The world we inhabit is undeniably peculiar and becomes increasingly surreal with each passing day. Just when we believe we have witnessed it all, something emerges that unsettles us.
Take Hillary Clinton’s recent appearance, for example. It’s quite alarming—one can hardly comprehend what has transpired. Whatever the cause, it certainly raises eyebrows, and it’s downright unsettling.
Observing the myriad absurdities of our world can provoke both amusement and despair. One moment you might find yourself laughing uncontrollably; the next, you could be left nauseated.
Did you know that the U.S. government disbursed $400 million for federal employees to do absolutely nothing? It’s true, they really did. Additionally, the IRS provided $17.5 million in tax relief for brothels in Nevada. Moreover, $1.23 million of federal funds went to apartments designated for deaf seniors that they ultimately can’t use.
These instances tread the fine line between hilarity and disgust. What kind of reality allocates $592,527 in taxpayer money to study the reasons chimpanzees throw their feces at zoo visitors? This indeed straddles the boundaries of comedy and bewilderment.
Price Fixing
Yet, the most unfathomable absurdities can be found within the realm of monetary policy. In this peculiar world, an unelected official, a nameless board of governors, and five regional bank presidents possess unchecked power to determine the price of the economy’s most vital asset: its currency.
These individuals convene roughly eight times a year to assess the current economic landscape, forecasting its trajectory and deciding where they would like it to go. They then adjust interest rates to shape the financial world according to their vision. At times, they even conjure money from thin air to purchase mortgages and treasury bonds, attempting to steer things in their desired direction.
However, the outcomes frequently lead to chaos. The truth is, there is no definitive way for the intelligence at the Fed to ascertain the appropriate interest rate. Yet, they adhere steadfastly to the belief that more accessible credit benefits the economy.
While lower credit costs might encourage increased borrowing and spending, which can temporarily boost demand and GDP, this is not inherently beneficial. When such growth is built upon a shaky foundation of false demand, it can be detrimental.
Furthermore, this approach creates market distortions. Prices convey essential information, acting as signals that guide individuals and businesses in responding to shifts in supply and demand. When these price signals become overly distorted, the result is often speculative bubbles followed by inevitable busts.
However, the absurdity does not stop there…
In this modern era, Fed policy has devolved into a system that venerates utterances. Wall Street and countless financial institutions hang on every word from the Fed, interpreting them as gospel. While interest rates may not be lowered now, could that change next month? This anticipation resembles worshipful devotion.
Worshiping Utterances
This week, the Federal Open Market Committee (FOMC) convened to finalize their most recent statement. Leading up to this moment, countless analysts speculated on the contents of the announcement. Here’s one article that distilled the crucial phrase down to just two words…
“Since March,” reported MarketWatch, “the Fed has committed to maintaining steady rates for a ‘considerable time’ after the cessation of bond purchases, now expected to conclude in October.
“For the markets, those two words are significant as they indicate the anticipated timeline for rate hikes—predicted to begin in June 2015 by consensus, or possibly as early as March. Rates have remained nearly zero since December 2008.
“Following predictions from Jon Hilsenrath of the Wall Street Journal that the Fed might retain the ‘considerable time’ promise but with caveats, bonds rallied. That day, the 10-year yield dipped to 2.57 percent.
“Bernard Baumohl, global chief economist at The Economic Outlook Group, believes the Fed could eliminate the ‘considerable time’ phrase next week as it prepares for the first rate increase in March.
“Michael Hanson, chief economist at Bank of America Merrill Lynch, noted that while he expects the current language to remain unchanged, it could be a close call.
“The Fed is aware that dropping this language would signal a potential earlier rate hike,” he stated.
“Zach Pandl, a strategist with Columbia Management, warned that there’s a significant risk the Fed might remove the language.
“Retaining the wording could effectively rule out a March hike,” he cautioned.
“If they choose to eliminate the phrase, it would keep the door open for a March rate increase, but without any guarantees,” he added.
“James Glassman, economist at J.P. Morgan Chase, remarked that finding compromise wording to replace it could prove challenging.”
“It’s tough to devise language that satisfies both factions,” he said.
All of this chatter, one must admit, is profoundly absurd. A stable money supply with interest rates determined by the voluntary interactions of borrowers and lenders in a free market would save us all from this madness, while simultaneously stripping the elite of a vital source of power.
Ultimately, Yellen and her colleagues decided to retain the “considerable time” phrase in their statement. Shortly thereafter, both the DOW and S&P 500 soared to record highs. Clearly, this scenario cannot conclude without repercussions.
Sincerely,
MN Gordon
for Economic Prism
