APR 20, 2018
An enormous part of the Fed’s job is to “manage expectations.” Practically, this means an enormous part of the Fed’s job is to lie and pretend they have things under control, that this is all going according to plan, that everything is gradual and moderate and just great.
What does all of this expectation management ultimately accomplish? Absolutely nothing. It might forestall the inevitable, delay the mathematically inevitable judgment day, but putting on sunglasses doesn’t actually make it darker outside.
Systemic overhaul is needed to address the fatal flaws in the Fed-rigged system. Until then, Fed jabbering is less akin to a pair of sunglasses than it is burying their heads in the sand.
Inflation, as this term was always used everywhere and especially in this country, means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check.
But people today use the term 'inflation' to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise.
The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been, up to now, called inflation.
We suggest that the popular view, which holds that by means of transparency the Fed can prevent rises in inflation, does not hold water. Irrespective of how transparent the Fed is what matters here is the rate of increase in the money supply. It is rises in the money supply that cause the physical damage to the process of real wealth formation irrespective of the Fed’s transparency.
Imagine that somehow the Fed did manage to convince people that central bank policies are aimed at stopping inflation and maintaining price stability, yet at the same time the central bank also raises the growth rate of money supply.
Therefore, even if inflationary expectations were stable the destructive process will be set regardless of these expectations because of the increase in the growth rate of money. Note that people’s expectations and perceptions cannot offset this destructive process.
It is not possible to alter the facts of reality by means of expectations. The damage that was done cannot be undone by means of expectations and perceptions.