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The Federal Reserve is Conflicted

We just ended a second week of intensified volatility, following FED Chairman Janet Yellen spouting Administration propaganda to support a policy that, in my opinion, and based on actual circumstances, makes no sense.  Once again I find myself on the proverbial horns of a dilemma, as I favor an increasing interest rate policy, while simultaneously disagreeing with the so-called supporting data.  Here, again, are the reasons that we need to rid ourselves of the national plague often called the nation’s Central Bank, or the FED for short.

Having visited this topic earlier this year, I am not going to discuss all the nefarious aspects of the FED, but I want to point out a few of the dangers we face because of the power it is granted.  I will also try to explain why what the FED does and says affects the market so much.  Simply, it is because they have too much power with roots in the often-conflicting goals established for the FED.  I contend that no one should have as much financial power over all of us as the FED currently wields.

The following FED objectives have been taken directly from their own website:

  • conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates
  • supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers
  • maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
  • providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system

This all sounds good, doesn’t it?  But in my opinion, it is a total smokescreen, designed to remove a very important function from the Legislative Branch of the U.S. Government.  In other words, it is a scapegoat for elected House and Senate members, who now have the ability to point the finger at this “independent” Board of Governors.  This way, Congress avoids the appearance of responsibility for their own failed economic policy.

I don’t buy any of it, nor would you when you read the history behind the very concept of a Central Banking System.  One of my favorite books is The Creature from Jekyll Island, by G. Edward Griffin.  In the book, he traces the history of the entire Central Bank discussion from the days of Jefferson and Hamilton, and explores the politics and tragedies (the Titanic sinking, strangely enough) that eventually resulted in the creation of the FED.

Griffin’s book also covers the damage that has been done to the American economy, and especially to the American worker, in the 103 years of existence of the FED.  Read it, and you will likely never believe what your hear.

Why does it matter to you? 

Thomas Jefferson said, regarding the concept of a Central Bank (if you are vague as to the intelligence and wisdom of Jefferson, please do some research):

“The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution. I am an Enemy to all banks discounting bills or notes for anything but Coin.  If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered.”

Jefferson was clearly warning us that a Central Bank, with the power granted it by Congress, would render our money increasingly worth less (2 words), until eventually it would become worthless (1 word).

Look at some recent “results:”

  • GDP revised down to 1.08% in the most recent quarter
  • This is up from the first quarter of 2016!
  • No year of the current Administration where economic growth has reached 3% (they have 30 quarters of failure to achieve this long-term average growth rate)
  • A doubling of our National Debt to nearly $20 Trillion ($20,000,000,000,000 - count those 13 zeroes!)
  • 94+ Million people not even in the workforce, largely because they are discouraged
  • Now, the FED wants to raise interest rates this year

And here is where it gets strange.  The current controversy between the FED and investors everywhere is whether interest rates should go up, go down (like many foreign Central Banks have done) or stay the same.  The FED is leaning toward higher rates, while most investors want cheap money to continue indefinitely.  As an investor, a financial advisor, and an investment manager, I would prefer interest rates to rise to a range that would be considered normal by historical standards.

We have over two decades of experience with super-low, zero, and even negative interest rates.  Yet, I can cite NO success stories, unless you believe the current Administration’s line that they managed to avoid our economy going into “depression.”  I don’t buy it.

For far too long, savers have been punished with little-to-no return on their savings.  The government suppresses the true rate of inflation; the one we all witness day-to-day, as we attempt to keep up with rising prices for almost everything.  Have you recently purchased milk, bread, eggs, meat, apples, or virtually any other staple?  And, low interest rates have forced many savers into higher-risk investments to get any sort of return on their money.

I could live with it, IF IT WORKED.  It doesn’t.

The problem with the FED is that they have to “save face” with the public, and, at the same time, claim to meet their own stated objectives.  This requires the FED to mislead us about the actual state of the economy, the job market, and the so-called “economic recovery.”  I would much prefer a simple admission that they have failed miserably, and therefore they are trying something new.

I would prefer some common sense, but I’m not holding my breath.