I’m sure that most of the discussions in the closed-door meetings at the Fed’s recent Jackson Hole Symposium centered on the problems of printability. They certainly won’t be part of the paper presentations or press conferences.
The US government has been spending like a teenager with an unlimited credit card that they don’t have to pay off since going off the gold standard.
The Fed doesn’t even have a monetary policy in any sense. It’s been playing games for more than a quarter century, really ever since 1971, and even earlier going back to its very beginning of the Fed. These games center on the problems of printability. The Fed prints as it pleases and it wants to please its masters.
Its mandate is not CPI inflation rate target or the Unemployment Rate target of the “natural rate of unemployment”—that is a tall tale to gain public acceptance and gain credibility for itself. They are like two warning buoys in a harbor, but not their real goals.
Their real mandate is also two-fold. It’s to serve the interests of the state, especially to facilitate budget deficits and the national debt and to serve the interests of the big banks.
The only role the working-class plays is a byproduct of the real mandates: if some families temporarily benefit from Fed activities, so be it. It especially has a political role to fool the voters around election times. That is why politicians are now so “concerned” with beef prices, diesel fuel prices, and mortgage interest rates. Their real concern is to get reelected and to stay in power.
That is where “printability” comes into play. With a central bank, the Fed, all the problems of government and society can seemingly be addressed with the Fed printing more money. New spending programs, new wars, new subsidies, welfare benefits, etc. are all made possible with a few keyboard entries on a computer at the New York Fed.
The price inflation only comes later as the money makes its way through the hands of the banks, the government, and to businesses that end up driving up resource costs. Eventually, in the end, higher prices emerge and, even later, higher wages. After that, unemployment and bankruptcy result and the cycle begins anew. The citizenry is none the wiser as few people figure out the Fed’s game as it once again “comes to the rescue!” with lower interest rates.
The biggest problem with printability is how it affects political behavior and social ideology. Do you live under a budget constraint or not? Without a budget constraint, people and politicians assume that government can solve all our problems at no cost and politicians (who are very short-term oriented) spend without constraint. They vote for everything. They go along with stupid wars and policies. They pass budgets with huge deficits. They go unconcerned with the national debt. Americans and their government are now completely dependent on keeping the monetary spigot opening ever wider.
This cycle is of a historically long duration thanks to the appearance of the covid situation and the Fed’s and the government’s $10 trillion bailout. Then, when CPI inflation skyrocketed and they had to cut back a little, they started through the back door. releasing their hoard of $2.5 trillion in Repurchase Agreements through the banks and the stock market took off.
We broke that story in early 2024 but it never made headlines. In essence, interest rates were perceived to be too high, then—from 2022-2024—the Fed’s Repurchase Agreements took place behind the curtain and reversed the $2.5 trillion swamps “quantitative tightening” lie. 2023 stocks shot higher!
As the Repurchase Agreements ran out, and fracturing started happening—first in three large banks and then in the private credit/private banking sector—the Fed quietly announced a change of direction at Jackson Hole last year. They chose an end to quantitative tightening and they started a new “liquidity injection” program called “Reserve Management Purchases” late last year. We understood this as an admission of business cycle cracks that they addressed with some “quantitative easing” printing. CPI price inflation remains 70 percent above the top of the Fed’s own target rate and at that rate all your money, bonds, wages, life insurance, etc. will lose 10 percent in less than three years’ time.
In any case, you can see that the Fed’s policy is reactive to the negative consequences of its past policies and those policies all boil down to printability—the power to print money.
Now the Jackson Hole symposium looms. With this year’s Jackson Hole, Kevin Warsh is trying to establish his credibility as an inflation hawk. He even injected the word “hike” several times into this speech—not related to interest rate hikes—in order to have a psychological impact or bias computerized trading based on AI, but price inflation remains high, interest rates continue to rise, and the petrodollar scheme is sinking in the Persian Gulf. What is a guy to do?
Enter the US Treasury and Scott Bessent. The US Treasury sold euros to buy Japanese yen. What? He did this so that the Japanese Central Bank did not have to sell US government bonds to prop up its own failing currency. Essentially, he is trying to keep long-term interest rates down because they have risen to recent record levels. He also used his checking account at Treasury to buy long-term bonds to also help keep long-term rates of interest from exploding ever higher. Of course, he also has to use every last dime in this account to pay for the US budget which is in a two trillion-dollar deficit.
Ultimately, he will have to borrow more in the short-term market to make up for the money used to buy long-term bonds. More than one person described this as using your credit card to pay your mortgage payment, which no financial advisor would recommend.
My bet is that the Fed will try to stay pat with current policies and hawkish talk until they have either created an economic crisis that would provide cover for it to inflate, or until after the election. That would explain why the Treasury has become more activist and why the president has been hyperactive at the bully pulpit and has been willing to empty the Strategic Petroleum Reserves and to allow foreign beef into the US market before the election.
