Third blow for the Federal Reserve

America’s central bank, the Federal Reserve System (Fed), is now destroying the US economy for the third time in its existence. Will the Fed’s strike be the latest in the battle, or will fans of the American economy be saddled with this monetary burden? John Goknaur (the worst player in major league baseball history) for another century? Despite, Ty Cobb (probably the best ever hit) monetary systems, is the gold standard ready to strike?

Remember, the Fed is not just trying to control the macro economy, it is trying to control it from within. political restrictions. Recent events have shattered any notion that this is an enterprise, independent of the government, run by experienced technocrats simply trying to find the right trade-off between output and inflation. To some extent, he hacks due to incompetence, like Gochnaur. However, to some extent, she puts her own interests ahead of the interests of the American people.

The first blow came during the Great Depression of the 1930s. Technically the country was still on the gold standard, but after the Great War (1914-1918) the international monetary system was in such disarray that the Fed had some leeway in domestic monetary policy, the ability to expand or contract the money supply.

The Fed’s monetary stance proved too loose in the 1920s, which contributed to stock prices becoming too frothy. However, after the Great Crash of 1929, his position was too rigid. Moreover, he did not help the struggling small banks, many of which went bankrupt, dragging depositors with them. It led to successive waves the bank is working this hindered economic recovery until the Hyde Park political monster was elected president in 1932.

The second blow was the Great Inflation of the 1970s. The Fed can be forgiven for this, because it happened during the transition to a new monetary policy regime, a solution to the problem Trilemma or Impossible Trinity this gave it full discretionary domestic monetary policy for the first time, freeing up the international movement of capital and allowing exchange rates to be fully responsive to market forces.

But he was warned! For the better part of a decade, experts such as NBC Radio financial journalist Wilma Soss predicted that large budget and trade deficits would necessitate the end of the Bretton Woods system of fixed exchange rates. She presciently warned that this would lead to the international runaway depreciation of the dollar, domestic inflation, scarcity-causing price containment, and the euthanasia of individual stock and bond investors.

The Fed messed up during the 2008 global financial crisis. While this helped create the low-interest subprime mortgage bubble and its misguided thinking about financial isolationhe did his job as a lender of last resort well enough to turn the economy around fairly quickly by massively subsidizing the banking sector. The tactics used were suboptimal but at least the Great Recession didn’t turn into another depression.

However, in 2020-2021, the Fed sensed. He had to start raising rates aggressively to fight the massive COVID fiscal stimulus Congress passed that year. In fact, it could save America the pain of lockdowns, just threatening to offset the stimulus with higher interest rates.

The lockdowns may have made incentives necessary, but the lockdowns themselves were clearly unnecessary. AIER has been vehemently opposed to lockdowns for over a year and has since been reaffirmed. econometrically as well as scientifically. Unhindered by quarantine rules, retailers, gyms and other businesses soon realized that they simply needed to implement special hours or days for maskers/vaccinators and other special hours or days for antis. Experiments It soon became clear which COVID protocols would be sufficient to suppress so-called super-spread events in various contexts, allowing most economic activity to continue relatively unhindered without exacerbating the pandemic one iota.

But instead of sticking to its supposed 2 percent inflation target, the Fed succumbed to political pressure to lockdown and kept interest rates low, even after the temporary threat of deflation was over by the end of summer 2020 and prices began to rise steadily:

The Fed finally raises interest rates aggressively, but in the process creates biggest operating loss in its history. Why, then, did the Fed not counter massive fiscal stimulus by tightening monetary policy in 2021? In the end, it doesn’t matter. Bad hitters always have excuses. The sun was in my eyes, the pitcher was cheating, I’m just in a crisis (i.e. my outs are temporary), or I bet a lot of money on the other team. Meanwhile, the fans in the stands know that it doesn’t matter, I struck out!

No batter always hits base, but America, and indeed the world, has a high-quality pinch-hitter that she benched a century ago: gold standard. It’s not perfect, but much better and fairer than the Fed. A return to gold or some other commodity standard should not scare you. It simply means replacing monetary technocrats with questionable ability or motivation with market forces, the same market forces that develop products and technologies that seemingly magically appear when and where consumers want them. Money should not be an exception.

Robert E. Wright

Robert E. Wright

Robert E. Wright is a senior fellow at the American Institute for Economic Research. He is (co)author or (co)editor of over two dozen major books, book series and edited collections, including AIER. The Best of Thomas Paine (2021) and Financial exception (2019). He also (co-authored) numerous articles for important journals, including American Economic Review, Business history overview, Independent Review, Private Enterprise Journal, Finance Reviewas well as Southern Economic Review. Robert has taught courses in business, economics, and politics at Augustana University, New York University’s Stern School of Business, Temple University, the University of Virginia, and elsewhere since receiving his Ph.D. in history from SUNY Buffalo in 1997.

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