For two decades I have called for the abolition of the Federal Reserve but.... Today we all rely on the Federal Reserve to save us from the impact of loose fiscal policy in Washington DC [see photo]. Washington DC has worked hard to amalgamate monetary and fiscal policy under the dictum of Modern Monetary Theory. MMT is a complete departure from the traditional concern with stability [growth, employment, inflation, interest rates, etc]. Under MMT there seems to be a pact between loose government spending and loose monetary control. We can afford "not to give a damn" about all this if, and only if, the $US is not the World's Reserve Currency; then, the adverse impact of loose DC policy settings would be visited on Americans not on everyone around the globe.
The Federal Reserve seems to be willing to vacuum up much of the fiscal excess spending as it moves towards ending Quantitative Easing [QE] and move to stabilising the flow of funds to and from the banking sector. The role of T-Bills is being redefined. The slack in the QE regime which formerly boosted the Stock Market to record levels is now being returned to the Federal Reserve by the banking sector. A stronger $US is a sign that the impact of loose fiscal policy in Washington is being confined to the American economy. The impact is not spreading to the world as it did in the 1960s when President Johnson spent at home [The Great Society programs] and abroad with his war in Vietnam [The fight against communism]. That swirl of excess spending, and lax monetary policy, led into global inflation in the 1970s.
Federal Reserve measures to escape from the QE quicksands [of the past decade] will not necessarily increase GDP growth. It will not immediately moderate inflationary pressures. It will not completely negate the inflationary impact of Washington DC's loose fiscal policy. It will not boost lending to small businesses. It will not cure the endemic impact of Omicron. It will not...... However... it might save us all from the hyper-inflationary pressures that would otherwise be exported to the world via a slumping $US. And it might mean that the battle between those who advocate for globalism and those who advocate for localism is resolved in favour of the latter not the former. The current move from the Federal Reserve is a definitive departure from the globalism narrative which has prevailed for the past 20 years.
The Federal Reserve could become the institution that broke the curse of globalism. Please remember that globalism is underpinned by the notion that everyone on Earth [some 7 billion people] can be managed by a central government to achieve equal outcomes throughout their lives. The localism dictum, which is waiting in the wings, is cast more as family-based life with small businesses as a key driver of the national and global economy.
Richard.
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