Why Can’t the Fed Control Inflation?

Any first year economics student will be able to slowly and cogently explain the theory of maximum employment, or even give you a run-down on modern monetary theory.  Certainly, most hobbyist economists will be able to fumble their way through an explanation of Keynesian stimulus theory.  But where their book learning and theories and financial models break apart is during a crisis.  Why?  Because: you can’t model a currency crisis. You can’t say when one will occur. You can’t say how bad it will be once it starts.

A currency crisis occurs outside the realm of even the best mathematically correct theories. Such a crisis results from a massive, widespread loss of faith in a given currency. It doesn’t happen in textbooks or in charts, models or in Paul Krugman’s daily hack-job column.

It happens in the minds of men.  It’s largely emotional. If you believe that the object of your life’s hard work will soon be worthless, then you may be allowed some small degree of emotional response.  The response might seem irrational – and even completely unnecessary to the casual observer.  But the response of everyone “irrationally” fleeing the dollar, need not fit into Nobel Laureate’s understanding of what should happen.  Sooner rather than later, when governments and central bankers treat their currencies like waste-paper, regular people will begin to connect the dots, and all it will take is one large institution or country to set off the crisis.

People like John Williams, the San Francisco President of the Federal Reserve, believe that they can chart out the actions of the dollar as if the entire economy of the world and every individual holder of the dollar was a simple 3-step Rube Goldberg setup. 


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After printing trillions of dollars over the past few years, and cramming billions more into existence, Mr. Williams thinks he knows exactly where all of those dollars will end up, and how they’ll behave.  Here’s what he said yesterday when discussing the Fed’s ongoing bond purchases, aka Quantitative Easing:

I estimate that these longer-term securities purchase programs will raise the level of GDP by about 3% and add about three million jobs by the second half of 2012.”

He actually believes he can accurately predict GDP and job growth by simply pulling levers at the Fed’s computer.  According to bankers like Mr. Williams, inflation is of no concern. Why isn’t it of concern?  He says that money supply, “has grown at a 5 1/2% annual rate on average, that’s only slightly above the 5% growth rate of the preceding 20 years.”

Remember his lack of concern as prices of nearly everything continue to spiral upwards.  After doing little else besides print massive amounts of money for the past 20 years, inflation is of little concern!  Amazing.  What Mr. Williams is too incompetent or dishonest to be aware of, is that regular people are feeling less than confident in the dollar. The Chinese share that lack of confidence, and they’re dumping Treasuries. Other countries are beginning to settle trade in currencies besides the dollar.  It’s getting late in the evening for the dollar’s hegemony.

Either John Williams, and his buddies Tim Geithner and Ben Bernanke know it, and they’re on damage control, or they don’t know it, and they’re some of the most shortsighted figures in world history.

Either way, look out below.


About todaysawareness

The site, “beawaretoday”, is a unique prospective, as if looking down from 30,000 feet at the world of Local, National, and Foreign Affairs. Most people go through each day only seeing what is immediately affecting them and most only have a vision for dealing with their issues of only about 5 to 7 days. With, “beawaretoday”, we look at what is happening around the World and what I call the Domino Effect, to project problems that are forthcoming so that people can plan ahead to deal with them vs. dealing the alternative. I created the blog, “beawaretoday” so that I could share a forum to discuss, Current, Domestic and Foreign Affairs that affect us all through the Domino effect. I encourage you to join the Discussions or at least enjoy reading the content. Thank you, Tom Campbell
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One Response to Why Can’t the Fed Control Inflation?

  1. Lance Denney says:

    “Certainly, most hobbyist economists will be able to fumble their way through an explanation of Keynesian stimulus theory.” Keynes “changed” his thinking after the Great Depression. He later became an original architect of the World Monetary fund (& their repeated “failures”).

    Keynes problem is that he focused on distribution and then the “supply” of… Labo(u)r… not products or demand. But it’s not that simple. You have to factor in the supply of dollars, the supply of oil/energy(in dollars), and most important, the “demand” by people and businesses. No demand = NO “labor emplyment”, Keynes centerpiece. Example: Insert extra money into ANYONES’s pocket and they will spend it=Demand, creating a “micro-economy”. “Extra money” can equal lower commodity prices, higher wages, lower taxes, lower healthcare costs, less sicknesses. Things Keynes didn’t dwell on too long. It was a different world back then.

    “But where their book learning and theories and financial models break apart is during a crisis. Why? Because: you can’t model a currency crisis. You can’t say when one will occur. You can’t say how bad it will be once it starts.” Yes and No… Yes you CAN model a currency crisis. Banks repeatedly CREATE them every decade or so. So if they can repeatedly CREATE them “on purpose” then obviously you can “model” them. Do they tell “us” about the models? Of course not. Did the cigarette companies tell us they were addicting people with drugs? Can you predict them? Of COURE you can. I alone had 3 different monetary newsletters telling me to get out of real estate for 2 years before the crisis was acknowledged by the media. The Republican Congress passed law after law getting RID of regulators and laws and allowing higher and higher credit to Bush’s charging everything he and America did. Then they passed a law making it HARDER for Americans (real people) to declare bankruptcy, while allowing bankers and credit cards to charge interest rates that USED to get you put in prison for loansharking! Effectively putting loansharks out of business… until recently, when the bankers that got billions of FED dollars, refuse now to loan out the Bush bailout FED $ to HELP put America back on it’s feet. Instead, they use it to do EXACTLY what they did before, that helped START this crisis…because of ALL the repeated NO CHANGES votes in congress.

    No, you CAN’T tell how bad one will get when you have PAID forces buying poilicies and votes that will make matters worse or stay the same. If 80% of Americans tell us they WANT GE and EXXON to pay higher taxes than ZERO, then why did one “POLITICAL PARTY”, as a WHOLE, vote AGAINST 80% of Americans? Over and Over and Over? Why doesn’t the media CASTRATE them for those votes? Because my friends, we’re being CONNED! By the RICHEST elitest Con-serv-Artists in the world. Why do “real “people” NOT get to write off EVERYTHING they spend to make money when corporations DO? Become a BUSINESS they say… I ask…Why SHOULD I? Corporations are NOW SUPREME COURT People! I was a people first, TAX me like them! I spend everything I make to live and make more too! I have the same utilities expenses, housing, rents, travel, meals, etc, “all” needed to make a living “wage”. Why aren’t THEY deductible for me?

    The Golden Rule: He who has the Gold, Makes the Rules!

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