E Fed Must Stay Independent By Bailing Out The People

The Federal Reserve's independence is being threatened. The Fed brought this threat upon itself, because it did not trust Milton Friedman, but rather increased the wealth divide by pursuing QE instead. Had the Fed trusted Milton Friedman, it would have bailed out the people with Helicopter Money. At the very least, the Fed would have backstopped small  and medium business and pursued an expansionist policy with regard to the real economy and not just to save the banks.

The Fed is facing ideas put forth by Donald Trump and Steve Bannon. Bannon's ideas are very dark and I will comment further at the end of this article.

The Fed had already incurred the wrath of many because it liquidated the entire economy in the Great Recession as it took down the housing bubble. (It also liquidated the economy in the Great Depression).

It is difficult to know what POTUS and a Congress controlled by the Republicans now want from the Fed. The new administration will likely not get the large infrastructure package it wants from Congress. If that turns out to be true, it will likely want more out of the Fed.

It may not want Fed to take down the stock market without making significant efforts to establish a floor under the full economy. The Fed failed to respond properly when the stock market crashed in the Great Depression and failed to respond properly when the housing market crashed in the Great Recession.

I have written about how the Bank of England seems much better prepared to keep the economy afloat while popping bubbles. I said this about the BOE compared to the Fed regarding the Great Recession. The BOE faced easy lending similar to liar loans in the USA:

It is pretty clear that the Bank of England, limited unemployment due to an expansionary monetary policy. One thing that could be said is that house prices did not decline like in the USA. It appears that UK monetary policy may have helped lessen the decline in house prices in the UK. The Bank of England acted with dispatch and the Fed did not.

The UK guaranteed loans to small and medium businesses. The US government and Federal Reserve did no such thing. That was a huge mistake and led to mass layoffs in the USA.

We know monetary policy between the subprime crash of 2007 and the HELOC crash in 2008, the USA did not have the Fed intervention in buying subprime paper. We know that subprime paper in the USA was forced back onto the balance sheets of the banks and then not supported by the Fed. It appears that the Bank of England did support continued lending in a way that the Fed did not. 

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Disclosure: I am not an investment counselor nor am I an attorney so my views are not to be considered investment advice.

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