Since the inception of the Federal Reserve System more than a century ago, it has remained an autonomous, independent body that has become more powerful than the Central Intelligence Agency, the National Security Agency and pretty much any other government agency in the world today.
The Fed controls markets, liquidity, interest rates and money supplies without any hesitation from the executive branch of government or the Congress. Essentially, whatever the central bank says the country does without question, discussion or pause. From Charles Hamlin to Daniel Crissinger, from Alan Greenspan to Ben Bernanke, the Fed’s leadership is the real leader of the United States.
Over the past week, there have been numerous reports of rising inflation, despite Fed Chair Janet Yellen alluding to certain market elements that suggest inflation is actually below the central bank’s two percent target rate. The consumer price index (CPI), for instance, was up more than four percent in the month of May.
In other words, as the Economic Policy Journal wrote earlier this week, “there’s no inflation if you don’t eat turkey, eggs, or pork or fruits and vegetables.”
According to economist and Moneynews columnist Peter Morici, this rising inflation and Yellen’s denial of it will lead to the Fed having its independence curbed, something that will be certainly unlikely in the U.S.
“Once inflation gets out of control, history has shown it is difficult to contain without a steep and painful recession. Recognizing these dangers, Yellen’s cognitive dissonance will add new life to proposals in Congress to rein in the Fed’s independence,” wrote Morici. “A bill under consideration would require the Fed to submit to Congress a detailed strategy or rule for the Fed’s policy instruments — for example, targets for money supply growth, lending rates to banks — and essentially handcuff quick Fed responses to emerging crises.”
As history has been witness to, the central bank’s power is never decreased when it loans out trillions of dollars to central banks and financial institutions, formulates harmful bubbles or destroys the economy and markets.
Look at the 1990s, when former Fed Chair Alan Greenspan pumped money into the system and created bubbles, which ultimately popped. The Fed was not reined in. Soon after the economic collapse a few years ago, then-Fed Chair Ben Bernanke was not dismissed or given a reduced position. Instead, he was pretty much provided with a greenlight to destroy the U.S. and its currency.
“Letting inflation fly, and fibbing about it, seems to be Yellen’s imprint on Fed policy, but it will likely impose devastating costs on ordinary Americans,” opined Morici.
He’s right, but there won’t be any consequences for the central bank. As Yellen did prior to and during the Great Recession, she’ll plead ignorance and claim that no one could see a crisis coming.
Outside of housing and domestic autos, the rest of the economy has been doing quite well; that’s why it might be called a “bi-modal” economy,” explained Yellen in 2007. “In summary, I believe that a soft landing is the most likely outcome over the next year or two.
That’s the Federal Reserve System for you. Fed proponents will simply say the board of governors is filled with perspicacious individuals that will move ahead with Keynesian economics and behavioral finance and remedy the problems that were initially imposed by the Fed itself.
Ugh…
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