Matthew Schmitz (6:49)

It strikes me as an indication that Israel has won or is winning it's alternately warm and hot war against Iran and the axis of resistance. Iran has assembled in the Middle East. Hamas is greatly weakened, so is Hezbollah. Iran suffered strikes on its nuclear facilities by the US in support of Israel. And things are really not going well for the clericalist regime. So it's part of a broader strategic kind of move from the Trump administration. It seems. If you look at the extraction of Maduro, I guess is the term, and the subsequent demands that Venezuela come into the American economic and military sphere, basically open itself up to American oil companies. I mean, that, that takes Venezuela out of the Chinese, Russian and Iranian sphere. And there really does seem to be pressure being applied to these weak points. We heard about quite a bit about rebalancing our military deployment toward China, toward opposing China, toward the Pacific and the East. And that doesn't seem to be the focus right now. Instead, it seems to be applying pressure to some of these other regimes, Venezuela, Iran, but they are aligned with China. And so possibly these are preliminary moves and to strengthen America's position for that later, I hope not direct confrontation. So yeah, that's my analysis. But I have to say things don't seem to be going swimmingly for the axis of resistance. We heard a lot of this, you know, doomer post scene. You know, America is finished. America is so cooked. You know, if we bomb Iran, you know, the, you know, the Straits of Hormuz will be blocked. Oil will be $30 a barrel. That's something that Tucker Carlson warned about this summer. If we bombed Iran, that would happen. Well, no, it didn't happen. Oil in America is not $30. Sorry, $30 a barrel. Oil in America is not $30 a dollars a barrel. That would be an incredible steal. But it's not $30 a gallon. And instead we're seeing that prices rose in Iran and civil unrest has come to Iran. So the predictions of a Lot of the kind of restrainer types in foreign policy that were made over the course of 2025 simply didn't come true. And a lot of the doomsday scenarios that they laid out for American power and American order seem to be coming true elsewhere, but notably not here. So I think it's, you know, it's a moment where the foreign policy fight within the Trump administration is ongoing. We don't, we're not sure how all of this will play out. But I think it's fair to ask at this point why some of the early kind of doomsayers saying, you know, American power is going to lead to disaster for America, why they haven't been vindicated as quickly and spectacularly as they, as they thought they would be and said we would see, I don't know.

Ashley Frawley (10:54)

I'm going to have to think about that now. Steve, you've come at it from a completely different angle than I was expecting. And maybe this kind of, maybe we can answer that question by looking at the next topic, because part of the reason I think that America, you have

Matthew Schmitz (11:09)

no comment on the women lighting cigarettes with burning pictures of the ayatollah, you've got to weigh in on that.

Ashley Frawley (11:20)

Right? So this is the thing, is that I'm always so I am excessively cynical about this kind of stuff where I'm like, oh, something's up here. Somebody's doing optics. But I'm horrible, right? But at the same time, I'm like, well, obviously things are really bad and people have been protesting this. I have such a horrible conventional take on this. But what my obsession for the last little while has been trying to understand the, and follow through the processes of, like, deep political economy. So for me, like, the people protesting is when I'm like, what's. No, no, no, no, no. What, what are they really? What's really going on here? What is what, what kind of power plays? What, what problems are they actually trying to solve? So that's why I'm kind of eager to get to the next point, next story because, well, I think it explains why American power is so much bluster and so little. There's, there's no substance to it because it seems like just a really weird kind of typical politicking of Donald Trump sort of, you know, having a, some kind of vendetta against the Fed and Jerome Powell and using some very clear, very thin rationale for attacking him. Right? Oh, you have overspent on these buildings. So for anyone not familiar with the story, the they've subpoenaed the Fed for information about these buildings where the costs have tripled. It was supposed to be, it was already a humongous, like the refurbishing these buildings which were for over 100 years older or some of the buildings, I think are over 100 years old, some are from the 30s and they're built on like swamp lands and so on. It was already going to cost like 1.2 million billion, sorry. And it's now costing like 3 billion, which is just such an astronomical number. It's, it's eye watering. And so the cost has sort of gone up by three times. So on the face of it, okay, you, you, you're going to want to know kind of what's going on there. But it, if you look at what's gone on with the build, it's not that surprising. But what, so everybody is just sort of saying, yeah, quite clearly Trump's coming after the Fed. That's kind of the, the thing that's going on. But here's the thing that I find so interesting about this, that why, and this isn't the first time that Trump has gone after people in the Fed. It's still, it's still coming out in the wash. Now, his previous vendetta and, and, and, and the answer is because he wants low interest rates. What? The Fed also wants low interest rates. They both want the same thing. The Fed isn't like, it seems like it's this like, big quest to keep the Federal Reserve insulated from demagoguery and from the whims of democracy, really. And that's kind of the story that they seem really, really keen to hold up. Like, we are the adults in the room. We, we are not beholden to the whims of, of, of the masses and so on. Which sounds nice if you are, if you take the story for granted that like, I don't know, fascism was a result of the working class getting their way, which is what we've all been taught to believe. And so, no, no, no, anything important, you got to keep it away from democracy. But that's a, that's a total fiction. The Fed obviously isn't like this scientific institution kept away from society. They are themselves beholden to a constituency, and that is, you know, Wall Street. They, you know, they, they don't care about like the, the common good or something like that. They also want low interest rates. They just don't want the fallout of inflation. They don't person, like, they don't care that much. They want to maintain this enormous asset bubble that is the American economy, which kind of loops around to where I started, which is, why is the United States kind of. Why does it all seem bluster on the all. Why does it all seem like bluster on the international stage? Because the entire American economy is hollowed out and everything is like, all of financial planning and institutions have been reoriented toward maintaining this asset bubble, essentially towards maintaining kind of finance. There's all this talk about, like, oh, Trump wants to devalue the dollar so that he can. It's like the simplest way to bring back in industry to the United States. He's not interested in bringing back industry. I don't know why he seems to want it. Well, I mean, you can devalue the dollar because of debts and things like that, but the point is to keep interest rates low to ensure that those. To maintain the value of assets. The question, what the fight between Trump and the Fed is really about is who's going to get the blame for the fallout? Who's going to get the blame for the inflation that results from low interest rates? Because the constituents to whom Trump and the Fed are beholden, they don't care about inflation. They can move their money around. Who's going to pay? Regular, everyday people are going to pay and they only care about that. I mean, obviously you can. Certain people are going to pay with it who are higher up and so on. It's not quite so simple. But on the whole, regular people are going to pay for that more. And the real danger of inflation is social unrest. So who's going to, who's going to question this? Sorry, who's going to, who's going to take the fallout? And they're sort of like saying, no, not me, not me. No, no, no, the Fed is here for the common good. We are, we are the adults in the room. We did not do this. Trump, you do it. And Trump's like, okay, great, because I want, I want the, I want the kudos. I want the kudos for keeping interest rates low, keeping the money flowing. And when the proverbial poop hits the fan, he can always say, well, you know, it was the immigrants, the world is against us. It was, it was these sorts of people and so on. He's got scapegoats at the ready. And, you know, he's, he's got a story that he can tell for the inevitable fallout that will result from keeping these interest rates low. But the American economy, it has to keep those interests low, could not possibly cut them anymore. Like, and they're stuck Between a rock and a hard place in that sense. But, yeah, so there's nothing left. And all this stuff of like bringing crypto as well into sort of regulations. It's, it's just building up this enormous bubble and it's just speculation. And that's who, you know, ultimately Trump is looking to, is these, is people who want to carry on speculating and he's got to, and so does the Fed. They both have to keep this bubble inflated. That's the big fear is, is that it will all come crashing down, and it will all come crashing down if you raise interest rates. So that's what, that's what this big, that's what this big fight is about. But also, I think it explains a lot of this, the emptiness ultimately of what the US Talks about, because there's nothing there anymore. It's just a facade. The America has become, I've become increasingly convinced is just. The entire thing is a facade. It's a bubble. The industrial economy is gone. It's never coming back. I did think for a little while perhaps, perhaps there is an, perhaps tariffs are a way to kind of re, to kind of put cheaper imports out of business to make it profitable to automate. So perhaps they wanted to bring industrial, industrial industry back to the United States, but under heavy, heavy, heavy automation, maybe that's possible. And they are building like enormous, like server farms in the, in America. So, but these, this is not for people. This is, this is, none of this actually involves like a ton of human labor or anything like that. So, you know, nobody is in it for the common good. They're in it to, well, obviously for the bottom line. I mean, it's always that way, but also to, to, to keep this bubble inflated for as long as possible. So that's my read of the Jerome Powell situation and how it bodes for the state of the US Economy.

Matthew Schmitz (19:54)

It's interesting to consider exactly how this has played out. According to reporting in Bloomberg, this move was not expected by the Trump administration itself, this issuing of a subpoena to Powell. So the subpoena, just really a demand for information, was issued by D.C. the District of Columbia, U.S. attorney Jeanine Pirro, the former Fox News host known as Judge Jeanine. And according to Bloomberg, she did not apprise her higher ups of this move. And Trump himself has tried to distance himself from the move and say, look, I don't know anything about it. I don't want anything to do with it. And that's a bit interesting itself because one way to kind of explain this is that the subpoena is part of a kind of broader attempt to unwind neoliberal economic structures, the freeing of economic decision making from political control by the creation of sort of technocratic mechanisms, such as an independent Federal Reserve, to set economic policy. Well, you know, Trump, according to this reporting, you know, not only does Trump not control the Federal Reserve, he's not really directing the U.S. attorney who's, who's leading this investigation. So it's kind of a question of what exactly the intentions of the administration are. It is clear, though, I think, that Judge Jeanine, as I'll call her, is trying to respond to cues she's received from Trump because Trump has complained about Powell, he's complained that interest rates are too high, and about this renovation. So she seems to be asserting herself, expecting Trump to approve of it after the fact and hoping for success. And there are a couple of reasons to think that Judge Jeanine won't succeed. One, markets really aren't that spooked, which suggests they think that this is going to go nowhere because if they thought that something were really going to happen, you would be seeing volatility. And then another reason to doubt this move is just to look at what happened with amlodipine, a constant reference point for us here at Compact Mag. The former Mexican president, Andres Manuel Lopez Obrador, and he, like Trump, wanted his central bank to lower interest rates. He sought to appoint people to it that would do that. But at one point he had, in 2022, he had a bit of a run in with the Mexican central bank where he announced a new rate policy hours before it was supposed to be announced. And he offered a very fulsome apology, saying that he fully respected the independence of the bank. In short, he went a bit too far, got burned and backed off. But I think it's worth asking, just how successful was AMLO in in his attempted confrontation with Mexico's central bank? And the answer is not very. Mexico's central bank adopted the most cautious stance of any Latin American central bank during the period when Amlo was in office. It was the slowest in the region to reduce its interest rates during the pandemic, and it was the last to initiate the easing cycle once inflation began to subside. So AMLO was saying, look, you have to lower interest rates. You have to lower interest rates. And despite this pressure he was applying, Mexico, and I would suggest maybe because of that pressure he was applying, Mexico's central bank was one of the slowest to respond. So I think that it's really Worth asking whether the pressure Trump is applying will succeed in achieving the aims he seeks.

Ashley Frawley (24:27)

Well, I think that they. He probably will like the direction is the same with between what Trump wants and what the Fed wants. It seems to me that rates will eventually go down. I think that the fight seems to be over timing and control. And I think that the markets didn't. Aren't really spooked because Trump always took chickens out. But they also know that the same

Matthew Schmitz (24:57)

thing Trump always chickens outlines. I've thought about that because you, have you seen the videos of Maduro dancing? You know, he before, in the kind of weeks leading up to his extraction, he would appear at these public events and he would dance to music to show that he was unconcerned about Trump's threats and all of the American military stuff that was being deployed around his country. And he's saying John Lennon's Imagine. And I think his underlying theory there was Taco Trump always chickens.

Ashley Frawley (25:34)

Oh, no, no, no. Don't get me wrong. I'm not saying that I believe that Taco. I'm saying markets think that. So markets think that Trump doesn't follow through. So they know.

Matthew Schmitz (25:46)

And certainly Trump fears Wall street more than Maduro. That is certainly true.

Ashley Frawley (25:51)

Oh, absolutely.

Matthew Schmitz (25:52)

Yeah. It's more formidable. Yeah.

Ashley Frawley (25:56)

But that, you know, markets know that the Fed already basically runs the economy quietly. It is the US's central planner. So they assume that the same thing's just going to keep happening if the Fed's going to protect the system. But the thing that I just don't understand is like, I just don't understand what, why there seems to be so much friction when at the end of the day I can't see how they want anything different. So I, the way that I'm trying to understand, it's like, is it simply performance? Is it theater? Is it sort of like trying to perform like we're the adults in the room because they both want to rates to eventually be down. I mean, they're not going to like hike them. They know that that's going to create a catastrophe. So I'm just, I don't know if it's. That Trump is just a useful person here to, to push the blame onto when things go wrong, when inflation rises and Trump thinks that he can handle it because he's, he can say, oh, it's because of we got screwed by the global economy or whatever the same story kind of tells about tariffs. So this is the thing that I, I don't really understand. I feel like maybe Trump might be A useful kind of scapegoat. But, you know, markets also want high interest rates. You know, they, they, sorry, low interest rates. It's not like they, like, I guess the fear is like the loss of stability or something. That's why they would be spooked. I'm not sure. I don't know. I still haven't quite wrapped my head around this because if they were, if the, I don't really think anybody is afraid of inflation and I think that they're actually quite happy to inflate debts away and this sort of thing. So I just don't, I just don't understand why there's so much posturing and why there's so much the appearance of like a fight between Trump and the Fed.

Matthew Schmitz (27:50)

The kind of conventional answer is just that Trump wants to make sure that Fed policy is calculated to serve his political advantage, whether it's the midterms in 2026 to staunch Republican losses that are projected or, you know, obviously 2028 when the presidency is back on the ballot. Whereas Jerome Powell probably has slightly less interest in seeing the political success of Trumpian populism. But beyond that. Yeah, there's, I don't think they have, they don't have profoundly different economic visions. It's really one, you know, they're, they're fully subscribed to the, to the same system. So with that, thank you, Ashley. I think we'll be doing this for about a week or two more before Jeff rejoins us.

Ashley Frawley (28:46)

I feel his absence.

Matthew Schmitz (28:48)

Thanks, listener. Yeah, we all miss him very much. And thank you, listeners. Thanks to our producer, Stephen Adobotto. For more, go to compactmag.com subscribe.

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