Friday, October 9, 2020

Has Fed Chairman Jay Powell Gone G. William Miller Mad?

Jay Powell

Money supply growth (the way I calculate it and as described in The Fed Flunks) is slowing dramatically from its peak growth in early July.

As I note in the EPJ Daily Alert, the growth is still exceptionally high compared to recent years but its current pace is slower than earlier this year.

Federal Reserve Chairman Jay Powell is apparently not happy with the slowdown in money supply growth and is just looking for a reason to get the printing presses running over time again. He most assuredly has stocked up on tankers full of green ink.

Joseph C. Sternberg writes in The Wall Street Journal:

Federal Reserve Chairman Jerome Powell’s stock has risen steadily on Capitol Hill in recent months as he lobbied aggressively for more fiscal stimulus in the face of the pandemic. This is one “market signal” that should make everyone nervous, not that many will admit it.

Mr. Powell is popular because he’s telling lawmakers—primarily Democrats—what they want to hear. To wit, he has become Washington’s most eminent advocate for a phase-four spending blowout. “The recovery will be stronger and move faster if monetary policy and fiscal policy continue to work side by side to provide support to the economy until it is clearly out of the woods,” he opined Tuesday. He warned that the failure to provide such stimulus would be “tragic.”

Tuesday’s speech was the latest in a string of pronouncements by which Mr. Powell lobbied for more pandemic spending. Last month he told eager members of Congress, “I think that it is likely that more fiscal support will be needed.” And before that, he insisted on National Public Radio that the time to worry about government debt is “not right now.”

Powell wants the government spending so he can monetize the debt that will accompany the spending and blow money growth through the roof once again. 

He is the most irresponsible Fed chairman since G. William Miller.

I'll let Wikipedia take the Miller story from here:

Miller succeeded Arthur Burns as Fed Chairman in March 1978. He inherited a high inflation economy, still suffering from the increase in oil prices from OPEC. The change in the Consumer Price Index was 4.9% in 1976 and 6.7% in 1977. Nevertheless, Miller believed that inflation was not too high, and would be self-correcting. He thus pursued a strongly dovish policy and opposed raising interest rates. The effect of this was to send the dollar's value spiraling downward.In November 1978, only 11 months into his term, the dollar had fallen nearly 34% against the German mark and almost 42% against the Japanese yen...

Miller's lackadaisical measures against inflation caused distress among members of the Carter Administration itself. Treasury Secretary Blumenthal, Inflation Adviser Alfred Kahn, and Chief Presidential Economist Charles Schultze all advocated for increasing the interest rate prior to the April 1979 meeting, where Miller opposed such measures. Carter had to admonish his own staff over the press leaks used to carry on the dispute...

 A 2003 article in The Economist said that "America's central bankers have all made their weight felt across the political sphere, with the possible exception of William Miller, whose brief tenure in 1978-79 was notable for his attempts to ban smoking at the board."...

By early 1980, inflation was running at 14 percent per year.

Sternberg gets this right:

In the most generous reading, perhaps the chairman hopes that if he goads Congress into passing another relief bill, he’ll somehow relieve the political pressure on the Fed to act more aggressively in lieu of legislation. Yet a fundamental part of Mr. Powell’s job is to do the opposite—to impose some discipline, however light, on political spending decisions. He’s not fulfilling that duty if he argues for limitless fiscal expansion (and then, by the way, becomes a major buyer of the Treasurys the government will issue to pay for it all).

Worse, at the end of August the Powell Fed adopted a new inflation target that will permanently politicize American central banking. The “average inflation targeting” regime gives the Fed infinite scope to allow inflation to run hotter than its 2% target to make up for periods when inflation runs below the target. This average is so malleable in practice as to be no target at all.

Note the dangerous interaction between this new framework and Mr. Powell’s lobbying for coronavirus stimulus. With the enormous new debt for which the chairman is pleading will come unbearable political pressure on the Fed to suppress interest rates lest it increase the government’s debt-servicing costs. The central bank’s old inflation target offered some measure of political cover for raising rates. Without it, the Fed will have little recourse to resist Congress’s debt-happy ways.

 With Powell at the head of the Fed, price inflation at a very rapid rate appears only months away.

Hug your gold coins.


No comments:

Post a Comment