High Stakes Card Game

President Trump has a good hand. He has the, ‘crossed from South to North Korea‘ card, the ‘held back negotiations with China over Hong Kong’s freedoms‘ card, the ‘lowered unemployment by increasing job opportunities’ card, and the ‘holding the line with Iran‘ card. Right alongside the American People, POTUS watches as the Federal Reserve deals from their own economy cards. September 18, 2019, the usual “brick and mortar” media blew up when the Fed dealt their, “cut interest rates to 1.75 to 2%” card, a fact confirmed by the Fed’s Federal Open Market Committee (FOCM) press release.

The FOCM’s decision was measured by information received and compiled since their meeting in July 2019:

Indicating the labor market remains strong.

Economic activity has been rising at a moderate rate.

Job gains have been solid, on average, in recent months.

Unemployment rate has remained low.

Household spending has been rising at a strong pace.

Business fixed investment and exports have weakened.

On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent.

Market-based measures of inflation compensation remain low.

Survey-based measures of longer-term inflation expectations are little changed.

The decision for the interest rate cut is based on the Fed’s statutory mandates of fostering maximum employment, price stability, and moderate long term interest rates.

Govinfo.gov

Creating the Federal Reserve

The Fed was created by the Congress in order to provide what they considered a safer and more stable monetary and financial system. President Woodrow Wilson signed the Federal Reserve Act into law in 1913, establishing that its main objective was to maintain the value of gold during times of banks panicking. In 1914, President Wilson removed the US economy from using the gold standard and instead used the Fed to print money in order to supply its military arsenal during war time, and in the 20s, the Fed became the regulator of the value of gold in the time before World War II.

The narrative constructed from the Feds existence, specifically in regards to the Great Depression, has been that it is necessary to have regulated control of the economy and the free market. Many economists further this narrative in asserting the gold standard was the actual cause of the market’s failing, thus government intervention was necessary to “rescue the economy.” Intentions may have been good willed, but instead, leaders of the Federal Reserve made a damaging mistake that instead led to the Great Depression. They imposed a policy that allowed the Fed to control loans and credits it offered to commercial banks—the Real Bills Doctrine. This policy took the quantity demanded of a particular type of credit as a reliable guide to the quantity of money the public wants to hold. The excess money given to commercial banks then created a substantial deflation, shrinking prices of goods and services below zero percent of the inflation rate, subsequently causing the crash of the stock market in 1929.

When Franklin Delano Roosevelt became president, he enacted the Gold Reserve Act, asserting gold could no longer be privately owned, forcing private owners to surrender their gold certificates to be vested into the Department of the Treasury. This took the US completely off of the gold standard before the act was dissolved by President Richard Nixon in 1971, when fiat currency began to dominate. Fiat currency is accepted as money simply because a government says it’s legal tender, based on nothing but the belief in the “full faith and credit” of the US government. It is the opposite of commodity money, such as the gold standard, and reflects the perception of the current state’s governance and economy. The federal government did not have to take full control of the money supply in order to restore the economy.

It could have changed its monetary policy while leaving commercial banks with the power to establish their own exchange rates without the government’s interference. But alas, the need for control over the economy proved too great, and the Federal Reserve did so anyway, creating the deck of cards they currently have to play.

Fed Up?

Cutting the interest rates is just another card in the Fed’s deck, that same deck of cards they played to “not prevent” the Great Depression (1929), and to “not avert” The Great Recession (2007-2009). Coming out of one recession, President Nixon dealt that ‘removing the gold standard‘ card, then going into another recession. America then dealt the ‘adopted a petrodollar standard’ card (1973), a total of 45 recessions in America’s history since 1785, totaling 81 years of recessions!

Since its inception, the Federal Reserve has dealt America the recession card 19 times equaling 30 years of recession in 106 years of existence, the Great Depression being longest depression since the establishment of the Fed. Currently, America’s economy is doing well. Jobs are up and unemployment is down. But the Fed changing interest rates does not help people investing in certificates of deposit (CD) or any help with commercial financing, rather, the interest rate cut is for the commercial banks.

Rest assured, President Trump is focused on Keeping America Great, and he has been true red, white, and blue to America and to us, the Deplorables—no longer forgotten. Next card please.