The economic outlook is just another manipulation

The reports in the financial media make no sense. We hear simultaneously that consumer confidence is high but that a number of large firms are laying off 10 000 employees each, that credit card debt is reaching new highs, that housing prices are falling, but employment and inflation are high, that 90 percent of Americans are more in debt than ever. These are not reports that form a consistent pattern.

I sometimes wonder if they are creating a world of randomness for us in which we lack a grasp on that is happening.

But I haven’t turned my back to economics. Twice recently I have written about the Federal Reserve’s inflationary policy and concluded that it is mistaken.

The Federal Reserve is treating the current inflation as if it is demand driven. This is an obvious mistake, so obvious that it is impossible for the Federal Reserve not to know it.

An excess demand inflation–“demand pull” in the parlance of neoliberal economists–does not appear suddenly as a spike, as the current inflation has. Excess demand inflations creep up over time as monetary expansion outruns the growth of supply. We get month after month of reports of upward ticks in inflation until the Federal Reserve says “enough” and slams on the monetary brakes.

There is another kind of inflation that neoliberal economists call “cost push.” This inflation is caused by something happening to supply–a strike by unions, a hurricane that closes down refineries, a drought that reduces food supply, a war that disrupts supply chains, tax rates that choke off output.

The inflation we are experiencing now is the result of the Covid lockdowns that stopped production and Washington’s sanctions against Russia that mainly fall on Europe and have disrupted business relationships and energy delivery, resulting in a sudden spike in prices. The current inflation is a supply-side, not demand-side inflation.

As the current inflation is entirely a supply disruption inflation caused by the absurd policies of the Biden regime, the Federal Reserve’s demand-side remedy is useless. Indeed, the Federal Reserve’s policy makes the inflation worse, because higher interest rates raise the cost of production, thus raising prices and contributing to the inflation.

Actually, profit-maximizing evil might be the heart of the Federal Reserve’s policy. The interest rate on a mortgage is the primary determinant of the demand for homes by individuals. By driving up the cost of carrying a mortgage with its high interest rate policy, the Federal Reserve is freeing up homes for purchase by private capital companies for investment as rental properties. In effect, whatever the Fed’s intention, the Federal Reserve is reallocating housing from individuals to the portfolios of private investment companies.

The Federal Reserve was created by the large New York banks to protect them from their own mistakes. Over time the Federal Reserve has gained protection from the media, answers congressional oversight committees in incomprehensible language, and supports the agenda of whoever it is that rules us.