Trump's appointed somebody else, and he's already put another couple of names in the mix, could they end up with more people on the committee or people fighting for the seat on the committee?

14:53Could that happen? Yes, and it sounds absolutely chaotic, but again, not completely unprecedented. In Trump's first term, the Consumer Protection Financial Board had two competing leaders at one point in time who were both emailing employees saying, I'm the true leader of this organization. But it is unprecedented for the Fed. And this is where the Senate will have to weigh in, I think, a little bit, because if Trump pushes forward a nominee to the Senate, even though someone is already in that position, that's going to make it very difficult for senators to decide which side they're on. Don Moynihan there.

15:34Well, I've been speaking to a former member of the Fed, a former governor, in fact, a former Cleveland president, Loretta Mester. She's in Philadelphia. What does she think will be the outcome of all this? I think it'll go to the courts because the courts are the ones who are going to have to determine what for cause means in terms of the president's ability to remove a governor. So there is a provision in the Federal Reserve Act that allows the president to replace a governor or fire a governor for cause. But the actual interpretation of cause, in particular as it pertains to the Federal Reserve, is not clear.

16:13First, there's only allegations here. We don't have any kind of facts on the ground that any impropriety happened. There hasn't been due process here. And so it's hard to speculate. But I think it'll end up in the courts and the courts will be the ones who determine what the interpretation is and whether, firstly, the president has the power in this particular case to remove the governor. and two, while that is being adjudicated, whether the governor could stay in her role on the board. So there's a couple of things we don't know yet. Yeah, indeed. And I mean, let's break that down. I suppose if Donald Trump is able to dismiss her and put his own nominee in place, and the Wall Street Journal is saying, for example, that Stephen Mirren and David Malpass are among the likely choices, Will that change the nature of the committee that votes on interest rates and other things to the extent that Donald Trump would then get what he wants?

17:16Well, I think that's the concern. I think the concern is that by doing these kind of very aggressive actions, right, these are very aggressive actions in trying to influence monetary policy, that he will be able to control the decision-making of the Federal Reserve and the monetary policymakers on the Federal Open Market Committee, which is the committee at the Fed that sets interest rates. Now, I don't think it'll be as simple as that. I think that in many cases, there are cases to be made in any particular time about whether you want interest rates to go up or down or stay where they are. And the tradition of the Fed is that you have to have a sound basis for making your argument when you're sitting around that FOMC table, right?

18:03So you have to bring an analytical rigor to what you say for making a case one way or the other and explaining your policy views. And you look at the data and you talk to your people in your district and the governors talk to people that they, businesses and households and the meetings that they go to, and you bring that to the meeting to make decisions. So it would be difficult if it wasn't appropriate to take a particular action. And I think it would be difficult to convince the committee that that would be the right way to go. But even the idea that that could be affecting the views of policymakers at the Fed can affect financial markets.

18:41And that's why many central banks have evolved over time to being more independent from government. And also more credible. That's the point, isn't it? Exactly. Right. So, you know, your central bank is basing its decisions on its analysis of where the economy is, where it's going, what the risks are. We know that the way the Fed goes about its business is based on trying to achieve those mandated goals that Congress has given it. That doesn't mean the Fed always gets it right. And that doesn't mean that it may, you know, thought that interest rates would be going a particular way, but the economy evolves and so it has to change its mind.

19:21But you know, it's using a basis of analytical rigor and really mission driven. What do we do? What's the best policy that's going to achieve price stability and maximum employment in the case of the Fed? So if we think in very crude terms of hawks and doves, and people will see an analogy, I suppose, with what's going on with the way in which in the past politicians, including Donald Trump, have tried to stack the Supreme Court when they had an option with conservatives and liberals. Would it be wrong to see the Fed and this particular committee composed of hawks and doves and see that as the way it's going?

19:58In other words, to reflect the color of what Donald Trump wants to happen? You know, when I was on the FOMC, I always hoped that people would say I was an owl and not a hawk or a dove because an owl is interpreted as having some kind of knowledge. Unfortunately, we try to put people in a hawk and dove camp. And to a certain extent, you do have a framework of the way you think about the economy. So, again, I don't think you can just make it labeled. But I do think the president does appropriately have influence when terms come up. I think what's different about this and what's so aggressive about it is that the president's trying to put his people on the board before the terms are up.

20:43And in that sense, this is unprecedented. And I don't think it's a very healthy thing for the U.S. economy because it raises the specter of political influence over monetary policy, which leads to worse economic outcomes. Loretta Mester, their former Cleveland Fed president. president. Takara, I mean, the overwhelming view feels to me from all this is the impact on all the people who are looking in on the US and its economy and wondering what's coming, because the argument, of course, with lowering interest rates is risk of inflation. I mean, how on earth do they deal with that? I mean, it seems chaotic.

21:20I can't even imagine the level of behind the scenes diplomacy that is required because the US is seen not just as obviously an important economy, but a world leader. I will say, though, that what's interesting is highlighting how a lot of what we view as laws and rules are just literally political norms that have been adopted by different administrations. And this is showcased, I mean, in a way, how vulnerable the US is, that this unprecedented nature, this decision making is happening, and yet there doesn't seem to be any real way to combat it or to push back. No, it's interesting in the end.

22:00I mean, Andy, looking at it again from the outside point of view from where you are, does it seem that nothing really that we'd assumed about the way in which America works actually does work that way? Well, I think the US is changing. It's becoming more authoritarian. And a lot of the people in the United States think that the current system is not working very well. So that's what's going on, a sign of that. The other is, I think, that for Trump, he suspects, he views the world as people who are for me or against me, okay? So for him, controlling the Fed is very important. And if the AI bubble bursts, like what happened in 2008 or 2000, Would the Fed kind of flood the system with money to revive the stock market?

22:56That is really important for him. I think that he thinks that the people currently are against him. So when the stock market crashes, they won't do anything. So that means that he will fail. So I think that this struggle is important to him and quite meaningful for all of us. Yeah, well, it certainly is going to affect a lot of a lot of outcomes in lots of parts of the world, not least in your part of the world and many other countries as well because of the implications and the power of the US economy. Well, it will be very interesting one to watch and see how it all plays out. But in the meantime, here on Business Matters, we're going to be thinking a few other things.

23:37We're going to be talking about tariffs to some extent and how India, now facing the 50 % tariffs that Donald Trump threatened, that's actually going to come in in the next few hours unless there's a change of tone from the White House. We'll also talk about Venezuela. Some American warships are heading towards the coast of Venezuela. And now Venezuela has put its own forces on alert. We'll alert you to all that in just a moment here on Business Matters. Thank you. at more at polandyourplacetogrow.com.

24:43Welcome back to Business Matters with me, Roger Hearing, and my guests today, Takara Small and Andy Shee. Now, there's a crisis building off the coast of Venezuela. Last week, the US sent three warships and 4 ,000 Marines towards Venezuela in order, they said, to curb drug trafficking. Well, now in a video on social media, the Venezuelan Defence Minister, Vladimir Padrino, has announced a significant drone deployment as well as naval patrols along its Caribbean coast, including, and I quote, larger vessels further north in our territorial waters. It's also ordered the deployment of 15 ,000 troops to the border with Colombia to strengthen security and combat drug trafficking there.

25:23The Defence Minister explained his move. This deployment is intended to reinforce a major operation that was already deployed at the beginning of the year in the southern region of the lake in Zulia State, in the municipalities of Catatumbo and Sabram, which we call the operation of Relembago del Catatumbo. Today we are going to reinforce it with 15 ,000 troops. 15 ,000 troops on the front from Castillete up to Tashira, covering 851 kilometers of our border with Colombia. Venezuelan Defense Minister there talking about the deployment near Colombian border, but it's the moves between Washington and Caracas that are causing alarm.

26:08Washington has accused the Venezuelan president, Nicolás Maduro, of collaborating with cartels to traffic cocaine and fentanyl into the U.S. Joining me now is Phil Gunson, a senior analyst for the International Crisis Group. He's actually at the moment in Caracas in Venezuela. Phil, thanks for being with us. Just give me a picture of what the moves are here. The U.S. is moving ships, destroyers, I believe, in there, and perhaps three and maybe as many as five. And the Venezuelan government is responding with, I suppose, counterforce. Yeah, that's right. Right, and it's being dressed up at least by the U.S.

26:45as an anti-drugs operation, which doesn't make an awful lot of sense. And as you say, it's accompanied by some very bellicose rhetoric. Not only is Maduro being accused of being the head of a drugs cartel, but he's also – the U.S. says that they don't recognize him as president of Venezuela, that he's illegitimate because he stole the election in July last year. So the question is, what is really the U.S. intention and how bad could this get? I think it's pretty clear that there's not going to be a full-scale invasion of Venezuela. But obviously, you know, there could be heightened tension and the possibility of some kind of military clash in the South Caribbean.

27:26Where exactly the U.S. is going with this? You know, are they trying to topple Maduro? Are they trying to force him to negotiate something? Nobody really knows. Possibly they don't even know Washington. No, I mean, it does seem strange. It's, I mean, gunboat diplomacy, I suppose, in the classic form, but very risky because, you know, the Americans step up, the Venezuelans step up. It's possible, I suppose, that things might get out of hand. And this is an area, Phil, of considerable import for the global economy because there's a lot of oil and oil rigs and oil drilling going on all along that coast.

27:59well that's right i mean the venezuelan oil industry which uh used to be one of the biggest in the world is fallen on very hard times due to mismanagement mismanagement and corruption we used to produce more than three million barrels of oil a day here uh and it's been down to well under a thousand for some time now uh yes that's right um am i talking about thousand sorry excuse But it's about a third of what it was. And so, you know, the U.S. has an interest here. U.S. companies used to be very prominent in drilling and producing and exporting oil from Venezuela. That all changed with, you know, the advent of the Chavista regime's tension between Washington and Caracas.