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(International Man)—The reason for the dangerously high growth rates of Fed credit is what might be termed the inflation confirmation fallacy. That is to say, once high inflation broke out for the first time in peacetime history, flummoxed mainstream economists soon embraced the notion that the central bank should midwife a gentle, gradualist cure by “accommodating” some significant part of the rising price level, lest a too stingy growth of Fed credit would cause real interest rates to soar and bring the economy to its knees.
The effect of this unfortunate assumption was the introduction of inflation rate management into the Fed’s remit, tool kit and vocabulary. While the official 2% “goal” did not materialize until decades later, it did creep into practice on a de facto basis under Volcker and his successors. At length, the idea that the Fed was not simply managing bank reserves and credit, but was in charge of the performance of the entire GDP including the rate of increase in the general price level became deeply embedded in the institution.
To be sure, Paul Volcker was exceedingly cautious on the matter of accommodating the embedded inflation and bringing down the rate of price increase in a deliberate manner, but he was also a sound money man at bottom. He was willing to accommodate existing inflation to only a limited degree and was ready to risk a recessionary contraction if that was required to break the back of financial speculation and the extant spiral of wage/price/cost inflation that had become embedded during the 1970s.
In fact, that’s actually what did happen and the deep recession of 1981-1982 did accelerate the pace of disinflation. From the peak Y/Y rate of 14.6% in March 1980, the CPI increase slowed sharply to just 2.36% as of July 1983.
At that point, however, Volcker was reluctant to press the case back to old-fashioned notion of price stability, even as he was forced to cope with the Texas cowboy (i.e. James Baker) who had taken over the Treasury during Reagan’s second term. The latter forced through the abomination of the 1985 Plaza Accord, a globally “coordinated” and/or imposed maneuver to trash the strong dollar, thereby importing inflationary pressures back into the US economy.
In any event, the Y/Y inflation rate bottomed at 1.91% in February 1987 and that very month Howard Baker became chief of staff at the White House. From that point forward the two Bakers—James and Howard, who were both easy money inflationists–operated a de facto GOP (the Republican Party) regency in the Reagan White House. So doing, they were not about to have the independent Volcker getting in the way of Republican electoral success.
Coffee the Christian way: Promised Grounds
So Paul Volcker was out, and his successor, Alan Greenspan, soon faced the infamous 22.6% stock market collapse on October 19, 1987. Thereupon, the once and former gold standard advocate and Ayn Rand disciple opened up the spigots at the Fed’s money-pump, thereby initiating a new surge of inflationary pressure during the last years of the 1980s.
As is evident by the chart below, Volcker’s partial victory over inflation was short-circuited after mid-1983. In all, the price level rose by 71% or 3.3% per annum through the next stock-market meltdown, when the NASDAQ plunged by 33% during 30 trading days in March/April 2000.
Y/Y CPI Change, March 1980 to March 2000
Greenspanian “Wealth Effects”
This capitulation to permanent, residual inflation in the 2-4% zone was a huge historical mistake. It opened the way for Greenspanian “wealth effects” management and the resulting economic abominations. That is, a battered main street economy, which gave way to massive off-shoring of America’s industry, coupled with the relentless inflation of financial assets, which showered Wall Street and the 1% with hideous amounts of unearned windfall wealth.
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The trigger for this untoward breakdown was Greenspan’s fundamental policy error. He invented the spurious argument that residual inflation at 2-3% was good enough, when the actual requirement was to purge the inflationary cost structure that was already embedded in the US economy owing to the inflation spree of the 1970s.
What resulted from the Greenspan pivot was nothing more than a great inflationary disaster which amounted to monetary central planning and pro-inflation targeting by the central bank. Suffice to remind why a huge share of America’s merchandise goods are now sourced in China and other parts of the global low-wage supply chain. To wit, the Fed simply inflated American workers out of their jobs via soaring unit labor costs, which became increasingly noncompetitive in global markets.
U.S. Unit Labor Cost Growth, 1970 to 2024
Editor’s Note: The amount of money the US government spends on foreign aid, wars, the so-called intelligence community, and other aspects of foreign policy is enormous and ever-growing.
It’s an established trend in motion that is accelerating, and now approaching a breaking point. It could cause the most significant disaster since the 1930s.
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Five Reasons to Believe Trump’s Would-Be Assassins Are Deep State Assets
by JD Rucker
Tinfoil hat time. By no means am I going to convince anyone with this short article that Ryan Wesley Routh (or Thomas Michael Crooks, for that matter) is an asset for the Deep State. That is not the intention because to “prove” it would be as impossible as “proving” anything…
Hurricane Forecasts Poised to Be Spectacularly Overstated, Raising Doubt About Climate Science
by Just The News
Penn State celebrity climate scientist Michael Mann announced in April that his research group’s 2024 North Atlantic season forecast was expecting an “unprecedented” 33 named storms, with a range between 27 and 39. That prediction has turned out to be a dud. With Hurricane Francine hitting the coasts Thursday, the…
Another Attack on President Trump Prompted Prepper Surge
by Sponsored Post
The 2nd attempted assassination of Donald Trump has prompted renewed concerns over the nation’s future. Website traffic on Sunday was higher than it’s been in our history. One does not have to be a Republican to realize that chaos may be in store for us soon. At Prepper All-Naturals, we’re…
DJT’s Attempted Assassin Made 19 Donations to Democrats
by Independent Sentinel
The attempted assassin of Donald J. Trump is Ryan Wesley Routh, who has made 19 donations to Democrats. The donations were to Elizabeth Warren, fake Hispanic Beto O’Rourke, Andrew Yang, Tom Steyer, and Tulsi Gabbard. Allegedly, Routh also claimed to have fought in Ukraine in 2022 and supported the war….
Dem Rep. Crockett: MAGA Is a Domestic Threat, Trump Is Stoking Them
by Breitbart
Representative Jasmine Crockett (D-TX) said Sunday on MSNBC’s “Inside” that MAGA is a domestic threat that former President Donald Trump is stoking them. Crockett said, “Springfield is going through hell, but they are going through hell because the guy who says he wants to be the commander-in-chief is actually bringing…
Sunlight and Clouds, Not CO2, Drive Earth’s Climate, New Study Finds
by The Epoch Times
This year’s summer months were characterized by cold outdoor pools that eagerly welcomed guests, concrete that scorched the soles of bare feet, and popsicles that melted in the relentless, blazing heat. In August, the European Commission’s Copernicus report found that the global average temperature had reached record highs in the…
The Man That Just Tried to Assassinate Donald Trump Has Very Alarming Links to Ukraine
by Michael Snyder
(End of the American Dream)—We are starting to learn more about Ryan Routh’s background, and what we have learned may help to explain why he attempted to shoot Donald Trump. It turns out that Routh is a rabid pro-Ukraine activist. In 2022, he actually traveled to Ukraine to fight in the…
Bill Gates Forecasts Another Global Pandemic ‘Likely’ Within Next 25 Years in Ominous Health Warning
by End Times Headlines
War or another global pandemic, Microsoft CEO Bill Gates is cautioning that, if the world manages to avoid the former, the latter is a very real possibility within the next 25 years. “A lot of unrest” in today’s age could spark a major war, he told CNBC’s “Make It.” “If…
US Foreign Policy Should Defy China, Recognize Taiwan as a Country
by The Gateway Pundit
The U.S., as the world’s most powerful country, should have an independent foreign policy. Currently, the U.S. abides by the One-China policy to appease Beijing. The U.S. should no longer allow Beijing to dictate its foreign policy and should recognize the independence of Taiwan, a high-functioning, multi-party democracy whose citizens…
Florida Will Conduct Investigation Into Trump Assassination Attempt: DeSantis
by Jack Phillips
Florida Gov. Ron DeSantis on Sunday announced the state will launch its own investigation into the apparent assassination attempt targeting former President Donald Trump earlier in the day. The FBI has said in a statement it is investigating the matter as an assassination attempt, while law enforcement officials said on…
‘Stop This Reckless Escalation’: Robert F. Kennedy Jr. Tells Biden Not to Authorize Long-Range Missile Attacks on Russian Territory
by The Gateway Pundit
The world is handing on the edge of a major escalation with unpredictable consequences, as Ukraine relentlessly pushes for the US to make decisions that can have unpredictable consequences. All around the world, peace-loving people who can see the danger ahead are cautioning the western NATO powers – notably the…