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Information Liberation Alex Jones’ Prison Planet Gary North Specific Answers Antiwar The Daily Bell Tenth Amendment Center Economics Policy Journal The American Thinker The New American Lew RockwellPosted by M. C. on June 18, 2022
The failure of central planning is manifesting in our world again, this time from The Fed. There’s no “right way” to plan the economy, or to manipulate interest rates, or to counterfeit money. It’s all wrong and destructive! The only fix is to End The Fed and to use sound money once again.
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Posted in Uncategorized | Tagged: counterfeit money, Fed, interest rate | Leave a Comment »
Posted by M. C. on November 19, 2019
Since the creation of the Federal Reserve, the US dollar has lost over 96 percent of its value. The Federal Reserve-caused decline in purchasing power is a stealth tax.
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Lost in the media’s obsession with the impeachment circus last week was Federal Reserve Chairman Jerome Powell’s testimony on the state of the economy before the Joint Economic Committee. In his testimony, Chairman Powell warned that when the next recession inevitably occurs, the US Government’s over $23 trillion debt would prevent Congress from increasing spending to revive the economy.
Powell also said that the Fed’s current low interest rate policies would prevent the Fed from using its traditional methods of increasing the money supply and further lowering interest rates to jump-start economic growth in a recession. Hopefully, Powell is correct that when the next recession hits the Federal Reserve and Congress will be unable to “stimulate” the economy with cheap money and new spending.
Interest rates are the price of money and, as with all prices, government manipulation of interest rates distorts the signals regarding market conditions. Artificially low interest rates lead to malinvestment and the creation of bubbles. Recessions are a painful but necessary correction that allows the economy to cleanse itself of these distortions. When the Federal Reserve and Congress try to stimulate the economy, they introduce new distortions, making it impossible for the economy to heal itself. Fiscal and monetary stimulus may temporally create the illusions of prosperity, but in reality they merely create another bubble that will eventually burst starting the boom-and-bust cycle all over again. So, the best thing Congress and the Federal Reserve can do to help the economy recover from a recession is nothing.
Powell is the latest Federal Reserve Chair to warn of the dangers of government debt, which is ironic since the Federal Reserve is the great enabler of deficit spending. Government manipulation of the value of money allows politicians to hide the true costs of their warfare and welfare. This is why throughout history governments have sought the power to dictate what is and is not money and determine the value of the monetary unit. Today’s central bankers are the heirs of the medieval kings who shaved off the edges of gold coins, then ordered the people to pretend that shaved coins were just as valuable as unshaved coins.
Instead of shaving gold coins, today’s central bankers facilitate the growth of government by purchasing government securities in order to keep interest rates—and thus the government’s borrowing costs— low. The Federal Reserve’s interventions enable the expansion of government well beyond what would be politically palatable if politicians had to finance the entire welfare-warfare state through direct taxation or borrowing at market interest rates, which would increase interest rates for private sector borrowers, lower growth, and increase unemployment.
Since the creation of the Federal Reserve, the US dollar has lost over 96 percent of its value. The Federal Reserve-caused decline in purchasing power is a stealth tax. This inflation tax does not affect the financial elites—who receive new money created by the Federal Reserve before the Fed’s actions have diminished the dollar’s purchasing power—but has hurt middle-and-working class Americans whose purchasing power is continuously reduced by the Federal Reserve. The inflation tax is not just the most hidden, but the most regressive of taxes.
The Federal Reserve is responsible for the growth of government, the loss of liberty, the rise in income inequality, and the boom-and-bust economic cycle. All those who support liberty, peace, and prosperity should join the effort to audit and end the Fed.
Posted in Uncategorized | Tagged: 23 trillion, central bankers, Federal Reserve, interest rate | Leave a Comment »
Posted by M. C. on August 22, 2019
by Tyler Durden
Larry Summers is not one to be shy about sharing his opinion on any and every media channel about just how bad President Trump’s policies are, and how much better everything was in the world under President Obama.
However, in an epic thread of apparent honesty, the former director of the National Economic Council for President Obama took to Twitter to dispel any myths about the omnipotence of central planners and to confirm there’s nothing anyone can do to save the world from doom (especially Jay Powell’s speech tomorrow).
Mea Culpa? Or partisan political pandering to reinforce the “recession is imminent and there’s nothing to stop it and it’s Trump’s fault and that means Trump’s unelectable” narrative?
You decide…
Summers begins his diatribe by addressing the big imminent issue ahead of us:
“Coming into Jackson Hole, economists are grappling with a major issue: Can central banking as we know it be the primary tool of macroeconomic stabilization in the industrial world over the next decade?“
Coming into Jackson Hole, economists are grappling with a major issue: Can central banking as we know it be the primary tool of macroeconomic stabilization in the industrial world over the next decade? In my forthcoming paper w/ @annastansbury, we argue that this is in doubt. 1/
— Lawrence H. Summers (@LHSummers) August 22, 2019
His worry – they are running out of ammo and what ammo they have is losing its mojo…
There is little room for interest rate cuts. In every US recession since the 1970s, the fed funds rate was cut >500bps. In most, the real rate fell >400bps below the neutral rate. Now, the max. feasible cut is 200-300bps, bringing the real rate only 150-250bps below neutral. 2/ pic.twitter.com/6QfiaVykU7
— Lawrence H. Summers (@LHSummers) August 22, 2019
This limited space for interest rate cuts is true of the US, which has the highest interest rates in the industrialized world. It is even more true of Europe and Japan. 3/
QE and forward guidance have been tried on a substantial scale. We are living in a post QE and forward guidance world. It is hard to believe that changing adverbs here and there or altering the timing of press conferences or the mode of presenting projections is consequential. 4/
Then, Summers goes after central planner over-confidence…
We usually agree w/ Janet Yellen, but believed at the time of her 2016 Jackson Hole speech -and believe even more in today’s world of 150bp 10yr rates- that her optimism about the existing monetary policy toolkit is misplaced. 5/https://t.co/Kg95Pnh65Qhttps://t.co/iqQqrDpIcY
— Lawrence H. Summers (@LHSummers) August 22, 2019
Black hole monetary economics – interest rates stuck at zero with no real prospect of escape – is now the confident market expectation in Europe & Japan, with essentially zero or negative yields over a generation. The United States is only one recession away from joining them. 6/
Everywhere in the industrial world, the risks of a sharp upturn in unemployment appear greater than the risks of a sharp upturn in inflation (even though market expectations of inflation are clearly below 2 percent targets). 7/
The one thing that was taught as axiomatic to economics students around the world was that monetary authorities could over the long term create as much inflation as they wanted through monetary policy. This proposition is now very much in doubt. 8/
Wait, what!!!??
Many believe that events proved Alvin Hansen wrong about secular stagnation. On the contrary, the fact that it took WW2 to lift the world out of depression proves his point. Absent the military buildup, a liquidity trap deflation scenario would likely have persisted. 9/
— Lawrence H. Summers (@LHSummers) August 22, 2019
Call it the black hole problem, secular stagnation, or Japanification, this set of issues should be what central banks are worrying about. 10/
We have come to agree w/ the point long stressed by Post Keynesian economists & recently emphasized by Palley that the role of specific frictions in economic fluctuations should be de-emphasized relative to a more fundamental lack of aggregate demand. 11/https://t.co/cyhGDDvAsM
— Lawrence H. Summers (@LHSummers) August 22, 2019
In our forthcoming paper, we argue that it minimizes our predicament to see it – as is current consensus – simply in terms of a falling neutral rate, low inflation, and the effective lower bound on nominal rates. Secular stagnation is a more profound issue. 12/
Limited nominal GDP growth in the face of very low interest rates has been interpreted as evidence simply that the neutral rate has fallen substantially. There may well be more to it than that. 13/
We believe it is at least equally plausible that the impact of interest rates on aggregate demand has declined sharply, and that the marginal impact falls off as rates fall. 14/
And then Summers drops the real hammer – rate cuts are useless… or worse, are actually worsening the situation.
It is even plausible that in some cases interest rate cuts may reduce aggregate demand: because of target saving behavior, reversal rate effects on fin. intermediaries, option effects on irreversible investment, and the arithmetic effect of lower rates on gov’t deficits. 15/
This can be illustrated using a textbook macroeconomic diagram with a very steep, non-linear or even backward-bending IS curve. 16/ pic.twitter.com/MKLzEjTPHs
— Lawrence H. Summers (@LHSummers) August 22, 2019
If the central problem for macroeconomic stabilization is a falling neutral real interest rate – what might be called “old new Keynesian” economics – monetary policy can achieve full employment if it can get the interest rate low enough. 17/
In contrast under the secular stagnation view we have outlined – what might be called “new old Keynesian” economics – interest rate cuts, even if feasible, may be at best only weakly effective at stimulating aggregate demand and at worst counterproductive. 18/
There is the further point that reducing interest rates may degrade future economic performance for any of the following reasons. 19/
— Lawrence H. Summers (@LHSummers) August 22, 2019
First, financial instability. The financial crisis had roots in bubbles & excessive leverage caused by efforts to maintain demand after the 2001 recession. Japan’s late 1980s bubble had roots in a low interest rate tight fiscal environment after the 1987 stock market crash. 20/
Second, risks of zombification of firms. Firms that do not face debt service payments are like students who do not have to take tests. They can drift along complacently & ultimately unsuccessfully. And low rates may contribute to increased monopoly power and reduced dynamism. 21/
Third, risks of bank failures. Low rates crowd bank profits and franchise value, making them more vulnerable to adverse shocks at any given level of regulatory capital. 22/
Fourth, risks of further reducing monetary policy effectiveness. To the extent to which rate cuts now “borrow” demand from the future as firms and consumers bring forward investment and durable purchases, low rates now may imply less effective monetary policy in the future. 23/
Summers then goes further – blasting Central planners for claiming they can “contain” the issues…
The right issue for macroeconomists to be focused on is assuring adequate aggregate demand. We believe it is dangerous for central bankers to suggest that they have this challenge under control – or that with their current toolkit they will be able to get it under control. 24/
— Lawrence H. Summers (@LHSummers) August 22, 2019
Obviously fiscal policy needs to be a major focus, especially given what low or negative interest rates mean for the sustainability of deficits. 25/
But the level of demand is also influenced by structural policies: e.g. pay-as-you-go social security, higher retirement ages, improved social insurance, support for private infrastructure investment, redistribution from the high-saving rich to the liquidity-constrained poor. 26/
The high inflation and high interest rates of the 1970s generated a revolution in macroeconomic thinking, policy and institutions. The low inflation, low interest rates and stagnation of the last decade has been longer and more serious and deserves at least an equal response. 27/
But at least he ends on an upbeat note ahead of Jay Powell’s speech tomorrow…NOT!
We hope this will come out of Jackson Hole’s focus on “Challenges for Monetary Policy” – but we are not holding our breath. 28/
— Lawrence H. Summers (@LHSummers) August 22, 2019
So, after that 28 tweet thread of self-flagellation, wouldn’t it have been more interesting if Summers had said all that oh, ten years ago?
Be seeing you
Posted in Uncategorized | Tagged: central banking, Central Planners, interest rate, Larry Summers, macroeconomic stabilization, QE | Leave a Comment »
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