Time To End Bankster Monetary Central Planning

By Richard Ebeling: There is no way to describe current US Federal Reserve policy other than as monetary confusion and misdirection. In a nutshell, Janet Yellen and the other members of the Fed’s Board of Governors have no idea what to do. Do they raise certain interest rates over which they have some direct influence? Do they keep them at their current rock bottom levels, as they have for the last six years?
On the one hand, government measured unemployment levels have fallen from their high of over 10 percent at the depth of the recent recession to 5.1 percent in September 2015.
However, there is an alternative measure of unemployment also calculated by the U.S. Bureau of Labor Statistics. It includes not only those currently unemployed and looking for work during the previous four weeks, but also “discourage workers” who have stopped looking for jobs who would be interested in working if they found a suitable employment; and those who are part-time who would prefer to be employed full-time. If these two additional groups are included, the U.S. unemployment rate is 10 percent, double the headline “official” level of unemployment the administration touts as a “positive” sign of the economy’s recovery.

On the other hand, price inflation as measured by the Consumer Price Index seems to be barely rising. According to the Bureau of Labor Statistics, price inflation in August 2015 was .02 percent higher than twelve months earlier.

Again, however, when food and energy prices are subtracted out of the Consumer Price Index to leave what the government statisticians call “core” inflation, prices in August were 1.8 percent higher than a year ago. Certainly not a “galloping” inflation, but not the nearly zero price inflation rate the highline number suggests, particularly since food prices were up 1.6 percent over the year; the “drag” on measured price inflation was all due to a 15 percent decline in energy prices compared to twelve months earlier.
No Trade-Offs Between Employment and Inflation
If we look at that alternative unemployment rate of 10 percent in conjunction with the “core” price inflation rate of 1.8 percent, what we see is a moderate form of what in the 1970s was called “stagflation”: high unemployment with rising price inflation.
The Federal Reserve could try to nudge up the key interest rates it most directly has influence over, especially the Federal Funds rate at which banks lend to each other overnight, but with the risk of threatening the investment and home mortgage borrowing that it has attempted to “stimulate” through near zero interest rates.
Or the Federal Reserve could continue to keep those interest rates low through a continuation of their moderated “quantitative easing” monetary policy, but with the risk that price inflation (however measured) may start to rise faster than it has, creating the danger of price inflation above their declared target level of two percent a year.
(It should be kept in mind that even the Federal Reserve’s “modest” target rate of two percent annual price inflation would still result in a near 50 percent decrease in the value of every the dollar in our pockets in around 20 years.)
Either way, the old Keynesian notion that you can lower unemployment by accepting a higher rate of price inflation, and vice versa, shows itself to be as illusionary as when it was first touted back in the 1960s as the mechanical macroeconomic policy trade-off between unemployment and price inflation known as the Phillips Curve.
The European Central Bank, by the way, is in its own dilemma. European Union-wide official unemployment continues to hover above 10 percent with a modest price deflation as most recently measured, in spite of that central bank’s own version of “quantitative easing” of nearly $70 billion of new paper money-creation per month since the beginning of 2015.

The Fed Causes Booms and Busts
The only result of these years of monetary expansion and interest rate manipulation is economic instability and distortion. The financial market indices significantly gyrate up and down seemingly every day based on attempted nuanced readings of the latest public statements by any of the Federal Reserve Governors concerning interest rate policy changes.
The house of cards constructed on years of artificially low or zero interest rates in terms of investments undertaken with trillions of dollars of cheap money, as well as home mortgages at manipulated interest costs, hang in the balance again as in previous boom-bust cycles.
Every time the booms turn into busts, the central bankers insist that they have had nothing to do with it. It has been due to “irrational exuberance” in financial markets, or huckster bankers who duped people into taking out loans they could not really afford, or international events beyond a national central bank’s control, or just, well, “bad luck” with things happening in unpredictable ways even under the watchful eyes of the central bank “experts.”
The fact is, the boom-bust cycles that have plagued modern industrial societies for well over a century, including the Great Depression of the 1930s and this most recent “Great Recession,” as it has been dubbed, have not “just happened” or been the result of inherent and inescapable weaknesses in a market economy or capitalist financial markets.
The booms and busts of the business cycle are the result of the very central bank system that government policy-makers and central bankers insist they are there to either prevent or mitigate in its amplitude and duration.
As I explain in my new, recently released book, Monetary Central Planning and the State, published by the Future of Freedom Foundation, central banking suffers from the same political and economic shortcomings as all other forms of central planning.
Monetary Printing Press Plunder
First, placing the control of the monetary system in the hands of the government or a government-created agency such as the U.S. Federal Reserve System opens the door to the temptation of political abuse in many forms. On the one hand, the temptation exists to use the monetary printing press to create the money that covers the expenses of a government’s deficit spending and provides the artificially low interest rates to manipulate the costs of funding the government’s accumulated debt.
On the other hand, a central bank can also be used to “stimulate” employment and production in the service of politicians leading up to an election, to make it seem that those in political power have the magic wand to “create jobs” and better standards of living – what is sometimes referred to as the “political business cycle.”
It also enables pandering to special interest groups wanting sources of below-market rates of interest for loans, as well as the banking institutions themselves that have access to the created credit supplied by the central bank with which they earn interest income that otherwise might not have been there.
Government full or near monopoly control of any resource, asset or institution (such as a central bank) historically has always brought in its wake plunder and privilege for some at others’ expense that would not have been possible in a more open, competitive market setting.
Monetary Central Planning and the Business Cycle
However, even if those who oversee and manage central banks were as “pure” and benevolent as angels only wishing to do good for mankind with no ulterior self-interested motives or temptations, the monetary and banking system would still constantly run the risk of suffering from the same boom-bust cycles that we see in our world today.
That is because central banking is a form of central planning, and as such, manifests the same weaknesses and impossibilities as all centrally planned economic systems. Interest rates are market-generated prices that are meant to coordinate the decisions of savers with those of potential investors, by bringing the two sides of the loan market into balance.
Income-earners make a decision to spend a portion of their earned income on desired consumer goods and to save a portion of that income for planned and possible demands and uses in the future. The real resources that saved portion of their money incomes represent in terms of buying power in the market is transferred to interested and able borrowers; they use that saved portion of other people’s money income to enter the market and demand and purchase resources, raw materials, capital goods (machines, tools, equipment) and labor services to undertake future-oriented and time-consuming investment projects of various types and lengths that will bring forth goods to be bought and sold in the future.
Interest rates, in other words, serve as the balancing rod to keep in coordinated order the use of scarce resources in society between the production of consumer goods closer to the present and the investments that will bring forth consumer goods further in the future. It is the balancing of resource uses and goods production across time.

Central Banker Hubris vs. Competitive Markets
There is no way to know what are the “correct” coordinating interest rates for different types of loans with differing periods of investment time in relation to people’s decisions to consume and save parts of their income other than to allow free, competitive financial markets to discover through the interactions of supply and demand what the “equilibrium” or market-balancing interest rates should be.
This is, of course, no different than in the case of any other good or service that can be offered on the market. No central planner can replace the competitive market and its free pricing system for integrating and coordinating all the complex knowledge and circumstances of multitudes of millions of suppliers and demanders in an ever-changing world.
And, likewise, it is shear arrogance and naïve hubris for central planners to believe that they do or ever can have the knowledge, wisdom and ability to correctly determine what the quantity of money should be in the economy, what money’s value or purchase power should be over goods and services in the marketplace, or what interest rates would assure that coordinated balance between savings and investments.
Monetary Freedom and Private Competitive Banking
That is why in is time to rethink and challenge the presumption of a need for and superior outcome from the institution of central banking, whether in the United States or anywhere else in the world.
In the twentieth century a group of economists known as members of or sympathizers with the “Austrian School of Economics” challenged the reasoning and rationale behind central banking. Among these leading Austrian economists were Ludwig von Mises and F. A. Hayek.
Though Austrian economists have differed sometimes in their emphases and arguments about the practical workings of a private, competitive free banking system, there is one underlying premise shared by all of them: a completely market-based monetary and banking system would be far superior to historical and current institutional forms of central banking.
Money is, perhaps, the most central and essential, economic good in the market, since it is the generally used medium of exchange to facilitate all transactions entered into by buyers and sellers. It makes smoother and more effective the exchange of goods and services throughout the economy.
Money and Banking is Too Important to Leave to Central Banks
But precisely because of its central role and significance in a complex and ever-changing market economy the supply and control of money is too important to leave in the hands of politicians or their central bank appointees.
They are either too open to the temptations of short-run political purposes in their control of the monetary printing press; or they suffer from what Hayek called a “pretense of knowledge” in presuming that they can ever know more or better than the cumulative knowledge of all the participants of the competitive market as manifested in the prices and interest rates that emerge through the interaction of supply and demand.
Historically, markets – which means all of us in our roles as consumers and productions – determined which commodities were most useful as media of exchange for different types and sizes of transactions. Money was not and need not be a creation or creature of the state, and has most often been commodities such as gold and silver.
Banking as the institutional procedure and process to facilitate and coordinate the decisions of savers and investors emerged out of the market discovery of profitable opportunities in providing intermediary services to minimize the costs of lenders and borrowers directly searching out trading partners for the exchanging of resources and goods across time.

Money Creation as a Tool of Plunder
Governments and their central bank creations usurped market-based monetary and banking systems to serve the plundering purposes of kings, princes, parliaments, and special interest groups who all wanted to hold the magical hand of the monetary printing press.
Print up money (or its digital substitutes and surrogates in more modern times) and you can have access to all the hard work of others who have invested in manufacturing and bringing to market all the goods and services you desire without having to undertake the reciprocal effort and work to make and trade an actual good or service to earn the money so as to honestly buy what you want from them. Some are so impolite as to refer to such monetary mischief as “fraud” and “theft.”
Added to this more “base” purpose of government monopolization of the monetary printing press, has been, over the last one hundred years, the arrogance and hubris of social engineers, bureaucratic elites of “experts” and “socially-oriented” policy-makers who presume to know how to micro-manage and macro-manage society better than leaving people to manage their own lives through peaceful interaction with others in the competitive marketplace.
Their century-long legacy in the arena of money and banking has been the booms and busts of the business cycle. The monetary social engineers have worn different hats at different times – calling themselves Keynesians, Monetarists, New Classical or Rational Expectations theories, or Post- and New Keynesians – but they remain variations on the same conceptual and ideological theme: monetary central planners imposing their notions of desired market outcomes by co-opting the functioning of a real and functioning market-based competitive system of free banking using market-chosen media of exchange.
The time has come to end the tragic and disruptive reign of monetary central planning.

Source

X art by WB7

_______

Additional: 

"I Would Say Don't Worry" Says Chinese Central Banker As Indian Central Banker Says "World Economy Is Looking Grim"

Submitted by Tyler Durden: Earlier today, the IMF with its usual several year delay, discovered what pretty much everyone else had known for years: that emerging markets have massively overborrowed, according to the IMF to the tune of $3 trillion, most notably in China. Of course, this is one of the many things we have been cautioning about for the past 6 years, perhaps nowhere more vividly than in this November 2013 infographic showing "How In Five Short Years, China Humiliated The World's Central Banks."

So now that the IMF has finally caught up with what our readers knew two years ago, here are some more of its "profound" observations:

This dangerous over-leveraging now threatens to unleash a wave of defaults that will imperil an already weak global economy, said stark findings from the IMF's twice yearly report.

The Fund warned there was no margin for error for policymakers navigating these hazardous risks.

"Policy missteps and adverse shocks could result in prolonged global market turmoil that would ultimately stall the economic recovery," said Jose Viñals, financial counsellor at the IMF.

And just when one thinks there is hope yet for the IMF, and it is almost on the same page as the BIS (the same BIS whose board of directors is comprised of all modern central bankers of course), the IMF goes and says what its policy recommendation is: engage in the same policies that have not only failed, but led the world to the brink, but not just one where the market can plunge 20%, 40%, or more percent, but where the entire neo-Keynesian/fiat/fractional reserve system is ultimately left discredited in the garbage heap of history, where it belongs.

The world's major central banks should ensure policy remains "accommodative" for fear of setting off a new wave of instability that would see bond prices rise and asset prices collapse, said the IMF.

In fact, just do more QE. Best of all, just paradrop money right; after all that $200 trillion in global debt (and a few quadrillion in derivatives) won't inflate itself away, right?
Whoever wishes to, can waste their team reading the full report here.
One person who didn't read it, but had no choice but to engage in damage control was China's deputy PBOC governor Yi Gang, who had the following absolutely comical retort to the IMF:

"I would say, don't worry," said Yi Gang, deputy governor of the People's Bank of China, after the International Monetary Fund warned of risks in China's economic challenges.

"China will still have pretty much middle-to-high growth in the near future," said Mr Yi, speaking in Lima, where the IMF-World Bank annual meetings were beginning.

"A lot of people are considering a slowdown of the Chinese economy," he said, referring to how the downturn has helped send global commodity prices plummeting, hurting the economies of exporters. But he insisted that Chinese imports of raw materials for its industrial economy will grow steadily in the future.

We won't even dignify this utter gibberish with a comment, but instead will give the word to a far more credible and serious policy maker, former IMF chief economist and current India central bank governor Raghuram Rajan, perhaps the only sane central banker anywhere these days, who realizes it is now too late for "macroprudential policy", and certainly far too late "not to worry."
Instead he called for a "global safety net" backed by the IMF to provide support to economies "that might experience liquidity crises in the future, especially given that such problems might be triggered by the reversal of years of highly accommodative, post-crisis monetary policy in advanced economies such as the US."
Look what he did there, IMF? He did not call for more QE/NIRP/ZIRP or money paradrops: instead he realizes when the game is over, and when it is time to move on to the next, far less pleasant stage in the global lifecycle.
What is this safety net Rajan proposes?

Without such a safety net, governments were reluctant to approach the IMF because of the stigma attached to such a plea and the implication that they were undergoing a full-blown solvency crisis rather than a temporary shortage of liquidity as billions of dollars of capital rushed for the exit.

Mr Rajan said one possibility was a multilateral swap arrangement among central banks — of the sort that already exists between the emerging Brics economies and in the $50bn Japanese credit line for India, for example — guaranteed by the IMF. “I think a lot of emerging markets would like to see something like this,” he said, but admitted there was no appetite for the idea among advanced economies.

Of course there isn't: it would mean reducing the equity return for the shareholders of DM central banks. And that must be avoided at all costs, even if the currency said shareholder plans to liquidity asset holdings into will not exist for much longer.
Finally, Rajan's summary of the state of the global economy was far less cheerful and far more credible than that of Yi Gang:

The world economy, he said, was "looking grim."

So then, worry?

Source