When the Fed considers the fiscal needs of the Federal Government, between Paul Volcker and Jerome Powell, there’s a huge divide.

Jerome Powell, the Fed chair, speaks after the interest rate decision. July 30, 2025.

https://www.youtube.com/watch?v=z0N5_d7Y7Wg

Minute: 19:22 Michael McGee of Bloomberg’s asks: “Do you have concerns about the cost to the government of keeping rates elevated for longer in terms of interest rate charges?”

Jerome Powell, chair of the Federal reserve answers: “It is not something we do to consider the cost to the government of our rate changes.”

Then Powell adds: “We do not consider the fiscal needs of the federal government, no advance economy central bank does that and it wouldn’t be good for, if we did that it would not be good for our credibility nor for the credibility of US fiscal policy so it is just not something we take into consideration.”

Hold it there Mr. Chair!

Paul Volcker’s in his autography “Keeping at it”, valiantly confessed: “The assets assigned the lowest risk, for which capital requirements were therefore low or nonexistent, were those that had the most political support: sovereign credits. The American “overall leverage” approach seemed to discourage holdings of the safest assets, in particular low-return US government securities.”

Now, in 2025, we should ask: “The Federal Reserve’s support of government borrowings, an important determinant of US fiscal policy has it not, since 1988’s Basel I, even increased a lot?

What Americans sadly ignore when following their presidential conventions

Americans, when following a red, blue or a no-color presidential convention, it behooves you to know the following fact that is, for all practical purposes, being totally silenced.

Since 1988, bank regulations are de facto based on that all the bureaucrats who decide on how money is to be used, from the president to the lowest government echelon, know better what to do with federal government debt held by banks, and for which repayment they’re not personally responsible for, than all of America’s small businesses and entrepreneurs know what to do with the bank loans they are, one way or another, personally responsible to repay.

Scary, eh? 

And you don’t have to just take my word for it. “Assets for which bank capital/equity requirements were nonexistent, were what had the most political support; sovereign credits. A ‘leverage ratio’ discouraged holdings of low-return government securities” Paul Volcker

Ask yourself: What would United States Founding Fathers have opined about decreed risk weights of: 0% Federal Government – 100% We the People?

Now go back and have a new look at the conventions and ask yourself: do I want the future of my children and grandchildrens nation to be more in the hands of these aspiring public servants than in hand of those private citizens who made America great?

And if you think that because of this last question it has only to do with the Democratic convention let me, ask: Do you think Donald Trump, as a president, knows better what to do with America's debts, for which repayment he’s not personally responsible for than what, as a successful business man he knew (or at times did not), with credit for which, even if sometimes only in terms of his ego and reputation, he had to repay.

No! America is not a full-fledged democracy, America, with the help of bank regulators, has become a Bureaucracy Autocracy.

Please! Look at the outrageous current level of US government debt, and reflect on if it all that has trickled down adequately to the real economy. 

PS. Will any American main stream media publish this, or are they all just too beholden to the regime.

A Bureaucracy Autocracy has been constructed with stealth

Sir, below I quote from Didi Kuo’s review of Moisés Naím’s “The Revenge of Power”, “How the world has been ‘made safe for autocracy’” Washington Post, April 24.

“Today’s autocrats are savvy, with new stratagems fit for a world upended by technological change. They exploit, and sow, distrust in experts, authorities, the media. They manufacture truth, invent enemies and use legal pretexts to consolidate power.”

The regulators in the Basel Committee for Banking Supervision, launched Basel I in 1988. In order to “save” our banks from that “enemy” of excessive risk-taking, these “savvy” experts concocted risk weighted bank capital/equity requirements; and for which they decreed weights of 0% the government and 100% citizens.

That translated effectively into banks being able to leverage much more their capital/equity with  e.g., Treasuries, than with loans to citizens. That has made it much easier for banks to obtain desired risk-adjusted returns on equity with Treasuries, than with any private sector assets. That de facto implies that bureaucrats know better what to do with credit for which repayment they’re not personally responsible for, than e.g., small businesses and entrepreneurs

You don’t need to take my word on it. Paul A. Volcker, in his 2018 autobiography “Keeping at it” which he penned together with Christine Harper, valiantly confessed: “Assets for which bank capital requirements were nonexistent, were what had most political support: sovereign credits. A simple ‘leverage ratio’ discouraged holdings of low-return government securities”

Add to that central banks’ QEs, which primarily includes the purchase of government debt, and the empowernment of a non-transparent Bureaucracy Autocracy becomes evident. 

If that is not a prime example of “what Naím terms stealthocracy: a way of maintaining the architecture of liberal democracy while gutting accountability” what is?

Sir, as a Venezuelan just like Naím I too heard Hugo Chavez with concern and dislike. But, just like Venezuela’s centralized oil revenue curse has allowed truly bad autocrats to remain entrenched even when the walls are tumbling down, what I now most fear, is that world wide easy-government-money curse. 

Let me also remind you Washington Post, that none of the excessive bank exposures that resulted in major crises, or bubbles that have burst, have ever been built up with assets perceived as risky, always with what was perceived as safe.

I could go on and on, but let me end with two questions:

The Founding Fathers of the Land of the Free and the Home of the Brave, what would they have opined about the Federal Reserve decreeing risk weights of 0% the Federal Government and 100% We the People?

Where would America be today, if its immigrants centuries ago, had been met by this type of risk averse regulations?

PS. My first ever Op-Ed, in the Daily Journal of Caracas, was on the theme of bank regulations. 

PS. An example of how the Bureaucracy Autocracies work.

PS. I have recently enlisted #AI ChatGPT - OpenAI to help me fight the Bureaucracy Autocracy. "What would you opine of risk weighted bank capital requirements with risk weights assigned for political reasons?"

Here's a letter the Washington Post published August 2023. It refers to Paul Volcker’s valiant courageous and honorable confession on what happened 1988. Thanks @PostOpinions for not ignoring it.

Do we then need two World Banks?

Krishna Guha and Eoin Callan in the Financial Times of September 13 and in reference to a report on the role played by the World Banks internal anti-corruption unit the Department of Institutional Integrity (INT) were told by Paul Volcker, the main responsible for that report, that “his inquiry had ‘reconfirmed’ there was ‘ambivalence’ in the bank as to whether they really want an effective anti-corruption program or not”. 

Wrong! Having been an Executive Director at the bank (2002-2004) I sincerely believe that an overwhelming majority of the bank staff clearly comes out in favor of more and better anti-corruption efforts but that these do not come into fruition only because part of the management, rightly or not, believe that these could hinder the bank from operating efficiently… at least as they wish for it to operate for whatever reason efficiently. 

If we discuss “ambivalence” then perhaps we should also discuss what Volcker’s report does not touch upon and that is perhaps the single most outstandingly ugly blemish on the World Bank’s reputation. To see what I refer to please search out INT on the external website of the World Bank and then click on the list of Debarred Firms and Individuals. On that list you will find, duly named and shamed, the names of many individuals that one way or another after a due process have been considered involved in corruption, but that list does not include one single name of those officers of the World Bank that presumably must also have been involved in these acts of corruption one way or another. Susanne Folsom the Director of INT, on a Q&A session on that same site mentions, “We’re often asked why we don’t publicly name Bank staff who are terminated for fraud and corruption as well. The Bank’s rules don’t allow such disclosures….” 

What credibility can you get naming others while not being willing to name your own? It might very well be that the “ambivalence” on anti-corruption in the World Bank is insurmountable but if so perhaps what we need is to have two world banks since the world definitely needs one that comes out completely and unabridged against corruption. And mind you I am far from being a zealot on this issue, since life has taught me well that zealousness frequently carries within its own even more dangerous breed of corruption.