Hooray: The Fed is done with climate change

As founder of a commercial bank, I am dependent on the policies the Federal Reserve implements, especially Monetary Policy. So if I am critical, it is because the Fed's actions have such a dramatic impact, not only on my bank, but on the entire economy.

I find it the height of hubris that the Federal Reserve would have incorporated global climate change into its prime directive — especially when the Fed so thoroughly missed its founding objective.

The prime directive given the Federal Reserve, at its inception in 1913, is to protect the value (purchasing power) of the U.S. dollar. Were Fed Monetary Policy implementation competent, it would do so by controlling dollar devaluation, AKA inflation. But over the intervening 100-plus years of its existence, the Federal Reserve's implementation of Monetary Policy resulted in devaluation of the U.S. dollar by more than 95%.

Incompetence or intent? The question should be answered.

The Fed's primary tool for retaining the value of the dollar is money supply — the number of dollars in circulation, or monetary liquidity. In 2008, the Fed started printing dollars — $9 trillion, to be exact. This excess monetary liquidity is the source of the inflation under which we suffer today.

The other Fed tool is interest rates, specifically the overnight rate or Fed Funds. Interest rates affect borrowing costs and bank deposit rates. They stimulate or depress the private economy. This is the tool the Fed is using to control inflation, but it hasn't worked and won't work.

The solution for excess inflation is to reduce money supply. There is an immutable balance between money supply and the liquidity needed to keep the private economy working. Too much money supply, and each dollar devalues, resulting in inflated prices. In other words, it takes more (devalued) dollars to buy the same product, hence inflation. Fed economists know this. Sadly, they decided to ignore this truth, and we citizens suffer massive, debilitating inflation, with no end in sight.

The Fed can reduce inflation in short order by reducing money supply, the number of dollars in circulation. However, there is a catch. The economy is interconnected: change here, and see an effect there. Good economic policy means balance.

In order to control inflation, or dollar devaluation, two other things must happen simultaneously: reduce government spending (eliminate federal programs), and reduce the national debt outstanding (redeem Treasuries).

These three issues are interconnected. The current trajectory is to ultimate destruction of our dollar, then our economy and eventually our nation. We can stop this flight to destruction through monetary discipline. Every citizen must express the will to stop spending and reduce debt. If a politician won't, fire him in the next election.

These are the ramifications of a Constitutional Republic and rule by the individual. The good news is that we are endowed by our creator with certain inalienable rights and our founders provided the perfect guidance: our Constitution.

Jay Davidson is founder and CEO of a commercial bank. He is a student of the Austrian School of Economics and a dedicated capitalist. He believes there is a direct connection joining individual right and responsibility, our Constitution, capitalism, and the intent of our Creator.

Image: pasja1000 via Pixabay, Pixabay License.