Who do you trust more with your money: Jerome Powell or Donald Trump?

From Henry VIII to Lenin or Nero to Hitler, authoritarians always want to control money: who prints it, how much of it and at what price. They just can’t help themselves because money is the ultimate weapon, more powerful than ideology, religion or even military muscle. As Nathan Rothschild quipped, he who controls the money, controls the country.

Lenin and Hitler wanted to use money to destroy their enemies both internal and external, while Nero was more into self-enrichment. Henry VIII sought control over the mint so he could fund wars but when he realised he couldn’t pull the wool over people’s financial eyes indefinitely, he concluded that backing the new religion – Protestantism – would allow him to confiscate the wealth of the monasteries, in effect stealing the assets of the old religion. This was an easier way to get rich than mass debasement.

Lenin being Lenin went all in on money. In an interview with London’s Daily Chronicle published on April 23rd, 1919, Lenin is reported to have said that he had a plan to annihilate the power of money in order to destroy what remained of the old Russian state following the October Revolution of 1917.

“Hundreds of thousands of rouble notes are being issued daily by our treasury ... with the deliberate intention of destroying the value of money ... The simplest way to exterminate the very spirit of capitalism is therefore to flood the country with notes of a high face-value without financial guarantees of any sort. Already the hundred-rouble note is almost valueless in Russia. Soon even the simplest peasant will realise that it is only a scrap of paper ... and the great illusion of the value and power of money, on which the capitalist state is based, will have been destroyed,” he said.

Hitler’s obsession with getting his hands on money went even further. He planned to drop millions of pounds all over Britain at the height of the second World War. Hitler understood what happens when money loses value. He lived through the hyperinflation of the Weimar Republic and was aware that money is a weapon like no other. Money can destabilise a country.

In July 1942, Hitler’s new weapon cranked into production. It was to be the greatest forgery the world had ever seen. A telegram was sent to the commandants of concentration camps calling for printers, artists, colourists, paper experts and former bank officials as well as mathematicians and code breakers to decipher sterling’s numbering sequence. A most desperate cohort of traumatised, emaciated men limped into Sachsenhausen from camps all over the Third Reich. These 142 souls were tasked with breaking the Bank of England. The concentration camp forgers printed £132,610,945 of fake sterling notes, equal to about £7.5 billion in today’s money.

Dropping these notes over Britain would require squadrons of German bombers that were available to Hitler when the plan was hatched in May 1942, but by the time the forged notes were ready in 1943, the war situation had changed and Germany was losing on the battlefield, the Luftwaffe’s resources were stretched in Russia and the war effort couldn’t spare the planes to handle the mass air drop.

Unlike Hitler, who was not in control of the Bank of England, Lenin was able to activate the official Russian mint to achieve the chaos he desired. Both men had similar aims: they wanted, as Lenin said, to shatter “the great illusion of the value and power of money”. Both dictators, two demonic observers of psychology, understood human frailty, crowd dynamics and the depths to which people can descend. Mess with money and you mess with far more than the price system, inflation and economics – you mess with people’s heads. The story of Hitler’s forgery illuminates the power of money.

Unlike Hitler or Lenin, Donald Trump doesn’t want to debase money completely, just a little bit, just enough to keep the price of money – the rate of interest – artificially low, to stimulate more money printing, just enough to fool the people for long enough into thinking they are richer than they actually are. Buoyed up by the temporary sugar rush of cheap money, which will push up the value of their homes, their stock portfolio and make their loans that bit cheaper to service, the American middle class will ascribe their creature comforts to the president and vote for him in the upcoming mid-term elections. That’s the strategy. Makes sense doesn’t it?

But to execute this deft move, the president needs a patsy at the top of the Federal Reserve who will do his bidding and compromise the long-term integrity of the American dollar to achieve the short-term goal of re-election. Hitler and Lenin planned on full debasement to destroy the system with an immediate and catastrophic inflationary shock; Trump is aiming for something more subtle; a slow, more difficult-to-decipher inflationary boost. This may have long-term consequences for the credibility of the US financial system but what does he care? John Maynard Keynes once observed, “In the long run we are all dead”. For Donald Trump, the long run is, in effect, someone else’s problem. He will be long gone. Print baby print!

This is why central bank independence is important. Central bankers are supposed to think in decades not weeks, whereas politicians often think in hours let alone weeks, because, well, things happen. Events dear boy. Politicians face a public interview process called elections. They are accountable to the people. Central bankers are not. There is good and bad in this. Technocratic unaccountability can lead to arrogance coupled with incompetence – a truly destructive combination. (I’ve seen this as a former central bank economist!) Yet, on balance, when it comes to setting the value of a currency like the US dollar, it is probably wiser to have a technocrat’s hand at the wheel than a demagogue.

There is a pattern here.

From the courts to the police force, from the civil service and the CIA to the State Department, the Trump agenda is to disrupt, destroy and replace. For his supporters, this is a plan; to his opponents it is fascism. Although it might seem arcane and not half as dramatic as invading Greenland, issuing criminal proceedings against the head of the Federal Reserve is a huge move of global significance. Whether we like it or not, our entire world revolves around this strange notion which Lenin described as the “great illusion” and at the centre of it is the US dollar. These days, money’s value is not linked to something physical like gold. It is issued by central bankers and backed by nothing more than technocratic competence, ultimately based on that most ephemeral of concepts, public trust.

Who do you trust more, Jay Powell or Donald Trump?