The Fed is finally unwinding the quantitative easing crap that everyone who understands monetary stability knows pushes the U.S. dollar toward high inflation. Quantitative easing means the Fed buying U.S. government bonds with money they conjure out of thin air. That is the modern equivalent of the actual printing presses that ran 24 hours a day in Austria and Germamy during the early 1920s producing their notorious hyperinflation.
The excess money that was “printed” during the quantitive easing from 2009 to date is the increase in assets on the Fed balance sheet. https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm
$3T of excess money
As you can see on the graph, it is about $3 T. That needs to be undone or unwound as they usually say. How do you do that? How do you “unprint” money? Stop buying U.S. bonds with money conjured out of thin air and start SELLING those same bonds to buyers who must use REAL money, not money conjured out of thin air, to buy them. That lowers the U.S. money supply.
Higher rates needed
That is what the Fed is now doing. Raising interest rates is part of that. Higher interest rates on U.S. bonds make those bonds more attractive and draws buyers of those bonds away from owning gold or bonds denominated in currencies other than dollars.
Strong dollar protects against hyperinflation
Trump is complaining about the higher rates because they strengthen the U.S. dollar which goes against his desire to reduce trade deficits. A stronger dollar makes it harder for us to increase exports and decrease imports.
It is improper for Trump to try to influence the Fed’s monetary policy. The Fed is a so-called independent agency. It has to be above politics. Trump is trying to pull it down into politics.
Stable dollar and liquidity for solvent banks, period
The job of the Fed should be to keep the U.S. dollar stable. It should also be to supply liquidity to illiquid but solvent lenders by making loans secured by good collateral to needy banks—that is, stop runs on temporarily illiquid but solvent banks. The Fed does both of those things and needs to be outside politics to do so.
But the Fed has also been given the job of holding down unemployment. That is a political role that it should NOT have. It is in conflict with the other two, proper roles.
Trump and Congress ought to make no efforts to dissuade the Fed from unwinding the excess money supply they created with quantitative easing.
We are risking hyperinflation
Hyperinflation of the U.S. dollar remains a risk, mainly because of the excess $3T on the Fed’s balance sheet and the tidal wave of entitlement spending now beginning to hit the U.S. federal government revenue and spending statement.
Bottom line: The federal government is not going to behave so as to prevent hyperinflation. Why not? The American people are too ignorant of what it all means so they will elect politicians who spend and vote against those who want to pass needed spending cuts. Accordingly, you need to protect yourself. The government is not protecting you.
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