Nothing Changes At The Fed

The statement may sound mildly obvious given that Jerome Powell has been nominated to continue his reign as head of the world's most visible central bank. Some might think this is a good thing; and will allow the Fed to steer a course that will bring our economy back from the living dead.

Image Source: Pixabay

There are others who believed (and still do) that a change in leadership(?) is needed. If you are one of those who think it matters who the Fed Chair is, then you are not paying attention.

Four years ago President Trump nominated Jerome H. Powell as the new Chairman of the Federal Reserve Bank. At the time, I said the following:

"Don't look for much to change. And Janet Yellen's announcement that she will resign from the board upon Mr. Powell's induction as board chair is pretty much a non-event.

Where we are today is the culmination of decades of irresponsible financial/fiscal policies and a complete abdication of fundamental economics.                                                                     

That should not be a surprise. The self-proclaimed purpose of the Federal Reserve Bank is to manage the economic cycles. This is an impossibly presumptive task and a violation of fundamental economic theory.

In addition, the Federal Reserve Bank is also charged with ensuring the financial operation of the US Government.  Or, in other words, maintaining their (the U.S. Government's) ability to borrow money by issuing more and more debt in the form of Treasury securities." (see New Fed Chairman, Same Old Story)

The Fed Creates Inflation

Whether the Fed Chairman is Greenspan, Yellen, or Powell makes no difference. The Federal Reserve has been creating inflation intentionally for more than one hundred years by continually expanding the supply of money and credit.

This is done so that banks can do what they do best - lend money and collect interest.

On the surface, that may not sound so bad. The problem is that the effects of the inflation created by the Fed are cumulative, volatile, and unpredictable.

Again, from the same article cited above...

"Currently, the Fed is attempting to steer a course between two alternatives; neither of which is acceptable. Hence, we get incremental, irregular increases in the discount rate coupled with efforts to begin (passively) to unwind their massive balance sheet.

There is an additional problem.  The Fed knows that the reason they are falling short of their intended 2% inflation target is that their efforts at priming the pump are not having the intended effect.  Each successive infusion of money and cheap credit has less and less impact. The patient is showing signs of rejection." 

The Fed is fighting the same battle today. The difference is that the unpredictable effects of inflation have shifted beyond the upper boundaries of the intended inflation target and have lasted long enough to provoke amplified concern.

Fed Action Based On Guesswork

The Fed does not know, nor can they predict with any degree of accuracy, what the effects of their actions will be...

"I discovered a flaw in the model that I perceived is the critical functioning structure that defines how the world works. I had been going for 40 years with considerable evidence that it was working exceptionally well." (Former Fed Chair Alan Greenspan testifying before Congress after the credit implosion of 2007-08)

Treasury Secretary Yellen told us when she was still Board Chair at the Federal Reserve that "another financial crisis is unlikely in our lifetime because of the measures the Fed has taken".  

What were those measures? However reassuring her words sounded, they did not forestall the crash of the financial markets and the economy less than three years later in 2020.

The Federal Reserve also caused the stock market crash which ushered in The Great Depression, and they have admitted it.

Conclusion

Financially and economically, the US and the world is at the cliff's edge. We were brought to this point courtesy of the Federal Reserve and modern central banking.

Why should we expect them to save us when their purpose is not aligned with ours?

Besides, they cannot do anything to avoid the ugly consequences of their actions. Sooner or later, financial and economic collapse is inevitable. (also see Federal Reserve And Long Term Debt and Federal Reserve - Conspiracy Or Not?)