Jerome Powell: This Fourth Turning's "Gray Champion"

How the Fed Chair has saved the US economy (at least red state economies)

Photo by Aaron Burden on Unsplash

Over the past five centuries, Anglo-American society has entered a new era — a new turning — every two decades or so… The Fourth Turning is a Crisis, a decisive era of secular upheaval, when the values regime propels the replacement of the old civic order with a new one.

… Each time the Gray Champion appeared marked the arrival of a moment of ‘darkness and adversity, and peril,’ the climax of the Fourth Turning.

— William Strauss and Neil Howe,

The Fourth Turning: What the Cycles of History Tell Us About America’s Next Rendezvous with Destiny

After suffering losses around New York City, the battered Continental Army retreated to southeast Pennsylvania in December 1776.

The year that started off so well for George Washington had turned into a disaster.

War-weary, frustrated and cold, some soldiers deserted their post. Others’ enlistments expired. This was possibly the fledgling nation’s lowest point in the early stages of the Revolutionary War. 

August 15, 1945, as news of Japan’s World War II surrender spread, Greta Friedman stepped outside her Times Square dental office to check on the celebration. Just as Friedman was outside, US Navy sailor George Mendosa pulled her in for a kiss. This joyous moment was captured by photographer Alfred Aisenstaedt and quickly became the iconic image of America’s World War II victory.

Separated by 169 years, these were two defining American moments — one of despair, still early in the Revolutionary War, the other of jubilation as the curtain closed on WWII. 

But something else binds these bookends of two wars: Although pivotal blips of time, they’re both a part of a much longer and inevitable cycle of American history.

In their 1997 book The Fourth Turning, William Strauss and Neil Howe note that like the seasons, Anglo-American history follows a roughly 80 to 100-year cycle that consists of four phases. Four turnings.

A euphoric spring — like America’s immediate post-WWII era — gives way to a summer awakening period. Next comes an unraveling (fall). And eventually, a winter crisis — a fourth turning — will emerge. (The 2008 Global Financial Crisis likely started this fourth turning, which may last through the 2020s.) 

In each crisis period, history sees the rise of a Gray Champion — a wise elder who has lived through the cycle’s four phases. The Gray Champion’s experience will help lead the nation out of its winter crisis and once again into springtime.   

In the Revolutionary War, George Washington was that era’s Gray Champion. 

That December of 1776, although backed up into Pennsylvania and against all odds, Washington didn’t flinch. On Christmas night, he crossed the Delaware River in a surprise attack. His victory at the Battle of Trenton revived the breakaway nation’s spirit.

Nearly 250 years after Washington fulfilled his role as the Gray Champion, America seeks its contemporary champion for this fourth turning. This time, he’s not as easy to spot — not like Washington’s 6’2” commanding presence, head and shoulders above that day’s average man. 

Some could still point to President Joe Biden as the obvious Gray Champion, they might say. I’ve seen Donald Trump supporters argue, in jest, that this time around, a Gray Champion won’t arise. An orange one will.

However, I have the most contrarian of opinions. It’s a take that might spur some anger. But I don’t care about your vitriol and any arrows in my back. My take is well reasoned.

Because inside another building in Washington DC, I believe sits today’s Gray Champion: Federal Reserve Chairman Jerome Powell. 

Powell isn’t on Team Globalist

Over a decade of poor leadership at the Federal Reserve has completely ruined Americans’ expectations of the central bank Chair.

Prior to Powell were Ben Bernanke and Janet Yellen — the Fed Chairman and Chairwoman, respectively, from 2006 until early 2018. 

Plucked out of academia, Bernanke and Yellen’s hare-brained theories are not aligned with the real world. Yet, as Fed Chairs, these ivory tower-dwelling economists were trusted to make decisions that affected the US economy.

(For brevity, I’ll focus on Yellen's ideology.)

If you quickly peruse Yellen’s public statements (like this one), you’ll find that in her view, to correct any of society’s ills, more central planning is needed. No surprise there.

And also not a surprise — her central planning advocacy extends well beyond the borders of the United States.

Now serving as Treasury Secretary, Yellen is still able to flash her globalist credentials to the world. For example, just last week, she said in Senate testimony: “I hope Congress will implement the United States’ part of the global minimum tax deal.” 

And earlier in March, she expressed support for European green energy, continued financial support for Ukraine and Russian sanctions.  

Did Yellen suddenly adopt this globalist ideology? Or has she carried it all along, including her four-year tenure as the Fed Chair?

You know the answer. 

But contrast Bernanke and Yellen’s backgrounds with Jerome “Private Equity” Powell — someone who has put money to work and managed risk in the markets. Someone who understands how the entire US economy has been perverted by the absence of risk (i.e. Bernanke and Yellen’s 0% or near 0% interest rates). 

And importantly, Powell was the investment bankers’ choice for Fed chair. He was also nominated by none other than the America-first President, Donald Trump.

Powell has zero interest in an activist Fed that’s operating outside its dual mandate — maximum employment and price stability. 

As evidence, you can view this video from a 2021 conference of central bankers on climate change. Here, Powell states unequivocally (emphasis mine): “The overall response of the United States government, and particularly as it relates to collaborating with other nations [on climate change], is not a question for the Federal Reserve; it’s really a question for the government.”    

As the Fed Chair talks in that video, you’ll see that Christine Lagarde, the President of the European Central Bank (ECB), goes from smiling, anticipating another climate change ally in Powell, to sulking. 

Because this is another data point that Powell’s not on Team Globalist.

No, this guy is on Team America. 

Team America: A Motley Crew, but with Aligned Incentives

Now’s a good time to make my opinion crystal clear: The Fed shouldn’t exist.

Like so many other younger GenXers and older Millennials, I was redpilled by former Congressman Dr. Ron Paul’s US Presidential campaigns in 2008 and 2012. He convinced me of the errors of central banking that lead to misallocations of capital, artificial booms and the ensuing busts. 

So, for over a decade, throughout the Bernanke, Yellen and even the first few years of the Powell administration, “End the Fed!” was my rallying cry. 

But under Powell, starting in mid-2022, I took note that something was different. I couldn’t quite put my finger on it. My intuition told me that I was missing a few pieces of this new Fed puzzle. And going down this path might require a realignment of my previous views.

Thank goodness I found the right person to follow down the rabbit hole.  

Geopolitical/financial analyst and writer Tom Luongo (of Gold, Goats ‘n Guns) has a unique perspective on the Fed. 

In our fight for an improved monetary system, Luongo has reiterated that there’s a correct order of operations. And counterintuitively, the Chairman of the very organization that I, along with fellow libertarians have railed against for so long, is our ally in this incremental fight. 

Don’t get me wrong: I’m not naïve. I don’t imagine that Powell has any direct accountability to me, just another middle class American. 

Rather, Powell still works for the banks like JPMorgan and Goldman Sachs that are among the shareholders of the Federal Reserve system. 

But here’s where Mr. Luongo’s perspective comes into play: Despite the vast differences in power and influence between everyday Americans and investment bank CEOs like Jamie Dimon (JPMorgan) and David Solomon (Goldman Sachs), interestingly, our incentives align. And in human action, incentives are what’s important. 

Simply put, Fed Chair Powell, US investment bank CEOs and everyday Americans alike don’t want to see:

• The destruction of American capitalism;

• The rise of a retail central bank digital currency (CBDC) that, for bankers, would end-around the commercial banking system and their livelihoods; and, for all Americans, would eliminate their financial privacy;

• The end of fossil fuels and replacement with renewable energy sources that can’t generate baseload power;

• American sovereignty ceded to, in Luongo’s terms, “European technocratic commies” at intergovernmental organizations or nongovernmental organizations in Brussels, Frankfurt, Davos and elsewhere;

Well, I’m here to deliver good news. 

In the last couple of weeks, after the collapse of Silicon Valley Bank and Signature Bank, you’ve undoubtedly seen plenty of pitiful analysis on social media and in the news. Among these takes may be the oft-referenced George Carlin quip, “It’s a big club, and you ain’t in it.” 

Fortunately, Carlin’s quote doesn’t apply here. The situation is more nuanced. 

Powell and the New York City investment bank CEOs, at least many of them, are not allies of European technocratic commies like Bond supervillain look-alike Klaus Schwab. 

If you’re reading this, I’ll assume that you’re not a Bond supervillain. So, in what’s best described as a motley crew, again, your incentives — for the moment, at least — align with Powell, Dimon, Solomon, and several other New York investment bankers. 

Once the past decade’s excess is expunged, we can then turn our attention to central banking’s inherent problems and the privileged status of investment banks.

But remember, there’s a correct order of operations to our ordeal. And I’m glad that we have these powerful banks beside us in this fight for the American economy.

Because we’re winning. And we’re going to win.

Powell is Battle-hardened and Ready to Win the War

Think back to the third quarter of 2021. 

Imagine what Jerome Powell was facing then, and what was going through his mind.

It seemed that tyranny was winning. Totalitarians were doubling down — more attacks on personal liberty, more control mechanisms, more government interference, more subversion of markets.  

But this was Powell’s moment. This was his fight. 

He had an opportunity to be remembered by history as the one who helped to keep American capitalism alive. The stakes in the fight were possibly even higher: To retain a functioning country.

At the time, Powell faced a steep hill to be reappointed by Biden and to be reconfirmed by the Senate. 

Fed Vice Chairwoman, Lael Brainard — who would be a return to the Bernanke and Yellen days, but on money printing steroids — seemed to have the edge for the next Fed Chair appointment. 

On horrible advice from economists at the Fed, in July, Powell said, “Inflation has increased notably and will likely remain elevated in coming months before moderating.”

But by November, inflation was still climbing. Powell had access to reams of data, even his own trading desk in New York. Something wasn’t squaring here. Why didn’t his messaging change in 2021?

Are these even the right questions we should have asked at the time?

Probably so. Because, as Luongo has emphasized, if we approach this moment in hindsight with a political lens, suddenly the image becomes a lot clearer. The analysis becomes a lot easier.

That said, how much of Powell’s messaging was purely political maneuvering? How badly did he need to signal to President Biden that he truly was “on the team”? That if reappointed and reconfirmed, he wouldn’t significantly hike interest rates — an action that would destroy the levered offshore dollar markets, the source of the globalists’ power. (But more on that later.) 

Somehow, some way, on November 22, 2021, Powell managed to secure the Fed Chair renomination.

And on February 4, 2022, the Federal Reserve Board named Powell as Chair Pro Tempore, which allowed him to continue his Fed Chair duties and all but guaranteed his reappointment by the Senate. (He was indeed confirmed in May 2022.)  

Then, just over a month after Powell was named Chair Pro Tempore, what happened?

The Fed raised interest rates — its first hike in more than three years. 

Coincidence? Possibly. But with the renomination and reconfirmation process behind him, Powell didn’t need to play any more games. It was time to again raise rates — a process he initially started back in 2018. 

This time, however, there won’t be a Fed pivot — at least not in 2023. Because something other than an inflation battle is fueling Powell’s interest rate hikes.

“Fighting Inflation”: Powell’s Cover to Continue Hiking Rates

Once again back to the Tom Luongo well to give credit where it’s due.

Luongo, a former research chemist and amateur goat farmer, has run circles around the so-called financial “professionals” over the past couple of years. 

As evidence, you’ve probably never heard the following take from your financial advisor or any investment strategist. But Luongo has raised these important questions: 

• What if Powell is not raising rates primarily to fight inflation? 

• What if inflation is just a convenient cover? 

• What if Powell’s focus is to destroy the levered Eurodollar market (i.e. offshore dollar market)? 

For a quick background, “Eurodollars” is a horrible name. 

The term Eurodollars originated during the Marshall Plan, when US dollars flowed to rebuild war-torn Europe. And the name stuck.

Today, Eurodollars refer to any US dollar-denominated deposit — in a checking account, savings account or certificate of deposit (CD) — that exists in a bank outside of the United States.

There’s no precise accounting of the size of the Eurodollar market. It could be in the tens of trillions of dollars. If so, this aggregate supply of dollars would dwarf the size of the Fed’s balance sheet (currently at $8.6 trillion). 

But the Fed and domestic commercial banks, not foreign central banks or foreign commercial banks, are supposed to control the US money supply. With all of these untold trillions of offshore dollars sloshing around and unaccounted for, the dollar has slipped from the control of Powell and US banks.  

So, if you’re an America-firster like Jerome Powell, which I’ve argued he is above, how do you wrestle back control of your dollars, both onshore and offshore, and thereby, your economy?

Simple. You raise interest rates. And then you keep on raising them.

Unlike the Fed, foreign central banks don’t own the world’s reserve currency. There’s a limit to their own money/credit creation. They need dollars provided by the Fed.

But if foreign banks can no longer access freshly conjured dollars from the Fed at near 0% interest rates — as they did under globalists Bernanke and Yellen — then the entire offshore dollar ruse is up. 

In other words, higher interest rates will stop foreign banks’ offshore dollar gravy train dead in its tracks. Without easy-flowing credit, activist foreign banks and other financial institutions cannot lever up on dollars. They cannot lend offshore dollars to ridiculous, unprofitable climate change/ESG (environmental, social and governance) projects that advance the international, top-down, economic transformation.

True, over the past decade, governments steered some dollars (both domestic and offshore), pounds and euros into climate change and ESG projects.

But on the private investment side, these projects attracted capital because dollars were free or nearly free for over a decade.

Well, in 2023, dollars are not free anymore. Powell now mandates 5% interest.

And to continue draining the offshore dollar market, Powell’s job isn’t done. He’ll keep on raising the Fed funds rate — the rate on overnight, interbank lending that affects annual percentage yields (APYs) on savings accounts, the yield on up to 2-year Treasurys, and other shorter-term rates on lending or saving money. 

As a result, other central banks must hike their rates, too, which will raise the cost of lending euros, pounds, yen, etc. 

Last week, the European Central Bank hiked by 50 basis points (0.50%). And, of course, policymakers used inflation as their rationale for doing so. But with dollar rates rising, it seems that ECB President Lagarde is backed into a corner. Powell effectively forced her hand.

And Powell will keep Lagarde and others cornered. He’ll retain the upper hand. 

Even with more rate hikes by foreign central banks, these bank bosses cannot prevent capital flight into dollars and US capital markets. Large financial institutions that move markets are starting to understand that TINA — There Is No Alternative — is in play.

Europe is a no-go for capital, as is Japan. Only America remains as the destination for capital. But not for soy boy tech projects in Silicon Valley and Boston. This time around, projects that actually create value in the real world — companies operating in America’s heartland — will receive capital.   

Meanwhile, the threat of a widespread US banking collapse isn’t on the horizon.

Because Powell has that piece covered, too. 

Powell’s Backstop, not Bailout, of US Banks

In 110 years, the Fed has gone from inception to the behemoth that we know today, with a nearly $10 trillion balance sheet.

So, when we view the monstrosity, it’s sometimes difficult to recall the Fed’s original, simple intent: To backstop banks during panics. That’s it. No buying and selling of government securities. Just a means to shore up confidence when it’s needed the most. 

(Yes, I’m aware of the moral hazard problem, but I won’t get into that discussion here.)

After the recent collapse of Silicon Valley Bank and Signature Bank, we’re seeing the Fed’s original intent in action. 

The Bank Term Funding Program (BTFP) is a backstop, not a bailout. (To explain why the Fed’s balance sheet has recently increased, I’ll refer you to this Twitter thread by former Dallas Fed analyst and advisor Danielle Dimartino Booth.)

For BTFP details, this Substack offers an excellent summary:

• A bank can only get a loan that is no greater than the total size of its eligible assets;

• A bank can only get a loan for a term of up to one year. It’s not unlimited 0% money with no payback, like QE [quantitative easing] has been for over a decade;

• The bank must pay an interest rate on the loan that is the one-year, overnight Fed funds rate plus 10 basis points (0.1%), a rate that has been ever increasing since the Fed started raising a year ago. 

Well done, Powell. 

He’s shored up confidence in the banking system. And simultaneously, he ensured that US taxpayers are not on the hook for unlimited bailout money to the banks.

More on the potential consequences from that same Substack article: 

I think what we have seen in the actions of the Fed has been to protect and grow regional banks to return America to the more traditional banking of the 50’s and 60’s. 

A place where a regional bank is no longer worried about international politics or having to manage currency carry trades in India. A place where a regional bank works to fund Tom’s local machine shop to buy a new piece of equipment, or helps Jim with an operational loan to get his farm seeded for this year's harvest, and is a place where you can get a car or home loan, and have it serviced by your bank for the entire length of the loan. 

A place where you can invest your money, have it grow at slightly less than inflation, but never again be worried if you were going to wake up in the morning to your money being inaccessible.

Again, US banks are protected and backstopped. 

And Powell has set the stage for a return to traditional community banking — one with local risk assessment that’s solely focused on you and your neighbors.  

Average Americans probably don’t yet know it: They will be the great beneficiaries of Powell’s actions. 

I’m Hopeful for Red State Economies

If Emaneul Leutze’s 1851 painting Washington Crossing the Delaware truly captures that moment’s spirit, I imagine that Continental soldiers who witnessed the event may have realized: 

General Washington is indeed our champion for this crisis. Rest easy — for all will be well. 

In the coming weeks or months, we may see other US banks collapse. If so, the fear-mongering will be dialed up. Pundits will declare that the entire US banking system is in a full collapse. And the dollar is ready to implode. 

No, I think we’ll be okay. Thanks to Powell, the United States economy has already won.

With dollars no longer free, real risk assessment can return to capital markets. 

And the US economic transformation can begin in earnest. Uneconomic Silicon Valley startups that add no real value will no longer attract capital. 

Fueled by the onshoring or reshoring of industry — a development that’s simultaneously been in motion — US banks can now reinvest in America, especially in low-tax, low-regulation, high-freedom (i.e. “red”) states. 

And regular people will win, too. Savers can once again obtain a return on their deposits and US Treasury holdings.

All that said, the road ahead will still be difficult. We can’t instantly move from a decade of capital misallocation and excess to a disciplined economy that works much better for the average American in flyover states.   

But as Americans, we have a lot to be hopeful for. And Jerome Powell should get a lot of credit for turning America’s economy in the right direction. 

Gray Champion or not, I salute you Mr. Powell. Thank you for saving the US economy.