Fed to follow John Law for now as inflation hits record highs in US and Sri Lanka



ECONOMYNEXT – The U.S. Federal Reserve has said it will continue to print money, albeit at a lower rate, despite inflating a rating to 40-year highs and more than triple its target rate of ‘by November 2021, as mainstream economists warned earlier this year.

The Fed triggered a global commodities bubble which led to high consumption of food, energy and used cars for poor Americans and made life difficult for less wealthy around the world while giving more money. money to commodity-rich economies run by oppressive regimes.

Sri Lanka’s central bank generated 9.9% inflation by printing money and depreciating currency, amplifying US policy mistakes.

Sri Lanka established a Latin American-style soft-anchored central bank in 1950, on a cookie-cutter model established by the Fed, abolishing a currency board and gaining an independent policy.

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Inflation, measured by consumer prices in the United States, hit 6.8% in November, the highest in 40 years and more than three times its target rate of 2% amid a demand bubble globalization that has strained supply chains.

But the Fed will continue to print for several more months.

Steve Hanke, a classical economist at Johns Hopkins University in Maryland who had accurately predicted the course of inflation in the United States, said high prices were “part of the cake” two years ago. years, and that nothing the Fed is doing now will stop inflation quickly.

Inflation is robbing people, Hanke said, with prices exceeding wage gains by more than 2%.

He said the Fed entered the current debacle in March 2020.

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At the time, the Fed also had excess unpaid reserves.

Mainstream economists within the Fed narrowed the window in part based on Milton Friedman’s view that it shouldn’t be an opportunity cost to hold money when large-scale liquidity injections were made to bail out collapsing US banks during the 2008/9 ban.

Sri Lanka has also increased money printing from February 2020.

Sri Lanka’s fixed exchange rate regime is hit with balance of payments problems as quickly as four to six weeks after printing money, depending on private credit growth, long before inflation hits , according to analysts.

Mercantilists in Sri Lanka pointed to the silver print by the Fed and other central banks of reserve currency when the so-called “modern monetary theory” was launched in Sri Lanka despite warnings from mainstream economists of the United States. financial and non-financial countries, politicians and media.

After unpaid excess reserves, Powell then recklessly continued with his “asset purchases,” a euphemism for money printing that emerged after the Greenspan-Bernanke bubble burst in 2008.

Powell, who claimed inflation was transient, had printed $ 120 billion a month, bought $ 80 billion in treasury bills and $ 40 billion in state agency debt until November.

Powell had been called illusory by mainstream economists for denying a link between money supply growth and inflation.

The Federal Reserve’s free market committee said cash injections would now be reduced from $ 30 billion per month to $ 90 billion.

In January, it will continue to buy $ 60 billion.

The rates would still be kept close to zero.

Sri Lanka’s policy rates are also below inflation, but money is now being injected mainly to sterilize interventions and not to reduce gilts’ yields.

The Federal Reserve’s ability to keep inflation low is compromised by its so-called “dual tenure,” an employment target set by the US Jobs Act of 1946, enacted when demobilized soldiers returned home. among them and that Keynesian dogma was high.

“The Committee seeks to achieve a maximum employment and inflation rate of 2% over the longer term,” the Fed said in its latest policy report.

“In support of these goals, the Committee decided to maintain the target range for the fed funds rate at 0 to 1/4 percent. As inflation has been above 2% for some time, the Committee expects it to be appropriate to maintain this target range until labor market conditions have reached levels consistent with estimates of the economy. Maximum Employment Committee.

“In view of the trend in inflation and the continued improvement in the labor market, the Committee has decided to reduce the monthly pace of its net asset purchases …”

READ THE FOMC FULL STATEMENT HERE

Remarkably, the US media claimed that the Fed would “aggressively reduce” the printing of money and become more “hawkish”, despite the agency continuing to print money at least until ‘in March and that there was no rate hike.

The same media had previously amplified Powell’s claims that inflation was “transient” and was caused by “supply chain” issues.

During testimony in Congress, Powell said it was time to remove the word “transitional.” No mention of transitional has been made in the current declaration.

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Fed to end injections earlier, transitional ‘retirement’, says Powell as inflation rages in Sri Lanka

Central banks printing money to stimulate growth were advocated by classic mercantilists, including John Law, and revived by John Maynard Keynes after the Federal Reserve created the Great Depression, triggering the so-called “Roaring Twenties” bubble after having practically invented open market operations.

The bubbles then collapse, creating more unemployment than there was at the start.

Law, whose ideas were rejected in his native Britain, went to France, created an easy-money central bank and destroyed the French economy.

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The Fed is the worst bubble blower among central reserve currency banks.

In addition to the pre-Depression boom, it triggered a huge commodities bubble (Arthur Burns bubble) in the early 1970s and ended a three-century-old gold standard maintained by European central banks as well as American free banks before the creation of the Fed. on the rise, without an active policy rate.

Burns triggered the bubble after President Nixon effectively sacked William McChesney Martin, who had successfully maintained the Bretton Woods system despite open market operations. Nixon had feared he would tighten his policy.

The current trend of “asset buying” came after the US banking system was hit hard by bad investments in home mortgages and other loans in the wake of the Greenspan-Bernande bubble.

Before the Powell bubble, she was called the “mother of all cash bubbles” by critics.

Although Powell is now throwing a bubble over an obsession with jobs, Bernanke is said to have prompted Greenspan to cut rates due to an obsession with deflation. (Colombo / Dec15 / 2021)


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