MONETARY TRICKLE-DOWN – A/K/A FREE MONEY – MAY FINALLY BE COMING TO AN END
“That indignity of inflation is what’s really cruel about inflation -- it hurts people who have less, it hurts them more,” Daly said. “And it has that sense that you’re trying as hard as you can and you still can’t make it.”
- FED, Bank of San Francisco President Mary Daly
“The electricity market is no more a functioning market because there’s one actor -- Putin -- who’s systematically trying to destroy it and to manipulate it so we really have to react to that and that’s why we’re addressing now the composition of the electricity market,” she told a press conference in Denmark on Tuesday.
- EU, President Ursula von der Leyen
By Gregg Wall (9-3-2022)
Citizens around the globe maybe witnessing the end of an era… the end of ultra-accommodative monetary policies that have fed some of the greatest egos and excesses the world has ever seen (and hopefully, will never see again).
Ultra-accommodative monetary policies – with Japan as an early test pilot – have been used to bailout billionaires, markets, and failed laissez-faire/libertarian industrial policies for decades. In the U.S., these central bank policies – namely, interest rate suppression and quantitative easing - came into vogue after the 2008 crash, when billionaires and Wall St. were bailed out with trillions in dollar printing. Moreover, these billionaires and Wall St were not only bailed out, but made obscenely wealthy (in the greatest transfer of wealth, the world has ever witnessed).
Now, multiple crises of a catastrophic nature have brought into clear focus the problems ultra-accommodative monetary policies have created or helped to create. Included in the list of crises, with many of these serious problems perniciously feeding upon one another: extraordinary national & private sector debts; energy policies (the lack thereof); failing globalization & neoliberalism; a pandemic; over reliance on markets and the private sector; collapsing ethics within Western governments – which have, often, become little more than patronage and spoils systems; in the U.S. in particular, the moral hazard surrounding endless war and debt racked up to finance same; and incessant consumer price gouging (commonly referred to in the MSM as “inflation”).
And it is this last crisis… excessive profit taking, at the expense of the economy, the nation, and America’s citizens… that the Federal Reserve’s policies are largely & uniquely responsible. Let’s take a quick look, specifically, at what free money & QE have wrought:
The private equity (PE) and financial engineering business models have thrived. The industry thrives on cheap debt and leverage and here the Federal Reserve’s policies have been highly rewarding to PE. A PE industry that with great consistency loads businesses up with debt, rewards management & ownership with billions and billions (in the aggregate, trillions), and destroys jobs, opportunity, future investment, and innovation. By the way, our current FED chair came from a private equity firm, the Carlyle Group. As a result of PE destroying businesses, the model ensures greater market concentration and aids and abets cartel & monopoly formation.
M&A and industry consolidation have thrived under the FED’s free money policies. Thanks to FED and central bank policies…. cheap money has made consolidation, leveraged buyouts, cartel and monopoly formation all that much easier. Many American industries are now dominated by a handful of actors that are too big to fail. This gives these industries extraordinary power over consumers, labor, suppliers, smaller businesses, and indeed, over U.S. and, in some instances, global governments.
As I mentioned recently, in another write up, the number of billionaires has soared to catastrophic levels. The majority of these individuals did not earn their way to billionaire status, by the sweat of their brow; but instead, merely road successive tidal waves of free money, as the US national debt soared from less than $2 trillion in the early eighties to in excess of $30 trillion today. But try telling these plutocrats - many of them far-right libertarians - that they didn’t earn it. But instead, happened to be at the right place and time, by accident of birth, and are - for the most part - products of exceptionally lousy monetary policy (fiscal, regulatory, & tax policies, as well) gone horribly, horribly wrong. And now, these individuals own the U.S. government and our elected representatives.
Thank you, Federal Reserve. But it would be unfair to blame the FED entirely for these problems… the central bank certainly had a lot of encouragement from America’s elites.
To be sure the FED is not all bad and remarkably, shows great potential.
Overreliance upon the FED to solve the nation’s problems… from cleaning up after billionaire and Wall St excess to tackling consumer price gouging… has really drilled home just how corrupt and incompetent the U.S. congress has become. The fact that congress consistently abdicates to the Federal Reserve on more serious matters drives the point home.
Clearly, major structural reforms and personnel changes are needed & required.
And my personal favorite, all the above merely shows that MMT works. After all, if FED chairs can conjure trillions out of thin air for billionaires, markets, and Wall St…. just imagine what honest actors at the FED and within the congress could do for the American people and the nation. Particularly, if the national debt was in whole, or in part, wiped clean.
The FED reminds us that finance is the art of doing the impossible and making the impossible a reality; the FED reminds us that the creation of debt also requires great ethics and moral responsibility. Ideally, that power should be shared with the American people, and not remain the exclusive domain of unaccountable and unelected central bankers.
The greatest tragedy of it all -- the era of monetary trickle-down -- was that trillions were printed, and wealth transferred, to some of the worst people and in support of truly malign endeavors. That is to say, monetary policy wrongly used in the creation of billionaires, cartels, monopolies, and wars.
Let’s hope central banks have learned their lesson and free money is over, at least for nefarious actors and business interests. It’s going to take a lot of effort and work on the part of central banks, in concert with governments and legislative bodies, to unwind the crises free money has created. And that process is likely to see even more crises arise.
Is free money truly over? Once inflation is subdued, the pressure to return ultra-accommodative monetary policies will be tremendous and per the usual, for all the wrong reasons. Congress has a key role to play in protecting consumers, labor, and Americans from a higher rate regime and predatory lending.
Copyright JM Hamilton Publishing 2022
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