In 2008, power over our financial markets and economy was ceded to the Federal Reserve and it's “extraordinary monetary policy.” Perhaps its time to scale it back.
When the money is fake, the rest of the economy is doomed to follow.
The problem is that they CAN'T just shut off the money faucet because now the "economy" relies on it. And as any fan of history knows, when the fake economy of getting rich by being close to the literal money-making machine overtakes the real economy of mutually exchanging goods and services, the wheels come off the bus.
“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency involved.”
This is the trick from the bankers' perspective -- how do they 'manage' the collapse so that they're also in charge of the next fiat system doomed to failure?
Decades of academia believing in economic fairy-tales sets these bankers as the authorities to the certified idiots among us. “It’s greed or late-stage capitalism!” Never thinking that it’s the degradation of the monetary unit or that the government is picking winners and losers. It’s truly the privatization of profits and the socialization of losses when bailouts save the owner-class from terrible decisions.
Politicians, bankers and "economists" have repeatably proven that their opinions about monetary policy aren't to be trusted. During the 2008 crisis, the oft repeated mantra was that a bail out, without question, was needed. The troubled institutions were deemed "to large to fail", when in fact, that was exactly what was needed. The bail out, of course, disrupted the the laws and basis of a true capitalist system, supply vs. demand. The effects are ongoing and I don't feel optimistic for the average citizen.
The "money faucet" (by which I assume you mean the "money supply") does not matter except to the extent that it impacts the real value of the dollar. For the past 235 years, the CRB Index (which closed at 293.61 today) has been a "good enough" indicator of the real value of the dollar. The CRB Index has been 300 +/- 5% for more than a year, which is exactly where I believe that it should be. So, the "money faucet" is not our problem right now.
Eric Salzman pretends that a reasoned and measured debate is afoot in this administration about the pros and cons about assuring there is more accountability for the Fed. Of course, the real discussion goes something like this, hey, let’s install a lackey of the president, maybe a Fox newscasters, who looks the part. Let’s effectively hand the levers of the Fed to a president who has managed to squander half a billion dollars his daddy gave him on stupid and I’ll advised deals that went belly up. Let’s hand the levers of the economy to a man, who if left to his own devices will step full force on the accelerator and take the nation’s economy on a wild joy ride to massage his fragile ego. There is a model for this, of course, it’s Peron’s Argentina, it’s Putin’s Russia, it’s Kim Jong Uns North Korea. Interesting also that now Salzman seems content to place the blame for inflation squarely on the Fed, while blithely ignoring the wild roller coaster ride of tariffs imposed by a president who still thinks we’re in 1982.
Funny you should mention that, Trump is trying to emulate Maduro as the American caudillo. We’ll all be living in Venezuela soon if he controls the Fed.
I had a feeling you’d respond. Those who lurk into places they disdain get riled up easily. Funny how those from this side stay away from conflict. Your side welcomes it.
I have been in the restaurant business for twenty years. If I ran my restaurants like this I would have been out of business in a year and probably be looking at jail time. Our economy is based on the consumer. The result of all of this Fed crap is inflation that we have now.
The Lords of Easy Money gives a good history of the Fed policies that got us here and how it massively enriched the affluent investor class at the expense of the average American.
The current system is badly broken but how it can be fixed is a very tough question.
its an easy answer, it just takes courage that groupthinking bureaucrats dont have. Namely, higher interest rates & some check on congressional deficit spending. Bureaucrats hate high rates & spending cuts. its a conflict of interest.
I think the issue goes back to the dual mandate, which was established in 1977. Well-meaning in concept, it said the Fed was required to manage both inflation and unemployment. Sounds reasonable, but the unintended consequences of this were something else.
In practice, the dual mandate meant the Fed had to keep the pedal to the metal as long as goods and services inflation remained under control. This created the mother of all bull markets in financial assets. Instead of "too much money chasing too few goods" we had "too much money chasing too few assets"
Indeed, after the dual mandate, we had bubbles in commodities (early 80s), stocks (late 90s) and residential real estate (mid 00s). When the residential real estate bubble burst, the Fed pushed interest rates to the floor, but growth didn't improve (the classic liquidity trap).
Buying MBS during the 2008 bust may have made sense, in order to get more houses to change hands and let the market clear. But during COVID, it added fuel to the residential real estate market, which is why we have such an affordability crisis.
They say generals always fight the last war, and Powell did that in 2020, treating a temporary pandemic-driven slowdown like a burst residential real estate bubble.
But blame the dual mandate for the gain-of-function monetary policy.
It was comical watching "Biden" being hamstrung from blaming inflation on QE, even though Elementary School math made the impact observable. One reason "Biden" couldn't say it out loud is because it would have reflected badly on his boss, B. Hussein O., which is never allowed under any circumstance.
Also Biden's plan was to zap up another couple trillion dollars to pay for another huge boondoggle -- can't very well do that while you're admitting that printing money causes inflation.
Probably the best synopsis I've read what the Fed has done from the Great Recession on with QE, interest rates, etc.
As far as Presidents pressuring Fed Charimen to lower interest rates I always think of LBJ when he summoned Fed Chairman, Bill Martin, to his Texas ranch office and pushed him around the office and up against a wall threatening him to lower interest rates. Pure old school. https://mises.org/mises-wire/when-lbj-assaulted-fed-chairman
Audit the Fed, make e v e r y t h i n g public, and then let’s have that conversation. How can meaningful conversation happen without a thorough, public vetting of the situation?
Thanks, Eric, a couple of points. I would disagree with:
1) artificially low mortgage rates were not a “positive”. They artificially increased the price of houses, favoring buyers with higher incomes and/or larger down payment payments.
2) it’s a well propagated myth that home ownership should be thought of as a source of wealth creation. Owning a home has only created excess wealth because of our persistent inflation over decades. Housing is housing. It’s where people live. In spite of the propaganda, there’s no obvious reason people should own homes versus renting. I’m not saying I favor one or the other and personally, I’d rather own a home, but I’m fortunate enough to be able to afford to do so.
The same entities that caused the environment from which ZIRP was born are the same entities which benefited the most from it (and continue to benefit contra).
The Federal Reserve wields too much power to be “independent.” It is too easily corruptible because it is too small and unspecialized. The people who are governors need to be more autistic than Rainman. As governors, Comparing Lisa Cook to Stephen Miran, for example, is embarrassing.
Yea and then what happened. If we start running down this list you just end up in an endless number of extremely bad financial decisions that were done - at the time - to keep a bunch of really rich people richer.
We need PE ratios and atomic measures of success and failure as well as short side markets - because of, uh, insurance and performance. Right. That’s how it’ll all be used. For insurance by the hard workers planting corn. Imagine all of this man. And performance? It’s a solid measure don’t worry.
Imagine you take a Time Machine back in time and tell one of these geniuses, hey, did you know that you can make fractional bets on the closing price of the broader market on a daily basis? Hourly? But don’t worry because to be able to do that is zero sum *wink wink* gotta own the underlying.
Anyway yea, the banks with the algos turning into super intelligent AI making decisions at the millisecond level own all the underlying.
This is a timely article on an important subject. For the best insight IMO, go to Brent Nyitray's comment nearby. The dual mandate (stable prices AND low unemployment) just doesn't work. President Carter and Congress didn't want to deal with the fiscal issues that stress the economy, so they offloaded the "full employment" mandate to the Fed, which does not have the tools for this. This is what has caused the money printing, the QE, ALL of the Fed's excesses - it's their legislated duty, yet they have no control over things like spending and taxes. When unemployment rises, they are forced to print excess money. To avoid recessions, we just pile up debt for our grandkids, unfortunately to a level that our Republic may not be able to overcome.
Another excellent comment was Asa Plinches observation. Sorry conspiracy theorists, but Wall Street did not cause the crash in 2008 - government policy did, and Wall Street took full advantage of the government's dumb but legal policies (remember "liar loans?" Remember Finance Chair Barney Frank saying "Let's roll the dice!"?). That's what markets do.
As others here have pointed out, excess money creation has inflated assets - that's why the markets keep rising and why housing prices have gone up so much. It's not our genius as investors (I hope you are investing) and it's certainly not genius on the part of our elected officials. It's excess money creation.
Abolishing the Fed is a dumb idea. We have one of the most stable currencies in the world. Do you want to put people like Biden and Trump in charge of money supply? I don't.
Sorry, Matt, the "Wall Street firms that caused the 2008 financial crisis" did not cause it --though they helped it along. The Federal Government (with the help of the Federal Reserve) policy of pushing for home ownership via the Community Reinvestment Act caused it. See Peter Wallison's excellent book (Hidden in Plain Sight). "This book extensively documents this view. For example, it shows that in June 2008, before the crisis, 56 percent of all US mortgages were subprime or otherwise low-quality. Of these, 76 percent were on the books of government agencies such as Fannie Mae and Freddie Mac. When these mortgages defaulted in 2007 and 2008, they drove down housing prices and weakened banks and other mortgage holders, causing the crisis."
Not that simple. The crisis was a perfect storm of mistakes made over decades whose purpose was to rob the poor and exploit the unsuspecting. This is always the game. And it's always played in the name of FREEDOM! Any time you have a massive wealth transfer, there will be a host of "competing" narratives created to confuse people as to its cause. Whose to blame? Apparently, no one. Or at any rate, not me.
In a sane country, which we have never experienced, there would be no such monster as the Fed. That system was a Capitalist contrivance organized so that a quasi-private entity could actually loan money to its own government which is absurd on its face. Sanity would put the creation of money exclusively in the hands of the Treasury and cut out all the ludicrous and criminal chicanery of the various bloodleeching Capitalist devices for fucking the public. This, of course, will never be as Capitalism forbids any concern for people from obstructing its larceny and theft. It is the bane of the world and has given us the sickening goat's nest we have today in The Empire and across the world.
This is not capitalism, it's corporatism, which is another animal entirely. In genuine capitalism, there would be no government leverage, no federal picking of "winners" and "losers," no such thing as "too big to fail."
A meaningless distinction. There is no classic Capitalism, evil as it was, and hasn't been for a lifetime. Do you presume to defend a dead thing? What's your point?
I don't like the idea of state governors appointing their district's the board of directors. First, all of the state governors in the Northeast are lunatics. Second, all of the state governors along the Western coast of the US are lunatics. Third, the territories of the regional banks are not defined by state boundaries. For example, northern New Jersey is covered by the Federal Reserve of New York while southern New Jersey is covered by the Federal Reserve of Philadelphia. That would give a lunatic like NJ Governor Phil Murphy influence over 2 of the 12 regional banks. We should be working to give the lunatics less influence, not more.
When the money is fake, the rest of the economy is doomed to follow.
The problem is that they CAN'T just shut off the money faucet because now the "economy" relies on it. And as any fan of history knows, when the fake economy of getting rich by being close to the literal money-making machine overtakes the real economy of mutually exchanging goods and services, the wheels come off the bus.
“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency involved.”
- Ludwig von Mises
This is the trick from the bankers' perspective -- how do they 'manage' the collapse so that they're also in charge of the next fiat system doomed to failure?
Decades of academia believing in economic fairy-tales sets these bankers as the authorities to the certified idiots among us. “It’s greed or late-stage capitalism!” Never thinking that it’s the degradation of the monetary unit or that the government is picking winners and losers. It’s truly the privatization of profits and the socialization of losses when bailouts save the owner-class from terrible decisions.
Precise description of "too big to fail."
And I now see Jamie Dimon saying he can work with communist Mamdani should he be elected as mayor of NYC.
Historically, commies are easy to bribe.
He’s the same guy who indicated the government should use eminent domain to seize private property for climate change purposes.
It’s nice to be in charge of the rationing I guess
I am pretty sure that Trump is a fan of "intimate" domain..I call it that because someone always get screwed.
Yeah...Jamie doesn't have/want to move to Miami.
Thank you Commander for the Question,
In Greece they made Solon Commander and Chief after the bankers screwed the economy. Solon was the Philosopher King and a Socratic not a Sophist.
Trump's truth is everything he says is bullshit. It is the old tale of the boy who cried wolf.
https://www.britannica.com/biography/Solon
Politicians, bankers and "economists" have repeatably proven that their opinions about monetary policy aren't to be trusted. During the 2008 crisis, the oft repeated mantra was that a bail out, without question, was needed. The troubled institutions were deemed "to large to fail", when in fact, that was exactly what was needed. The bail out, of course, disrupted the the laws and basis of a true capitalist system, supply vs. demand. The effects are ongoing and I don't feel optimistic for the average citizen.
As long as the final and total catastrophe comes after I'm dead. But I'm older, you need to fend for yourself.
The whole stinking thing is a Racket! Replacing smarmy schoolmarmy Powell won’t change that.
The "money faucet" (by which I assume you mean the "money supply") does not matter except to the extent that it impacts the real value of the dollar. For the past 235 years, the CRB Index (which closed at 293.61 today) has been a "good enough" indicator of the real value of the dollar. The CRB Index has been 300 +/- 5% for more than a year, which is exactly where I believe that it should be. So, the "money faucet" is not our problem right now.
Audit the Fed/END THE FED. This has been a 100 year failed experiment.
Not for those for whom it works.
Eric Salzman pretends that a reasoned and measured debate is afoot in this administration about the pros and cons about assuring there is more accountability for the Fed. Of course, the real discussion goes something like this, hey, let’s install a lackey of the president, maybe a Fox newscasters, who looks the part. Let’s effectively hand the levers of the Fed to a president who has managed to squander half a billion dollars his daddy gave him on stupid and I’ll advised deals that went belly up. Let’s hand the levers of the economy to a man, who if left to his own devices will step full force on the accelerator and take the nation’s economy on a wild joy ride to massage his fragile ego. There is a model for this, of course, it’s Peron’s Argentina, it’s Putin’s Russia, it’s Kim Jong Uns North Korea. Interesting also that now Salzman seems content to place the blame for inflation squarely on the Fed, while blithely ignoring the wild roller coaster ride of tariffs imposed by a president who still thinks we’re in 1982.
I think you’d be happier in Venezuela.
Funny you should mention that, Trump is trying to emulate Maduro as the American caudillo. We’ll all be living in Venezuela soon if he controls the Fed.
I had a feeling you’d respond. Those who lurk into places they disdain get riled up easily. Funny how those from this side stay away from conflict. Your side welcomes it.
The latter. Money is 1/2 of all transactions, fucking with its price (interest rates) spells doom. Audit-shmaudit.
No, bad idea. See Brent Nyitray's comment, or mine.
I have been in the restaurant business for twenty years. If I ran my restaurants like this I would have been out of business in a year and probably be looking at jail time. Our economy is based on the consumer. The result of all of this Fed crap is inflation that we have now.
and the debt.
Not to mention all the horrific shit they did with the newly printed cash. Wars top the list but the list is long.
Good article.
The Lords of Easy Money gives a good history of the Fed policies that got us here and how it massively enriched the affluent investor class at the expense of the average American.
The current system is badly broken but how it can be fixed is a very tough question.
its an easy answer, it just takes courage that groupthinking bureaucrats dont have. Namely, higher interest rates & some check on congressional deficit spending. Bureaucrats hate high rates & spending cuts. its a conflict of interest.
Can't be fixed. Western Civilization is unsustainable. The whole thing has to be plowed under, dunged, and laid fallow for at least a few decades.
Not so tough. See comments about eliminating the dual mandate.
I think the issue goes back to the dual mandate, which was established in 1977. Well-meaning in concept, it said the Fed was required to manage both inflation and unemployment. Sounds reasonable, but the unintended consequences of this were something else.
In practice, the dual mandate meant the Fed had to keep the pedal to the metal as long as goods and services inflation remained under control. This created the mother of all bull markets in financial assets. Instead of "too much money chasing too few goods" we had "too much money chasing too few assets"
Indeed, after the dual mandate, we had bubbles in commodities (early 80s), stocks (late 90s) and residential real estate (mid 00s). When the residential real estate bubble burst, the Fed pushed interest rates to the floor, but growth didn't improve (the classic liquidity trap).
Buying MBS during the 2008 bust may have made sense, in order to get more houses to change hands and let the market clear. But during COVID, it added fuel to the residential real estate market, which is why we have such an affordability crisis.
They say generals always fight the last war, and Powell did that in 2020, treating a temporary pandemic-driven slowdown like a burst residential real estate bubble.
But blame the dual mandate for the gain-of-function monetary policy.
It was comical watching "Biden" being hamstrung from blaming inflation on QE, even though Elementary School math made the impact observable. One reason "Biden" couldn't say it out loud is because it would have reflected badly on his boss, B. Hussein O., which is never allowed under any circumstance.
Also Biden's plan was to zap up another couple trillion dollars to pay for another huge boondoggle -- can't very well do that while you're admitting that printing money causes inflation.
Probably the best synopsis I've read what the Fed has done from the Great Recession on with QE, interest rates, etc.
As far as Presidents pressuring Fed Charimen to lower interest rates I always think of LBJ when he summoned Fed Chairman, Bill Martin, to his Texas ranch office and pushed him around the office and up against a wall threatening him to lower interest rates. Pure old school. https://mises.org/mises-wire/when-lbj-assaulted-fed-chairman
Yeah, LBJ was really something. Like you say, old school.
Audit the Fed, make e v e r y t h i n g public, and then let’s have that conversation. How can meaningful conversation happen without a thorough, public vetting of the situation?
Sounds like a bunch of rich people playing money games and minting new acronyms to make themselves richer.
Thanks, Eric, a couple of points. I would disagree with:
1) artificially low mortgage rates were not a “positive”. They artificially increased the price of houses, favoring buyers with higher incomes and/or larger down payment payments.
2) it’s a well propagated myth that home ownership should be thought of as a source of wealth creation. Owning a home has only created excess wealth because of our persistent inflation over decades. Housing is housing. It’s where people live. In spite of the propaganda, there’s no obvious reason people should own homes versus renting. I’m not saying I favor one or the other and personally, I’d rather own a home, but I’m fortunate enough to be able to afford to do so.
The same entities that caused the environment from which ZIRP was born are the same entities which benefited the most from it (and continue to benefit contra).
The Federal Reserve wields too much power to be “independent.” It is too easily corruptible because it is too small and unspecialized. The people who are governors need to be more autistic than Rainman. As governors, Comparing Lisa Cook to Stephen Miran, for example, is embarrassing.
Debtors love inflation because it reduces the real cost of their debt.
And nobody is more in debt than the US government.
Ya except it’s Monopoly money we’re playing with in that realm because all the world’s a stage… of USD reserves.
This is why the founders said only silver and gold.
Not to maximize GDP, but to stop the bankers and government from colluding to print the wealth out from under us.
Yea and then what happened. If we start running down this list you just end up in an endless number of extremely bad financial decisions that were done - at the time - to keep a bunch of really rich people richer.
We need PE ratios and atomic measures of success and failure as well as short side markets - because of, uh, insurance and performance. Right. That’s how it’ll all be used. For insurance by the hard workers planting corn. Imagine all of this man. And performance? It’s a solid measure don’t worry.
Imagine you take a Time Machine back in time and tell one of these geniuses, hey, did you know that you can make fractional bets on the closing price of the broader market on a daily basis? Hourly? But don’t worry because to be able to do that is zero sum *wink wink* gotta own the underlying.
Anyway yea, the banks with the algos turning into super intelligent AI making decisions at the millisecond level own all the underlying.
It’s totally not a casino. Those are less rigged.
This is a timely article on an important subject. For the best insight IMO, go to Brent Nyitray's comment nearby. The dual mandate (stable prices AND low unemployment) just doesn't work. President Carter and Congress didn't want to deal with the fiscal issues that stress the economy, so they offloaded the "full employment" mandate to the Fed, which does not have the tools for this. This is what has caused the money printing, the QE, ALL of the Fed's excesses - it's their legislated duty, yet they have no control over things like spending and taxes. When unemployment rises, they are forced to print excess money. To avoid recessions, we just pile up debt for our grandkids, unfortunately to a level that our Republic may not be able to overcome.
Another excellent comment was Asa Plinches observation. Sorry conspiracy theorists, but Wall Street did not cause the crash in 2008 - government policy did, and Wall Street took full advantage of the government's dumb but legal policies (remember "liar loans?" Remember Finance Chair Barney Frank saying "Let's roll the dice!"?). That's what markets do.
As others here have pointed out, excess money creation has inflated assets - that's why the markets keep rising and why housing prices have gone up so much. It's not our genius as investors (I hope you are investing) and it's certainly not genius on the part of our elected officials. It's excess money creation.
Abolishing the Fed is a dumb idea. We have one of the most stable currencies in the world. Do you want to put people like Biden and Trump in charge of money supply? I don't.
Solution: abolish the dual mandate.
Biden or Trump in charge of money supply? A great image for Halloween!
Can you imagine? Biden would stuff a wad of bills in your pocket, and Trump will hand you a free "Trump Watch".
Sorry, Matt, the "Wall Street firms that caused the 2008 financial crisis" did not cause it --though they helped it along. The Federal Government (with the help of the Federal Reserve) policy of pushing for home ownership via the Community Reinvestment Act caused it. See Peter Wallison's excellent book (Hidden in Plain Sight). "This book extensively documents this view. For example, it shows that in June 2008, before the crisis, 56 percent of all US mortgages were subprime or otherwise low-quality. Of these, 76 percent were on the books of government agencies such as Fannie Mae and Freddie Mac. When these mortgages defaulted in 2007 and 2008, they drove down housing prices and weakened banks and other mortgage holders, causing the crisis."
Asa, the author of this article, like most Racket pieces on monetary policy, is Eric Salzman, not Matt Taibbi.
Not that simple. The crisis was a perfect storm of mistakes made over decades whose purpose was to rob the poor and exploit the unsuspecting. This is always the game. And it's always played in the name of FREEDOM! Any time you have a massive wealth transfer, there will be a host of "competing" narratives created to confuse people as to its cause. Whose to blame? Apparently, no one. Or at any rate, not me.
Free money! What could possibly go wrong? We're all gonna get RICH!!!!
https://rumble.com/v1zqhyn-camachojobs.html
In a sane country, which we have never experienced, there would be no such monster as the Fed. That system was a Capitalist contrivance organized so that a quasi-private entity could actually loan money to its own government which is absurd on its face. Sanity would put the creation of money exclusively in the hands of the Treasury and cut out all the ludicrous and criminal chicanery of the various bloodleeching Capitalist devices for fucking the public. This, of course, will never be as Capitalism forbids any concern for people from obstructing its larceny and theft. It is the bane of the world and has given us the sickening goat's nest we have today in The Empire and across the world.
This is not capitalism, it's corporatism, which is another animal entirely. In genuine capitalism, there would be no government leverage, no federal picking of "winners" and "losers," no such thing as "too big to fail."
A meaningless distinction. There is no classic Capitalism, evil as it was, and hasn't been for a lifetime. Do you presume to defend a dead thing? What's your point?
You’re very confused if you think Capitalism is evil.
You're a propagandized, hoodwinked imbecile.
No matter how long it has not been used, Latin is not classical Greek, and it is useless as well as inapt to call it so.
Is this supposed to be a riposte to anything in particular? Do you have a thought process? Are you able to follow an argument?
I don't like the idea of state governors appointing their district's the board of directors. First, all of the state governors in the Northeast are lunatics. Second, all of the state governors along the Western coast of the US are lunatics. Third, the territories of the regional banks are not defined by state boundaries. For example, northern New Jersey is covered by the Federal Reserve of New York while southern New Jersey is covered by the Federal Reserve of Philadelphia. That would give a lunatic like NJ Governor Phil Murphy influence over 2 of the 12 regional banks. We should be working to give the lunatics less influence, not more.