Maybe the Fed could arrange to jack up prices while so many American families are already just squeaking by!
The Fed wants to raise the cost of living.
You’ve probably heard the expression from the Napoleonic era in France, “It was worse than a crime – it was a blunder.”
The Fed’s decision is likely to go down in history as worse than either.
A Bloomberg story reports that the COVID shutdown already has million of Americans in a food crisis, one that it says will now draw in additional millions:
“The ranks of Americans fighting hunger are projected to swell some 45 percent this year to more than 50 million.”
“Lockdowns have snarled supply chains, and food inflation is projected to rise at the fastest pace in almost a decade.”
Yet the Fed want consumer prices to go up?
Maybe someone on his bloated staff, someone among the hundreds of economic bureaucrats the Fed employs, should tell Chairman Powell that food prices are starting to race higher. In July, core consumer prices took their biggest jump in almost 30 years. Now, the UN’s Food and Agriculture Organization has just reported that world food prices rose for the third consecutive month in August. The price hikes were led by increases in coarse grains, vegetable oils, and sugar.
But of course, the Fed misses everything, just like it missed the housing bubble. So they’ll go ahead and print more money, and make the dollar worth less.
By the way, ever higher food prices will be just one of the consequences of the Fed’s inflation policy.
Another will be a growing unwillingness of foreign governments to fund America’s debt.
Reuters is covering an account in the Global Times, a Chinese government backed paper, that predicts China will step up its de-dollarization. Trade issues and military shoulder-bumping between the US and China in the South China Sea are important considerations for the prediction.
But the solvency of the US is another concern.
“Another reason the state newspaper cited was the potential default risk in the United States as the debt of the world’s largest economy has surged sharply to about the same size of its gross domestic product, a level not seen since the end of the World War Two and well above the internationally recognized safety line of 60 percent.”
China is one of America’s leading creditors. It owns $1.074 trillion in US Treasury debt instruments. A loss of a creditor of that size, or even a significant drawdown, will result in the Fed having to step in to fill the gap with printed money.
And that means more inflation than Powell envisions. As we have said before, the Fed has painted itself in a corner. It has contradictory objectives. It has to keep interest rates low to support Wall Street. But it has to keep foreigners funding US debt.
Those are both hard to do when it says it is going to let inflation run hot.
Isn’t it time to invest in gold?