The Federal Reserve is at the center of the pure paper money system of the United States and the world. As the Fed transitions to a new chairman, it is timely to consider some questions about this remarkable, powerful, dangerous, and allegedly “independent” institution. Here are seven questions for the new chairman, Kevin Warsh, and his colleagues:
Do we need a national price fixing committee for interest rates?
Answer: No.
Nothing is more obvious in free market economics than that having centralized price fixing by the government is a really bad idea. The constant discovery of clearing prices by competitive markets is what is needed. Yet the Fed’s Open Market Committee is a national price fixing committee by another name for one of the most important prices: interest rates. Amazing mistake, if you think about it.
Does the Fed know what it’s doing?
Answer: No.
As the outgoing chairman of the Fed, Jerome Powell wittily and correctly said about the Fed, “We are navigating by the stars under cloudy skies.” So it is, and so it must be. Neither the Fed nor anybody else ever knew or ever can know what the correct interest rates are. To do that they would have to know the future, and the economic future is always uncertain, not only unknown but unknowable. The Fed’s forecasting record is poor because it cannot know what it is really doing.
How much money has the Fed lost on its “QE” gamble — and whose money was it?
Answer: It has lost more than $1.3 trillion of the taxpayers’ money.
The Fed made a gamble on what it called “Quantitative Easing,” or “QE,” described by its chairman at the time, Ben Bernanke, as a “shot in the dark.” It was a macroeconomic gamble that stoked asset price inflations. It was a financial gamble with the Fed’s own earnings and capital.
The huge resulting total losses are the sum of three factors. The Fed reported net operating losses of about $220 billion since 2022. In addition, the QE losses wiped out more than $300 billion in profits the Fed made by issuing currency and holding interest-free deposits from the Treasury.
So quantitative easing’s operating losses exceed $500 billion. On top of that, QE has resulted in mark-to-market losses of $844 billion. In sum, the more than $1.3 trillion in losses mean that the costs will be borne by the taxpayers and suggest that the Fed has lost the entire $47 billion capital of its commercial bank shareholders about 27 times over.
Does the Federal Reserve Act assign the Fed a goal of “price stability”?
Answer: No.
“Price stability” is a tricky term that means, according to the Fed, perpetual inflation at some rate it chooses.
