Your Survival Guy

Preparing your investments and family for when disaster strikes.

Disclosure

  • Home
  • Your Survival
    • Special Report: FOOD SHORTAGE: Crazed Hoarding Is Not Preparing
    • Your Survival Guy’s Super States
      • 2023
      • 2022
      • 2021
    • Constitutional Carry
    • EMP Threat
    • Tucker Explains
    • Newport Gas Outage
    • Water
      • Emergency Water Storage
      • Let There Be Water
    • Get Your Gun and Your Training Now
    • Satellite Phones
    • Navy SEAL Survival Kit
  • Your Money
    • Coronavirus Infects Stock Market
    • Looking for a Better America
    • You Invest, They Win
    • Where to Keep Your Cash
    • Paris
    • How to Buy a Boat
    • Dead or Alive? The Future of Long-Term Investing
    • Is Vanguard too Big?
    • Cryptocosm and Life After Google
    • The Last Intelligence Report
    • The Truth Behind the S&P 500
    • RAGE Gauge
    • How Many “Retirees” Will Keep Working?
    • Your Retirement Life
    • You’ll Love This if You’re Dreaming of an Active Retirement Life
  • Weapons
    • Self Defense
    • Every Family Should Own at Least One Shotgun: Here Are Three
  • About Me
    • Your Survival Guy: “Life on Main Street Hasn’t Been This Hard in a While”
    • Preparing for Times Like These
    • My Videos/Pics
    • Music
      • RIP Neil Peart: You Will Always Be Remembered as a “Modern-Day Warrior”
    • Your Survival Guy: Make Your Bed and The Hero Code
  • You
    • Our Cabin on Kodiak, Alaska
    • If You Are in Pain, this May Help. It Helped Me.
    • How to Save for a Grandchild
    • FIRE! Financial Independence, Retire Early
    • Compound Interest
    • Arithmetic of Portfolio Losses
    • Maximum Portfolio Withdrawal Rate
    • An Efficient Frontier
    • Retirement Compounders
    • Counterbalanced Total Returns
  • Survive & Thrive
    • March 2023: How Long Have You Been in the Investment Business?
    • February 2023: 4 Life Changing Words: “You Should Try This”
    • January 2023: Stacking Wood and Compounding Money
    • December 2022: Your Survival Guy Prefers Bombardier’s Global Express 7500
    • November 2022: Arriving in Style at Le Bristol Hotel, Paris
    • October 2022: Sink Your Teeth into These Bond Yields
    • September 2022: Do You Have the 7 Habits of Highly Effective People?
    • August 2022: “Watch This Boat off Our Stern,” My Dad Said “He’s Coming in HOT”
    • July 2022: MONEY TALKS: Your Survival Guy’s Best Service in Paris
    • June 2022: “I’ve Been with Richard Young for Over 30 Years Now”
    • May 2022: Survive “If You Fail to Plan, You Plan to Fail”
    • April 2022: Dream On! Fishing the Double Down in Key West
    • March 2022: Your Survival Guy Hears the Craziest Investing Stories
    • February 2022: Your Survival Guy’s 2022 Super States
    • January 2022: The Least Affordable Housing Market in the U.S.
    • December 2021: Listen Your Survival Guy is not “Mr. Peanut”
    • November 2021: Joe Biden is Weaponizing Your 401(k) Against You
    • October 2021: Time to Get Your Lazy Cash Off the Couch
    • September 2021: What’s Your Survival Guy Investing in Right Now?
    • August 2021: To Where Will You Flee?
    • July 2021: This Bubble’s Popped Baby
    • June 2021: Your Survival Guy’s Summer Job, Inflation & You
    • May 2021: You’re Telling Me Friends Ask You This Question
    • April 2021: Is There One Best Place in America for ‘Liberty Retirees?’
    • March 2021: America’s Growth Corridors
    • February 2021: Troops in D.C. & Your Authoritarian Virtual Panopticon
    • January 2021: Are You Ready for The Great Reset?
    • December 2020: Disaster Prep in Our Newport Bunker and Your Survival
    • November 2020: Election 2020 Edition: Stock Market is Predicting a Trump Win
    • October 2020: You Invest They Win, AGAIN
    • September 2020: Proud to be an American: Pro-Trump Parade Turns Rhode Island Red
    • August 2020: The Clock is Ticking: You Must Protect Your Family
    • July 2020: What Will Her Life Be Like Now?
    • June 2020: Your Survival Guy’s Home (and Money) Protection Plan
    • May 2020: Future Look at Covid-20, or the Next Deadly Virus
    • April 2020: Only Trump Saw the Risk in America’s Relationship with China
    • March 2020: Coronavirus Infects Stock Market
    • February 2020: Escape the City: Live Small, Cheap, and Safe in America
    • January 2020: Is Your Cash Safe? Probably not This Safe
    • December 2019
    • November 2019
    • October 2019
    • September 2019
    • August 2019
    • July 2019
    • June 2019
    • May 2019
    • April 2019
    • March 2019
    • February 2019
    • January 2019
    • December 2018
    • November 2018
    • October 2018
    • September 2018
    • August 2018
    • July 2018
    • June 2018
    • May 2018
    • April 2018
    • March 2018
    • February 2018
    • Welcome

The Unrivalled Power of the Unelected Fed

October 12, 2022 By E.J. Smith - Your Survival Guy

FOMC Chairman Powell answers a reporter’s question at the press conference.

You have watched over the past week as the UK bond market and the pensions that rely on it have gone on a rollercoaster ride trying to maintain their solvency in the face of rapidly rising interest rates. The Bank of England, one of the world’s foremost central banks and the UK’s arbiter of monetary policy, has been raising rates at historic speeds to tamp down on the inflation it created by lowering rates to historic lows. If you’re getting whiplash trying to keep up with the bank’s policies, you’re starting to understand how pension managers are feeling after adjusting their plans to the low-rate environment. In The Wall Street Journal, economist Judy Shelton explains the manipulative power of central banks, writing:

If you’re looking to be a member of my Survive & Thrive club, click here.

Politicians may debate whether big-government socialism or free-market capitalism leads to better economic outcomes. Their constituents may worry about rising prices and declining prospects for retirement. But neither group has the power to create money with no questions asked, manipulate the cost of capital, or counteract movements in financial markets. The central bankers are in charge—and perhaps that should change.

Even if duly elected leaders try to make good on campaign promises, they face hurdles if monetary authorities, domestic and global, disagree. What happened in Britain is a cautionary tale for nations that have relinquished to central banks the keys to economic performance. British Prime Minister Liz Truss, together with her finance minister, Kwasi Kwarteng, last month announced plans to spur investment and economic expansion by cutting taxes for individuals and businesses. Days later, they were verbally lashed by Mark Carney, a former governor of the Bank of England, for “working at some cross-purposes” with the nation’s central bank.

Mr. Carney, who is now United Nations special envoy on climate action and finance, lamented that the new U.K. government was trying to stimulate short-term growth just as the Bank of England was trying to restrain it to control inflation. While the approach championed by Ms. Truss and Mr. Kwarteng aims to expand economic output by providing incentives to increase supply, the Bank of England is committed to fighting inflation by reducing demand—which requires raising interest rates to choke off growth. When the budgetary plans were poorly received by market investors, the central bank had to buy long-term government bonds to rescue the pound in foreign-exchange markets—causing interest rates to fall.

Then there’s the audacity of the International Monetary Fund, which publicly rebuked the U.K. government’s budget and urged it to “re-evaluate the tax measures, especially those that benefit high income earners.”

Since when did unelected monetary officials gain the authority to tell political leaders what to do? It’s unseemly, but perhaps not surprising: When government organizations are imbued with breathtaking powers to determine financial conditions, it magnifies their clout—and elevates their status.

The coterie of major central banks that manage the global economy are leery of spurring demand through excessive fiscal stimulus. But there is a difference between government overspending, which borrows from the future to pay for current consumption, and tax-cutting incentives now to spur more production down the road. Government borrowing to finance socialist redistribution isn’t the same as government borrowing to invest in entrepreneurial capitalism.

But central banks, led by the U.S. Federal Reserve, have embraced the notion that curbing demand is the road to monetary redemption. That same Fed not long ago failed to anticipate the pervasive inflationary pressures unleashed through the extraordinary fiscal and monetary measures to mitigate the economic consequences of the Covid-19 shutdown.

Fed Chairman Jerome Powell insists that “price stability is the responsibility of the Federal Reserve,” but this is posturing rather than accountability. The central bank doesn’t compensate Americans for expropriating some of their wealth by diminishing the dollar’s purchasing power. And the 58% of Americans invested in the stock market won’t be comforted by former New York Fed President William Dudley’s warning this year that the Fed will “have to inflict more losses on stock and bond investors” to contract economic activity through tightened financial conditions. Citizens harmed by such moves have little recourse.

While Mr. Powell championed “supportive” monetary policy to foster economic growth and “as strong a labor market as possible for the benefit of all Americans” in announcing the Fed’s revised monetary policy framework in August 2020, he now seeks to raise interest rates to “restrictive” levels and believes “we need to have softer labor market conditions.” So much for maximizing employment.

Beyond the Fed’s dual mandate, our central bank is responsible for providing a stable monetary and financial system. But for all its powers to set interest rates, it’s not clear that supply-and-demand forces wouldn’t have set rates more appropriately and achieved better results. Is credit allocated more efficiently through central planning or free-market price signaling?

The hair-trigger reaction of financial markets to the latest utterances of monetary authorities is unsettling. Government bond yields and currency values are vulnerable to the interplay of derivative financial instruments structured on underlying assets that world-wide total about $600 trillion, according to the Switzerland-based Bank for International Settlements. Contracts based on interest rates or foreign-exchange instruments account for 96% of that total.

It is time to question whether central banks have become too powerful, too prominent and too political. In the name of preserving central bank independence, lawmakers have ceded huge swaths of their own responsibility for ensuring the welfare of citizens through sound economic policies. By doing so, elected representatives have granted influence to unelected officials that is inconsistent with democratic norms and limited powers.

It will require a Copernican revolution to shift the field of monetary theory from an understanding of economic performance that doesn’t put central banks at its core. But it’s a change that must be made if we are to prevent further demoralization of free markets and free people.

Action Line: President Trump attempted to put Ms. Shelton on the board of governors of the Federal Reserve, but she was blocked by all the senators you would expect to protect the establishment power of the Federal Reserve. The Fed could have used Shelton’s clarity now as it tries to mop up the problems it created with extraordinary bailouts and policies. If you’re wondering about why markets are down and inflation is up, and how to deal with that in your investment portfolio, let’s talk. In the meantime, click here to subscribe to my free monthly Survive & Thrive letter, and you’ll learn more about me and how I help American families improve their personal and financial security.

The following two tabs change content below.
  • Bio
  • Latest Posts
My Twitter profileMy Facebook profileMy Instagram profile

E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.
My Twitter profileMy Facebook profileMy Instagram profile

Latest posts by E.J. Smith - Your Survival Guy (see all)

  • If You’re a Highly Effective Person, We Should Talk - March 24, 2023
  • What’s Happening to Charles Schwab? - March 24, 2023
  • Prepare for the Predictable - March 24, 2023
  • Is Vanguard Voting Against Your Political Beliefs? - March 23, 2023
  • Call It the Difference between Normal and Crazy - March 23, 2023

If you enjoyed this post, email it to a friend:

  • Email
  • Print
  • Facebook
  • LinkedIn
  • Twitter
  • WhatsApp

Related Posts

Money 101

Recent Posts

  • If You’re a Highly Effective Person, We Should Talk
  • What’s Happening to Charles Schwab?
  • Prepare for the Predictable
  • Is Vanguard Voting Against Your Political Beliefs?
  • Call It the Difference between Normal and Crazy
  • “I Need Preservation of Principal and Growth”
  • DEMOCRATIC SENATOR: Biden’s ESG Veto “Absolutely Infuriating”
  • Are You Fairly Wealthy? I’m Listening
  • How Long Is Your Water Supply Chain?
  • Your Survival Guy’s BEST Insider’s Guide to Key West

Trending

  • Is Vanguard Voting Against Your Political Beliefs?
  • What's Happening to Charles Schwab?
  • Are You Living Your Best Life?
  • Will the Black Swan Usher in Digital Dollars?
  • “I Need Preservation of Principal and Growth”
  • How the Rich Get Richer: You Invest, They Win
  • March RAGE Gauge: Will the Black Swan Usher in Digital Dollars?
  • New England Is Starving for Energy
  • Your Survival Guy’s BEST Insider’s Guide to Key West
  • DEMOCRATIC SENATOR: Biden's ESG Veto "Absolutely Infuriating"

Must Reads

  • HELLO: “How’s It Going? I Don’t Know Anything”
  • Slow and Steady: The Man Behind the Maps
  • Your Survival Guy Prefers Bombardier’s Global Express 7500
  • The Importance of a Balanced Portfolio
  • Your Survival Guy: Emerging Food and Energy Crisis
  • 4 Life Changing Words for Your Survival Guy: “You Should Try This”
  • Your Survival Guy’s Champagne Taste on a Beer Budget
  • On the Phone with Mr. Billionaire
  • What Your Survival Guy Invested in Today
  • “Talk to Me, Goose!” Time Flies in Top Gun: Maverick
Only if You’re Serious
Crazed Hoarding Is not Preparing
How to Save Rainwater Effectively
Your Survival Guy in Paris
Your Survival Guy's Fishing Stories
Financial Independence, Retire Early
Money 101
Pandemic Creates Virtual Panopticon
Emergency Water Storage
Find Freedom in America
Second Amendment
How Can You Save Money for Your Grandchild
Great Reset
See Who's Missing the Boat
Richard  Young Reports
How You Can Save Money for Your Grandchild
Why Fidelity is Number One
The Best States for Survival
You Invest, They Win
Escape the City
Why Vanguard is Too Big for YOU
Island Life

Copyright © 2023 | Terms & Conditions

loading Cancel
Post was not sent - check your email addresses!
Email check failed, please try again
Sorry, your blog cannot share posts by email.