The Federal Reserve has recently remodeled the Eccles Building into a comedy club, turning guidance into satire and monetary policy into a joke. Did the U.S. central bank consult with the geniuses behind the satirical website The Babylon Bee? Senior officials at the world’s most powerful institution are now debating implementing tougher regulations to prevent asset bubbles in today’s market and future economies. Who will tell the Fed that it has already manufactured the greatest asset bubble in human history, thanks to ultra-low interest rates, unlimited quantitative easing, and perpetual bailouts of Wall Street and Washington? If its Keynesian interventions were not so destructive, the Fed’s typhlosis would be comical.
What’s the Deal With Monetary Policy?
The Financial Times got its hands on a memo and some riveting commentary from key names at the chief Swamp monster. The main takeaway from the business newspaper’s reporting is that the smartest men and women inside the Fed are deliberating “tougher financial regulation to prevent the U.S. central bank’s low interest-rate policies from giving rise to excessive risk-taking and asset bubbles in the markets.”
Boston Fed President Eric Rosengren told the publication that the institution does not possess enough tools to prevent businesses and households from adopting “excessive leverage,” recommending everyone participate in a deep “rethink” surrounding the stability of financial matters:
“If you want to follow a monetary policy . . . that applies low interest rates for a long time, you want robust financial supervisory authority in order to be able to restrict the amount of excessive risk-taking occurring at the same time. [Otherwise] you’re much more likely to get into a situation where the interest rates can be low for long but be counterproductive.”
While Minneapolis Fed President Neel Kashkari agreed that stricter regulation is necessary to avoid regular market interventions, he conceded that “I don’t know what the best policy solution is. As soon as there’s a risk that hits, everybody flees and the Federal Reserve has to step in and bail out that market, and that’s crazy. And we need to take a hard look at that,” he stated.
But while Rosengren and Kashkari may have had a monetary come-to-Jesus moment, others are still oblivious to the recklessness of the Fed’s helicopter money. San Francisco Fed President Mary Daly failed to see a connection between loose monetary policy and risks in the financial markets. Randal Quarles, the vice chair for the supervision of the Federal Reserve Board of Governors, revealed he is comfortable with the organization’s “regulatory posture leading into the Covid crisis, reckoning that banks were healthy enough to survive the shock of the pandemic and support the U.S. economy.”
Quarles conceded an eye-opening point, and that is the U.S. Treasury market is so vast that the Fed might need to consider perpetual involvement to keep it afloat. Put simply, the broader financial market has become so dependent on the Fed that it continually needs a cash injection. Once again, this revelation is something Fed critics have been pontificating about for years.
Deconstructing the Federal Reserve
After perusing these remarks, two questions arise. First, where were these professional interventionists for the last several years? Second, how could anyone still be in denial over the link between an ultra-accommodating Federal Reserve and the wide range of risks and moral hazards pervasive throughout the stock market?
Liberty Nation recently reported that many of the celebrated minds on The Street are sounding the alarm about bubbles and the consequences of the Powell Putsch. It would have been great if the likes of Lloyd Blankfein and Rosengren had aired their grievances and highlighted their apprehension to unconventional Bernanke Blitzkriegs, Yellen Yakuzas, and Powell Puts years ago, when the Fed was fueling the bubblemania with a near-zero-interest-rate policy, an aggressive money-printing campaign, and a swelling balance sheet. Meanwhile, as LN has also reported, the data do show a direct correlation between a rising balance sheet and a boost in the leading benchmark stock indexes.
Perhaps some Fed officials see the writing on the wall, so they are changing their tune slightly to highlight their apprehension over the aggressive monetary campaign. Others may want to bury their heads in the sand, allow the asset bubble to enlarge, and pray that it does not pop until their term or tenure has concluded.
The Eccles Comedy Club
The United States is now at a point where there is talk of indefinite and unlimited money-printing. Would this not lead to a bubble monstrosity unmatched by the dot-com, housing, and stock market bubbles of this century? Moreover, will the Fed ignore the threats to the U.S. dollar’s survival? It appears that the Fed is too busy writing biting satire in the back of a delicatessen, like a bunch of young sitcom writers looking to catch a big break, to consider the long-term ramifications of the debt-laden, bubble-reliant financial system. Americans should not expect something different from a body that has been just as politicized as the White House or the Congress, despite contradictory and laughable statements regarding independence. The Fed enjoys kicking the can down the road as much as lawmakers.
Read more from Andrew Moran.