“Every man is a consumer, and ought to be a producer,” remarked Ralph Waldo Emerson, the renowned 19th-century philosopher. “He is by constitution expensive, and needs to be rich.”
In our current climate, Emerson’s insight applies more than ever, yet it takes on a troubling dimension. Many consumers, who lost their livelihoods due to government lockdowns, have ceased to produce, yet their consumption persists. They remain costly, but far from wealthy.
This consumption, alarmingly, isn’t rooted in personal savings or even government aid. Instead, it relies on monetary expansion through the printing press.
Undoubtedly, Emerson lacked our contemporary perspective. He didn’t witness his government dismantling the economy with breathtaking speed. Perhaps, had he observed such events, he would have crafted a concise axiom to encapsulate our current reality.
The modern world starkly contrasts Emerson’s time. The 19th century thrived on honest currency, untouched by central bankers.
The concept of printing money to purchase bonds or stocks, let alone distribute it to the populace, would have been swiftly rejected. The Continental Congress learned this lesson the hard way during the American Revolution; excessive issuance of their paper “continentals” proved disastrous.
Today, however, the practice of printing money is viewed as a sophisticated approach to central banking. Policies like inflation targeting, zero interest rate policy (ZIRP), direct bond acquisitions, yield curve manipulation, and unlimited credit are just a few examples of the measures central bankers are taking.
Despite their good intentions, the actions of central bankers in 2020 and beyond have resulted in chaos. So where do we start?
Pure Arrogance
During the Great Recession, the expansion of the money supply largely benefited the financial sector through ZIRP and Treasury purchases. This led to a surge in the prices of stocks, bonds, and real estate, outpacing wage growth considerably. Those who held financial assets, primarily the affluent, reveled in wealth inflated by the Fed, while wage earners and savers were left with little to show for their efforts.
The money supply expansion during the 2020 bailouts, facilitated by the Fed’s Primary and Secondary Market Corporate Credit Facilities (PMCCF and SMCCF), similarly inflated financial assets. This time, however, bailout funds were also funneled into the real economy via stimulus checks and unemployment benefits, aiming to cushion the devastating effects of widespread job losses and business closures.
According to the Bureau of Labor Statistics, the consumer price index (CPI) rose by 1 percent over the preceding year. Here at the Economic Prism, we advocate for a stable money supply devoid of price inflation. But what do we know? Our perspective differs from that of central planners.
These central planners, armed with the right academic credentials, are intent on maintaining an expanding money supply. They aim for moderate inflation, believing that a mere 1 percent increase is insufficient to alleviate the burdens of ever-mounting debt. This desire, coupled with their belief in their capability to achieve it, reflects sheer arrogance.
Your Figuring Central Planners At Work
Though central planners repeatedly fail to achieve their inflation targets, their scattershot interventions wreak havoc on the economy. Assuming they could target the correct rate of inflation, what number would they select?
This very question has occupied the central planners at the Fed, who have reportedly been working diligently to finalize their response. Fed Chair Jerome Powell promised an update in the imminent future, hinting at a September announcement.
What might this new policy entail? Will it introduce radical shifts? Are we on the brink of a new chapter of dollar devaluation?
We await these developments with bated breath. Meanwhile, some clues have emerged. Following a period of introspection, Dallas Fed President Robert Kaplan expressed:
“I would be willing to see inflation run moderately above 2 percent in the aftermath of periods where we’ve been running persistently below.”
Before his position at the Dallas Fed, Kaplan was a Senior Associate Dean at Harvard Business School and spent over two decades at Goldman Sachs, where he claimed to be doing God’s work.
It’s unfortunate that he never penned a book titled: How to Not Be a Moron. Such a work might have been beneficial. Moments after suggesting his willingness “to see inflation run moderately above 2 percent,” he, unfortunately, followed up with this meandering equivocation:
“I’m not making a commitment of what we’re going to do; I’m basically suggesting a tendency or likelihood, but it’s going to be subject to conditions we find, and we’re going to have to adapt to those conditions.”
And there you have it, folks—your central planners in action.
Sincerely,
MN Gordon
for Economic Prism
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