Why Ronald Reagan Is Rolling In His Grave: The Keynesian Putsch At The Fed

Ronald Reagan is surely rolling in his grave. He is credited for much that he didn’t actually accomplish on the economic front, but his most singular real victory—-decisive repudiation of the Keynesian macro-economic policy model that had produced stagflationary havoc for more than a decade—-overshadows all his fiscal failures and the urban legend that he actually tamed Big Government.

Needless to say, however, that 35-year ago repudiation has now been itself completely repudiated by the keynesian apparatchiks who presently rule the Eccles Building. Yesterday Janet Yellen was at it again, displaying outright contempt for the Gipper’s crowning achievement.

To that end, she announced that interest rates will remain pegged at zero until at least September. That is, the Fed will continue to dispense free money to Wall Street gamblers for what will now be 80 months running.

This lunacy is purportedly necessary to accommodate economic recovery, even if it does fuel the fires of financial speculation. Indeed, one of the Fed’s faithful MSM flaks, Greg Ip of the Wall Street Journal, said as much in a hot off the press column obviously written in the Eccles Building:

There is certainly ample evidence that low rates have fueled speculation, such as higher home and stock prices……This, however, is not automatically a reason to raise rates. The Fed must weigh the benefits of lower unemployment against the probability and potential severity of a (financial) crisis later.

Indeed. This kind of semi-coherent jabbering was front and center during yesterday’s presser by the school marm who has become the nation’s financial suzerain. The fact that it was applauded by Wall Street and Washington alike baldly demonstrates that Reagan’s victory over keynesianism has been wholly reversed. And in the most dangerous manner imaginable.

To be specific, the old-style “fiscal Keynesianism” was rejected fair and square by the process of political democracy. This was the core issue of the 1980 and 1984 elections—-a referendum that was reinforced again and again by the Congressional fiscal policy deliberations of the Reagan era.

Yet during the subsequent decades—–beginning with Alan Greenspan’s appointment to the Fed in 1987—this anti-Keynesian verdict has been subverted by conversion of the doctrine to a central banking modality. It was then migrated to the Eccles Building—— safely out of the reach of the democratic electorate.

In this new domicile, the Keynesian professors and monetary policy apparatchiks, along with their Wall Street henchmen, have seized the levers of power, functioning as unelected monetary gauleiters. That Yellen & Co believe they are in charge of virtually everything on the main street economy and that their writ—-based on nothing more than their own subjective and unexplained wisdom—-now reigns supreme could not have been better expressed than by this ukase from the Fed chair person herself:

Obviously we have to look at the pace of job creation, we have to look at what’s happening to labor force participation, to part time employment for economic reasons, to job openings, to the pace of quits, to wage inflation and other indicators of the state of the labor market. I did say when we agreed that labor markets slack has diminished to some extent, in the inter-meeting period and clearly over a longer span of time over the last several years, obviously we have made considerable progress in moving towards our goal of maximum employment. So in spite of the fact that there is some progress on that front the committee wants to see some further progress before feeling that it will be appropriate to raise rates.”

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David Ahmanson 6 years ago Member's comment

Awesome! Must read, a bigger crisis is coming! And note: the one percent is benefiting by the current horror. I just hope the dollar will collapse in time for the next election.