At an international banking seminar this past weekend, prominent figures from the banks of Japan, China, the European Union, and the United States met to discuss their respective monetary systems. For her part, Janet Yellen went on record stating that inflation has been the biggest surprise of the U.S. economy.
There’s something unsettling about the fact that our Fed chair was caught flat-footed by inflation. After all, she’s not only the face of America’s central banking system, but—along with the board of governors of the Federal Reserve—she also sets and controls our money supply.
Unlike the Fed of generations past, our current central bank has been given extraordinary power. While it’s fully accountable to Congress and the public, I don’t recall anyone asking me about bailouts, interest rate changes, billion-dollar bond grabs, or a subsequent $4.5 trillion sell-off. Keep in mind that no one at the Fed is elected and that the board is stacked with bankers.
The modern Fed has taken great liberties with the government’s balance sheet. They’ve loaded up our national credit card, played possum with monetary policy, and embraced last-resort measures like quantitative easing. Since the economic crisis of 2008, the Bernanke-Yellen tag team has suppressed rates, fueled bubbles, spoon-fed Wall Street, and used “forward guidance” as a tenuous economic bellwether.
Despite all the paper wealth and magic money schemes of the last nine years, the Fed has failed to stimulate economic growth. The U.S. GDP has been nothing short of anemic and was recently revised down from 2.3% for 2017 and 2.5% for 2018 to just 2.2% and 2.3%, respectively. To help put this in perspective, China’s 2017 forecast is for 6.8% growth.
We’ve also developed a curious new inflation problem. At the conclusion of Ronald Reagan’s inaugural address on January 20, 1980, inflation stood at almost 14%. It now sits at an astonishing 1.7%. This is a very different problem indeed. High inflation decreases purchasing power and undermines the value of money. Low inflation, however, suggests a dramatic collapse in the price of goods, which restricts spending and could trigger deflation and a broader recession.
So the Fed has become what the Chinese call “zhilaohu,” or a “paper tiger”—an entity that appears powerful and purposeful but is actually utterly weak and ineffective. Without a vote or a signature, the Fed has added to our massive debt pile, and despite unprecedented overreach, we remain trapped in the slowest post-recession recovery since World War II.
During the Great Recession, the Federal Reserve rushed in where the government dared not tread—and we have subsequently spent our way from one crisis right into the next. When it comes to sovereign debt, America’s central bank is the wolf in the henhouse. Perhaps even more sobering is the fact that the very body charged with maintaining a stable system of currency and a reliable means of exchange has corrupted and debased the very concept of money.