Federal Reserve policy confusion ensures the existing agenda will move forward

Mainstream business media work to ensure current policy direction
All monetary theories are presented as equally valid, so only the existing path moves forward

I came across an article from this weekend’s edition of Barron’s titled, The Federal Reserve Faces a Reckoning, and wanted to share it with you. It is behind a paywall, so I copied the article to the website.

My first thought while reading it was how the article’s quoted experts all seemed at odds with how to proceed. At the core of the issue; the Fed needed to act in a way that was most fair. This is a branch of economics called normative economics. But the experts who were quoted couldn’t come to any consensus. This ostensible confusion was the intended message of the author. It helps to ensure the existing agenda will move forward.

Normative economics (as opposed to positive economics) is a part of economics that expresses value or normative judgments about economic fairness or what the outcome of the economy or goals of public policy ought to be.

Normative Economics, Wikipedia

Although it is an interesting article, I am sure the average reader is left more baffled than ever about how the Fed should proceed with monetary policy operations in the future. Here is an example of what I mean:

Martin Wolf, the Financial Times’ economics writer, contended this past week that “monetary policy has run its course,” having done all it can to fight secular stagnation, the state of persistent inadequate demand hypothesized by Lawrence Summers, the former head of the National Economic Council under President Barack Obama and Treasury secretary under President Bill Clinton.

Persistently low interest rates aren’t artificially depressed by central banks but by the low level of real rates needed by the economy, Wolf continues.

With monetary policy having reached this apparent cul-de-sac, Wolf contends fiscal measures are needed to counter insufficient demand. Taken a step further, this argument extends to adopting Modern Monetary Theory [MMT], which essentially argues a nation that can borrow in its own currency isn’t limited by the size of the debt. If inflation heats up, fiscal policy can be tightened. Powell dismissed MMT as “just wrong” in recent congressional testimony, an opinion shared by the overwhelming majority of mainstream economists, even as it gains adherents on the left.

The Federal Reserve Faces a Reckoning– Barron’s, March 15th

Quantitative easing; Modern Monetary Theory in action
Anyone can make it a left/right issue, but MMT is the very essence of current central bank policy

Here’s the odd thing about Powell’s rejection of MMT; he didn’t reject it as a policy tool, rather he rejected the notion that the Fed was engaging in it. I say, of course it is.

The business media have done an effective job in politicizing the matter by making it a left/right issue. But, at the end of the day, any central bank that is engaging in sovereign debt purchases is employing Modern Monetary Theory. Jerome Powell’s MMT rejection was so adamant that most experts in the field agreed with him.

Wolf still conjures up the idea that bond yields are somehow determined in a free market. He cannot yet admit that the central banks have artificially suppressed the yield curve. As a writer for the FT, he is not allowed to have that view. He chalks up the current low regime of interest rates in the bond markets to the low levels of equilibrium rates needed to stimulate the economy and that it was not a by-product of monetary policy. Even more disconcerting; there is a sizable consensus that the Fed has been too tight and that is helping to keep longer-dated bond yields too high. I think you see the confusion that has been planted.

Many researchers are now predicting that enormous doses of fiscal stimulus will be needed going forward. You can see that all these programs were what caused the problems in the first place. Even if liberals/socialists can convince the population that fiscal and social deficit spending are the preferred normative policy, the results will be toxic as the prices of assets will continue to climb and the intended beneficiaries of this social spending will continue to fall further behind.

I say that without the central banks engaging in ongoing MMT, the credit markets would have collapsed a decade ago and they never would have been resurrected without a new monetary system. The elites, however, are not ready to introduce that new system. The current one fulfills all their needs.

As far as what will happen in the future, I see more of the same. I view the monetary policies of Japan as a template of what will come to the rest of the developed world. The BOJ’s monetary policy is the very definition of MMT. The BOJ conjures up any money that is needed for the Japanese government to stay in business without upsetting its citizens. MMT is alive and well and all the major central banks are engaging in it.

Just because the business media frame MMT as a liberal idea, doesn’t make it so. I see more of the same coming, so we better plan for this reality. Politics have nothing to do with it. It’s all designed to consolidate the global wealth.