6. The Three Fed Chairs
I started writing 'Opposed to the Consensus' five weeks ago. Last week, I talked about the huge second-quarter jump in labor productivity, from about 0% in the first quarter to approximately 3.5% in the second quarter. If we were to sustain such a high number, we would have a chance to begin the process of national debt mitigation, starting with reworking the three major entitlement programs.
Yesterday, the Federal Budget Deficit surpassed $33 trillion, with no plan for repayment; it's even higher today. How did we get here? By following policies set by Ben Bernanke and administered by Ms. Yellen and Mr. Powell to a fault. These policies involved printing trillions of dollars of new money and keeping interest rates artificially low, inviting excessive Congressional borrowing.
In '08, the Federal Reserve balance sheet held merely $700 billion. Mr. Bernanke and Ms. Yellen inflated it to $4.5 trillion. In '06, when Mr. Bernanke became Fed chair, the national debt was $10 trillion, and in 2014, when he left, the Federal debt was $17.8 trillion. Don’t you think holding interest rates artificially low and printing $3.7 trillion contributed to the huge explosion in congressional borrowing and spending? When Mr. Powell became Fed Chair, the national debt was $21.46 trillion in February, and the money supply, as measured by M2, was $13.912 trillion. About two years later, in January 2020, the Fed’s balance sheet had been reduced by a mere $100 billion to about $4.4 trillion (The balance sheet is reduced when a bond it holds comes due and no new money is printed to replace it). In 2020, we had 1.2% inflation; however, in 2021, inflation jumped to 4.7%. By July ’22, two and a half years later, inflation was running at 8.2% annualized. Why?
Mr. Powell had grown the Fed’s balance sheet (printed money) from $4.4 trillion up to $8.9 trillion, more than doubling its size! Money (M2) in the system had gone up to $21.9 trillion, an increase of over 57%, the greatest increases in both in our history.
Now, ironically, Powell is trying to repair the damage by stopping printing and raising rates. He has reduced money (M2) in circulation from the peak of $21.9 trillion to $20.9 trillion and the balance sheet from $8.9 trillion to $8.02 trillion yesterday. Hardly significant given the huge past increases, many of which he, ironically, oversaw.
On September 29, the Consumer Price Expenditure (PCE) will be released at 8:30 am. I don’t think it will cooperate with the Fed’s efforts or what is expected.
Have a blessed week!
Tony Christ