The fact that our entire economy is run by a small cabal of human beings who preside over a massive, enormous global economy with regard to central banking is despicable. The gold standard used to take this directly out of the hands of bureaucratic “experts.”
The system of incentives is uniquely bad. The Federal Reserve has been tasked with simultaneously keeping inflation low and keeping employment high; that used to be the job of legislatures. But now, when you hand it off to the Federal Reserve, their job is to continue to backfill all the bad legislation coming out of Washington, D.C. Fiscal responsibility can only happen when you don’t have a bunch of central bankers manipulating the switches behind the scenes.
Over the weekend, Federal Reserve Chairman Jerome Powell gave a speech about inflation and interest rates. Many people are concerned that the Federal Reserve and central banks across the world are going to continue to raise interest rates in an effort to quell inflation, which would clamp down on the ability of lenders to lend. The banks would increase standards for lenders because the money will not be easy to recoup and they’re afraid that will tip us over into recession.
Powell said over the weekend that 2% was the inflation target. That’s always the target rate for the Federal Reserve, which is immoral. A 2% inflation rate over the course of 50 years is a 100% inflation rate, which is why everything is much more expensive in pure dollar terms than it used to be. The fact that we deliberately inflate the currency in order to artificially jog consumer spending in this country is shameful. We should not be doing this. We are actively degrading people’s savings in order to jog fake consumer spending, which does not actually generate innovation.
What generates innovation is investment. What generates innovation is Research and Development.
What generates innovation is not you buying an additional hamburger today. It doesn’t generate the new products and services that make the world a better place.
Powell’s guidance consisted of, “We don’t know. You don’t know. Nobody knows.”
“As is often the case, we are navigating by the stars under cloudy skies,” he stated. “In such circumstances, risk management considerations are critical. At upcoming meetings, we will assess our progress based on the totality of the data and the evolving outlook and risks.” The fact that everybody is now sitting around and reading chicken entrails as to what a bunch of central bankers are going to do with the rates is absurd.
There is a natural rate of inflation. The natural rate of inflation occurs based on products, services, and productivity. There’s a natural rate to lending. Natural interest rates exist. They are different from economy to economy. They are not consistent. They should not be set by any central point.
It is amazing that many of the same free market economic thinkers who understand that no one cadre of people is capable of setting prices in any other area of the American economy believe that there is a cadre of people who should be setting the price of debt. That’s totally insane. The perverse incentive is, if you’re a member of the legislature, you spend endlessly, hoping the Federal Reserve is going to come in like mommy and kiss the boo-boo, which is basically Jerome Powell’s job.
The problem is that everyone else out here who’s trying to invest doesn’t have any idea what Powell is going to do tomorrow. You’re sitting around waiting for this guy to figure out exactly what the plan is for all the rest of our lives. And you don’t have a say in it because it’s not an elected position. The fact that there is not more hue and cry about the outsized powers of the Federal Reserve is absolutely beyond me, especially because it’s not as though the central bankers know what the hell they’re doing.
Whenever we have a small cadre of experts who say that they know exactly what they’re doing, that is almost never the case.