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Trump Is Right, the Fed Is Crazy
Trump Is Right, the Fed Is Crazy
President Trump recently called the Federal Reserve’s interest rate hikes crazy. Leaving aside President Trump’s specific complaint, which is likely motivated by the belief that low rates will help him win reelection, he is right that “crazy” is a good way to describe the Federal Reserve.
When not forced to use a government-created currency, individuals have historically chosen to use a precious metal such as gold or silver as money. The reasons include that precious metals are durable and their value tends to remain relatively stable over time. A stable currency ensures that prices accurately convey the true value of goods and services.
A main value of a precious metal is it accurately conveys the true price of money, which is the Interest rate. If the interest rate reflects the manipulation of central bankers and not true market conditions, individuals will be unable to properly allocate resources between savings and current consumption.
In contrast to market money, government-created fiat currency is anything but stable. Central banks constantly increase and decrease the money supply in an attempt to control the economy by controlling the interest rates. This causes individuals to misread market conditions, leading to a misallocation of resources. This can create an illusion of prosperity. But eventually reality catches up to the Federal Reserve-created fantasies. When that happens, there is a recession or worse, leading the Fed to start the whole boom-and-bust cycle over again.
When central banks create money, those who first get the new money enjoy an increase in purchasing power before the new money causes a real increase in prices. Those who receive the money first are members of the banking and financial elite.
James Howard Kunstler: The World’s Greatest Misallocation Of Resources
James Howard Kunstler: The World’s Greatest Misallocation Of Resources
Kunstler adds fresh critique to his now decades-old warning that we are sleepwalking our way deep into the Long Emergency. The longer we delude ourselves and waste our energies in pursuit of reviving the failed “endless growth” model, the farther our journey back to a sustainable way of living will be when our current system collapses:
I don’t think there is any sense that they really know where we’re headed, what our destination is, and what the imperatives are and what the future is actually telling us that we need to do. Don’t forget that the so-called psychology of previous investment is a very powerful force in American life and it’s prompting us to do everything we can to maintain the investments we’ve already made. Those investments are the ones I have already mentioned: the freeways, the suburban housing developments, the strip malls.
A lot of the hope pinned on Trump is based on the idea that he’s assembling this team of mega-competent capitalist movers and shakers who know how to make deals — the Wilbur Rosses and Rex Tillersons of the world — and that they are going to conjure up a tremendous surge of economic activity that will be majorly fruitful going forward in the future and produce a tremendous amount of new wealth. Of course the stock market has been pricing that in.
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