The period of 10 years where rates were 0%+/- with 2-3++% inflation was the fake economy 5% rates with 5% inflation is the real world.
To me, anyway, it's more calming. Haha.
So it seems the Fed actually has been following their technocratic mandate, just with horribly broken criteria based around consumer price inflation - horribly broken because the real price of manufactured goods should have been dropping significantly due to offshoring and technological progress, but the Fed's feedback loop created enough new money so they couldn't (hence the ever-growing asset bubble).
As a libertarian student of Austrian economics, seeing this play out is actually warming me up to Modern Monetary Theory - at least it means the newly created money gets directed to deliberate purposes (like sorely needed infrastructure), rather than just handed to banks in a mostly undirected manner while feigning austerity for everyone else.
That dual mandate is what dictates policy. The recent string of rate hikes are not arbitrary, they are because of the surge in inflation flowing the extreme policies the fed took on the other end when unemployment was high during the pandemic.
If anything the case to be made is that the fed went overboard with its QE during the pandemic, but even then its a bit of "hindsight is 20/20". I think everyone can agree that had this pandemic struck in 2000, even 2010 instead of 2020, the economic impact would have been dramatically greater than it was.
The alternative of trying to fix the money supply growth and let the rate "float" doesn't look less like government intervention, and it does involve a lot more wild lurches in interest rates and bank/company failures.
But if you put those aside and somehow manage to get a bank charter, you could totally eschew the Fed.
Now if you do play in their ballpark you have to play by their rules. And a big one there is the rate that you’ll get on short term deposits. And given the scale it implicitly sets the pace for interbank rates as they have to directly compete with the Fed.
“People” in my comment includes groups of people too (eg companies, governments). Shouldn’t one be able to set the price of borrowing, why we must have one party deciding for everyone else.
Lending to banks is precisely what the Federal Reserve does.
> Shouldn’t one be able to set the price of borrowing, why we must have one party deciding for everyone else.
This is also already the case. If you want to take out a mortgage or a personal loan or a credit card, the interest rate is negotiated entirely between you and the lender (the government has no say in dictating that rate).
The reason Fed interest rates affect your interest rates is that if banks have to pay more interest to borrow from the Fed, they are willing to offer consumers more money for their deposits, and are also going to charge more for money they lend out (since they still need to make a profit on it).
This is part of the reason for recent bank failures: if you're a bank and you offer depositors 1% on their deposits to go and make long-term investments at 2%, you'll make that 1% difference as profit.
If other banks suddenly start offering depositors 3% (due to increased bank-borrowing rates), you're going to either lose depositors to the much better interest rates at other banks or you're going to have to take a loss on those 2%-investments you made, offload them, and make other investments at a higher interest rate.
In all of this, the only hand the Fed had in things is saying "We're charging banks this much interest on the money we lend them"
The Board of Governors of the Federal Reserve System is an executive branch agency whose Governors are appointed by the President and confirmed by the Senate, just like members of other executive branch boards, commissions, and committees... [0]
The Federal Reserve System itself is a weird public/private hybrid thing, but the System doesn’t set monetary policy, the Board does.
[0] hence, e.g., its inclusion here: https://www.loc.gov/rr/news/fedgov.html
It seems to me that the FED arbitrarily can manipulate the lowest return on money invested that is possible to get away with aswell as the highest rate you can expect to get on your money by some opaque banker only interest system.
Like, how is printing money and givinging it to the poor any worse. Both are manipulation.
You might be onto something.
Pouring helicopter money down is going to increase inflation, hands-down. Giving it to more people will increase inflation more than giving it to fewer people (since the competition for scarce goods will be more widely distributed), but it's just as bad giving helicopter money to the rich.
Helicopter money is largely fiscal policy (i.e. how do we spend our money) instead of monetary policy (i.e. how much money should there be, and how should it flow).
I'll not defend fiscal policy, as I find that Congress often just tries to buy votes with money (the right with tax-cuts, the left with loan-forgiveness or entitlements).
In terms of monetary policy, though, the Fed's responsibilities are to make the employment market and inflation stay at good levels. Manipulating the interest rate of bank lending does do that (albeit not nearly as much as it could if coupled with good fiscal policy).
Raising the interest rate does reduce inflation, since there are fewer free-floating dollars to compete for good. It also does make the job market less hot, since there are fewer free-floating dollars to invest in businesses or employees.
There's some deep hypocrisy in fiscal policy, but I think the Fed is doing what the Fed can do to keep jobs and inflation in balance.
Sure, I guess I agree on this.
But there has to be something more I don't understand. The interest on savings goes up with the interest on loans.
Is it maybe "quantitive easing" that is the real culprit?
This is true, but it's all because of the one interest rate that the fed controls: the interest rate at which it lends to banks. If that rate goes up, then banks are willing to pay higher savings rates to depositors (since banks don't want to pay higher Fed interest rates to borrow, so luring in depositors is a replacement). Since banks are paying more for their money, though, they also need to charge more on the loans they give. This is why those move in tandem.
Quantitative easing/tightening also does one thing: either buy or sell financial assets at the Fed. Historically this has been bonds and other low-yield, long-term instruments, but always with the purpose of either stimulating the economy (by buying assets and pumping money into the economy) or selling assets (thus pulling money out of the economy to cool it). I would agree that the Fed buying stocks during COVID isn't what I would have liked, but mostly because stocks are an asset class where volatility and risk are baked in (and I don't like the moral hazard of the Fed absolving investors of that risk).
Quantitative easing as a mechanism, though, is a pretty blunt and simple tool to either pull money out of push money in to the economy. I reckon that the early-COVID hey-day of easing probably had something to do with the super-high valuations we're seeing today, but the actions the Fed is taking _now_ seem like a reasonable and rational response to that overheating.
I think just forgiving 2.8 trillion dollars in "loans" to people who didn't need loans in the first place causes a shit ton of inflation.
One side of the political aisle got so angry about that 200 billion to the point that they were only willing to go along with it if their party leader got to put his name on those checks. Yet the 2.8 trillion that went to already profitable corporations (or to fraudulent citizens) went along without a peep from anyone who makes any sort of decision in Washington DC.
All this completely fucked up the M2V (Monetary Velocity) chart, because giving lots of people who won't use it quickly really hurts the economy. When the velocity of money is high, the economy works for everyone, not just wealthy people.
If the inflation manifests slowly enough, the theory is that slower inflation combined with productivity growth can mitigate the major adverse effects and dislocations by allowing the economy to adjust at a much slower rate.
„What Has Government Done to Our Money?“
https://mises.org/library/what-has-government-done-our-money
It’s a good introduction to banking, money and the business cycle.
Better to read about economics from the Keynesians and Chicago Monetarists who completely fucking failed to see the inflation coming, were "surprised" by it, and are now OVER-tightening their way to a depression. The same schools that only saw a "little froth" in the 2007 housing market, the same schools that STILL have no model to figure out why RRP participation is stubbornly stuck north of $2T, the same schools whose own dot plots are consistently WILDLY inaccurate even 6 months out.
Good advice.
Oh, and the current level of price rises? Had it on numerous occasions in the 19th century under the deregulated banking system notionally pegged to gold that Mises and Rothbard fetishised, followed by even more destructive deflation cycles. Plus higher interest rates than the "overtightening"
Regarding this whole battle I'd say the monetarists should be able to sleep well, since they dominate all economics anyway these days. Neoclassical economics is all about empirical research, quantitative predictions and tests. Insofar it is, of course, a real science and they certainly can do good research.
However, economic policies are rarely evaluated empirically and are usually not justified by real research. And let's face it: the FED's policies are ultimately done do serve the government only (even if it is formally "independent"), since it is a government drowning in debts that profits the most from cheap money unlike its citizens.
Austrians do "economic research" by logical reasoning alone in the tradition of the humanities. They might not publish econometric models but they are able to explain and reason about fundamental economic facts with great clarity unlike most modern economists. This becomes especially obvious when it comes to monetary policies.
Hence, in any economic crisis I recommend reading "Austrian" books because they are able to teach a valuable lesson.