Calling Out the Federal Reserve

I always get nervous when I find myself in proximity to agreeing with Sen. Elizabeth Warren (D-MA). Even if my reason for that proximity is totally different than hers – as is the case currently. Ms. Warren, in a cloying media friendly Meet the Press interview on Sunday torched Federal Reserve Chairman Jerome Powell saying that he had failed in his role as chairman, concluding:

Look, I don’t think he should be chairman of the Federal Reserve. I have said it as publicly as I know how to say it. I’ve said it to everyone.”

Ms. Warren is upset that Mr. Powell didn’t stand on the air hoses of the banks with crippling regulations – in other words to impose more government intrusion into the financial world. Of course, Ms. Warren, the finger-wagging scold of the Senate, never bothered to look as to whether the cause of the financial rout currently being experienced had anything to do with her hysterical demands for further, more intrusive regulations – it didn’t. The cause of the banking turmoil is due solely and only to the government’s nearly two decades of deficit spending causing the Treasury Department to issue government bonds with low rates of return which, in turn, caused the Federal Reserve to print more money to purchase those low yield bonds and then encouraged the banking community to purchase those bonds to meet their obligation to create “safe reserves.” Once inflation hit – as everyone knew it would when you flood the market with new printed dollars – the current value of the bonds dropped by about seventy-five percent, leaving the banks unable to meet depositors’ demands for cash. That’s it, pure and simple. The government tried to substitute social policy as a means of managing fiscal policy and it failed – as it always will.

And quite frankly, that very reason, that Ms. Warren* ignored, is precisely the reason that I believe that Mr. Powell should not be chairman of the Federal Reserve. The chairman of the Federal Reserve system has significant responsibilities beyond regulating banks and printing money. As one of the senior government bureaucrats he has a duty to provide Congress with advice regarding the soundness of the American economy but also with the actions of Congress which impact that soundness. In this regard, Mr. Powell has failed enormously. Mr. Powell knew from the day that he was appointed to the Federal Reserve Board by former President Barack Obama (D) that deficit spending would lead to an inflationary period and that routine printing of money to purchase government Treasury bonds to pay for the deficit spending would lead to a devaluation of the reserves of the nation’s banks. He knew when he was appointed Chairman of the Federal Reserve by former President Donald Trump (R) that the increasing deficit spending and the mounting federal debt with the resulting printing of additional dollars to fund that growing deficit would further devalue the reserves of the nation’s banks. And he knew when he was reappointed Chairman by President Joe Biden (D) that Mr. Biden’s penchant for wild spending would further exacerbate the situation. And yet not one time when called before Congress to testify did Mr. Powell raise these concerns. Not once did he raise the spectre of the triple threat of deficit spending: excessive debt, monetary inflation, and diminution of banking reserves because of the devaluation of treasury bonds. Not once. And suffice it to say, not once did Ms. Warren ask about such an inevitability. Not once do the minutes of the Federal Reserve reflect any such concern on Mr. Powell’s behalf – nor, quite frankly, any of the other members of the board.

You see, federal spending is the primary means by which presidents and sitting members of Congress campaign – they buy votes. They fill the coffers of the public employees unions with expanded government hiring, excessive salaries, and gold-plated benefits. They fund the pro-abortion lobby with subsidies for Planned Parenthood. They provide subsidies for the green energy lobby (solar power, electric vehicles, wind turbines). They provide funding for advocacy groups knowing full well they will incite illegal immigration and then double down by providing massive funding to provide food, clothing, shelter, medical care and transportation for the illegals when they do come. The corporate welfare in the form of special tax breaks, research grants, and purchases is legion. And the Federal Reserve is like all the rest of the federal bureaucracy – they cater to the bias of the presidents and Congress instead of telling them the inconvenient truths.

If at any point the President had said that he would not sign any appropriation bill that resulted in deficit spending none of this would have occurred. If any any point either house of Congress had said that it would not consider any appropriation bill that resulted in deficit spending none of this would have occurred. If the Federal Reserve system had said that it would no longer issue new currency to purchase Treasury bonds issued to fund deficit spending none of this would occur. But, of course none did because federal spending is the life blood of them all.

Running the government is hard work – but only if you tell the truth. Otherwise you can fund corruption with worthless currency, delay hard decisions by papering them over with more spending, and hire and promote unqualified people to satisfy political and social concerns rather than competency.

Oops, that’s pretty much defines the federal government and its politicians and bureaucrats today.

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* Ms. Warren has been a United States senator since 2013. She pretended to be a Native American to take advantage of programs designed to encourage employment of Native Americans even though her actual consanguinity with Native Americans is non-existent. In this instance she pretends to be a knowledgeable economist and expert on monetary policy – which she is not. Were she an expert on monetary policy she would not have voted in favor of deficit spending every time a vote was taken in the decade she has been a senator. Ms. Warren is an original member of the Congressional Hall of Shame when it comes to deficit spending and government incompetence.