Federal Reserve Chair Jay Powell wants a swift decline in the rate of consumer price inflation. He isn’t getting what he wants.
According to the Bureau of Labor Statistics, consumer price inflation, as measured by the consumer price index (CPI), increased at an “official” annualized rate of 8.3 percent in August.
This exceeded Wall Street’s consensus expectations of 8.1 percent. What’s more, it crushed investor hopes a ‘Powell pivot’ would come sooner rather than later. On Tuesday, the Dow Jones Industrial Average (DJIA) crashed 1,276 points on the news.
Powell, a central planner, wants consumer price inflation to be about 2 percent. Instead, he’s got something that’s over 400 percent higher. What’s going on?
If you want to understand what’s up with raging consumer price inflation and Fed monetary policy, you must understand this. Right now, in the United States as in most of the world, we have a scam currency that’s controlled by central planners. Specifically, we have what Karl Marx envisioned in Plank No. 5 of his Communist Manifesto:
“No. 5. Centralization of credit in the hands of the state, by means of a national bank with state capital and an exclusive monopoly.”
The Federal Reserve System, created by the Federal Reserve Act of Congress in 1913, is indeed a privately owned ‘national bank.’ It also holds a monopoly on legal counterfeiting in the United States.
Without the Fed’s policies of mass credit creation, it would have been impossible for the U.S. government to run up a $30.8 trillion national debt. Without the Fed’s printing press money, the U.S. government never could have run annual trillion-dollar budget deficits for a better part of the last decade and a half. Without the Fed’s fake money there would not be over 100 million people dependent upon the U.S. government for their daily bread.
This is the miracle of centralized credit.
Cradle to Grave Control
The fact is centralized credit in the hands of a central bank always leads to money supply inflation. Asset price inflation and consumer price inflation then follow in strange and unpredictable ways.
These price distortions are not defects of capitalism. They’re symptoms of a scam currency managed by central planners. So, too, today’s burgeoning energy and food supply shortages are the creation of central planners.
When the government endeavors to direct economic activity it exerts its will and power to realize some ideal of redistribution. Yet what principles are it guided by? How is a common view determined that can be cultivated?
By and large the government pursues principles enumerated by a cast of elites. From Davos and the universities. These principles are for the benefit of the elites, and to obtain votes for legislators. They’re also at the expense of an ever shrinking middleclass.
In addition, these guiding ideals serve to exert power and control over the population. They sow seeds of division by benefiting one group at the expense of another. Resentments bloom as new privileges are doled out for purely political reasons.
Over time, as any casual observer can recognize, the government’s guiding ideals change like an eroding shoreline. Farm subsidies have long been a guiding principle. So has redistribution for purposes of greater social equality. More recently, the popular cause has channeled greater amounts of the economy’s spoils into green energy while penalizing traditional fossil fuel developers.
The central planners are an opportunistic bunch. They’ll take any popular cause and use it to their advantage. To commandeer more and more of the economy and control all activities of the individual from the cradle to the grave.
The government’s power only increases. It never decreases. At some point, it controls all aspects of a person’s livelihood.
In America today, a person’s income and general position are largely determined by the coercive arrangement of the state. What’s more, a person can maintain or improve their position by acting as a member of an organized group, which can influence the state machine to their interest.
Going to work as a lobbyist on K Street, for example, is more fruitful than opening a shoe store on Main Street. Yet, all this market intervention, be it intervention into credit markets or the energy sector, is highly destructive. Here’s why…
The economy is a complex living system. It’s constantly evolving and is always subject to change. One relationship at one moment can be completely different at another moment. Supply and demand continuously adjust and readjust to meet the conditions of the market.
These constant adjustments and readjustments provide a natural and efficient response to supply shortages and gluts. Even in a moderately free market economy, bakeries do not run out of bread when there’s a wheat crop shortage. The shelves never go empty. Rather, the price of bread rises, and consumers adjust their spending accordingly.
Centrally planned economies, on the other hand, are inclined to frequent, intensive and chronic shortages. Bureaucrats, armed with spiral bound planning reports and pie graphs, are incapable of fixing the proper prices for cornmeal and gasoline by diktat. There’s simply too much going on and too many moving parts for them to consider.
The supply of certain goods or commodities may be more than adequate. But when a price administrator enforces an artificially low price, consumers are prone to wasteful behavior. They’re compelled to demand a greater amount than is supplied. Hence, they overconsume, and the store shelves remain perpetually empty.
Central Planners of the World, Unite!
When it comes to the pricing of goods, commodities, and services, commanding fixed prices by a central authority is an utter failure. This was effectively proven by the experiences of the centrally planned economies of the old communist Eastern Bloc countries during the second half of the 20th century.
Without market determined prices for goods and services via free exchange it is impossible to establish prices that reflect actual conditions. Without prices that are grounded in reality, the production and consumption relationship is distorted. In the absence of the natural corrective mechanism of market determined prices, oversupply or scarcity conditions extend out to absurdity.
The planners are never able to get things quite right. In time, these absurdities become ubiquitous. For example, in a socialist economy you’ll find supermarkets with long lines of people and empty shelves. Another definitive gift of socialist economies is toilets without toilet seats. How is this even possible?
Currently, in Europe, green energy policies have penalized traditional fossil fuel providers. To fill the void, greater dependence on natural gas imports from Russia are needed. Now Russia has cutoff natural gas exports to Europe for political reasons at a time when they are needed most.
Thus, central planners in Europe are responding with proposals for a windfall profits tax on energy companies and to cap gas prices. Yet artificially capping the price of natural gas, an exceedingly scarce resource, would ensure that it will be used up, thus further magnifying supply shortages.
Regrettably, price controls don’t stop with just goods, commodities, and services. The United States – like Europe and others – acts with a heavy hand to control the price of credit.
Remember, credit, like a commodity or good, has a price attached to it. The price of credit is the rate of interest a lender charges to a borrower. Like fixing the price of a commodity or good by a central planning authority, fixing the price of credit by a central bank – such as the Federal Reserve – is also an utter failure.
This is why the economy’s contracting while inflation is officially at 8.3 percent. This is why Fed Chair Powell must hike interest rates in the midst of a recession.
Indeed, the results of government intervention are always the same. Inflation, stagnation, declining living standards, and widespread social disorder. Perhaps this was the plan all along.
Central planners of the world, unite!