The Overreaching Federal Reserve
The Federal Reserve Bank has been asked to prevent inflation, create full employment, prevent financial crises, shrink the trade deficit, tackle climate change, and eliminate racial economic disparities.
Lots of luck, Fed. Except for preventing inflation, no central bank can do any of those things.
But the Fed isn’t even trying to prevent inflation. It’s striving for two-percent inflation and has expressed disappointment that the rate has prevailingly been lower. Forget it, the right policy is no inflation at all.
Congress and the Fed have caused severe economic downturns. They should quit trying.
It’s bad enough that the Fed has spent a decade buying longer-term government securities and mortgage-backed securities.
Now, the Fed is loaning money directly to U.S. corporations, large and small. The Fed Governors will have crony-capitalist friends emerging from the bushes to get in on the action.
Even more unconstitutional, the Fed is thinking about keeping the interest rates low on all maturities of Treasury securities. Good grief! The economic distortions would eventually become monumental.
The Fed intends to use its powers during the pandemic until the economy is “solidly on the road to recovery.” How will they know? By the time an economic trend becomes apparent, it’s too late for a government reaction.
Besides, too much of the money being handed out by the government to stimulate the economy sits in personal and corporate bank accounts, stimulating nothing until governors open the state economies.
The Fed has increased its cash on hand from $1 trillion to $4 trillion. (The Fed simply writes numbers in its own bank accounts. Handy, huh?) Will these stupendous cash reserves, equal to Germany’s annual economy, eventually cause rapid inflation?
Probably.
