Americans anxiously wait for the final outcome of this election, the Federal Reserve continues on its immovable course towards nationalization of the means of production. Ironically, we vote for a president who has limited power, but a hand on the nuke button; whereas, we don’t vote for the Fed chair, who has nearly unlimited power, and a hand on the economic equivalent to the nuke button; the ability to conjure money out of thin air.
As for Fed chair Jerome Powell, who kept rates on hold, his Q&A after the committee meeting revealed that regardless who is president, as long as the Fed can expand the balance sheet at will, they continue holding all the cards. First, the good news, according to Powell:
The overall rebound in household spending owes in part to federal stimulus payments and expanded unemployment benefits, which provided essential support to many families and individuals.
It is truly owed to the Federal Reserve and government intervention that more money was digitally made into existence, of which some went into household spending.
However, despite the increase in money supply and debt levels, comes the bad news:
As we said in September and again today, with inflation running persistently below 2 percent, we will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent.
Per the Fed, life did not become as unaffordable for the masses as they had hoped, therefore they expect to maintain an “accommodative stance of monetary policy” until prices rise enough, meeting their inflation objective.
And, at last, the confusing news, the part where the line between fiscal and monetary policy becomes blurred:
Fiscal policy can do what we can, which is to replace lost incomes for people who are out of work through no fault of their own. And then what we can do is we can obviously support financial stability through our lending programs, and we can support demand through interest rates and asset purchases and that sort of thing.
Perhaps it’s the size of the asset programs by the Fed or the spending programs of the government, that ideas around the two are continually intertwined. Often, Powell must define the difference between the two, in this instance noting that the government can take action such as replacing lost wages, while the Fed can buy government bonds.
As explained:
Elected officials have the power to tax and spend and to make decisions about where we, as a society, should direct our collective resources.
True, Congress can tax and spend, but what the chair doesn’t seem to admit is that taxation only provides so much money, compared to spending which appears to be nearly limitless. Of course, what makes up the shortfall when spending exceeds taxation revenue, if not from debt? Considering the Fed owns $4.5 trillion of US Treasurys, of a nation with a $27 trillion debt, we should come to terms with understanding that the Fed is financing a significant portion of the US government’s spending activities.
Yet, it’s difficult to argue with one of the most powerful men on the planet when he says:
And so if the idea is money financed fiscal policy, that’s not something that we would consider. So that—what I mean by that is really, you know, the central bank is really funding fiscal activities of the government fairly directly. No. That’s not something we do.
As for the money expansion, which is not “money-financed fiscal policy,” we should listen when he says:
So when I say we’re not out of ammo, I’m looking at, you know, a couple of our tools mainly. As I mentioned, the asset purchase program.
The majority of people will undoubtedly be watching to see how the election is called and the looming fallout, but we must remember: the government is financed by the people and also by its central bank. The trajectory we are on is one where the Fed’s balance sheet will continually increase, with a corresponding decrease in the wealth and freedom of the individual. How this fits in with the concept of a strong republic by the people and for the people is anyone’s guess.