What do the Federal Reserve and the neocons have in common? Both refuse to admit that their policies – the neocons’ promotion of perpetual war and the Fed’s manipulation of the money supply – are complete failures, having produced the opposite of the promised results.
The latest example of the Federal Reserve engaging in Bill Kristol-like levels of denial is the Fed’s continued insistence that the 1970s-style return of inflation is a “transitional” phenomenon resulting from the end of the lockdowns. The Fed has acknowledged that “transient” inflation will last until at least 2022, but is still determined to keep interest rates at or near zero until the “employment situation” improves.
To be fair, the Fed has finally announced plans to curtail its money-pumping activities by reducing its $ 80 billion monthly purchase of $ 80 billion in treasury bills and $ 40 billion in guaranteed assets by $ 15 billion a month. from a mortgage.
The Fed is unlikely to stick to its plans to “reduce” its purchase of Treasury bills. The Fed’s purchases of Treasury bonds allow the federal government to raise debt without raising taxes or paying punisively high interest on the debt.
The Congressional Budget Office predicts that the cost of interest on federal debt will double to $ 829 billion by 2030. That’s more than the government spent on the military in 2020!
Despite the looming fiscal crisis, Congress is unlikely to cut spending anytime soon. Instead, members of Congress are debating a $ 1.75 trillion “social spending” plan, having just passed a $ 1.2 trillion infrastructure bill. Contrary to what President Biden and his allies claim, this new spending will not reduce inflation. What it will do is accelerate and deepen the inevitable economic crisis caused by government overspending.
Of course, most Republicans will continue to oppose large increases in spending and debt … as long as a Democrat sits in the Oval Office. A Republican who becomes president will likely believe, as Dick Cheney said, that President Reagan taught us that deficits don’t matter. The difference between the parties is that Republicans are less likely to raise taxes. So no matter who controls Congress and the presidency, spending and debt can continue to rise.
The Fed could also take dramatic action to keep interest rates low if other buyers of federal debt demand higher interest rates in anticipation of future inflation. Such a situation would be a sign of what Ludwig von Mises called a crack-up boom. A crack-up boom occurs when the public anticipates continued devaluation of the currency, forcing it to consider future price hikes in its business plans.
Crack-up booms are preceded or accompanied by economic crises that can lead to the rise of authoritarianism. However, this is not inevitable. Important steps can be taken, including cutting spending on militarism and corporate welfare, phasing out licensing and welfare programs, and auditing and ending the Fed. Those of us who know the truth should seek to convince our fellow citizens of the importance of restoring a limited constitutional government that does not seek to manage the economy, the world or our lives.