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It’s rare, but politicians and central bankers sometimes (accidentally) tell the truth. This week, Jerome Powell claimed The Fed, which unconstitutionally counterfeits trillions of dollars, has little understanding about inflation. They’re apparently ‘surprised’ that counterfeiting trillions caused prices to skyrocket. Central planning always fails. We desperately need to use sound money again.
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Posted by M. C. on July 1, 2022
In other words, Powell’s Fed is a Fed that does no more than is absolutely necessary to convince the public and policy makers that it is “doing something” about inflation. This is all short-term political posturing, and reflects that fact Powell—like Janet Yellen before him—is a politically minded technocrat who thinks in terms of using the central bank to protect the regime.
https://mises.org/wire/powell-new-arthur-burns-not-new-paul-volcker
Last year, just as it was becoming increasingly clear that price inflation was mounting, Jerome Powell repeatedly denied there was any reason for concern. He called inflation “transitory.” A few months later, he admitted it was not transitory, but denied it was “entrenched.” Then, by late 2021, he admitted price inflation was getting out of control but still took no action of any consequence. Through it all, the Powell plan was repeated delay and opposition to any lessening of the Fed’s established policy of ramming down interest rates again and again.
By spring 2022, however, it became impossible to pretend the previous six months of rising inflation rates never happened. In order to avoid looking utterly clueless, Powell was forced to endorse a 25 basis point increase to the target rate in March. But that amounted only to a 0.50 percent target rate. Then there was a 50 basis point increase in May, so the target rate rose to a meager 1 percent. After June’s meeting, the target rate sat at 1.75 percent— a small fraction of the target rates we saw even during the years of monetary inflation and housing bubbles under Alan Greenspan.
The other side of this ultraeasy monetary policy is quantitative easing via the Fed’s asset purchases of mortgage-based securities and government debt. These purchases were made with newly created money. Although Powell talked a big game about scaling back quantitative easing and reducing asset purchases, actual action was virtually nonexistent, and the Fed continued to print money for more asset purchases into March 2022. Since Powell finally announced the end of QE, the Fed’s assets have decreased by a paltry 0.3 percent.
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Posted by M. C. on April 19, 2022
The crisis could still be avoided, but only if Congress becomes serious about cutting spending, starting with the military industrial complex. Congress should also start to reform monetary policy by auditing the Fed, legalizing alternative currencies, and exempting precious metals and cryptocurrencies from all capital gains taxes.
https://mailchi.mp/ronpaulinstitute/pricehike-116021?e=4e0de347c8
Apr 18 – The Biden administration and its allies continue to use Russian President Vladimir Putin as the convenient excuse for their economic failures. The most recent falsehood is that Russia’s invasion of Ukraine caused March’s 8.5 percent year-over-year increase in the Consumer Price Index (CPI).
Prices were surging long before Russian troops entered Ukraine. Furthermore, Putin did not stop exporting food and gas; it was the Biden administration and Congress that imposed sanctions, making US consumers suffer additional price increases. The blame for the economic effects lies with the US government, not Russia.
The United States has for years been meddling in Ukraine’s affairs with the explicit goal of moving US and NATO military forces ever closer to Russia. The most notorious example was the 2014 US-orchestrated coup that overthrew Ukraine’s democratically elected government.
Russia has a legitimate grievance over the US supporting expanding NATO to include Ukraine, despite the US having promised not to support expanding NATO beyond Germany’s borders during negotiations over how to end the Cold War. Foreign policy experts, including George Kennan, the architect of the Cold war “containment” strategy, warned that Russia would respond adversely to NATO expansion near Russia.
Before the Ukraine conflict, Biden and his fellow Democrats blamed price increases on “greedy” corporations, going so far as to claim that increasing antitrust prosecutions would somehow bring down prices. Then Putin became the new excuse.
The main culprit behind rising prices is neither Putin nor “greedy” corporations. Federal Reserve Chairman Jerome Powell and his colleagues are to blame. Starting in September 2019, when the Fed panicked over a spike in interest rates in the “repurchasing” market that banks use to give each other overnight loans, the Fed has engaged in an unprecedented spree of money creation. The Fed further stepped up its easy money and low, and even zero, interest rate policies in response to the lockdowns. Increasing prices are the direct result of the Fed’s policies.
The Fed is planning to try to tame prices by increasing interest rates and reducing its balance sheet. This will likely tip the economy into a recession. Increasing interest rates will also cause the federal government’s debt payments to increase, which is a reason the Fed will not increase rates to anywhere near where they would be in a free market.
The best-case scenario may be a return to 70s-style “stagflation.” The worst-case scenario is that the Fed’s failure to rein in inflation, fueled by Congress’s failure to stop spending, combined with the continued resentment over the US’s hyper-interventionist foreign policy, will cause a rejection of the dollar’s reserve currency status and lead to a major financial crisis. Such a crisis could result in widespread poverty, as well as violence, crackdowns on liberties, and even the rise of a totalitarian government.
The crisis could still be avoided, but only if Congress becomes serious about cutting spending, starting with the military industrial complex. Congress should also start to reform monetary policy by auditing the Fed, legalizing alternative currencies, and exempting precious metals and cryptocurrencies from all capital gains taxes. The welfare-warfare-fiat money system will end. What is not known is when it will end and whether it will be replaced by an even more authoritarian government or by a return to limited, constitutional government.
—
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Posted in Uncategorized | Tagged: Greedy Corporations, Jerome Powell, Price Hikes, Putin, stagflation | Leave a Comment »
Posted by M. C. on March 10, 2022
Jerome Powell, the Fed’s current chairman, will forever be remembered for claiming that price inflation, which is currently hitting Americans hard, would be “transitory.”
These people are the wrongiest of the wrong, every time.
https://mailchi.mp/tomwoods/fed?e=fa1aba8cd8
One of the great villains of American history — who ranks in the “Near Great” category according to our brain-dead historians — is Woodrow Wilson.
So much bad, including much of what ails us today, can be traced to the self-righteous former president of Princeton University.
The Federal Reserve System, whose boom-bust cycles and price inflation have littered more than one hundred years of U.S. history, was signed into existence by Wilson.
A sliver of the liberty movement has been tricked into thinking Wilson eventually came to regret having established the Fed. They point to a spurious quotation that begins, “I am a most unhappy man. I have unwittingly ruined my country.”
Wilson never said this. He was in fact proud of creating the Fed.
The rest of the quotation they use to claim that Wilson regretted creating the Fed is patched together from speeches on other subjects he gave while running for president, before the Fed was even established.
Others think John F. Kennedy was assassinated for trying to abolish the Fed. Oddly enough, most of these people have read, and have great praise for, G. Edward Griffin’s book The Creature from Jekyll Island. But if they’d read closely, they’d see that Griffin debunks the idea that Kennedy made any serious move against the Fed.
I’m not sure why people cling to these myths, although I have a theory: it’s much more comforting to live in a world in which there were some decent presidents who tried their best to advance the people’s interests. It’s nice to think Wilson was duped into creating the Fed, and that JFK heroically gave his life to try to stop it.
It’s much harder to live in a world in which they’re all in on it, and you and I are on our own.
The Fed is the principal regulator of the American banking system. In the years leading up to the 2008 fiasco, chairman Ben Bernanke assured us that the system was sound, that there was nothing fundamentally wrong with the housing market, and on and on with downright laughable denials of reality.
Then the crash came, and the alleged experts all pretended no one could have seen it coming.
Ron Paul and his economist colleagues saw it coming, some of them describing to a T precisely what would happen, but since Dr. Paul wasn’t fashionable he wasn’t listened to.
Jerome Powell, the Fed’s current chairman, will forever be remembered for claiming that price inflation, which is currently hitting Americans hard, would be “transitory.”
These people are the wrongiest of the wrong, every time.
It is not true that the Fed gave us fewer and shallower recessions than we saw before, or that we’ve had more stability with the Fed. Whatever the propaganda in the Fed’s favor, you can be sure it’s made up.
Well beyond COVID, I devote every single weekday on the Tom Woods Show to debunking the ridiculous narratives that the establishment expects us to believe.
I’ve spent plenty of time discussing the economics of the Fed, but I recently had the great Saifedean Ammous on the show to discuss other, less obvious consequences of fiat money, among them the industrial sludge we’re urged to eat.
Enjoy, and consider joining the tens of thousands who make the Tom Woods Show part of their daily routine:
Tom Woods
Posted in Uncategorized | Tagged: Federal Reserve System, Jerome Powell, Woodrow Wilson | Leave a Comment »
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.
—
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Posted by M. C. on January 12, 2022
Yes, states have many tools to push the public to use the government’s money. But governments also know there are limits to this and they fear hyperinflationary scenarios. These situations have a tendency to bring extreme political and monetary instability. Cryptocurrencies may help make that fear more acute and immediate. If that’s the case, it’s good news.
https://mises.org/wire/what-regime-will-do-fight-private-digital-currencies
During a confirmation hearing with the US Senate this week, Fed chairman Jerome Powell was asked about whether or not a digital currency issued by a central bank could exist side by side with private cryptocurrencies. Powell responded that there is nothing that would prevent private cryptos from “coexisting” with a “digital dollar.”
This, of course, is obviously true so long as federal regulators do not decide to ban the usage of cryptocurrencies.
Business Insider meanwhile has reported that Powell’s comments “appeared to be a shift” from his earlier comments stating that “you wouldn’t need” cryptocurrencies in a world of central bank digital currencies (CBDCs).
It’s not clear that this is a “shift,” however. Powell’s earlier comments simply communicated Powell’s apparent position that the Fed’s CBDC would be preferred by the users of these currencies. If the central bank’s digital currencies are wonderful, there no “need” to have any other.
Indeed, Powell’s two statements on this matter likely reflect the fact that the central bank apparently plans to outcompete private cryptocurrencies. This would be a reasonable goal for the Fed given the central bank’s vast regulatory power and legal privileges. Because the central bank directly regulates banks and is so entrenched in the financial sector overall, it could more easily facilitate a virtually seamless introduction of its own digital currencies into the financial sector and make its digital currency more convenient than others. Moreover, the Congress can use its powers to “encourage” the public to favor the regime’s currency, digital or otherwise.
This doesn’t worry many supporters of cryptocurrencies, who are generally confident that their currencies are higher quality than anything a central bank can offer. When they say “higher quality” these private crypto backers—especially those backing bitcoin—often mean that their currency cannot be inflated as can fiat currencies. Thus, these private currencies do not lose their value as fiat currencies do. Presumably the public would flock to the higher-quality currency.
It is debatable, however, whether this sort of quality really determines the use of a currency as a general medium of exchange. Indeed, if anything, experience suggests otherwise, and this has long been seen in the workings of Gresham’s law. When competing against “lower quality”—that is, more inflation-prone—currencies, “higher quality” currencies tend to become hoarded rather than used as money. This is reflected in the “HODL” movement, in which it is assumed that it is better to hold on to cryptos indefinitely rather than convert them into “inferior” assets, whether dollars or anything else. So long as this thinking prevails, it’s difficult to see how a crypto can make the transition to a general medium of exchange—i.e., money. Even if the inferiority of the government’s fiat currency is not in dispute, this does not necessarily lead to widespread use of the “superior” currency for daily use.
Yet one could also define “quality” as the ease with which one can use a currency. Bitcoin advocates, for instance, have pointed to the relative ease with which bitcoin can be used in purchases without the need for intermediate institutions. Even in this arena, though, inflationary currencies controlled by central banks may nonetheless be competitive, even if inferior in terms of maintaining value.
This, of course, is one of the purposes of issuing new CBDCs. It’s to more fully and directly co-opt and compete with private digital currencies. Presumably, payments using CBDCs need not go through intermediary institutions either. Will these CBDCs be “better” than private digital currencies? Perhaps not by many metrics. But to stay relevant, fiat currencies need not be the best money. They only need to be good enough. Government regulations can do the rest.
After all, when it comes to propping up the official currency, a regime or central bank has several tools. For one, the regime can continue to make a certain currency legal tender. Contrary to what many believe, this does not force people to use a certain currency for all transactions. Nevertheless, legal tender laws do impel users of money to favor one specific money over others for the repayment of loans and other uses. Moreover, a regime can mandate that tax bills be paid in the currency of the regime’s choosing. Borrowers would continue to pay back loans in devalued dollars—and this would likely include many huge institutional borrowers.
In an inflationary atmosphere, this can continue to offer significant support to at least some use of a currency—or a digital version thereof—even in the face of steeply declining value. Imagine, for example, a world in which every employer must pay withholding taxes in dollars and in which every homeowner must pay property taxes in dollars. Imagine a world in which every commercial and residential real estate lender—lenders heavily regulated by federal policymakers—must accept repayment in depreciating dollars. This is no small advantage for a currency—even one in decline.
And then there are more crude methods of protecting the official currency. Beyond legal tender laws, the regime could use the tax code to punish the use of private currencies in other ways. Charging capital gains taxes on alternative money is just one method. Regimes have been known to become quite creative when it comes to punitive taxes against activities the regime does not like.
There is also always the “nuclear option,” which is banning these currencies altogether. Let it never be forgotten that the US regime once banned the private ownership of gold bullion, punishable by draconian fines and by imprisonment.
None of this contradicts economic arguments that in an unhampered market, certain private cryptocurrencies are far superior to fiat money in terms of value retention. Those are economic questions, though. The political questions are different, and once government regimes become involved, the calculus can change considerably. States have long jealously guarded their prerogatives over the money supply and are likely to resort to any number of violent, dangerous, or risky policies when these privileges are threatened.
On the other hand, states, with all their vast coercive power, sometimes lose their ability to ensure the continued usage of the state’s official currency.
As Daniel Lacalle recently noted, sometimes a government’s currency ceases to be money altogether:
If the private sector does not accept this currency as a unit of measure, a generalized means of payment, and a store of value backed by reserves and demand from the mentioned private sector, the currency becomes worthless and ceases to be money. Ultimately, it becomes useless paper.
This happens when a currency devalues so completely and so rapidly, that neither convenience nor legal status can save the currency’s status as money.
Extreme hyperinflation, however, appears to be the only scenario—short of big ideological changes undermining the state overall—under which a private cryptocurrency is likely to become the general medium of exchange. Government currencies would likely have to implode and not just slowly depreciate at a rate of, say, 5 or 10 percent per year. It has already been demonstrated for more than a century that deflationary fiat currencies can go on for many decades so long as inflation rates are within what the public considers to be a tolerable range. Unfortunately, the public also appears to have a high threshold for what is tolerable.
But even if regimes manage to prop up their currencies indefinitely, the existence of cryptocurrencies nonetheless has the potential for offering a valuable service. That is, the existence of private cryptocurrencies could work to force greater discipline on regimes in terms of deficit spending and other activities that lead to the debasement of government currencies. If users of fiat currency can more easily flee to some other store of value, this will put greater pressure on inflationary currency and force regimes to think twice about indulging in high levels of deficit spending and the all-but-inevitable money printing that follows. That is, if savers can easily sit on their savings in some form other than fiat currencies, this raises the political risk to regimes in terms of triggering dangerously high inflation rates. This means cryptocurrencies could serve a helpful political function even if they don’t lead to a scenario in which government fiat currencies are fully abandoned any time in the foreseeable future.
Yes, states have many tools to push the public to use the government’s money. But governments also know there are limits to this and they fear hyperinflationary scenarios. These situations have a tendency to bring extreme political and monetary instability. Cryptocurrencies may help make that fear more acute and immediate. If that’s the case, it’s good news.
Author:
Ryan McMaken is a senior editor at the Mises Institute. Send him your article submissions for the Mises Wire and Power and Market, but read article guidelines first.
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Posted in Uncategorized | Tagged: central bank, cryptocurrencies, Fed, Jerome Powell, Private Digital Currencies | Leave a Comment »
Posted by M. C. on September 27, 2021
A limited audit authorized by the Dodd-Frank Act found that between 2007 and 2010, the Federal Reserve committed over 16 trillion dollars to foreign central banks and politically influential private companies. Imagine what a full audit would find. It is time to end the scandal of allowing a secretive central bank to have so much power over the economy and our liberty. It is time to audit, and end, the Fed.
https://mailchi.mp/ronpaulinstitute/sept11at20-115662?e=ff526b933a
Sept 27 – Following revelations that Federal Reserve officials made trades in financial assets while the Fed was taking extraordinary efforts to “stimulate” the economy, Federal Reserve Chairman Jerome Powell ordered a review of the Fed’s ethics rules. While these trades appear problematic, they pale in comparison to the biggest Fed scandal — the Fed’s impoverishment of ordinary Americans, enrichment of the elites, and facilitation of government debt and deficits.
The depression induced by coronavirus, though really caused by so-called public health actions government took in response, was the official reason for the Fed’s increased asset purchases last year. However, the Fed actually started ramping up its money creating activities in September of 2019, when it began pouring billions a day into the repo markets, which banks use to make short-term loans to each other, in order to keep repo market interest rates low.
Coronavirus was just a convenient excuse for the Fed to do more of what it was already doing. Now, the Fed is using the limited reopening as a scapegoat for rising prices. Of course, anyone who understands Austrian economics understands that rising prices are a symptom, not a cause, of inflation. Inflation is the very act of money creation by the Fed.
Rising prices that diminish the average American’s standard of living are not the only result of the Fed’s manipulation of the money supply. The manipulation distorts economic signals, producing results including booms, bubbles, and busts.
Inflation has always benefited the well-connected elites who receive the Fed’s newly created money before the new money causes widespread price increases. The true motivation behind Fed policies was revealed by former Fed official Andrew Huszar in 2013. Huszar, writing for the Wall Street Journal, confirmed that quantitative easing kept stock prices high, instead of helping Americans struggling with the aftereffects of the 2008 meltdown.
Other beneficiaries of the Fed are big-spending politicians. The Federal Reserve’s purchase of federal debt instruments keeps the federal government’s debt servicing costs manageable. This is why, despite Chairman Powell’s recent suggestion that the Fed will soon begin “tapering” its purchases of Treasuries, the Fed is unlikely to significantly reduce its purchase of Treasuries or allow interest rates to significantly increase.
Powell is also unlikely to upset President Biden and Biden’s congressional allies as long as progressives are urging Biden not to reappoint Powell. Progressives want to replace Powell with someone more committed to fighting climate change and systemic racism, two boogeymen routinely bought out as excuses for vast expansions in government spending and power.
Another major scandal involving the Fed is Congress’ refusal to pass the Audit the Fed bill and let the American people know the truth about the Fed’s operations. Audit the Fed authorizes a Government Accountability Office (GAO) audit of the Fed’s dealing with foreign governments and central banks, the Fed’s discount window operations, reserves of member banks, securities credit, interest on deposits, and open market transactions. Audit the Fed would finally reveal the truth about the Fed’s operations.
A limited audit authorized by the Dodd-Frank Act found that between 2007 and 2010, the Federal Reserve committed over 16 trillion dollars to foreign central banks and politically influential private companies. Imagine what a full audit would find. It is time to end the scandal of allowing a secretive central bank to have so much power over the economy and our liberty. It is time to audit, and end, the Fed.
—
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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.
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Posted in Uncategorized | Tagged: Audit the Fed bill, Federal Reserve, inflation, Jerome Powell, repo markets | Leave a Comment »
Posted by M. C. on September 24, 2021
But it’s a safe bet that if the accepted inflation target were increased to 4 percent, we’d be hearing little to nothing right now about tapering, normalization, or any other effort to cut price inflation. The Fed would then be more free to keep the easy money spigot open longer without having to hear complaints that the Fed has “lost control” of price inflation. That would be great for stock prices and real estate prices. Ordinary people, on the other hand, might fare less well.
https://mises.org/wire/too-much-inflation-just-raise-inflation-target
In late August, Fed chairman Jerome Powell suggested that the Federal Reserve would begin tapering before the end of the year, an admission that price inflation was rising above the 2 percent target. Nonetheless, the Fed took no immediate action in the following month. This week, Powell again suggested a taper would begin soon, stating it would begin soon enough that the process could “conclud[e] around the middle of next year,” and maybe could begin in November. This, of course, was highly conditional, with Powell noting this taper would only happen if “the economic recovery remains on track.”
Some interpreted this as a hawkish turn for Powell, but again, we should expect no immediate action on this. Lackluster economic growth remains a concern and Powell’s qualifier on the “recovery” remaining on track will be key. Last week, Goldman downgraded the US economic growth forecast, and the Beige Book—which always casts economic growth in a rosy glow—also reduced its description of the economy during July and August to “moderate.” Meanwhile, the Bank of England today signaled a worsening global situation with its own downgrade of growth expectations. In other words, if the economy isn’t improving enough—according to the Fed—then it can simply abandon plans to taper.
The Fed may be talking taper, but fears of low growth among doves will fuel ongoing calls for continued stimulus. In fact, we’re already seeing some calls for abandoning the 2 percent inflation target in favor of even higher targets. This, it is believed, will allow for longer and more aggressive periods of stimulus.
The root of this drive for more inflation lies partly in the fact that many inflation doves believe that the Fed was too timid with stimulus after the Great Recession. Indeed, growth was remarkably slow in those days, producing “the slowest economic expansion” in many decades.1 This was in spite immense amounts of monetary stimulus. Nonetheless, the Fed repeatedly spoke of an “improving economy,” and repeatedly hinted at tapering. But it was only in 2016 that the Fed finally dared to allow the target interest rate to inch upward. This was largely done out of fear the Fed would have no room to maneuver in case of another crisis. Price inflation, after all, remained low in the official measures.
But in 2017 and 2018, when CPI inflation began to push above 2 percent, the expectation arose that the Fed would begin to meaningfully taper to keep inflation near the stated 2 percent target. This alarmed some inflation doves who were concerned—with good reason—that any reining in of the Fed’s easy money policies would end the very fragile and lackluster recovery then underway. They wanted to keep the asset-price inflation going—to reap the benefits of the so-called “wealth effect.” These fears were partially borne out when, in spite of the timidity of the Fed’s tapering efforts after 2018, the repo crisis of 2019 suggested trouble was indeed brewing. And it’s not surprising. Economic “growth” rested largely on a mountain of zombie companies and a financialized economy addicted to artificially cheap credit.
How that would have played out in the absence of the covid panic is unknown. In any case, efforts at reining in monetary inflation evaporated with the covid crisis and the target interest rate was quickly returned to 0.25 percent. Additional asset purchases resumed at breakneck speed, with the Fed’s portfolio soon topping $8 trillion.
The covid crisis gave doves an opportunity to press for a more “flexible” inflation target. In August of 2020—with central bankers looking for new ways to justify continued stimulus—the Fed adopted a new policy in which it would pursue an average 2 percent inflation goal. In other words, the Fed could now pursue a price inflation goal above 2 percent for some periods so long as it all averaged out to 2 percent over time.
But even that hasn’t been enough for the advocates of ever more price inflation. We’re now seeing calls for ending the 2 percent target altogether—and raising it.
For example, writing at the Wall Street Journal earlier this month, Greg Ip noted that Powell appears to be banking on the inflation rate soon returning to 2 percent. But what if it doesn’t? Ip says if inflation remains above targets, the Fed should just raise the targets. He writes:
One strategy [Powell]—or his successor—should consider in that eventuality is to simply raise the target.
And why pursue higher inflation? Ip takes the popular view of the “mythical trade-off between higher employment and inflation,” as Brendan Brown describes it. For Ip, higher inflation is the way to ensure an employment-fueled expansion, and he writes:
Why would higher inflation ever be a good thing? Economic theory says modestly higher, stable inflation should mean fewer and less severe recessions, and less need for exotic tools such as central-bank bond buying, which may inflate asset bubbles. More practically, if inflation ends up closer to 3% than 2% next year, raising the target would relieve the Fed of jacking up interest rates to get inflation down, destroying jobs in the process.
According to Ip, the too-low 2 percent target places the Fed in an intolerable bind. The Fed needs more room to breathe. Rather than feel the pressure to taper just because price inflation has risen above the 2 percent target, Ip wants to make sure the Fed can just keep on with the stimulus until price inflation exceeds 3 percent, or maybe even 4 percent. And who knows? After that, maybe “economic theory” will tell us that 5 percent inflation is an even better target. Certainly, that would be no less arbitrary a number than 4 percent or 2 percent.
The need to raise the target rate is essentially political. Presumably, the longer inflation persists above the target rate, the more the Fed will feel pressure to bring inflation back down through some sort of tapering. After all, the adoption of a 2 percent target implies 2 percent is the “correct” inflation rate. Anything higher than that is presumably “too much.” With the Fed moving toward the 2 percent target since the 1996 —and having formally adopted it in 2012—the Fed’s credibility is on the line if the Fed simply ignores the target.
But it’s a safe bet that if the accepted inflation target were increased to 4 percent, we’d be hearing little to nothing right now about tapering, normalization, or any other effort to cut price inflation. The Fed would then be more free to keep the easy money spigot open longer without having to hear complaints that the Fed has “lost control” of price inflation. That would be great for stock prices and real estate prices. Ordinary people, on the other hand, might fare less well.
Author:
Ryan McMaken is a senior editor at the Mises Institute. Send him your article submissions for the Mises Wire and Power and Market, but read article guidelinesfirst.
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Posted in Uncategorized | Tagged: Federal Reserve, inflation, inflation target, Jerome Powell | Leave a Comment »
Posted by M. C. on December 25, 2020
Doug Casey: The Fed is one of the main creators of inequality. The Establishment, the Deep State types, and the other cronies who hang around the government are closest to the fire hydrant of money spewing from the Fed. They get their fill of it before any trickles down to the “little people.”
The solution to the problem is to abolish the Fed. But it’s so entrenched and so central to the corrupt system, that’s impossible. At least short of a monetary collapse—although a monetary collapse is in the cards. But, at a minimum, the Fed shouldn’t try to act as a social engineer.
International Man: Recently, the calls for the Fed to add a third mandate to address racial and economic inequality have grown louder.
Will we see a redistribution of wealth soon?
Doug Casey: It seems the movement towards black “reparations” is building momentum. These things always start small, testing the water, then grow when nobody either laughs at them for being stupid or decries them as evil. Most Americans are now too intimidated and confused to do that, however.
It’s similar to MMT. A year ago, the notion of Modern Monetary Theory was too outrageous a notion for a sensible person to bother considering; now, it’s practically public policy.
And, incidentally, when I say “black,” I don’t capitalize the word, as very recent politically correct fashion dictates. Capitalizing it just emphasizes and accentuates racial differences—as do most “woke” practices.
It’s another sign of the mass insanity that’s sweeping the world. Like almost everybody wearing masks when walking down the street, or even bicycling in the countryside. Not to mention locking down the whole country, practically the entire world, like a prison. It’s quite ironic to me. In the past, I’ve often joked that the Earth was a prison planet. Now it’s no joke.
Anyway, the idea of reparations is even more insane, but it’s taking off. It’s the destructive, racist idea of affirmative action on steroids.
It’s one genuinely crazy thing after another, like NASDAQ requiring listed companies to have at least two board members of so-called minority groups, including one non-white person and one with a sexual aberration.
Movies are expected to have the same kind of composition now. You see it to a large degree in commercials on TV. When I watch the boob-tube, I feel like I’m the only straight white male left in the US.
The discrimination against Asians is equally criminal, especially when it comes to getting into college. If you’re a smart and hard-working Asian, you now have to be even smarter and harder working to compete.
These PC fools are making accidents of birth into defining features of existence. The only good thing about the trend is that these people may be overreaching and will self-destruct. Hopefully, that will happen before they destroy society itself.
International Man: Federal Reserve Chairman Jerome Powell has spoken in length about the Fed’s interest to address economic inequality.
Ironically, the one institution that is single-handedly responsible for destructive monetary policies and money printing of epic proportions plans to do more of the same to “solve” the very problem they created.
What are your thoughts on this?
Doug Casey: The Fed is one of the main creators of inequality. The Establishment, the Deep State types, and the other cronies who hang around the government are closest to the fire hydrant of money spewing from the Fed. They get their fill of it before any trickles down to the “little people.”
The solution to the problem is to abolish the Fed. But it’s so entrenched and so central to the corrupt system, that’s impossible. At least short of a monetary collapse—although a monetary collapse is in the cards. But, at a minimum, the Fed shouldn’t try to act as a social engineer.
It certainly shouldn’t give money to blacks just because they’re black in the form of reparations or for any other reason. The notion is criminally stupid. All exchange must be mutual and free. If it’s not, it breeds resentment for both the giver and the receiver.
Free stuff, like welfare and free government housing, has already destroyed black families and black individuals. Places like Cabrini-Green and Pruitt-Igoe are monuments to government planning. If the Fed gets involved in passing out more free money, it’s only going to cement the average black more solidly to the bottom of society and create more race antagonism.
Well-positioned blacks like Jesse Jackson, Al Sharpton, Maxine Waters, and hundreds of others who are getting rich by virtue of being black are all for it, of course. There’s big money in disguising race-baiting as virtue signaling.
International Man: Recently, Joe Biden announced that he would nominate former Fed Chairman Janet Yellen for US Treasury Secretary. In her first remarks, Yellen spoke about her plans to address racial disparities and inequality.
Is there a trend developing here where racial and economic inequality has become the justification for dangerous monetary policies?
Doug Casey: Race has become a justification for practically everything today. Deep State types in general, and the Democrats in particular, emphasize race and gender differences, which does nothing but aggravate the situation.
This nomination is an excellent deal for Yellen, who’s moved from being a nothing nobody academic to Fed Chair, and now Treasury Secretary. By the time she finishes her term in office, she’ll be a centimillionaire—the usual drill, six-figure speeches, seven-figure book contracts, fat directors fees, consulting fees, and insider investment deals. She’ll do well for someone who has zero business experience and has detracted hugely from the world’s real wealth.
She’s a model for the kind of people who want to go into government to become rich and famous.
International Man: Fed chairman Powell has made countless remarks about the need for the US central bank to address climate change.
What is going on here?
Doug Casey: It’s a good question.
How can they address the so-called problem of climate change? Climate change has been going on since the Earth came together 4.5 billion years ago, and it will continue on its own path, primarily influenced by the sun and secondarily by things like volcanism, cosmic rays, and peculiarities of the planets orbit, long after mankind has gone.
But destroying the economy by printing up more money certainly isn’t an answer to climate change. However, I’m sure that what’s on Powell’s mind is making money easier to get for things like windmills and solar panels. This is more state direction of investment. It was a disaster for the USSR and every other socialist and state-directed economy and will be for us as well.
You’ll notice that the Chinese and other Asian economies don’t indulge in this kind of politically correct investing. It’s a major reason why they’re on the way up, and we’re on the way down.
Janet and Jerome’s excellent adventure in climate engineering won’t end well.
International Man: With climate change and racial inequality, the Fed is creating all sorts of new ridiculous pretexts to justify whatever it wants to do. It would be comical if the consequences weren’t so destructive. What do you think comes next?
Doug Casey: At this point, the Federal Reserve, which most Americans barely even know exists, has become extremely important to everybody.
It’s now the main source of government income—greater even than the income tax—and this is likely to continue. Agencies like the Fed grow when they have unlimited funding. But it’s more than just mission creep at this point.
We saw mission creep during the Vietnam war and all other wars. Now the Fed has been enlisted to fight the war on poverty, the war on racism, and global warming. The problem is that war is the health of the State—but a catastrophe for society.
The Fed started out as essentially a clearinghouse for banks; it was instructed to maintain the value of the currency. It has totally failed at that mission since its creation. The US dollar was stable from 1789 up until 1913 when the Fed was instituted. Since then, the dollar lost has about 97% of its value, and the degeneration is radically accelerating.
Now the Fed is supposed to ensure full employment, racial and gender equality, and sunny days in addition. The next abomination will be Fed Coin, a digital dollar, which will eliminate all privacy from financial transactions.
I don’t think anything can turn the situation around at this point. The only thing you can do is become as wealthy as possible to insulate yourself.
The next step will be something resembling World War III, probably with China. The US will turn into a police state, which in many ways, it was during World Wars I and II.
It’s going to be much more serious this time around.
Editor’s Note: Economically, politically, and socially, the United States seems to be headed down a path that’s not only inconsistent with the founding principles of the country, but accelerating quickly toward boundless decay.
In the years ahead, there will likely be much less stability of any kind.
That’s exactly why New York Times bestselling author Doug Casey and his team just released an urgent new report titled Doug Casey’s Top 7 Predictions for the Raging 2020s.
Click here to download the free PDF now.
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