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Us around the table potential candidate, they form a wealth Bank President David Mountcas David and Morning, Good Mornington, would you like to be considered?
Of course. So it's a huge job and really important, really important to the Trump changeover that's going on in the world, saving the country. Uh so, But it means a lot of change at the FED. I think they've been making many mistakes and we can enumerate them and correct them, and that will mean more growth and especially more growth and median income. If the FED were allowing
more small business growth, there'd be more jobs. That are that are new jobs for people across the across the country, not just in urban areas.
Let's get into some of the details. Walk us through a couple of the examples. Why you think they've made mistakes and the remedies for them, how it correct course.
You know, I didn't like que think about that. The FED, in its wisdom, is going to go buy bonds. So how did that work out? They've lost a trillion dollars, they'll lose much more than that before they're done with the losses on the bonds. In addition to that, remember they've paid out in interest constantly since two thousand and nine. They've paid one point three trillion dollars of tax payer money to banks and to money market funds. That's the source of funding that they have to buy the bonds.
So this has been the worst hedge trade in history. So that's a big mistake. It's also led to inflation because the FED really allowed a merger of fiscal policy and central banking or monetary policy by buying bonds as the government was really jacking up the deficit.
So you're rather running go ready because I have to say, isn't that exactly what the president would like to say?
What would he like?
President Donal Trump would very much like to see monty policy and fiscal policy very well alowed.
No, I think he wants to see them both improved, and is already doing that. The Reconciliation Bill improves fiscal policy and the separation. What we need is lower interest rates, and you can't do that if you've got the FED carrying the load of all this fiscal deficit that Congress is generated.
So in the near term, as a candidate yourself, what do you do as a potential new fedhair to the composition of the FED and the approach that you think right size is.
I think really important is people to see the flaws of the inflation targeting model. I've been writing about this since the literally since the eighties, that if you target inflation as your goal, it's backward looking and it doesn't comprehend all of the prices within the economy. It's just a flawed indicator. But that is the basis of how the FED sets interest rates. So one of the things is you switch and you say the dual mandate is
to have price stability. That's very different from CPI inflation, which waivers around and gives you false signals. That's what's happening right now. So you need lower interest rates because of the strength of the US economy. I think that's something that I understand a lot from working all over the world and in Wall Street in financial markets, that the US is the giant power and people want to invest in the US even at lower interest rate.
Okay, this is a fascinating argument. It's one that President Trump has talked about. The idea that it should be almost a credit rating of the United States that backs what our interest rates should be. So like Microsoft or an apple. The borrowing costs should.
Be very low.
People are pegging it to inflation, and they're pegging it to growth. I'm just wondering the market doesn't see it that way.
Right.
We're not there yet, So at this point, how potentially perilous is this discussion at a time with the market associates lower interustrates with faster inflation and frankly higher borrowing costs.
For the United States, the market's inbred with the FED, and so as long as the FED is the sheriff of the land, the market is going to say, oh, we operate on that model. But as you change to a model that makes more sense, one that's based on the growth and credit of the US has something to say about what the interest rates are that we should pay.
That can be a smooth, safe transition, but it has to be explained markets as think of what's going on on tariffs now, there was a giant panic that didn't materialize. The change in the FED system is as big as the change that we need in the trading system, and it will work better for growth and especially better for
the forgotten man. The median income has been doing very poorly over these maybe twenty years and so if you have a new system that's very focused on defending the dollar, the dollar is the global reserve currency, and then people flooding into dollars, that's actually supportive of markets.
Seconds left? Have you spoken to the president about the role?
I don't want to talk about the process. What I really want people to focus on is the models that need to be changed. We can have a much faster growth economy with different FED models, and it can be done with the confidence that is absolutely necessary.
We can have a longer conversation about that next time, So appreciate your time. Thanks invest the luck. The former World Bank President David Malpass