Today the Dow dropped another 146 points after a 500-point nosedive yesterday. Uncertainty of interest rates caused some the decline. Rather than debate whether the Democrats or Republicans are to blame, we need to look at what can be done and who is responsible. Jerome Powell was appointed Federal Reserve Chairman by a former President of one party and reappointed by the current President from a different party. Based on solely on his performance, should Jerome Powell be fired?
Inflation is caused by an increase in the money supply relative to the actual physical supply of goods and services. During his tenure, Powell increased the money supply by creating at least $4.5 trillion dollar. Had there been no physical supply problems like Saudi Arabia cutting oil or supply-chain issues caused by the pandemic, America would have faced some form of inflation. Real supply issues exacerbate the inevitable inflation Powell caused.
The Federal Reserve can cut inflation three ways. The goal is the same, reduce the money supply. We all know the Fed can raise interest rates. It can also sell the bonds in its portfolio and take the money it receives out of economy. Increasing bank reserves is a third tool the Fed can use to reduce inflation.
Bank reserves are the amount of cash that banks must hold and thus cannot lend out. Increasing reserves reduces the money supply because money held in reserve is removed from the economy. Powell cut the reserve ratio from 3% to zero in March of 2020 freeing up over $100 billion in cash in one day for banks to lend. Honestly, it does not appear that banks took advantage of this option, but it is a method to cut the money supply.
To date, Powell has used only one of the three tools available to the Federal Reserve to combat inflation he himself help cause. Powell should have been weighing the three options in April of 2021 when it missed its inflation target by more than double. The Fed inflation target is 2% and rose to over 4% in April 2021. As early as March of 2021 Powell said that bonds purchases should be curtailed. It suggests he knew what to do and inflation was becoming a problem. MARCH 2021!
Instead, Powell continued to increase the money supply by more than a trillion dollars between April 2021 and March 2022 which by that time was 8.5%, 325% of the Federal Reserve’s inflation target. Powell planned to continue to increase the money supply until June of 2022. Why he finally stopped in March, one can only guess.
Anyone with a basic understanding of monetary policy would know that Powell’s own actions were reckless and would cause inflation. If Powel does not understand it, he has no business heading the Federal Reserve.
Despite researching the Federal Reserve’s actions, no evidence shows that Powell has sold $1 of the bonds he used to cause inflation. I do find Powell talking about using Fed “tools” in November of 2021, which suggests Powell knows interest rates are not the only way to fight inflation. It may be too late for Powell to increase bank reserves without causing further alarm in the financial markets.
Quietly and slowly selling bonds to decrease the money supply was a method Powell should have and could still use to address the inflation problem he helped create. Things like the inversion of the bond market last spring alerted him that a recession might be expected from his extreme interest rate increases. Yet, he continues to raise rates dramatically, plunging the financial markets and spurring uncertainty, fear and causing real hardship for the American public.
With a lowly bachelor’s degree in economics, earned it at the University of Chicago, where I graduated Phi Beta Kappa, I have never and still do not consider myself an economic expert. Economics is not a science, but a theoretical subject that studies the allocation of resources, whereas a Master’s in Business (MBA) focuses more practically on preparing students to analyze business decisions. If you want to know about the stock markets talk to a finance major or an MBA. Inflation is in the realm of economics.
The frightening lack of economic knowledge of journalists reporting on inflation may be part of the reason Jerome Powell wasn’t removed the Federal Reserve months ago. The ignorance of elected officials overseeing the Fed may also bare responsibility. While Powell possesses no formal educational in economics things he has said and promised to do but failed to do may suggest he has a full grasp of the subject. We cannot be certain, but at this point does it matter?
Can Powell be allowed to continue at the Federal Reserve? Should the entire Board of Governors be scrutinized? What about Janet Yellin? Should her performance as Secretary of the Treasury, a department that works closely with the Federal Reserve, be evaluated to determine what, if any, part she played in the Fed’s actions?
•What Does Netanyahu Return as Prime Minister Mean for Israel’s Relationship with the United States?
Israeli Prime Minister Yair Lapid conceded to former Prime Minister Benjamin Netanyahu in the election held two days ago. Here is one example of a figure losing office due to corruption and winning re-election despite no resolution on felony charges involving corruption of the government and judicial system. Of course not one elected official has even been charged in the January 6 insurrection, and more than one member of the Supreme Court is considered corrupt by many citizens here, and nothing appears to have been done by the DOJ or the President to address the concerns of Americans.
Despite a strong relationship with the former President, the status of the Israel as an unquestioned ally of the USA has been strained in the wake of Israel’s refusing military aid to Ukraine. Israel denying Ukraine assistance against Iranian drones with the Iron Dome system, which the United States helped build, many find especially galling.
How will Netanyahu use the new friendship he established between Saudi Arbia and Israel after the Saudi’s recognized Israel? Will Netanyahu be another Saudi Arabia showing loyalty to a former President and hostility to the current President, making Americans question whether Israel is an ally or an adversary of the United States?
What are Americans to make of country that re-elects a Prime Minister mired in charges of political corruption? Will the U. S. follow Israel’s lead in 2024?
•President Balsonaro Supporters Call for Military Coup in Brazil
Yesterday Brazilian President Jair Bolsonaro spoke publicly for the first time since he lost his re-election last Sunday. Bolsonaro, like the former President of the United States, still has not conceded. Please see yesterday’s piece in the November 2, Today’s Take suggesting why a military coup might be a method used in Brazil to overturn the election. A more formal analysis will appear in tomorrow’s Today’s Take.
•Musk Makes Headlines on Known Plan to Fire Employees
NBC reports that Elon Musk notified employees he will begin terminating Twitter workers beginning tomorrow by email. Musk announced weeks ago he planned to layoff 75% of the Twitter staff. The American media seem on a course to replace the former President with the world’s wealthiest man as the source to feed their addiction to headlines used to manipulate, distract, monetize, and divide rather than function as a source of information.
Why is anyone surprised by Musk’s reducing Twitter staff? Will Musk sneezing become news worthy?
OTHER NEWS
•Game Five of World Series tonight - Astors and Phillies Tied at 2-2
•Paul Pelosi Released from Hospital
•Truce in Ethiopia
Why is anyone shocked by Musk
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