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Doug Casey on the Fed Raising Its Inflation Target and Other Shenanigans

Posted by M. C. on February 16, 2023

By contrast, in an inflationary environment, whether it’s 10-15% (the real number in the US right now), or 100% per year as in countries like Venezuela and Zimbabwe, or the 2% the Fed advocates, currency debasement discourages people from saving. And if you don’t save, you can’t build capital. And if you don’t build capital, you can’t make investments and you can’t improve the standard of living.

https://internationalman.com/articles/doug-casey-on-the-fed-raising-its-inflation-target-and-other-shenanigans/

by Doug Casey

International Man: Recently, there have been whispers about the Fed raising its official inflation target above 2%.

But before we get into that, we should define our terms.

What is the proper way to think of inflation and the Fed itself?

Doug Casey: First of all, the word “inflation” should be viewed as a verb, not as a noun. Inflation is an increase in the amount of money. This is why Bitcoin—which may have other issues as a money—is inflation-proof; it’s a mathematical certainty that no more than 21 million will ever exist. There are absolutely no limits to the supply of fiat dollars, however.

Inflation is one of the most misused words; few even think about the word’s actual meaning. What is inflation? “Well, that’s prices going up.” No, it’s not. To say that is to confuse cause and effect. Inflation is an increase in the money supply. “Inflation”, a rise is the general price level, results when the money supply is increased by more than real wealth increases.

Do you think I’m just making an obvious, common-sense point? Au contraire. For instance, the Wall Street Journal of Feb 13 featured an article entitled “Inflation Is Falling, and Where It Lands Depends on These Three Things.” In the opinion of the clueless reporter, the three things are “goods, shelter, and other services.” Nowhere does she reference the money supply as the cause of inflation. It’s what she was taught in school, and she stupidly perpetuates the notion.

Prices go up as a result of money printing. But most people believe inflation comes from out of nowhere, like a freak storm. They appear to think it has no specific cause—unless it’s blamed on the butcher, the baker, or an evil oil company. It never occurs to them that central banks—the Fed in the US—are directly responsible for creating money, causing prices to rise. In fact, in a perversion of reality, the public seems to believe The Fed “fights” inflation, because that’s what the Fed says. This is the opposite of the truth.

The Fed inflates the currency by buying the debt of the US government. When the Fed buys US government debt, it credits the US government’s bank accounts at commercial banks with Federal Reserve notes. The government can then write checks to pay for what it wishes.

At this point, however, the US government is approaching terminal bankruptcy with a federal debt of $31.5 trillion and $181 trillion of unfunded liabilities.

Most US government spending in the future won’t be funded through taxes or borrowing from the commercial markets. And certainly not by selling debt to foreign governments, who recognize it’s the unsecured liability of a bankrupt entity. They’re trying to get rid of it. How, therefore, will the federal government fund its spending from here on? Mostly by selling their debt to the Federal Reserve.

It’s actually worse than that, because we have a fractional reserve banking system where not only is there no distinction between savings accounts and checking accounts, but banks can loan out the same dollar numerous times, which compounds the problem.

I’m sorry to give short attention to many concepts here. That’s why books are written…

International Man: What do you make of the Fed’s arbitrary target of a 2% rise in the general price level? Why not 3% or higher?

Doug Casey: The Federal Reserve has been trying to create a little bit of inflation because, they say, “A little bit of inflation is good.” No, it’s not. Even a little bit of inflation is deadly poisonous. For two reasons: It creates the business cycle. And it destroys the value of savings—and saving is the basis of capital creation. People who say that a little inflation is a good thing are dangerous fools.

We should also remember that the US government’s official inflation numbers are very questionable. In my view, they’re only marginally more reliable than their equivalent in Argentina—a country whose numbers are completely political and laughably inaccurate.

They’ve come up with 2% as the correct amount to debase the currency every year. An oblivious and poorly educated public has been propagandized into believing that makes sense.

It doesn’t. The amount and value of money should be determined by the market, not by a bureaucracy.

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Of Course The IRS Needs To Go — But The Fed Must Go With It

Posted by M. C. on February 4, 2023

https://rumble.com/v2881sa-of-course-the-irs-needs-to-go-but-the-fed-must-go-with-it.html

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The Fed’s Destructive Guessing Game – The Future of Freedom Foundation

Posted by M. C. on December 21, 2022

Recession, depression, inflation, unemployment…aren’t these the things the Fed is supposed to prevent?

Instead we have have endless funding for endless wars and other endless government programs that endlessly don’t work.

https://www.fff.org/2022/12/15/the-feds-destructive-guessing-game/

by Jacob G. Hornberger

As expected, the Federal Reserve raised interest rates by half a point yesterday. It was a drop from the .75 point rate increases that the Fed has been implementing for the past several months. 

A big reason the Fed is going slower is the longstanding fear among Fed officials of bringing about another Great Depression by raising interest rates too high and too fast. That’s, of course, what happened in the late 1920s, when the Fed’s actions brought about the 1929 stock-market crash, which then led to the Great Depression.

Yes, I know, most everyone is taught in their public schools and state-supported universities that the Great Depression was caused by the failure of America’s free-enterprise system. But it’s a lie. And it’s been a lie ever since U.S. officials began saying it during the Great Depression.

In fact, it was the Federal Reserve that caused the Great Depression. If the Fed had not over-contracted the money supply in the late 1920s, there never would have been a Great Depression.

At the time, U.S. officials felt it necessary to tell the lie because of the widespread economic suffering the Fed had wreaked with its monetary policies. People had lost their businesses. Multimillionaires who had lost everything were committing suicide. There was massive unemployment and tremendous suffering. 

Imagine if the American people had discovered the truth — that it wasn’t “free enterprise” that had brought all this on but rather the federal government itself. The resulting anger would have certainly had an adverse effect on elected public officials in the next election. Moreover, U.S. officials undoubtedly feared the possibility of violence if people discovered the truth. 

The Fed had been established in 1913. This was during the time when the official money of the United States was still gold coins and silver coins. There was no paper money because the Constitution did not authorize the federal government to issue paper money. It only authorized the federal government to “coin” money. Moreover, the Constitution mandated that every state had to make gold coins and silver coins “legal tender.”

During the 1920s, the Fed began expanding the quantity of federal bills and notes in circulation, creating an artificial economic boon. People began to sense what was going on and began going to banks demanding that their bills and notes be redeemed in gold coins and silver coins, which they had the right to do. 

Faced with the fact that U.S. officials didn’t have sufficient gold coins and silver coins to honor all those paper debt instruments, the Fed panicked and began contracting the supply of paper bills and notes. In the process, they over-contracted, which brought the inevitable “bust” — that is, the 1929 stock-market crash and then the Great Depression.

This shouldn’t surprise anyone. The Fed is a socialist institution, given that it is based on the socialist principle of central planning. A board of bureaucrats plans, in a top-down, command-and-control manner, the supply of money in a very complex economy. It simply cannot be done. The central planners possess what Friedrich Hayek called “the fatal conceit” — the arrogant belief that they actually possess the requisite knowledge to plan such a complex economic phenomenon. As Ludwig von Mises pointed out, central planning produces “planned chaos.”

Today, people are taking the Fed to task because it over-expanded the money supply, which is now reflected in soaring prices of most everything. But what they fail to take into account is that the Fed is still a central-planning socialist institution, just as it was back in the 1920s. Why would Fed officials today be any better at central planning than their counterparts 90 years ago?

The big fear at the Fed is over-contracting. They are terrified of causing another Great Depression. This fear was confirmed some years ago by Fed chairman Ben Bernanke when he observed that Milton Friedman was right about how the Fed’s over-contraction had brought about the 1929 stock-market crash and the Great Depression. The Fed, Bernanke stated, was going to take great care that it never did that again. 

Bernanke’s admission was remarkable, given the lie that had become so widespread — that the 1929 stock-market crash and the Great Depression and been caused by the failure of “free enterprise.”

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Snow Job: Fed Admits Gov’t Job Estimates too High by Over 1-Million, which Means Serious Peril! – The Great Recession Blog

Posted by M. C. on December 19, 2022

Whether they happen will depend on whether the Fed realizes its serious error in perception soon enough to avoid tightening longer into a recession they do not acknowledge and whether Fed and Feds join again in printing and distributing money, which will be much less likely this time due to inflation and the higher cost of government debt. So, we may just get economic collapse without the hyperinflation.

https://thegreatrecession.info/blog/snow-job-fed-admits-gross-errors/

Having written that Powell’s Peril Lies in the Lanquishing Labor Market and that we are Fed up and Under-Fed All at the Same Time because Everyone Sings the “Strong Labor Market” Tune in Unison … and They’re All DEAD Wrong, I finally get some VINDICATION! Major vindication!

Until now, I’ve read no one agreeing with my views about Powell’s labor blindspot being a source of peril for all of us, which could prove to be the biggest Fed error in history.

I’ve pointed out in past years how badly cooked the government’s jobs numbers are and how the Bureau of Lying Statistics, as I call it, revises its numbers down by hundreds of thousands in an annual audit just about every year, but mostly by applying the corrections to months so far back in the year that no one cares anymore about what happened back then. That makes for a convenient way to bury the truth about a weak labor market. I’ve also noted how I’ve seen the BLS revise December’s raw job numbers up by 300k or more due to unusually bad weather in one year, only to revise the next December up again by the same amount due to unusually good weather.

Moreover, since September, I’ve been saying the labor market is the worst blind spot the Fed has ever exhibited. Its misbelief that the labor market is strong is causing it (and everyone who parrots whatever the Fed says as gospel truth) to be blind to the recession we are already in (on the basis that our negative GDP numbers this year just HAD to be wrong, given how tight and hot the labor market is).

More importantly, I noted in my last article how the Fed said more clearly than ever that it will not stop tightening the nation’s financial system until it sees the labor market loosen up with a rise in unemployment. That affirmed what I’ve said since September is the most important thing for you to keep your eye on if you want to understand what’s about to befall us — that the Fed will over tighten during a recession it does not see because of its gross minundertanding of the labor market, which is far weaker than the Fed admits.

Yesterday we got the biggest mea culpa of all time regarding the government snow-job world of job estimating and Fed complicity in the falsehood. Zero Hedge reported, “Here Comes The Job Shock: Philadelphia Fed Admits US Jobs “Overstated” By At Least 1.1 Million“:

Just a little over a million? I’m sure that’s a Fed rounding error. ZH started by noting the two government labor reports put out by the BLS have spread in greater and greater disagreement with each other since last March.

Zero Hedge

It was only a matter of time before we would see which would catch up or down to the other, and ZH had been putting its money where I would, which is that the lower number in these recessionary times is clearly right, while the higher number is the one with the past of being grossly overestimated then revised down.

However, that was their old chart. The divergence in the monthly continued to accumulate until it looked like this:

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The Fed’s Real Mandate

Posted by M. C. on October 8, 2022

The current “dual” between the two mandates is to reduce price inflation by increasing interest rates to increase unemployment and kill businesses to choke off aggregate demand.

https://mises.org/wire/feds-real-mandate

Mark Thornton

The Federal Reserve has a legal dual mandate to minimize unemployment and price inflation. The current “dual” between the two mandates is to reduce price inflation by increasing interest rates to increase unemployment and kill businesses to choke off aggregate demand. This has been the most important economic and investment issue this year and this dual minimization procedure has dominated Fed policy for at least three-quarters of a century.

This is odd given that the Fed is in the business of creating money, the cause of price inflation, and it is responsible for all the largest surges in unemployment since its founding in 1913. Employing an army of monetary economists, macro theorists, and statisticians, the Fed appears to be pursuing its quixotic quest of the Phillips curve sweet spot of minimizing inflation and unemployment.

The real mandate of the Fed is serving its masters, the political elites, by financing government spending and debt, bailing out cronies, and supporting the political process, including the Fed’s own interests. Everything else, including the inflation and unemployment rates are derivative of the primary mandate. The so-called dual mandate is just subterfuge to protect the Fed’s “confidence game.”

The Quest of the False Mandate

In The Fed Explained: What the Central Bank Does, we learn how control of the Fed is “decentralized.” This might sound good to some supporters of the free market. However, any hint of decentralization, such as the importance of District Banks, is long gone and the remnant is merely a diversion or historical curiosity. Of the twelve votes on the Federal Open Market Committee (FOMC) there are only four of twelve rotating District Bank presidents voting, plus the President of the New York Fed. The central Board of Governors in Washington DC has seven voting members who are appointed by the President and confirmed by the Senate and has nearly twice the voting power over interest rate decisions. Plus, the Chairman (Powell) has the power of the bully pulpit and is the consensus builder on the FOMC.

We are also told of the balancing of public and private (banks’) interests controlling the Fed and some free-market supporters latch onto the influence of the private sector as an effective check on the Fed’s enormous economic power. Big banks do work directly with the Fed in “open market operations” and interact in the day-to-day business of banking regulation. Commercial banks have some voting power within the District Banks. However, this influence is contingent on political goals and even the big banks can be pawns in the Fed’s political chess game. Their shares are “nonnegotiable” and are nothing like shares in private corporations. Banking interests are clearly derivative, and the Fed has thrown such interests overboard when necessary, such as with the Savings and Loan Crisis or Lehman Bros. In any case, the union of public and private interests is the ultimate source of corruption and can be the greatest threat to human liberty. Such private interests are clearly not a bulwark of liberty.

It is true that the Federal Reserve Act of 1913 was established and intended to be a cartel device for the banks and some banks are better protected than others. Marx and Engels (1848) called for the establishment of central banks and thereafter Americans were increasingly duped by socialist ideology. This socialist influence was an important force during the so-called Progressive Era (1890–1920). History textbooks make the Federal Reserve Act appear to be the result of a coalition of popular interests. However, the big banks and their academic technocrats controlled by political elites, created and controlled the legislative campaign with their “independent” National Monetary Commission.

A final and critical canard about the Fed is its “independence.” We are told that the Fed must be independent of political power to carry out its mandates and be effective. In this vein, if the Fed were to succumb to political pressures, then it would continually increase the money supply and suppress interest rates below market determined levels, especially before elections. This they tell us would destabilize the economy and might lead to hyperinflation the way it does under dictatorships where central banks do not have independence. I’m sure the Fed would love to be independent, but they are controlled by powerful office holders who are in turn controlled by the elites. As Ryan McMaken reminds us, “Fed independence is a fairy tale academic economists like to tell their students” and they are biased toward the inflationary mandate.

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Looking at the Economic Myth of the “Soft Landing”

Posted by M. C. on September 14, 2022

If inflation is defined as increases in the money supply rather than increases in prices, then it becomes clear that all that is required to counter it is to close all the loopholes for the generation of money out of “thin air.” The increases in the money supply and not increases in prices inflict damage to the wealth generation process.

Originally, paper money was not regarded as money but merely as a representation of gold. Various paper money receipts represented claims on gold stored with the banks. The holders of paper receipts could convert them into gold whenever they deemed necessary. Because people found it more convenient to use paper receipts to exchange for goods and services, these receipts came to be regarded as money itself.

https://mises.org/wire/looking-economic-myth-soft-landing

Frank Shostak

According to commentators, countering inflation requires monetary authorities to actively restrain the economy, with “experts” believing that higher interest rates need not cause an economic slump. Instead, they believe that the Fed cab orchestrate a “soft landing.” It is questionable, however. that a soft-landing scenario is possible.

Money Printing Creates Economic Damage

If inflation is defined as increases in the money supply rather than increases in prices, then it becomes clear that all that is required to counter it is to close all the loopholes for the generation of money out of “thin air.” The increases in the money supply and not increases in prices inflict damage to the wealth generation process.

Originally, paper money was not regarded as money but merely as a representation of gold. Various paper money receipts represented claims on gold stored with the banks. The holders of paper receipts could convert them into gold whenever they deemed necessary. Because people found it more convenient to use paper receipts to exchange for goods and services, these receipts came to be regarded as money itself.

By fulfilling the role of the medium of exchange, money enables something to be exchanged for it and this, in turn, enables the received money to be exchanged for something else, also by means of money. If the receipts for gold that are accepted as genuine money are backed by gold. there will be an honest exchange—i.e., something for something or wealth for wealth.

In contrast, receipts not backed by gold, which are employed in an exchange, set in motion an exchange of nothing for something. The unbacked receipts are not proper money, which is gold. By means of the unbacked by gold receipts, goods are diverted from wealth generators to the holders of the unbacked by gold receipts. This in turn weakens wealth generators and in turn weakens the process of wealth formation.

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Watch “Governments Will Turn The Recession Into A Depression” on YouTube

Posted by M. C. on September 7, 2022

When the Fed counterfeits dollars, creating an artificial economic boom, a recession is inevitable and unavoidable. Recessions are a return to economic reality; the antidote for The Fed’s poison. While recessions are unavoidable, depressions can be avoided. Depressions occur when the government interferes and tries to prevent a return to economic reality. Government implements “policies” that are meant to “help,” but only end up extending the economic misery into a depression.

https://youtu.be/qjBhbusOubY

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Fed Paper Admits Central Bank Can’t Control Inflation; Finger-Points At Federal Government

Posted by M. C. on September 1, 2022

Tyler Durden's Photo

BY TYLER DURDEN

THURSDAY, SEP 01, 2022 – 07:20 AM

Authored by Michael Maharrey via SchiffGold.com,

First, the authors acknowledge that the federal government uses inflation as a tool to handle its debt. In other words, it acknowledges that we’re all paying an inflation tax.

Second, the paper concedes that merely tinkering with interest rates won’t slay inflation if the government continues to spend far beyond its means.

https://www.zerohedge.com/markets/fed-paper-admits-central-bank-cant-control-inflation-finger-points-federal-government

It appears somebody at the Federal Reserve has figured out that the central bank can’t tame inflation, so it’s setting up a scapegoat – Uncle Sam…

A paper co-authored by Leonardo Melosi of the Federal Reserve Bank of Chicago and John Hopkins University economist Francesco Bianchi and published by the Kansas City Federal Reserve argues that central bank monetary policy alone can’t control inflation.

The paper’s abstract asserts, “This increase in inflation could not have been averted by simply tightening monetary policy.”

In a nutshell, Melosi and Bianchi argue that the Fed can’t control inflation alone.

US government fiscal policy contributes to inflationary pressure and makes it impossible for the Fed to do its job.

Trend inflation is fully controlled by the monetary authority only when public debt can be successfully stabilized by credible future fiscal plans. When the fiscal authority is not perceived as fully responsible for covering the existing fiscal imbalances, the private sector expects that inflation will rise to ensure sustainability of national debt. As a result, a large fiscal imbalance combined with a weakening fiscal credibility may lead trend inflation to drift away from the long-run target chosen by the monetary authority.”

There are a couple of startling admissions in this single paragraph.

First, the authors acknowledge that the federal government uses inflation as a tool to handle its debt. In other words, it acknowledges that we’re all paying an inflation tax.

Peter Schiff talked about this inflation tax in an interview on Rob Schmitt Tonight.

Inflation is a tax. It’s the way government finances deficit spending. Government spends money. It doesn’t collect enough taxes, so it has to run deficits. The Federal Reserve monetizes those defiticts – prints money. They call it quantitative easing, but that’s inflation. Government is getting bigger and bigger, and families across America are going to have to bear that burden through higher prices.”

Second, the paper concedes that merely tinkering with interest rates won’t slay inflation if the government continues to spend far beyond its means.

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Inflation Hits 9.1 Percent after Months of Empty Talk at the Fed

Posted by M. C. on July 14, 2022

With this latest CPI inflation data, however, pressure will only mount on Powell to push through a full 1 percent rate hike. That, however, would make government debt much more expensive to service, tank the real estate industry, and lead to many household defaults on mortgages and auto payments. Unemployment would follow, and then what sliver of data would the Fed use to convince us that the economy is doing swell?

https://mises.org/wire/inflation-hits-91-percent-after-months-empty-talk-fed

Ryan McMaken

The US Bureau of Labor statistics released new Consumer Price Index inflation estimates this morning, and the official numbers for June 2022 show that price inflation has risen to 9.1 percent year over year. That’s the biggest number since November 1981, when the price growth measure hit 9.6 percent year over year. The month-over-month measure surged as well, with the CPI measure hitting 1.4 percent. That’s the highest month-over-month growth since March 1980, when the measure hit 1.5 percent. 

June marks the fifteenth month in a row during which CPI inflation has been more than double the Fed’s 2 percent target inflation rate. CPI inflation has been more than triple the 2 percent target for the past nine months, and year-over-year growth in CPI inflation has been near forty-year highs for the past eight months. 

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How Bad Were Recessions before the Fed? Not as Bad as They Are Now

Posted by M. C. on June 30, 2022

The continental was turned back en masse, as it now held no value. Those who trusted the continental over gold were left with nothing. Certain Founding Fathers, after witnessing people’s livelihoods ruined by fiat paper money, decided to make provisions to make sure this mistake would not happen again.

Article 1 Section 10 of the US Constitution states:

No state shall make any thing but gold and silver coin a Tender in Payment of Debts.

This section would be violated throughout US history, from the Civil War to 1933, when President Franklin Roosevelt confiscated US citizens’ gold and prevented them from exchanging the dollar into gold. 

https://mises.org/wire/how-bad-were-recessions-fed-not-bad-they-are-now

John Kennedy

With a recession looming over the average American, the group to blame is pretty obvious, this group being the central bankers at the Federal Reserve, who inflate the supply of currency in the system, that currency being the dollar. This is what inflation is, the expansion of the money supply either through the printing press or adding zeros to a computer screen. It has gotten so bad that in the last twenty-two months, 80 percent of all US dollars in existence have been printed, from $4 trillion in January 2020, to $20 trillion in October 2021.

This is always how recessions start: the expansion of easy money, the creation of bubbles, and heightened prices caused by the devaluation of the currency supply. But recessions occurred long before the Fed’s establishment in 1913.

Were these market failures, as many are taught to believe, or were they still the fault of a central bank or government policy? How bad were pre-Fed recessions? Did they rival the Great Depression or 2008?

The Continental Dollar

During the days of the American Revolution, the Continental Congress convened to figure out how to finance the Revolution. In June 1775, Congress issued six million paper currency notes known as continental dollars in order to pay for the new army and the supplies needed to fight a war. Those who supported the Revolution would jump in line to support this new fiat currency, as it was the patriotic thing to do.

By 1780, the amount of continentals in circulation had reached 241 million, and the continental had done its damage. The patriots who bought into the fiat dollar suffered the most, while people like David Hall, who by order of Congress was permitted to print out fiat bills, and the Loyalists, who kept their gold and silver specie were able to stay financially afloat.

The continental was turned back en masse, as it now held no value. Those who trusted the continental over gold were left with nothing. Certain Founding Fathers, after witnessing people’s livelihoods ruined by fiat paper money, decided to make provisions to make sure this mistake would not happen again.

Article 1 Section 10 of the US Constitution states:

No state shall make any thing but gold and silver coin a Tender in Payment of Debts.

This section would be violated throughout US history, from the Civil War to 1933, when President Franklin Roosevelt confiscated US citizens’ gold and prevented them from exchanging the dollar into gold. 

It’s clear what caused the failure of the continental: Congress and printing presses. This, however, would not be the last economic problem that would face America, the next major downturn came in 1819.

The Recession of 1819

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