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00:00Eswar Prasad of Cornell writing the following The president has now declared open war on the US institutional framework, which underpins the dollar's dominance in global finance, as well as other aspects of US financial supremacy. Each word joins us now for more Asia. Welcome back to the program, sir. Let's just take your line of thinking. If we have declared open war on US institutions, why are you seeing signs of damage? So if one thinks about what are the key elements of the institutional framework that, as I mentioned, have underpinned the dollar's supremacy and foreign investors trust, particularly in the US financial system, it includes a system of checks and balances that is institutionalized the rule of law and most importantly, an independent central bank. Each of these elements of the US institutional framework took some things during the first term, but during the second term, Trump is really taking a hatchet to each of them. None of the checks and balances from Congress are to some extent, and the judicial system seem to be working very well. The Fed's independence is really crucial, and it should emphasize that its operational independence no central bank can be ultimately free of political influence because, after all, it has to serve the welfare of the people. But in the operational decision making, you know, all evidence seems to suggest that leaving the central bank alone to do its job is the right thing, makes it most effective and credible. And that's what Trump is attacking. The Fed said that they would abide by what the court decides. I read that statement to the president live in the Cabinet room, and he came out and asked him, would you abide by the courts? And he said, yes, of course he will. So if the court decides at least a Cooke can stay, is the damage already done or do you think that then just bolsters the view in America that we do have independent institutions? Well, at the moment, I think a great deal of damage has already been done because Trump is very clear that he wants to bend every institution in the US, including a statutorily independent one like the Federal Reserve, to his will in terms of policy making and the broader elements of policy that need to line up with his desires. And that's not quite, you know, what has helped America maintain its financial supremacy. It's a sense that everybody, including the government, has to play by the rules. You know, they may not like the rules, but whether you're a domestic invested, a foreign investor or the very government that sets the rules, you have to play by the rules. And that is the elements that Trump is attacking. Now, even in a system where you have the rules very clearly laid out. Ultimately, it is norms that matter because you cannot really write a rule that covers every eventuality, every circumstance in the world. And those norms are certainly being shattered. And this is, I think, the real concern, because even if Lisa could stay on the board, a certain red line has been crossed. Trump has made it very clear that it is loyalty to him and his policy is that matters much more than technical competence.

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Trump’s ‘Open War’ on US Institutional Framework: Cornell’s Prasad

Cornell University Professor of Trade and Economics Eswar Prasad says President Donald Trump is “taking a hatchet” to the US system of checks and balances, the rule of law, and an independent central bank in his second term, as Trump seeks to oust Federal Reserve Governor Lisa Cook. (Source: Bloomberg)

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