Donor Matching Funds Announced!

A generous donor has offered to match all contributions dollar-for-dollar for the next $10,000 raised, doubling the impact of your donation and helping us reach our fundraising goal faster.

$11,865 of $60,000 raised

And the Winner Is…Not You

by | Feb 22, 2024

And the Winner Is…Not You

by | Feb 22, 2024

federal reserve symbol on a black background

Of all the government or quasi-government institutions, there is perhaps none as openly opaque in its operations and unaccountable for its failures as the Federal Reserve. For, unlike its top rivals for this most dubious of distinctions, like the CIA, NSA, or DOD, which do their law bending and money wasting largely of sight and out of mind, the nation’s money supply is so ubiquitous, so ever-present in the lives of the ordinary person that its activities must of necessity take place before the public eye. Hence, the gradual development of Fed Speak; that is, the art of speaking so technocratically that none but the most arcanely initiated have any hope of understanding what is being said or done.

Consider a few commonplace examples, which one can find in the regularly published minutes of the Federal Reserve’s meetings:

The Fed will “conduct overnight reverse repurchase agreement operations at an offering rate of 0.8 percent and with a per-counterparty limit of $160 billion per day,” and further “engage in dollar roll and coupon swap transactions as necessary to facilitate settlement of the Federal Reserve’s agency MBS transactions.”

Mm-hm. Yes. Indeed—perfectly clear.

Translated: the Fed intends to “buy and then sell back at a set date and price any qualifying security from any qualifying corporation or institution,” essentially, a futures contract meant to help operations that are either illiquid or overleveraged stay in business; and, further towards that end, the Fed intends to “continue to sell short various portions of its now nearly $3 trillion in mortgage backed security holdings,” again in an effort to help illiquid or highly levered dealers and traders of these securities stay liquid.

That Fed Speak elides more than it illuminates is, of course, intentional and operates on a number of levels: first, no ordinary person understands any of this; second, those who do understand benefit from these arrangements, i.e. the major banks, and consequently love it and have lobbied for it; and, lastly, the above combination along with their desire to pass the buck to anyone else means your congressional reps have no interest in intervening with the Fed’s activities, even when it blatantly violates the rules Congress put in place when it set the Federal Reserve up—all Fed purchases having been statutorily mandated to occur in the “open market,” that is at market prices (i.e. not executed as futures contracts).

Lev Menand’s latest book, which I reviewed last year, for all its sympathy for the Federal Reserve’s activities (having been himself an employee), could not avoid deeming the Fed completely out of control, acting since 2008 and through COVID without any bounds at all: an exploding balance sheet, unlimited credit facilities for troubled banks—this is not “Free Market Capitalism,” but rank corporatism, and a major reason young people increasingly view socialism or populist conservatism as preferable alternatives.

For, much like the national security establishment, it isn’t as though these gross violations of the principles of liberal, capitalist government have even produced any notable successes: quite to the contrary, they have produced little but abject failure.

Consider, first, its primary mandate, price stability. Even if you buy the argument for the Fed’s inflation targeting (macroeconomic voodoo), as should be clear by the Fed’s own tracking of its expansion of the money supply and concurrent inflation measures, including not just consumer and producer price indexes but also asset price inflation, it has been running the money printer at a far higher clip than the 2% they claim to be the annual target (see graphs below—and note that the Nasdaq, the index most heavily skewed toward non-dividend paying, high-growth potential technology companies grew the fastest and the most since 2008, a consequence of the lower discount rate the Fed’s looser monetary policy preferences required).

Further, even assuming the Fed hits their 2% annual target, everyone who has seen the infamous graph illustrating the loss of the dollar’s purchasing power since the Fed’s inception will no doubt be aware that by the turn of the next century the value of a dollar in the intervening seventy-plus years would have been further halved.

As far as its second mandate, full employment (yet more macroeconomic voodoo), unless you want a McJob or other insecure work in the so-called “gig economy,” the Federal Reserve’s market distortions have played a central role in undermining investment in the real, rather than the financial, economy.

Whether like Friedrich Hayek you believe currency of choice, the denationalization of money, is the answer, or like Ron Paul believe it is time to simply End the Fed, it is beyond time for public debate to pull back the curtain on the Fed’s language games and call a stop to the inflationists’ game.

m2

 

 

 

 

 

average cpi

 

 

 

 

 

indexes

Joseph Solis-Mullen

Joseph Solis-Mullen

Author of The Fake China Threat and Its Very Real Danger, Joseph Solis-Mullen is a political scientist, economist, and Ralph Raico Fellow at the Libertarian Institute. A graduate of Spring Arbor University, the University of Illinois, and the University of Missouri, his work can be found at the Ludwig Von Mises Institute, Quarterly Journal of Austrian Economics, Libertarian Institute, Journal of Libertarian Studies, Journal of the American Revolution, and Antiwar.com. You can contact him via joseph@libertarianinstitute.org or find him on Twitter @solis_mullen.

View all posts

Our Books

libertarian inst books

Related Articles

Related

TGIF: The Populist Trap

TGIF: The Populist Trap

If you care about individual freedom and general prosperity, you'll want to avoid all shades of populism like the plague. It is economic illiteracy proudly proclaimed and writ large. As an alternative to libertarianism, it is bad in its own right—freedom is not on its...

read more

Tariffs Violate Freedom

Debate goes on over who suffers from U.S. tariffs. Biden and Trump, for example, think U.S. tariffs on Chinese goods hurt China, not Americans. This is nonsense. Even if they hurt Chinese producers (who can sell their goods elsewhere), the tariffs still hurt...

read more
Tariffs Are Bipartisan Enemies of Freedom

Tariffs Are Bipartisan Enemies of Freedom

President Joe Biden and former President Donald Trump both portray tariffs as magic wands to create national prosperity. Trump is calling for a 10% across-the-board tariff on imports, while Biden is imposing selective tariffs that he portrays as miracle cures for any...

read more
European Elites Commit to Their Self-Destruction

European Elites Commit to Their Self-Destruction

Much to the dismay of the European elites, the people of Europe appear to be resolutely rejecting the status quo. Right-wing parties are gaining ground in almost every European state as a reaction to the consistent failures of the establishment statists. Economic...

read more
The News From Across the Pond

The News From Across the Pond

The recent elections in the United Kingdom and France underscore a broader trend of political stagnation and directionless muddling within Europe. Despite clear signals from voters rejecting the status quo, the established elites are resisting substantive changes,...

read more

Pin It on Pinterest

Share This