Understanding the Fed’s True Mandate
Understanding the Fed’s True Mandate by Michael Ballanger for The Au Report
This week, the financial community around the globe was handed a “new approach” by the Federal Reserve Board of the United States that essentially flipped the middle finger at savers, senior citizens on limited pensions and proponents of sound money principles. Before I expand upon this outrage, let me expound upon the background of the current Fed Chairman, Jerome Powell.
Judging from the accolades and fawning praise showered upon this man (as the S&P and NASDAQ hit record levels fueled exclusively by Fed stimuli), one might think that he hails from the academic world, a scholar with vast experience in macroeconomic theory, or at least extensive dealings in the retail banking sector. His grandfatherly deportment portrays great studiousness and wise counsel as he does his very damnedest to convey that image with perennial gray suits and trademark purple ties. If one could take this carefully crafted persona and make a snap favorable assessment of the man who controls the retirement lifestyles of millions of global citizens, one would be making a fatal error.
This man started out as a lawyer, and when practicing law became too mundane for him, he graduated to finance, where he toiled for the bulk of his career in financing, merchant banking, and mergers and acquisitions. According to Wikipedia, “in 1993, Powell began working as a managing director for Bankers Trust, but he quit in 1995 after the bank got into trouble when several customers suffered large losses due to derivatives.”
In other words, Jay Powell is well versed in the machinations of the capital markets of the 1990s era, when financial gunslingers roamed the hallowed halls of Wall Street lighting their $50 Cohibas with $100 bills.
I have never met the man, and from all reports I have read, he appears to be a “very nice man,” proving once and for all that his spin doctors have done a superlative job selling the Powell image to the world. The problem I have is the hypocrisy that oozes from every pore in the central banking body; that they can stand in front of the average (stupid) American and look straight into the cameras and say their mandate is “maximum full employment, stable prices, and moderate long-term interest rates” while exploding their balance sheet to unheard-of levels of excess and recklessness, representing an abomination of the highest order and magnitude.
What makes this even more outrageous is that the average citizen has nothing in terms of living standard to compare to the ever-growing divide between the haves and the have-nots. Here in the summer of 2020, investment bankers and hedge fund managers are enjoying the best run in earnings and performance ever while jobs are being axed and food banks tapped out. Riots in the streets, with wave after wave of armed youths taking up causes that they find hard to describe, have become the norm rather than the outlier. Civil unrest has become a fashion statement, while the U.S. election candidates spout lie after lie of unsubstantiated allegations and accusations. The news cycle has evolved into one giant fecal hurricane, and the fault lies squarely at the feet of the central bankers, and the subterfuge and illusionary purpose they have peddled to the masses.
To wit, when I read or hear that Mr. Powell has decided to “let the economy run hot for a while,” I immediately default to the BS-meter, because what he is saying is that after all of these federal rescue dollars are exhausted and the punchbowl has gone empty, the loans held by the banks are going to become suspect. Since no amount of accelerated loan-loss provisions will cure a coast-to-coast default wave, the only recourse available to the Fed is to reflate—and that means reflate everything.
Why? It is because the Achilles heel of the American (and global) banking system is the collateral backing the oceanic level of corporate and consumer debt sitting so tentatively and malodorously on their books. All the malls and houses and warehouses, with all the plants and equipment, attached to these loans, will be rendered powerless to protect the banks if the current global depression ushers in a deflationary asset collapse. So, when Powell talks about persistently low inflation “posing a risk to the economy,” I ask “Why?”