Perhaps you noticed an intra-day collapse of your brokerage or retirement accounts yesterday, a slide that continues today as I type this, and wondered what happened. Here is your answer: Lael Brainard.
Brainard, who resembles a female scarecrow with her flaxen, straw-like hair, is vice chairman of the Federal Reserve Open Market Committee, more aptly labeled the Open Mouth Committee these days.
The Federal Reserve basically runs this nation’s money supply. Take a bill from your wallet and you will see “Federal Reserve Note” printed prominently across the top.
You probably never bothered to think about the ramifications of that. You really should.
The Federal Reserve basically is a bank of banks set up in 1913 to manage the money system.
Modern day Fed types, most notably former Fed president Ben Bernanke, openly admit the Fed blew it by tightening money supply into and during the Great Depression of 1929 through the 1930s.
Bernanke even coined the term “helicopter money” in promising such a mistake would not again be made by the Fed. If necessary, said Ben, they would print money and drop it from helicopters to the masses.
It was interesting symbolism, even though the majority of the money supply is not physical currency, but rather digital entries on the global accounting computers.
You need the actual physical currency to conduct day-to-day business, although the long-term goal is to get rid of paper money and coinage, the better to allow governments to monitor any of your spending or income.
One of the favorite Fed methods to increase the money supply is to buy government debt instruments, things like bonds and short-term bills.
The government creates them out of thin air, the Fed “creates” money to buy them and the liquidity sloshes through the system.
The holdings show up on the Federal Reserve balance sheet, which has ballooned to more than $8 trillion, up from $4 trillion in 2020.
This is actually the underlying reason you are paying more for food, housing, transportation, fuel and just about anything else. The Ukraine situation is merely inflaming an already existing inflation problem.
The Fed belatedly has come to the point of conceding inflation is about to get out of hand, it if already hasn’t done so.
When last this happened, in the 1979-80 range, then-Fed chairman Paul Volcker raised interest rates to nosebleed levels. The average mortgage rate in 1981 was 16.63 percent.
Volcker’s shock therapy worked. The inflation rate dipped from 15 percent in 1981 to a more typical 3-5 percent within a few years.
But modern Fed types can’t pull a Volcker due to their huge Fed balance sheet, which would be decimated by high interest rates because existing debt paying lower interest rates must fall in value of the principal to reflect that.
Also the government is a massive debtor, largest on the planet.
So, while the Fed vows it will raise interest rates .25 percent or .50 percent here and there, it would need about 16 of those .50-percent raises just to get the Fed Funds interest rate up to our current inflation rate of 8-9 percent.
What the Fed members do have is their mouths, and they run them ad nauseam.
Brainard heretofore a dove – Fedspeak for someone who wants to keep interest rates low and increase the money supply and the Fed balance sheet – was incredibly hawkish in comments Monday.
Brainard droned on about strings of .50-percent rate increases along with drastic dropping of the Fed balance sheet.
Higher interest rates will harm consumption and, in theory, crimp inflation. Selling Fed balance sheet obligations back into the market will decrease the money supply, also with a slowing effect on things.
As is apparent, this also will crater investment markets and the economy.
And so the Fed soon will face intense pressure from people like Clueless Joe Biden, once his handlers point out that an economy in or near to being in a recession likely will lead to a strong Republican showing in the mid-term elections this fall.
Brainard and other Fed blowhards know they can’t pull a Volcker, but if they can scare investors and consumers into pulling in their collective horns, they might take a bit of the edge off the rising inflation rate without having to hike interest rates into the teens.
They are all hat and no cattle at this point because of the corner into which they’ve painted themselves with decades of loose monetary policy.
But, in the short term, Brainard and her ilk can talk tough and scare markets. Meanwhile, inflation sits in the corner laughing at them.
Sam Ross Jr's site 