Posted on 11/23/2022 3:15:09 AM PST by EBH
Kansas City Fed President Esther George should be celebrated for being honest about how the Federal Reserve works.
One of them was Esther George, the president of the Federal Reserve Bank of Kansas City. George then did something unusual in an interview with National Public Radio: She told the truth about what the Fed does.
“We see today that there is a bit of a savings buffer still sitting for households, that may allow them to continue to spend in a way that keeps demand strong,” she said. “That suggests we may have to keep at this for a while.”
In other words, the problem today as seen by the Fed is that regular Americans have too much money. And the Fed is going to keep bludgeoning the economy until this is no longer the case.
This is essentially what Paul Volcker famously said in 1979 soon after he took over as chair of the Fed: “The standard of living of the average American has to decline.”
To the ears of normal people, statements like those of George and Volcker sound appalling and outrageous. And perhaps they are. But George is not a monster; she also expressed concern that the Fed was going too far, saying, “I have been in the camp of steadier and slower [rate increases], to begin to see how those effects from a lag will unfold.” You could honestly argue that she should be celebrated rather than blamed for her words: She was being honest about the Fed’s mission and how it functions.
In 1977, Congress formally instructed the Fed that its mission was to “promote effectively the goals of maximum employment [and] stable prices.” But what does this mean? And what happens when these two goals conflict?
In theory unemployment could get so low that regular workers could bid up their wages so fast that inflation would skyrocket. Definitely in practice we know unemployment can be so high that the workers can’t get higher wages, and as the economy grows, all the gains flow to the top.
The Fed sits directly on the fault line generated by the oldest, most fundamental conflict in history: that between rich creditors and working-class debtors.
In any society with huge wealth disparities like the U.S., creditors are always terrified that debtors will get control of the monetary system, print tons of money, and destroy the value of the creditors’ financial assets.
Right now, U.S. households have about $16 trillion in debt, $11.4 trillion of which is mortgages. Another $1.59 trillion is student debt. But thanks to the 14 percent cumulative inflation over the past two years, this $16 trillion today is only worth what $14 trillion was this time in 2020. I.e., $2 trillion has been effectively transferred from creditors to debtors.
This is by no means a straight $2 trillion transfer from the rich to the poor. It’s complicated. Lots of rich people have big mortgages, for instance. But on net, it is indeed a big loss of wealth for the affluent, and a gain for people further down the income scale.
The Fed’s job is to mediate between these two directly opposed interests. Creditors generally want lower inflation and higher unemployment; debtors generally will benefit from the opposite. The Fed’s preferred approach is to pretend that these interests are not opposed. But George just busted out with the truth: They are.
After a huge increase over the past several years, poorer Americans now enjoy a higher net worth than they’ve ever had in U.S. history. This gives them a little unaccustomed leverage, some wiggle room, the chance to quit their job for a better one, even while, as George puts it, they “can continue to spend in a way that keeps demand strong.”
This is a nightmare for rich creditors. They want this working-class leverage eliminated ASAP and inflation crushed.
The Federal Reserve responds to pressure from rich creditors with alacrity, in part because rich creditors are mostly the only ones who understand the Fed and yell at it. So the Fed is now purposefully trying to slow the economy until people’s savings are gone and they can’t afford to keep buying stuff.
This truth about how the world works is an ugly one. The journalist William Greider explained this in his book “Secrets of the Temple: How the Federal Reserve Runs the Country”:
The economic liquidation, in fact, resembled the form, though not the content, of a primitive religious practice — the pagan ritual of human sacrifice. Some individuals were chosen to serve as victims for the good of the entire society … in moral terms, the process was sadistic, an example of what Thorstein Veblen called the enduring barbarism of modern society.
The economic victims were chosen at random, but mostly from among the weaker groups in the society. The methodology employed by the Federal Reserve to induce contraction … insured that the strongest individuals and enterprises would be able to evade selection. There was this hierarchy within democracy — a hierarchy of vulnerability.
There almost certainly are better and fairer ways of dealing with inflation than human sacrifice. For instance, the central tension between debtors and creditors at the heart of the Fed’s mission would be greatly reduced if we were a more egalitarian country. But we’ll never be able to figure this out unless we’re willing to look directly at reality.
Why does the standard of living have to decline? It never declines for the elites.
“It never declines for the elites.”
It never declines for givernment too - feral, state or local.
And why should wage increases be inflationary?
That is the plan.
Money used to be used to support freedoms and liberties.
Now it’s used to reduce misery.
Serfdom.
because they want us all to be slaves on their plantation, it’s different for them than the rest of society. They keep sending our $$tax dollars$$ to the Money Laundering Capital of the World ( Ukraine ), and allowing the steady, massive flow of criminals across the Southern Border !
Shhhhhhhhhhhh.... they’ll call it something else, and spin it another way to the easily gullible uneducated public being deliberately drained into poverty and dependence.
And they are doing this all while robbing us of Free and Fair elections, so they have Total Control!
Wage increases raise the costs of peoduction so prices go up. Prices going up results in inflation, whether a small amount or large, depending on, in this case, the amounts and the widespreadness of the wage increases.
“It never declines for givernment too - feral, state or local.”
every woodpile gets used up. Eventually there won;t be any more wood to fuel the fire and it will die out.
It’s all going to come crashing down eventually.
China is waiting.......
That's why I strongly feel that government pensions should be based on 401K contributions, not guarantees. Their savings and pensions should be based on the economy and the effects of government on the economy that the rest of us have to worry about.
Get rid of the “Fed”. Period.
If everyone has a high standard of living, there’s nobody to do the work — and prices will rise because low-wage jobs must pay more just to attract workers who have other options.
As one FReeper astutely noted a while back … You can’t have $30/hour wages and Walmart prices at the same time.
The inflation started when unskilled classes of workers doubled and tripled their wages, but not real production.
That is inflationary. One cannot raise the bottom 30% of worker wages and not have an inflationary reaction.
Cost of a Big Mac theory.
“In any society with huge wealth disparities like the U.S., creditors are always terrified that debtors will get control of the monetary system, print tons of money, and destroy the value of the creditors’ financial assets.”
That was enlightening. Sounds like a caste system.
But it wouldn’t be a problem if the money was backed by gold.
You get a gold star ⭐️ for the day!
This is also why they want the CBDC so badly.
My correction here is more accurate.
My response to that is why should government be picking winners and losers? Are you ok with that? It sounds to me that you are totally against upward mobility.
Not many people, even here on FR, understand this. Arbitrarily raising wages, especially in the middle of an existing inflationary spiral, will only make things much worse. It’s no different than the dem proposals for government to provide everyone with a “basic income”, or for that matter what would happen if we just gave everyone a million dollar salary tomorrow. None of that will improve the standard of living of anyone; it will only push more arbitrary dollars out there to chase the same amount of goods, resulting in more and more inflation. And those who weren’t granted these “helicopter dollars”, such as those on fixed incomes, would be absolutely crushed in the process.
But you also mention the one and only exception to what I’ve just said, and that is increased productivity. Wage increases should only happen if they are in response to productivity increases that generate new value in exchange for those dollars. Anything less than that is purely inflationary.
I’m simply pointing out how things work.
I know very few seem to grasp basic wage and production, to prevent inflation.
With some it might as well be a brick wall.
But I will keep posting as long as it takes for the 💡 to turn on.
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