By Robert Williams
Earlier this month the Federal Reserve announced that it will purchase $600 billion worth of bonds, in addition to it’s already existing operations, with the hopes of, raising inflation. With most rates of interest already below real time inflation rates of 3-4% per annum, why on Earth would the Federal Reserve want to raise inflation, and thereby lowering the returns of hedge funds, mutual funds, 401k(s), 529’s and other investments?
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A piece by George Will in the Washington Post says, “The Fed’s large, and sufficient, original mission was to maintain price stability – to preserve the currency as a store of value. “Mission creep” usually results from a metabolic urge of government agencies. The Fed, however, had institutional imperialism thrust upon it when Congress – forgetting, not for the first or last time, its core functions – directed the Fed “to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates.” The last two goals are really one. In the pursuit of the first, which requires the Fed to attempt to manage short-term economic growth, the Fed has started printing $600 billion – this is the meaning of what is called, with calculated opacity, ‘quantitative easing.’.
What that means is that there is bound to be trouble at the Federal Reserve, with both this mandates. How does the government accomplish one without hurting the other? This goes to the heart if what exactly is the purpose of fiscal and monetary policy, and which has supremacy. Which policy is best for the country at this point in time in the country’s history? With the 111th Congress on it’s way out and the 112th not sure which to put first, its own political ambitions or the well being of the country. We have to influence our elected officials to make the choices that are best not just for the lower income class, or the middle class, or the wealthy, but for our future generations who will bear the brunt of our choices.
To be continued in part II.