Former Dallas Federal Reserve Bank President Richard Fisher recently gave
a speech identifying the Federal Reserve's easy money/low interest rate
policies as a source of the public anger that propelled Donald Trump into the
White House. Mr. Fisher is certainly correct that the Fed's policies have
"skewered" the middle class. However, the problem is not specific
Fed policies, but the very system of fiat currency managed by a secretive
central bank.
Federal Reserve-generated increases in money supply cause economic
inequality. This is because, when the Fed acts to increase the money supply,
well-to-do investors and other crony capitalists are the first recipients of
the new money. These economic elites enjoy an increase in purchasing power
before the Fed's inflationary policies lead to mass price increases. This
gives them a boost in their standard of living.
By the time the increased money supply trickles down to middle- and
working-class Americans, the economy is already beset by inflation. So most
average Americans see their standard of living decline as a result of
Fed-engendered money supply increases.
Some Fed defenders claim that inflation doesn't negatively affect anyone's
standard of living because price increases are matched by wage increases.
This claim ignores the fact that the effects of the Fed's actions depend on
how individuals react to the Fed's actions.
Historically, an increase in money supply does not just cause a general
rise in prices. It also causes money to flow into specific sectors, creating
a bubble that provides investors and workers in those areas a (temporary)
increase in their incomes. Meanwhile, workers and investors in sectors not affected
by the Fed-generated boom will still see a decline in their purchasing power
and thus their standard of living.
Adoption of a "rules-based" monetary policy will not eliminate
the problem of Fed-created bubbles, booms, and busts, since Congress cannot
set a rule dictating how individuals react to Fed policies. The only way to
eliminate the boom-and-bust cycle is to remove the Fed's power to increase
the money supply and manipulate interest rates.
Because the Fed's actions distort the view of economic conditions among
investors, businesses, and workers, the booms created by the Fed are
unsustainable. Eventually reality sets in, the bubble bursts, and the economy
falls into recession.
When the crash occurs the best thing for Congress and the Fed to do is
allow the recession to run its course. Recessions are the economy's way of
cleaning out the Fed-created distortions. Of course, Congress and the Fed
refuse to do that. Instead, they begin the whole business cycle over again
with another round of money creation, increased stimulus spending, and
corporate bailouts.
Some progressive economists acknowledge how the Fed causes economic
inequality and harms average Americans. These progressives support perpetual
low interest rates and money creation. These so-called working class
champions ignore how the very act of money creation causes economic
inequality. Longer periods of easy money also mean longer, and more painful,
recessions.
President-elect Donald Trump has acknowledged that, while his business
benefits from lower interest rates, the Fed's policies hurt most Americans.
During the campaign, Mr. Trump also promised to make audit the fed part of
his first 100 days agenda. Unfortunately, since the election, President-elect
Trump has not made any statements regarding monetary policy or the audit the
fed legislation. Those of us who understand that changing monetary policy is
the key to making America great again must redouble our efforts to convince
Congress and the new president to audit, then end, the Federal Reserve.
