Contractionary monetary policy may be necessary to slow the rise of inflation, but the recessionary results of this remind us why the Fed's inflationary policy is so dangerous.
Since the corona panic, the Fed has bought a ton of government bonds, but it's also started buying corporate bonds, has abolished reserve requirements, redefined their M1 measure, and switched to average inflation targeting.
With a sound money, none of these distortions would have been possible: the limitations of the currency itself would have forced an unwinding of excessive risk far before it could become a clash between major hedge funds and Reddit trolls.
In spite of its relentless public relations efforts claiming the opposite, the Fed remains a leading reason for the impoverishment of working-class and middle-class families.
If the current thinking continues, the world’s central banks will buy whatever paper governments issue. The result by the end of the decade will be a Federal Reserve balance sheet totaling $40 to $50 trillion.
By flooding the market with cheap credit, Alan Greenspan pushed interest rates (including mortgage rates) down to artificially low levels. This caused the bubble in house prices and misallocated too many real resources to the housing sector.
