Do you think we might eventually see the world starts to shift away from the U.S. dollar’s status as the dominant reserve currency at an increased speed — even if it remains extremely important? I’m just wondering, especially given the persistent budget deficits, the freezing of Russia’s dollar reserves (which China has surely taken note of), and the increasing political pressure on the Fed (for example what you described in the article).
On the whole, I very much appreciate this description and analysis. But one paragraph troubles me a little — let’s break it down into a couple of parts:
“Independent technocrats, not political operatives, setting interest rates is widely viewed as crucial for controlling inflation.”
“Widely viewed,” eh? But by whom? I suspect very much by those for whom the current arrangements are congenial. Unfortunately, current arrangements are very much uncongenial for broad swaths of working Americans.
“Throughout history and around the world, there are examples of politicians advocating for lower interest rates to stimulate economic growth or reduce the government's borrowing costs.”
Indeed — and these aren’t in and of themselves necessarily bad things, correct?
“Such policies can increase demand beyond the economy’s productive capacity, leading to inflation.”
Yes. Yes, they “can” but that is NOT the same as “will” or “must.” The outcome depends upon matching expenditure to real resource availability, including labour. So how do we ensure the match? One suggestion follows:
“An independent central bank offers a bulwark to those political tendencies.”
Sure — but that isn’t the sole solution, is it? I would submit that it’s very much a “second best” solution compared to judicious fiscal policy — a tool vastly more flexible and powerful than monkeying with the blunt instrument of overnight rates as a feeble alternative.
I submit to you that “independent” (scare quotes because the Fed is a creature of Congress and its laws) central banks are, by design, aristocratic (spare me “technocratic” — it’s merest obfuscation) institutions inimical to labour. Further I submit that they serve as a convenient bulwark against something else entirely — the systems of democratic accountability to which our elected representatives would otherwise be subjected for their fiscal policy failures. As such I welcome a return to the consolidated Treasury and an end to abdication of responsibility by our elected representatives for exercising one of the most fundamental tools of sovereign statecraft — fiscal policy and monetary policy working together on behalf of the citizenry.
I have a funny feeling Jerome Powell will be gone at the end of the year. Stay tuned. This back and forth between Trump and Powell has been fascinating.
I agree with everything you said ,yet somehow I am frustrated that WE can no longer build anything . Perhaps it’s because I have witnessed the squandering of 30 Billion dollars on the California Hi Speed Rail . It’s been 17 years . In 1930 WE built the Empire State Bldg in 444 days .WE are not the country we once were . This is a sidebar . You are of course right about Fed Independence. Thanks , Claudia
Not only will an independent organization like the Fed tend to overspend its construction budget, but it will also keep expanding its employee count indefinitely. It's Parkinson's Law: work expands to fill the time available. All the employees will seem very busy, because they are making work for one another. The Fed should commission one of the major consulting firms to audit their operations and recommend RIFs, before Congress does it for them.
Claudia, Do you really believe the Fed operates or could operate independently of The Treasury? The processes, procedures and operations of both agencies are intimately intertwined. Arguing for independence is a furphy, as government appoints the board and has political influence. To say that the Fed operates independently is to attempt to argue that monetary policy should always operate independently and is more important than fiscal policy. Having a so called “independent central bank” IMHO is pushing the envelope for hard decisions being pushed away from elected government. Ordinary citizens have no say in Fed appointments, but government does and should take full responsibility for its decisions.
Is there anything this misadministration is doing that doesn't put the economy at risk? It seems to me that Trumpkopf and his evil Klown Kar Krew are going out of their way to wreck the economy - and purloin the spoils.
Brick by brick for BRICS+
Do you think we might eventually see the world starts to shift away from the U.S. dollar’s status as the dominant reserve currency at an increased speed — even if it remains extremely important? I’m just wondering, especially given the persistent budget deficits, the freezing of Russia’s dollar reserves (which China has surely taken note of), and the increasing political pressure on the Fed (for example what you described in the article).
On the whole, I very much appreciate this description and analysis. But one paragraph troubles me a little — let’s break it down into a couple of parts:
“Independent technocrats, not political operatives, setting interest rates is widely viewed as crucial for controlling inflation.”
“Widely viewed,” eh? But by whom? I suspect very much by those for whom the current arrangements are congenial. Unfortunately, current arrangements are very much uncongenial for broad swaths of working Americans.
“Throughout history and around the world, there are examples of politicians advocating for lower interest rates to stimulate economic growth or reduce the government's borrowing costs.”
Indeed — and these aren’t in and of themselves necessarily bad things, correct?
“Such policies can increase demand beyond the economy’s productive capacity, leading to inflation.”
Yes. Yes, they “can” but that is NOT the same as “will” or “must.” The outcome depends upon matching expenditure to real resource availability, including labour. So how do we ensure the match? One suggestion follows:
“An independent central bank offers a bulwark to those political tendencies.”
Sure — but that isn’t the sole solution, is it? I would submit that it’s very much a “second best” solution compared to judicious fiscal policy — a tool vastly more flexible and powerful than monkeying with the blunt instrument of overnight rates as a feeble alternative.
I submit to you that “independent” (scare quotes because the Fed is a creature of Congress and its laws) central banks are, by design, aristocratic (spare me “technocratic” — it’s merest obfuscation) institutions inimical to labour. Further I submit that they serve as a convenient bulwark against something else entirely — the systems of democratic accountability to which our elected representatives would otherwise be subjected for their fiscal policy failures. As such I welcome a return to the consolidated Treasury and an end to abdication of responsibility by our elected representatives for exercising one of the most fundamental tools of sovereign statecraft — fiscal policy and monetary policy working together on behalf of the citizenry.
Dr Sahm, this is my article on concept of central bank Independence.
https://3rdworldecon.substack.com/p/central-bank-independence
I have a funny feeling Jerome Powell will be gone at the end of the year. Stay tuned. This back and forth between Trump and Powell has been fascinating.
Fascinating, in a morbid sort of way.
Really helpful: a nuanced informative account.
I agree with everything you said ,yet somehow I am frustrated that WE can no longer build anything . Perhaps it’s because I have witnessed the squandering of 30 Billion dollars on the California Hi Speed Rail . It’s been 17 years . In 1930 WE built the Empire State Bldg in 444 days .WE are not the country we once were . This is a sidebar . You are of course right about Fed Independence. Thanks , Claudia
Not only will an independent organization like the Fed tend to overspend its construction budget, but it will also keep expanding its employee count indefinitely. It's Parkinson's Law: work expands to fill the time available. All the employees will seem very busy, because they are making work for one another. The Fed should commission one of the major consulting firms to audit their operations and recommend RIFs, before Congress does it for them.
Claudia, Do you really believe the Fed operates or could operate independently of The Treasury? The processes, procedures and operations of both agencies are intimately intertwined. Arguing for independence is a furphy, as government appoints the board and has political influence. To say that the Fed operates independently is to attempt to argue that monetary policy should always operate independently and is more important than fiscal policy. Having a so called “independent central bank” IMHO is pushing the envelope for hard decisions being pushed away from elected government. Ordinary citizens have no say in Fed appointments, but government does and should take full responsibility for its decisions.
Does anyone believe the Fed has ever been independent of the oligarchic/kleptocratic interests?
The Fed is the ultimate economic central planner, a key feature of Communism.
Is there anything this misadministration is doing that doesn't put the economy at risk? It seems to me that Trumpkopf and his evil Klown Kar Krew are going out of their way to wreck the economy - and purloin the spoils.