John Mauldin’s current “Thoughts From the Frontline” includes excerpts from two outside sources, and I find both worthy of comment.
Mauldin introduces the first:
Last Monday an op-ed in the Wall Street Journal, penned by five PhDs in economics, among them a former Secretary of the Treasury and an almost-guaranteed Nobel laureate (and most of them former members of the President's Council of Economic Advisors) minced no words in excoriating the current policy.
The five referenced by Mauldin are George P. Shultz, Michael J. Boskin, John F. Cogan, Allan H. Meltzer and John B. Taylor. “The authors are senior fellows at Stanford University's Hoover Institution. They have served in various federal government policy positions in the Treasury Department, the Office of Management and Budget and the Council of Economic Advisers.”
They begin by listing various imbalances of government treasury and Federal Reserve policy:
Did you know that annual spending by the federal government now exceeds the 2007 level by about $1 trillion?
Did you know no remaining candidate for President is suggesting concrete policies that will result in anything different? This will not change, except when it has to be changed.
Did you know that, during the last fiscal year, around three-quarters of the deficit was financed by the Federal Reserve?...The Fed now owns one in six dollars of the national debt, the largest percentage of GDP in history, larger than even at the end of World War II.
Did you know the world is awash in government debt, much of which is now being supported by central bank action, and no politician is offering a concrete solution? This will not change, until the Fed is faced with mass- or hyper-inflation.
Did you know that the Federal Reserve is now giving money to banks, effectively circumventing the appropriations process?...The Fed now pays 0.25% interest on reserves it holds. So the Fed is paying the banks almost $4 billion a year.
Did you know it is the Fed’s primary responsibility to ensure the survival of the large money-center banks?
This large expansion of reserves creates two-sided risks. If it is not unwound, the reserves could pour into the economy, causing inflation….If reserves are unwound too quickly, banks may find it hard to adjust and pull back on loans. Unwinding would be hard to manage now, but will become ever harder the more the balance sheet rises.
Did you know there is no possibility of unwinding without causing a deflationary depression, and there is no possibility of continuing without causing an inflationary depression?