MCViewPoint

Opinion from a Libertarian ViewPoint

Posts Tagged ‘Federal Reserve’

Forget What the “Experts” Claim about Deflation: It Strengthens the Economy

Posted by M. C. on May 10, 2022

Nonproductive Activities Come from Lending Fake Money

https://mises.org/wire/forget-what-experts-claim-about-deflation-it-strengthens-economy

Frank Shostak

For most experts, deflation is bad news since it generates expectations for a continued decline in prices, leading consumers to postpone the purchases of present goods, since they expect to purchase them at lower prices in the future. Consequently, this weakens the overall flow of current spending and this, in turn, weakens the economy. Economic activity, believe the experts, is a circular flow of money. Spending by one individual becomes the earnings of another individual, and spending by another individual becomes a part of the previous individual’s earnings.

If people have become less confident about the future decide to reduce their spending, this weakens the circular flow of money. Once an individual spends less, this worsens the situation of some other individual, who in turn also cuts his spending.

According to the former Federal Reserve chairman Ben Bernanke,

Deflation is in almost all cases a side effect of a collapse of aggregate demand—a drop in spending so severe that producers must cut prices on an ongoing basis in order to find buyers. Likewise, the economic effects of a deflationary episode, for the most part, are similar to those of any other sharp decline in aggregate spending—namely, recession, rising unemployment, and financial stress.

Murray Rothbard, however, held that in a free market the rising purchasing power of money (shown by declining prices) makes goods more accessible to people. He wrote:

Improved standards of living come to the public from the fruits of capital investment. Increased productivity tends to lower prices (and costs) and thereby distribute the fruits of free enterprise to all the public, raising the standard of living of all consumers. Forcible propping up of the price level prevents this spread of higher living standards.

Economist Joseph Salerno adds: 

Historically, the natural tendency in the industrial market economy under a commodity money such as gold has been for general prices to persistently decline as ongoing capital accumulation and advances in industrial techniques led to a continual expansion in the supplies of goods. Thus throughout the nineteenth century and up until the First World War, a mild deflationary trend prevailed in the industrialized nations as rapid growth in the supplies of goods outpaced the gradual growth in the money supply that occurred under the classical gold standard. For example, in the US from 1880 to 1896, the wholesale price level fell by about 30 percent, or by 1.75% per year, while real income rose by about 85 percent, or around 5 percent per year.1

Money and Money out of “Thin Air”

Money emerged because it could support the market economy more efficiently than barter. The distinguishing characteristic of money is its role as general medium of exchange, evolving from the most marketable commodity. On this Ludwig von Mises wrote

See the rest here

Be seeing you

Posted in Uncategorized | Tagged: , , , , , | Leave a Comment »

Repeal 1913: End The Income Tax & The Federal Reserve

Posted by M. C. on April 23, 2022

1913 was a fateful year for freedom in America. Both the Income Tax & Federal Reserve were created. The dreaded Income Tax made everyone’s hard-earned money the property of the federal government first. The earnings that government allowed people to keep would then be persistently stolen by The Fed’s inflation. Freedom was put in a vice in 1913, and after 100 years, there’s almost nothing left to be squeezed.

Be seeing you

Posted in Uncategorized | Tagged: , | Leave a Comment »

Who Helped Biden Rip Us Off At The Gas Pump?

Posted by M. C. on March 17, 2022

As President Biden tries to pin blame elsewhere on the rip-offs at the gas pump, the fact remains that the policies of his administration are the chief culprit. Yes, his administration has had some help, primarily from the counterfeiting Federal Reserve, but whether it’s through domestic policies or the foreign policy of empire, the Biden Administration has hit American wallets where it hurts.

Be seeing you

Posted in Uncategorized | Tagged: , , | Leave a Comment »

Inflation: Who or What Is the Culprit?

Posted by M. C. on March 11, 2022

The key factor is not the quantity of money, but where newly created money goes and what people do with it.

Second, at a time when many Americans seem infatuated with socialism, our federal government has given us a painful illustration of how incompetent government is to manage (plan) our economy. In the name of trying to help steer our economy through the pandemic, Uncle Sam has given us high inflation and made millions of Americans poorer.

https://mises.org/wire/inflation-who-or-what-culprit

Mark Hendrickson

What triggered the last year’s explosion in prices? President Joe Biden has tried to blame inflation on greedy corporations and supply-chain disruptions. The former is laughable—there is no rational explanation for why corporations supposedly turned greedy when Biden became president. The latter is partly true—delays in bringing supplies to market have exacerbated price hikes for some goods. The fundamental reason, though, is that when prices are rising almost everywhere, the amount of money bidding for goods has soared while the supply of goods has not.

Orthodox monetarist economics, as espoused by the late Milton Friedman, posits that inflation is always and everywhere a monetary phenomenon—that is, when the monetary authorities (in this country, the Federal Reserve System) increase the supply of money, prices will then rise. Unfortunately for the monetarist theory, real-world evidence shows that increases in the money supply more often than not have not triggered higher prices, while at other times, prices have risen without the money supply increasing. In other words, there is no simple, invariable, mechanistic relationship between the supply of money and surging prices for consumer goods. Human action and economic relationships are far more flexible and less predictable than quantitative theories would lead us to believe.

The key factor is not the quantity of money, but where newly created money goes and what people do with it. For example, the supply of money and credit surged in the 1920s, but inflation in consumer prices was negligible. As Murray Rothbard detailed in his book America’s Great Depression, much of the newly created money and credit went into stocks and Florida real estate, inflating massive speculative bubbles that eventually popped, followed by crashing prices.

A more recent case: from 1995 to 2015, the domestic money supply tripled, yet consumer price increases were relatively tame. However, the Fed’s easy money policies definitely fueled the housing bubble that so painfully burst in 2008. Indeed, even the Federal Reserve’s barrage of easy money policies from 2009 to 2020 (zero interest rate policies and QE1, 2, 3, etc.) didn’t lead to large jumps in consumer prices. Instead, under Federal Reserve policies, much of the newly created money and credit that normally would have been lent out to businesses and individuals sat idle on financial institutions’ balance sheets, a buffer against systemic risk. Many other dollars, instead of making new purchases, were used to service the massive amounts of debt that both private and public entities had accumulated. (See these articles from nine and ten years ago.)

Since the financial crisis of 2007–09, loose monetary policy has led to markedly higher prices for stocks and houses. In the last year, though, consumer prices have exploded. The twin causes of this inflation have been the policies of the Fed and Congress and the policies of Presidents Donald Trump and Joe Biden. The Fed has accelerated its rate of money supply increase since 2020. That, in turn, facilitated blowout spending policies by Washington.

Panic driven by the covid pandemic, leaders of both parties adopted the highly problematic policy of going on a spending splurge. Writing in the Wall Street Journal, former Senate Banking Committee chair Phil Gramm (an economist), observed, “Federal spending … set to average 20% of GDP in 2020 and 2021 … doubled to 40% of GDP.” This spending binge included a flood of dollars going directly from the federal treasury to American citizens. Tens of millions of Americans received cash infusions totaling between $1,200 and $3,200 under the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020, $600 more in December 2020, and $1,400 under the American Rescue Plan, signed in March 2021. At the same time, government lockdowns greatly curtailed the service sector of the economy. Not surprisingly, flush with a cash infusion from Uncle Sam, consumer demand for goods exploded upward, driving prices higher.

So here we sit today—our government an unfathomable $30 trillion in debt (up by over $6 trillion in only two years) and inflation raging at 7.5 percent. The culprits are obvious: Uncle Sam and the Fed. We should draw two important lessons from the present financial fiasco.

First, a central bank in charge of a fiat currency that tailors its policies to accommodate irresponsible deficit spending by the federal government is a menace to society, unleashing forces that it cannot control.

Second, at a time when many Americans seem infatuated with socialism, our federal government has given us a painful illustration of how incompetent government is to manage (plan) our economy. In the name of trying to help steer our economy through the pandemic, Uncle Sam has given us high inflation and made millions of Americans poorer.

Author:

Mark Hendrickson

Mark Hendrickson is adjunct professor of economics at Grove City College. 

Be seeing you

Posted in Uncategorized | Tagged: , , | Leave a Comment »

Something We Can All Agree On

Posted by M. C. on March 7, 2022

It’s not good to be Ukraine right now, I get that. The US egged them on, and now won’t even consider a NATO no-fly zone. I’d be mad too. Especially if I was a comedian.

By Karen Kwiatkowski

Tom Clancy foretold the attacks of 9-11, in his 1994 book Debt of Honor, featuring Japanese industrialists crashing civilian airliners into the US Capitol Building.

I stopped following the books some years ago, but the Hubs was watching a 2014 movie from Clancy’s post-humous juggarnaut, called Jack Ryan: Shadow Recruit.  It had been paused on the screen, and I noticed the plot description provided by Philo, where I get my streaming TV fix.

Given the Ukraine invasion, DC’s neo-demonization of Putin, and the interesting global side effects of Putin’s action so far, I thought the Philo tag –  “Jack Ryan uncovers secret Russian plot to crash the US economy” – to be amazingly prescient.

There really are no secrets, only obscurations, lies, competing narratives and mysteries waiting to be solved.  I wouldn’t want to give Putin too much credit, but dare I ask if there may be an actual “plot” to crash the US economy?

Naturally, my first guess as to who is crashing our economy, and our country, would be our own US government, the MICIMATT, and the Federal Reserve network of affiliated banks, investors, and beneficiaries.  Apologies for repeating myself. If they aren’t destroying the US economy on purpose, in an insane desire for complete control over everything and every idea, then they are either really stupid or just devilishly lucky.  We could call this the Orwell assumption.

The WEF and Davos vision, articulated quite openly, needs obedient slaves, and far fewer of them than currently exist.  The humans at the top of that food chain intend to stay that way.  As the saying goes, cannibals will cannibal.  Or maybe that was another saying.  Maybe they are behind the plot to crash the US economy.  They certainly have not backed away from us “owning nothing and being happy about it.”  There will probably be plenty of drugs to help us cope, because this is indeed the Huxley assumption.

I’ve written about petrodollar warfare, and I learned a lot from a 2005 book by that name written by William Clark.   No one denies US Job #1 has been to ensure the world’s most affordable and efficient energy source is traded in dollars, and that US currency is the world reserve currency.  Some would say this fanatical desire on the part of US elites and the MICIMATT is the fundamental reason for the US-sponsored rise of the House of Saud, our decades of persistent antagonism to Iran, Iraq, Libya and Venezuela among others, and today’s narrative of enthusiastic hatred for Russia, particularly Vlad Putin.  Actually, just about anyone would say this, and most people, especially those who have served in those theaters or commanded them, say it all the time.

The anti-gold, anti-crypto attitude of the US government also stems from its petrodollar communion, that fragile wafer of a dried-up idea, clenched in the white-knuckled hands of US policy kingmakers.  Beyond hating competing reference points of value, and freedom, the US appears to believe that other countries cannot make agreements to trade products, technology and natural resources among themselves – until and unless Uncle Sam, and quite possibly, Uncle Joe, gets a cut of the proceeds.

Well, if it isn’t the MICIMATT, the World Economic Forum, or the preservation of the petrodollar, maybe it is Old Europe itself that wants to see the US economy fail?  After all, resentment against the US runs deep.  When it comes to murder, you must look first to those who know you best.  Or, maybe this is China’s strategy – as they grow their own consumer base, and create new growing markets around the world, they no longer need the US shopper.  Curiously, the Chinese have chosen not to occupy and destroy countries as a precursor to building back better, so – note to self –  their plan probably isn’t going to work.

I don’t think India is planning a nefarious way to destroy the US economy, or Brazil, or even our little off-the-books ally Israel.  Well, clearly, that leaves Vlad and the Russians, and this Ukraine invasion is the first volley.

Because, as I have heard on every channel, in every op-ed, and in all the news, even from the sacred throats of our own US Senators, what needs to happen is that someone should assassinate Vlad, and make Russia a NATO country.  That’ll fix it!

I can’t take credit for that last idea – a few days ago, I was watching a zoom presentation at our local community college, where the featured speaker, who fancied himself a past spook and current Russia expert, mentioned how scared China would be if Russia was a NATO country.  It was hilarious, because only a few minutes earlier, he was going on about how NATO is purely and solely a humble, harmless, defensive alliance. This speaker also called for Putin to be assassinated, hopefully by a Russian, but definitely by someone.  Maybe he was just repeating Senator Graham’s words, I can’t say.  The NPC is strong in this country.

Clearly, we don’t know who is trying to destroy the US economy, but Tom Luongo has absolutely nailed what is happening along these lines.  You have to read this!  One could always say we are doing it to ourselves, US emperors playing Checkers while Russia plays chess, and China plays Go!  Because I am a good American, I am supposed to think Vlad is doing it all by himself, him and his 125,000 Russian troops in Ukraine, population 43 million.   By comparison, NYC with a population of nearly 9 million, has a police department with 55,000 employees.

It’s not good to be Ukraine right now, I get that.  The US egged them on, and now won’t even consider a NATO no-fly zone.  I’d be mad too.  Especially if I was a comedian.

I cannot do justice to Tom Luongo’s analysis, but he includes at one point a tweet that warmed my heart:

Failure of imagination, or western hubris.

Alternative view: Russia will soon begin to demonstrate in very stark terms that in the Petrodollar system, it is the “Petro-” portion that is the true value, not the “-dollar” portion, via either price or shortages or both. https://t.co/ee6MlHTogu

— Luke Gromen (@LukeGromen) March 2, 2022

Can I love my country, and hate the anti-free market, imperially-driven petro-dollar system it currently revolves around?

Well, I do.  The funny thing is I suspect that most Russian, most Americans, and even most Ukrainians could all say the exact same thing.  It’s a start.

Karen Kwiatkowski, Ph.D. [send her mail], a retired USAF lieutenant colonel, farmer and aspiring anarcho-capitalist. She ran for Congress in Virginia’s 6th district in 2012.

Be seeing you

Posted in Uncategorized | Tagged: , , , , , | Leave a Comment »

The Federal Reserve: Enemy of American Workers

Posted by M. C. on February 22, 2022

Feb 21 – According to numbers released by the US government, consumer prices have increased by 7.5 percent in the past year, the steepest increase since 1982. The actual price increases are even worse than the government numbers suggest, given that the “official” statistics are manipulated to understate the real rate of price increases. According to John Williams of ShadowStats, prices have actually increased by around 15 percent over the past year.

The fact that prices remain at historically high levels shows that inflation is far from “transitory,” as Federal Reserve Chairman Jerome Powell had described it. The continuing inflation has led the Federal Reserve Board to suggest the Fed will start increasing interest rates earlier than previously announced. The Fed may also break with its practice of only raising rates by 25 basis points at a time and increase rates by increments of up to 50 basis points. However, the increases the Fed is discussing would still leave interest rates at historic lows. Thus, such interest rate increases would do little or nothing to ease the pain rising prices cause for average consumers.

Most policy “experts” and politicians, including President Biden, support interest rate increases to deal with inflation. However, some progressives oppose raising rates. Opponents of rate increases fear that increasing interest rates will slow economic growth, increase unemployment, and depress wages. These progressives believe the old fallacy that workers benefit from easy money. The truth is workers are inflation’s main victims.

Workers may see their nominal pay (pay unadjusted for inflation) increase while the Fed-produced price increases cause real wages to plummet. That is certainly the case today. In contrast, the Federal Reserve’s money creation benefits crony capitalists who receive the new money created by the Fed before the injection of new money causes prices to rise. This increases the elite’s purchasing power, furthering income inequality.

The Federal Reserve’s creation of new money does more than erode the value of the currency. It also artificially lowers interest rates, which are the price of money. This distorts the signals sent to market actors, leading to investment decisions that do not reflect the real condition of the market. The result is a temporary boom, followed by a bust. Workers who find new jobs in the boom lose those jobs in the bust. These workers are then not just unemployed. They are also often saddled with unmanageable debt incurred during the low interest rate, easy money phase of the business cycle.

Progressives could help workers by joining the movement for market-based money. Free-market money will be safe from government manipulation, and thus its value will remain stable. A step toward restoring a free-market monetary system is letting the people know the truth about the Federal Reserve by passing Audit the Fed. Another step is legalizing alternative currencies by repealing legal tender laws and ending all capital gains taxes on precious metals and cryptocurrencies. Congress must also begin to cut spending, starting by making major cuts in our 750 billion dollars military budget and ending all corporate welfare.

Fiat money benefits financial and political elites at the expense of working people whose standard of living is eroded by Federal Reserve actions. As a Texas labor leader once told me, “Gold has always been the working man’s friend.” I would add that fiat money is the worker’s foe.



Read more great articles on the Ron Paul Institute website.
Subscribe to free updates from the Ron Paul Institute.

Copyright © 2022 by Ron Paul Institute. Permission to reprint in whole or in part is gladly granted, provided full credit and a live link are given.

Be seeing you

Posted in Uncategorized | Tagged: , , , | Leave a Comment »

Watch “Government Price Controls Never Work – Why Are They Ever Used?” on YouTube

Posted by M. C. on January 22, 2022

Government spends trillions that it doesn’t have. How? Well, The Fed creates trillions of new dollars out-of-thin air! These trillions drive up prices, creating skyrocketing inflation. Oftentimes, government piles on to the troubles by imposing price controls. Price controls have been tried for thousands of years; always with the same disastrous results — widespread shortages! Are Americans ready to accept that government interventions and The Federal Reserve only multiply problems?

https://youtu.be/gfvN4CXbg9k

Be seeing you

Posted in Uncategorized | Tagged: , | Leave a Comment »

Of Two Minds – Politics Is Dead, Here’s What Killed It

Posted by M. C. on January 18, 2022


To cloak their betrayal and treachery, the parties have pursued a divide-and-conquer distraction game, pushing half the nation into one-size-fits-all “enemies lists” with labels that have lost all meaning other than as means to promote divisiveness and rancor: Liberal and Conservative, socialist and capitalist, etc.

These three betrayals of public trust and representational democracy caused the demise of politics as a solution to social and economic problems. “Politics” has been stripped to its essence: an invitation-only auction of elections and political favors. The price to watch from the rear of the auction is $1 million; to actually place a bid, the minimum is $10 million, but the winning bids are generally much higher.

https://www.oftwominds.com/blogjan22/politics-dead1-22.html

Here’s “politics” in America now: come with mega-millions or don’t even bother to show up.

Representational democracy–a.k.a. politics as a solution to social and economic problems–has passed away. It did not die a natural death. Politics developed a cancer very early in life (circa the early 1800s), caused by wealth outweighing public opinion. This cancer spread slowly but metastasized in the past few decades, spreading to every nook and cranny of our society and economy as “democracy” devolved into an invitation-only auction of elections and political favors.

Politics might have had a fighting chance but three forces betrayed the nation and its citizenry.

1. The Federal Reserve transferred trillions of dollars of unearned wealth into the feeding troughs of the super-wealthy and corporations, vastly increasing the wealth the top 0.01% had to buy elections and favors. The Federal Reserve cloaked its treachery with jargon– quantitative easing, stimulus, etc.–and then stabbed the nation’s representational democracy in the back.

2. The Supreme Court betrayed the nation’s representative democracy by labeling corporations buying elections and political favors a form of “free speech.” (Please don’t hurt yourself laughing too hard.) The Supreme Court’s equating wealth buying elections and favors with individual citizens’ sacrosanct right of free speech was a knife in the back of the nation and its citizenry.

3. The two political parties betrayed their traditional voter bases to kneel at the altar of corporate / elite wealth, wealth which bought elections and political favors. The Democrats, traditional champions of the workforce in the 20th century, abandoned workers in favor of serving their corporate masters, masking their betrayal with fine-sounding phrases.

The Republican Party, traditionally promoters of Big Business (Wall Street, banks, mega-corporations), had maintained a narrow but crucial interest in trust-busting (limiting monopolies) to defend free enterprise and small business from the predations of monopolies and cartels. Those days are long past; just as the Democratic Party tossed the working class overboard to the sharks, the Republican Party walked small business off the gangplank right into the voracious jaws of cartels and globalized, financialized corporate sharks.

To cloak their betrayal and treachery, the parties have pursued a divide-and-conquer distraction game, pushing half the nation into one-size-fits-all “enemies lists” with labels that have lost all meaning other than as means to promote divisiveness and rancor: Liberal and Conservative, socialist and capitalist, etc.

It’s not the citizenry who are “deplorable,” it’s the parties’ corporate-derriere-kissing toadies, lackeys, apparatchiks, purveyors of propaganda, enforcers, apologists, sycophants, grifters and “leaders” who manage to greatly increase their private wealth while “serving the public” (heh).

These three betrayals of public trust and representational democracy caused the demise of politics as a solution to social and economic problems. “Politics” has been stripped to its essence: an invitation-only auction of elections and political favors. The price to watch from the rear of the auction is $1 million; to actually place a bid, the minimum is $10 million, but the winning bids are generally much higher.

(Lobbying, campaign contributions, bogus think-tanks, and philanthro-capitalist foundations are all part of the auction funding.)

Here’s “politics” in America now: come with mega-millions or don’t even bother to show up. Choose which “enemies list” you want to be on; there’s not much choice. And don’t forget to put a flower on the grave of representational democracy.

My new book is now available at a 20% discount this month: Global Crisis, National Renewal: A (Revolutionary) Grand Strategy for the United States (Kindle $8.95, print $20)

If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

Be seeing you

Posted in Uncategorized | Tagged: , , , | Leave a Comment »

Since 2008, Monetary Policy Has Cost American Savers about $4 Trillion | Mises Wire

Posted by M. C. on November 19, 2021

Inflation: the hidden tax. Usually used to pay for war.

As one immediate step, Congress should require the Federal Reserve to provide a formal savers impact analysis as a regular part of its Humphrey-Hawkins reports on monetary policy and targets. This savers impact analysis should quantify, discuss, and project for the future the effects of the Fed’s policies on savings and savers, so that these effects can be explicitly and fairly considered along with the other relevant factors.

https://mises.org/wire/2008-monetary-policy-has-cost-american-savers-about-4-trillion

Alex J. Pollock

With inflation running at over 6 percent and interest rates on savings near zero, the Federal Reserve is delivering a negative 6 percent real (inflation-adjusted) return on trillions of dollars in savings. This is effectively expropriating American savers’ nest eggs at the rate of 6 percent a year. It is not only a problem in 2021, however, but an ongoing monetary policy problem of long standing. The Fed has been delivering negative real returns on savings for more than a decade. It should be discussing with the legislature what it thinks about this outcome and its impacts on savers.

The effects of central bank monetary actions pervade society and transfer wealth among various groups of people—a political action. Monetary policies can cause consumer price inflations, like we now have, and asset price inflations, like those we have in equities, bonds, houses, and cryptocurrencies. They can feed bubbles, which turn into busts. They can by negative real yields push savers into equities, junk bonds, houses, and cryptocurrencies, temporarily inflating prices further while substantially increasing risk. They can take money away from conservative savers to subsidize leveraged speculators, thus encouraging speculation. They can transfer wealth from the people to the government by the inflation tax. They can punish thrift, prudence, and self-reliance.

Savings are essential to long-term economic progress and to personal and family financial well-being and responsibility. However, the Federal Reserve’s policies, and those of the government in general, have subsidized and emphasized the expansion of debt, and unfortunately appear to have forgotten savings. The original theorists of the savings and loan movement, to their credit, were clear that first you had “savings,” to make possible the “loans.” Our current unbalanced policy could be described, instead of “savings and loans,” as “loans and loans.”

As one immediate step, Congress should require the Federal Reserve to provide a formal savers impact analysis as a regular part of its Humphrey-Hawkins reports on monetary policy and targets. This savers impact analysis should quantify, discuss, and project for the future the effects of the Fed’s policies on savings and savers, so that these effects can be explicitly and fairly considered along with the other relevant factors. The critical questions include: What impact is Fed monetary policy having on savers? Who is affected? How will the Fed’s plans for monetary policy affect savings and savers going forward?

Consumer price inflation year over year as of October 2021 is running, as we are painfully aware, at 6.2 percent. For the ten months of 2021 year-to-date, the pace is even worse than that—an annualized inflation rate of 7.5 percent.

Facing that inflation, what yields are savers of all kinds, but notably including retired people and savers of modest means, getting on their savings? Basically nothing. According to the Federal Deposit Insurance Corporation’s October 18, 2021, national interest rate report, the national average interest rate on savings account was a trivial 0.06 percent. On money market deposit accounts, it was 0.08 percent; on three-month certificates of deposit, 0.06 percent; on six-month CDs, 0.09 percent; on six-month Treasury bills, 0.05 percent; and if you committed your money out to five years, a majestic CD rate of 0.27 percent. 

I estimate, as shown in the table below, that monetary policy since 2008 has cost American savers about $4 trillion. The table assumes savers can invest in six-month Treasury bills, then subtracts from their average interest rate the matching inflation rate, giving the real interest rate to the savers. This is on average quite negative for these years. I calculate the amount of savings effectively expropriated by negative real rates. Then I compare the actual real interest rates to an estimate of the normal real interest rate for each year, based on the fifty-year average of real rates from 1958 to 2007. This gives us the gap the Federal Reserve has created between the actual real rates over the years since 2008 and what would have been historically normal rates. This gap is multiplied by household savings, which shows us by arithmetic the total gap in dollars.

savers

To repeat the answer: a $4 trillion hit to savers.

The Federal Reserve through a regular savers impact analysis should be having substantive discussions with Congress about how its monetary policy is affecting savings, what the resulting real returns to savers are, who the resulting winners and losers are, what the alternatives are, and how its plans will impact savers going forward.

After thirteen years with on average negative real returns to conservative savings, it is time to require the Federal Reserve to address its impact on savers.

Author:

Alex J. Pollock

Alex J. Pollock is a Senior Fellow at the Mises Institute. Previously he served as the Principal Deputy Director of the Office of Financial Research in the U.S. Treasury Department (2019-2021), Distinguished Senior Fellow at the R Street Institute (2015-2019 and 2021), Resident Fellow at the American Enterprise Institute (2004-2015), and President and CEO, Federal Home Loan Bank of Chicago (1991-2004). He is the author of Finance and Philosophy—Why We’re Always Surprised (2018) and Boom and Bust: Financial Cycles and Human Prosperity (2011), as well as numerous articles and Congressional testimony. Pollock is a graduate of Williams College, the University of Chicago, and Princeton University.

Be seeing you

Posted in Uncategorized | Tagged: , , , , | Leave a Comment »

‘Federal Reserve Failure’ – Ron Paul’s 15 Nov Column

Posted by M. C. on November 16, 2021

Of course, most Republicans will continue opposing big increases in spending and debt … as long as a Democrat sits in the Oval Office. A Republican who becomes president will likely believe, as Dick Cheney has said, that President Reagan taught us that deficits don’t matter. The difference between the parties is Republicans are less likely to raise taxes. So, no matter who controls Congress and the presidency, spending and debt can keep increasing.

https://mailchi.mp/ronpaulinstitute/fedfail?e=ff526b933a

Nov 15 – What do the Federal Reserve and neoconservatives have in common? They both refuse to admit that their policies — the neocons’ promotion of perpetual war and the Fed’s manipulation of the money supply — are complete failures, having produced the opposite of the promised results.

The latest example of the Federal Reserve engaging in Bill Kristol-like levels of denial is the Fed’s continued insistence that the return of 70s-style inflation is a “transitory” phenomenon resulting from the end of the lockdowns. The Fed has acknowledged the “transitory” inflation will last until at least 2022, yet it is still determined to keep interest rates at or near zero until the “jobs situation” improves.

To be fair, the Fed has finally announced plans to cut back on its money-pumping activities by reducing by 15 billion dollars a month its monthly purchase of 80 billion dollars of Treasury bonds and 40 billion dollars of mortgage-backed assets.

It is unlikely that the Fed will stick to its plans to “taper” its purchase of Treasury bonds. The Fed’s Treasury bond purchases enable the federal government to run up the debt without increasing taxes or paying punishingly high interest on the debt.

The Congressional Budget Office projects that by 2030 the federal debt interest cost will more than double to 829 billion dollars. That is more than the government spent on the military in 2020!

Despite the looming fiscal crisis, Congress is unlikely to cut spending anytime soon. Instead, Congress members are debating a 1.75 trillion dollars “social spending” plan, having just passed a 1.2 trillion dollars infrastructure bill. Contrary to the claims of President Biden and his allies, this new spending will not reduce inflation. What it will do is hasten and deepen the inevitable economic crisis caused by government overspending.

Of course, most Republicans will continue opposing big increases in spending and debt … as long as a Democrat sits in the Oval Office. A Republican who becomes president will likely believe, as Dick Cheney has said, that President Reagan taught us that deficits don’t matter. The difference between the parties is Republicans are less likely to raise taxes. So, no matter who controls Congress and the presidency, spending and debt can keep increasing.

The Fed may also take dramatic action to keep interest rates low if other purchasers of federal debt demand higher interest rates in anticipation of future inflation. Such a situation would be a sign of what Ludwig von Mises called a crack-up boom. A crack-up boom occurs when the public anticipates continuing devaluation of the currency, causing them to factor future price increases into their economic plans.

Crack-up booms are preceded or accompanied by economic crises that can lead to the rise of authoritarianism. However, this is not inevitable. Important steps can be taken including cutting spending on militarism and corporate welfare, phasing out the entitlement and welfare programs, and auditing and ending the Fed. Those of us who know the truth should seek to convince our fellow citizens of the importance of restoring a limited, constitutional government that does not try to run the economy, run the world, or run our lives.



Read more great articles on the Ron Paul Institute website.
Subscribe to free updates from the Ron Paul Institute.
Copyright © 2021 by Ron Paul Institute. Permission to reprint in whole or in part is gladly granted, provided full credit and a live link are given.

Be seeing you

Posted in Uncategorized | Tagged: , , , | Leave a Comment »