Jerome Powell, everyone’s favorite, unelected, talking piece of coral that presides over the Federal Reserve took to the stage November 3 in order to spew his typical “Fedspeak.”
An important note before we begin. The Federal Reserve is creating new policies because they cannot be trusted. Two officials were caught in a scandal for their trading practices, obviously profiteering from the pandemic. This has shaken trust for the central bank. Many questions following the invertebrate’s monologue focused on this, and this article doesn’t speak much on that because it’s simple: Don’t trust the Fed.
Powell’s opening comments rivaled the dryness of a Saharan desert, which is a strange place to find coral. Beginning with the topic at hand, he set expectations for “tapering,” or the reduction of quantitative easing, “economic expansion,” and went over some useless statistics that he would himself soon after admit were worthless.
Unemployment is at 4.8%, and Powell admitted this was undershooting the true quantity of unemployment, and then cited his reasoning for this disparity to be… that people are getting older and retiring, or the “aging of population and retirements.” Yep, that’s your central banker. People don’t want to go to work, and those that are working are retiring. Pack it up boys, we’ve figured it out.
Supply Chain Issues
“Bottlenecks and supply chain disruptions” are apparently why we are experiencing inflation. This isn’t the full picture. Here’s a quote from the Federal Reserve Bank of St. Louis: “Inflation is caused when the money supply in an economy grows at [a] faster rate than the economy’s ability to produce goods and services.”
COVID-19 hit and suddenly everyone was trapped at home. Businesses shut down at the whim of the government, and suddenly there was a surge in demand for goods, rather than services. The exponential spike in demand for very specific products tied up the supply chains, which led to an overabundance of specific products being hoarded by the sellers in order to make short-term profit.
This with the added dilution of labor from the public being deemed “essential” or not, led to a drastic cut in employment. Specific products have high demand while services are all but lost, yet nobody wants to work because they are either receiving government assistance through stimulus, expanded unemployment, avoiding the virus, caretaking for loved ones, or for various other reasons.
Suddenly we had fleets of ships being docked for weeks at a time to deliver product, when typically, there is no wait at these harbors. All of this to say, supply fell with the focus on specific products and labor shortages. This is the supply chain issue everyone keeps hearing about, and while true, it’s not the sole cause. Referencing again the quote from the St. Louis Federal Reserve: when money supply grows faster than goods and services, we experience inflation.
Before the supply chains were obliviated, the government passed stimulus after stimulus adding trillions to the money supply. Instantaneously assets started to climb in “value.” But the assets weren’t suddenly more valuable, and every investor knew that. The dollar had simply become much less valuable, practically overnight. So, the clear path became to invest in assets to keep your purchasing power, or better yet, make money. This increase in money supply and dilution of the dollar, along with the shutdown led to a mass exodus out of the workforce, as suddenly their time or money was valued more outside of their current job through some form of benefits created by the unrepentant printing of money.
To claim that supply chains and bottlenecks are the cause of inflation is to ignore the broader picture of how those bottlenecks were created to begin with. Inflation isn’t here just because they printed money. Inflation isn’t here just because there are supply issues. Inflation is here because those trusted to make policy decisions on behalf of the people failed. They printed money thus devaluing the currency, assets ballooned as the currency fell, then a mass labor exodus combined with increases in specific product demand skyrocketed the logistics of product delivery, and now some appear to be price gouging to make up for it.
When speaking on high levels of inflation, or the dreaded event of hyperinflation, Powell warmed our hearts and calmed our nerves by saying “we would use our tools to provide price stability.” Because leaving them in control has gone so well thus far.
Quantitative Easing, Or Asset Purchase Tapering
“Asset purchasing,” or quantitative easing, is being reduced. This was the main point of the November 3 conference, and it is a gigantic signal to the markets to prepare for the inevitable rising rates.
Powell continued by saying that “...we will reduce the monthly pace of our net asset purchases by $10 billion for Treasury securities, $5 billion for agency mortgage-backed securities” per month. If the economy behaves as the Fed is attempting to direct, they plan to continue this tapering at a higher scale come December. The last time the Fed tapered was 2013.
When asked by Michael Derby of The Wall Street Journal’ what bond buying “actually does for the economy?” Powell answered by saying “there’s been a ton of research and scholarship on this with different opinions,” but his reasoning was then explained as the purchase of these long-term garbage assets in a failing economy that nobody wants when inflation skyrockets allows the Fed to keep rates low (basically 0% at this point) so borrowing is incentivized. This would imply that if the purchasing of assets that no one wants in the current economy stops, then the rates cannot continue to remain low.
“Our tapering decision does not imply any direct signal regarding our interest rate,” Powell stated. He just said the entire purpose of buying these assets is to keep rates low, but in the absence of the Fed purchasing assets we are supposed to pretend this isn’t a signal to rising rates. Personally, I’m not buying it.
When asked about reduction of asset purchasing, or quantitative easing as we progress into December and next year he said, “I’m not going to give you a lot more detail on what that might be.” This is not exactly a case of solid transparency coming from an unelected official that determines how your money works. The funniest part of this particular exchange with Colby Smith of The Financial Times, is that the reporter actually clarified the question again asking him about “characterizing the risks” that would lead to further tapering, and he openly refused to answer a second time.
On Rising Rates
When asked by The Wall Street Journal’s Nick Timiraos “The markets expect you to raise rates twice next year, are they wrong?” Powell panicked as he searched for his wording and hit back with an impressive retort, “Uhm, so...” followed by a long pause. He then deflected the question and started talking about how tapering is the right decision. His final comment in this word-salad was, “policy will adapt appropriately.”
He has no clue, or worse, he does and is intentionally keeping it from the public. We accept that those in control have maintained a legacy system that is absent the necessary consequences needed to correct these events. This has given them autonomy over a world they either do not understand, or have no intention of creating transparency between them and those they serve, or both.
When Steve Liesman from CNBC asked if it made more sense to raise interest rates to combat inflation, rather than burdening employers with rising wages to combat price-gouging, the response from Powell was basically just a long word salad about “risk management” and “goals in tension” which gave absolutely no answer to the question.
Understanding Labor Markets
In an exchange with Rachel Siegel of The Washington Post, Powell opined “we want to see the labor market heal further”, when asked about raising the Fed rate (the rate at which institutions can borrow imaginary money, to make more money overnight by lending it to other institutions).
Powell opened by describing the job of the Fed as having two parts: achieving the goals of ”maximum employment andprice stability.” So, they want to see a return to the path of maximum employment (which we never have), and then they will raise the rates. Got it.
Chris Rugaber of The Associated Press asked Powell how he would "define maximum (full) employment? This collaboration of polyps answered that it’s “not directly measurable and changes over time due to various factors.” This being said after Powell repeatedly stated the job of the Federal Reserve is to “provide maximum employment and price stability.” So…the thing that is your job cannot be measured by the American people? Awesome, glad I voted for you…oh, wait.
He continued to say, “there's room for a whole lot of humility here as we try to think about what maximum employment would be.”
Well, it’s been your job since the inception of centralized banking, and you still don’t have it figured out. There are two jobs the Fed has according to the chairman of the Fed, and he has no clue how to accomplish them. Wicked.
Supplementary Leveraging Ratio Extension
On April 1, 2020, the Fed decided to scale back requirements necessary for banks to leverage themselves (use more money than they have). Conveniently this statement was literally released on April 1, because allowing these banks free reign to degeneracy was a pretty good joke.
“The change would exclude U.S. Treasury securities and deposits at Federal Reserve Banks from the calculation of the rule for holding companies.” Removing these criteria from the equation means that the banks are required to keep fewer actual amounts of cash on hand. This means they can spend more of what they have because they don’t need to account for it.
When asked by American Banker’s Hannah Lang if the Fed would expand “supplementary leverage ratio” Powell deflected by saying “I have nothing for you on supplementary leverage ratio.” He then went on to explain that they may use it as a means to provide liquidity, which is a clear indication of extension, or even more extreme measures of leveraging privileges for the already privileged.
This economy is a bad joke at a birthday party and Powell is the clown. And I’m pretty sure I once heard someone say Bitcoin fixes this.
Bitcoin Fixes This
Trust is broken between the Federal Reserve and the American public. There are those of us who have known this for years, but some are just coming around to it with senior officials at the Reserve clearly profiteering on inside information.
Bitcoin stands as a trustless system that is absent authority. Don’t trust, verify.
Unemployment ran rampant with the advent of government shutdowns because the Federal Reserve and U.S. Treasury were able to print as much imaginary money as they wanted to pump a fake economy by passing trillions of dollars at their own whim, deeming people “essential” or just creating an environment where employers were forced to let workers go. The ability to shut down the economy and keep it going simultaneously by the fabrication and debasement of the U.S. dollar would not have been an option in a world of sound money principles. Absent the authority to print bitcoin, the economy would have taken a hit with the shutdown and recovered gradually with points of pain throughout; or better yet, we would have actually taken precautions far more seriously in the absence of a money printer and actually prepared for the virus.
Supply chain issues wouldn’t have happened nearly to the scale which they have if those proper precautions were taken, and the debasement of currency didn’t send the prices of imports/exports to the heavens with far less laborers available. In the presence of a proper response to the virus, the United States could have maintained short-term sovereignty within its mantle of world powers with proactive responses as the situation evolved. To say there would have been no global supply chain issues with the addition of sound money is nonsensical, because governments across the world were always going to print money. But those who adhered to strong principles could have maintained a far healthier economy than the one we find ourselves in.
Quantitative easing or asset purchasing is the accumulation of garbage assets nobody wants when the economy goes to crap. This incessant accumulation can only be accomplished with a money printer. Taking away the printer forces the economy to deal with the issues ahead rather than kicking the can down the road, as we currently find ourselves doing.
If the economy cannot be propped up by fake money, then the rates can’t stay low. When the rates go higher, less people borrow. If less people borrow, the economy struggles through but it manages to fight extreme forms of inflation through smaller recessions when you rip the band-aid off.
With proper responses and sound money principles, the labor market could have been maintained far better than it currently is, and rules like the SLR (supplementary leverage ratio) being dropped so banks can spend more imaginary money can’t exist.
This economy is attempting to stand on the failing foundation of imaginary money. Bitcoin fixes this.
This is a guest post by Shawn Amick. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.