When the Federal Reserve runs your life

While not obvious, it is amazing, and a bit concerning, how great an impact monetary policy has on our lives. Decisions that an "independent" Federal Reserve makes have profound implications for future generations. Monetary policy decides the fate of our economic well-being, good or bad.

If we are going to debate President Trump's attempt to influence the Federal Reserve's implementation of monetary policy, then we must discuss another: the competency of Federal Reserve monetary decisions and the Fed's obvious acquiescence to previous presidents.

Monetary policy decisions work out over decades, not years, and certainly not over a politician's term in office. For instance, inflation in 2023 began with monetary policy mistakes in 2008, when then–Fed chair Bernanke embarked on a new, untried policy called Modern Monetary Theory (MMT). The Fed issued — "printed" — trillions of U.S. dollars (liquidity) into the economy. It is called quantitative easing, or Q.E. This was an extreme departure from historical policy, and it was implemented unilaterally and without debate by the Treasury Department and the Federal Reserve.

There are two issues here. First, monetary policy decisions should be independent of any political manipulation. Applying integrity and principle to our thought process, we must conclude that no politician, including one with whom we agree, should control monetary policy.

Second, we have witnessed three Fed chairs (Bernanke, Yellen, and Powell), over two decades, caving to political pressure. In these cases, it was to appease Democrat presidents Obama and Biden. We didn't hear any complaint by the left-wing media when Chairman Bernanke, in 2008, "printed" a massive money supply into the economy to help President Obama make the economy look better than it was during the Great Recession.

Increasing the supply of money in the economy should stimulate economic growth. But it didn't work in 2008, and we suffered the Great Recession. The cause of the Great Recession was highly restrictive fiscal policy by President Obama: high tax rates, a punitive regulatory environment, and a bias against free enterprise with emphasis on more government control. In this case, Fed policy, to issue so many dollars into the economy, could not overcome poor fiscal policy, but led to terrible inflation a decade later.

Fed implementation of a new monetary theory (MMT) in 2008 haunts us to this day. The inflation we suffered over the bulk of President Biden's term was caused by excessive money supply that started in 2008. Any fourth-year economic student (or a first-year Austrian School economist) would tell us that excess money supply causes devaluation of the purchasing power of the U.S. dollar — in other words, inflation.

So let's be honest and criticize any and all presidents who manipulate monetary policy for their own benefit. Even more important, the Federal Reserve should be held accountable for the many policy mistakes they have made over the years.

Monetary policy should be implemented by an independent, principled, and rules-based body whose outlook stretches decades out. We need a deliberative body that understands the intricate interactions in any massive and complex economy. And they should be driven to one principle: preservation of the value of the U.S. dollar. Inflation destroys dollar value. Federal debt destroys future economic prosperity.

Our Constitution, based on principles enumerated in the Declaration of Independence, should guide monetary policy. That concept, that principle, is limited government so that individuals are free to choose and citizens have the inalienable right to ownership of their property. Neither the government nor the Fed should ever issue debt that the citizens must repay.

Fed policy has been the antithesis of the guiding principle of its formation. Inflation, dollar devaluation, debt, and spending steal from current and future generations to increase the power of our government over our individual freedom.

"A Republic...if you can keep it." Indeed.

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.