The vice president of the St. Louis Federal Reserve Bank has admitted that the Fed's quantitative easing program has been a failure. Even the central bankers are recognizing that central banking and Keynesian economics do not work. Will they see the light and go Austrian?
The vice president of the St. Louis Federal Reserve Bank has admitted that the Fed's quantitative easing program has been a failure. Even the central bankers are recognizing that central banking and Keynesian economics do not work. Will they see the light and go Austrian?
The vice president of the St. Louis Federal Reserve Bank has admitted that the Fed's quantitative easing program has been a failure. Even the central bankers are recognizing that central banking and Keynesian economics do not work. Will they see the light and go Austrian?
Hello everybody and thank you for tuning in to the Liberty Report.
With me today is Daniel McAdams and Daniel, good to see you again.
Good to see you, Dr. Paul.
Good.
There was a recent article by Jeff Cox put on CNBC.com.
Interesting because it dealt with monetary policy and he was reporting and wrote about a vice president, his name's Stephen Williamson, vice president of the St. Louis Fed.
And the interesting thing is he's blaming the Fed for some of the problems.
He said what they've been doing is all wrong and didn't work, which really caught our attention because, of course, many of us predicted it wouldn't work.
We're not surprised it didn't work.
But what is the surprise is that a Fed official, high official, is admitting this to be the case.
So this, I hope, you know, expands and that there will be more division and maybe they'll come to the conclusion.
I don't think they're ready to come to the conclusion that I've had for a long time.
We don't need the Fed and get rid of them because there's no way they can know this.
But they think that they can manage the money supply.
The researcher says that he was described as spilling the beans.
And I think in many ways that's the case.
But he had several points about the failure of this.
One was that the zero rates didn't do any good because it didn't create the good inflation as if inflation should be good.
But they're harping on, well, we need the CPI going up at 2%, and then that's good inflation, then we can raise interest rates and all that malarkey.
But the whole thing is, is inflation is always bad.
Why destroy the value of the currency?
And yet it didn't produce what they thought because they have these magical calculations on how to do this and produce things.
And someday they'll wake up and they are waking up and they find out they can't really predict these things.
But also on financial guidance, they think that if we give more information to the markets, but I think they're responding to much of our efforts to make sure the Fed is audited and they give more guidance, but it leads to more confusion.
And I think you saw something which was one day in the assessment of the minutes from yesterday that you get two reports in the same page of the financial reports.
I was just Googling the Fed this morning, the news about the Fed.
The first headline said, Fed getting ready to raise rates.
Underneath it, an article five hours earlier, Fed not ready to raise rates.
Yeah, you know, this has been going on for a long time and they get away with it for a long time too.
But everything they say is important because if they put in a word or drop a word or imply this, the traders, you know, they know how to make money quickly.
They might not believe any of it, but they figured the market's going to move this way or that way.
And they've been doing this for a long time.
But it's too confusing because it doesn't tell you anything about the future.
But it may well be coming to an end because I think the markets are sending a signal because the markets always rule over government manipulation.
It's much more powerful.
And when they catch on and they figure all this manipulation doesn't work, then they're going to go and look at it and assess it on its own.
Because most people know that even if they follow the CPI, the government can change the CPI.
So it has a lot of meaning.
But also, he was pretty harsh on the criticism of QE.
And that's where they pumped up the balance sheet up to $4.5 trillion.
And he says, well, it looks like it's not working.
They didn't get any more inflation from doing that, and there's no economic growth, and we still have employment problems.
So it looks like maybe they're confessing that things aren't like they should be.
Two things I was wondering why, and I guess a speculation on your part.
Why do you think he came out and said it now?
And two, what does this suggest maybe about what they're saying when nobody's listening if they'll even?
That's right.
I've always argued that they probably know what we know.
They just don't want us to be right.
And even if they know and expect this thing to fall apart, that they're always preparing themselves.
But then there's the other thing of the determined people who believe in it.
And if it's not working, who gets the blame?
So they're all interventionists, they're all planners, but if things don't go exactly as they want, it's because they mismanage.
If we only had a better management.
I think of that, and we've talked about mismanagement and foreign policy.
You know, the interventionists, which includes just about everybody, they'll say, well, you didn't have enough troops.
No, you had too many.
You didn't put them in soon enough.
And they go on and on, and they argue.
And then if it fails, then it's a blame game.
I think this is what is happening now.
They're starting to say, who gets the blame?
You take a guy like Paul Krugman.
You know, he's a progressive.
He loves intervention.
He loves all this monetary stuff.
But there's never enough.
So he will be very much involved in preparing himself to blame the Fed for not maybe printing money fast enough and put all the blame on him.
But QE has obviously been a failure.
There's no doubt about it.
Well, they present themselves as the masters of the universe.
They have, we were just talking earlier about these equations that they have to determine these things.
Right.
It's mind-boggling.
Yes, and you know, one other thing that prevails in their thinking about raising interest rates is 1937, 1937, they raised interest rates too soon.
And Bernanke and Yellen, they all, they wrote their papers on there and got their PhDs on this.
And so they're terrified of this.
So every time they see a good report, oh, maybe we will.
A bad report, no, we can't do it.
And of course, I've been arguing that the reports are going to get worse and therefore they're not going to purposely raise rates.
The markets will raise rates.
And already junk bonds, interest rates are going up.
And sometimes government bonds become junk bonds.
When you look at what happens in Greece and municipal bonds in this country, junk bonds, eventually that'll move up the ladder to even national security and national bonds, our treasury bills.
But yes, they try to calculate this.
And this is really the joke.
I want to put up on the screen something they call the reflection of the Taylor rule.
This was invented by John Taylor in 1993 along with others who thought the same thing.
But it's been used to some degree for these couple decades.
But it's almost silly and ridiculous when you look at this.
I mean, this is what is supposed to substitute for the market.
They believe they're so smart that if you know how to do these unbelievably complicated calculations, that you'll know how much money to print, what interest rates should be.
And it's every bit as absurd as having wage and price controls.
And Mises, a long time before communists came full-blown into existence, he predicted socialism can't work because you don't have pricing.
You have to have pricing to determine what to make and what the consumers want.
But what a lot of people don't understand is the money is one half of every transaction.
So half of the economy is manipulated by a bunch of socialist manipulators.
And then they say, well, we'll do it based on science and we'll have this rule.
But the way, even though that looks very complex and is, the summary of that rule is that if you're in an economy where the inflation rate is a lot higher than it is today, say it's 5%, the CPI going up at 5%.
If it jumps to 6%, then the Fed has the responsibility to raise interest rates to try to calm things down.
They don't like healthy economies, and so if things are going along, so they say increase the interest rates 1% plus more than the inflation rate.
And that's supposed to solve all the problems.
But if you don't have any inflation, what is their conclusion?
By their calculations, and it may be on purpose because they might want the license to print money.
But if you have 1% or less than 1%, that's the excuse for keeping interest rates low.
And that's why even Greenspan was blamed, kept interest rates too long, too low, too long.
And then we had Bernanke did the same thing, and now we have Yellen doing the same thing.
But it's all because they think they can scientifically substitute for human action and human decision and market economy.
So I find a formula like this actually pretty much of a joke.
I hope there's not going to be a test after the show because this gets me nerve-wracking.
Well, I think it chases away reasonable people because especially it's very complex.
It's not like studying physics where there's a conclusion.
But this has no conclusion because it excludes human beings, human individuals.
And to understand economics, you have to understand the actions of individual human beings.
And this totally excludes it.
So this chases people away.
And I can remember very clearly, you know, I had been introduced to economics in college and it was all the garbage.
And I thought, this is really boring.
And then later on in my life, I discovered Austrian economics and there was this human quality to economics.
Well, this stuff is fascinating.
And people should realize this.
And if they pay close attention, they can find a lot of interest in economics.
It's not anything like what they're taught in college because it is so outrageous.
But you know, this is an attempt to manage an economy.
But when they make mistakes, there's always things they like to do to correct it because if the government makes a regulation and it causes a problem, it causes two new problems, they write more regulations.
In monetary policy, it's the same thing.
So this is why this group called the Plunge Protection Training Team, which is the president's working group on financial markets, this was instituted in 1987 by executive order by President Reagan to protect the markets and make sure that they don't crash.
And I think Williamson admitted, you know, in his report that in one way it was successful, and that was the stock markets.
Correcting Mistakes with More Regulations00:03:13
He kept markets up, you know, and that was one of the goals.
They create a lot of credit.
A lot of that credit didn't go where they thought it should go.
It went to buybacks.
And so it was all artificial.
So this is something, but the plunge protection team is not only the Fed, it involves three or four other groups, and they're supposed to go in there and rescue the market.
For the average worker to give them a job?
No, in no way.
It's always to save those groups that are too big to fail.
But there's one thing that, of course, over the years it wipes out the middle class and real wages go down and we have good evidence of all that.
But you know what I think is going to happen?
You know, we already have a system in place which is called income tax credit.
People who don't pay taxes, they fill out a report and they get a tax credit.
Well tax credit used to mean you get a tax deduction of something and you pay your taxes less.
But a tax credit on the IRS is that if you don't have a good income, they send you a check.
So it's a form, it's changing the name for a welfare check.
So they do a little bit of this trying to put more money into the hands of people.
And what they want is people spending money.
Of course, they argue that the real cause of this crisis is that people quit spending money.
Well, maybe because they lost their jobs or they're worried about something.
So I think they will have more programs that will literally send money out to get money into the hands of individuals, which I think will have a greater inflationary impact on prices.
But the other thing, if people are concerned about prices going up, they have to consider the fact that this crisis overseas and a threat to the dollar.
And if the dollar hegemony is attacked, a lot of that money is coming back.
And I think the markets are starting to show this.
Weak economy, gold prices going up, inflation rates much higher than they admit.
The bubbles are out there.
The bubbles are leaking and they are going to burst, whether the stock and the bond markets and even the housing markets.
Everything as far as I'm concerned is totally distorted because the price of money, the interest rates, have been distorted by a group of liberals who think they know what the money supply should be and what interest rates should be, and they're going to solve the whole problems with this ridiculous equation.
I don't know why they're not laughed out of the room, because it's so absurd.
But anyway, I want to thank everybody for tuning in today to the Liberty report.
And stay tuned because I think our events are moving along rather quickly.
I do not think that the Federal Reserve can solve the problems, but it's very heartening to see the vice president of the St. Louis Fed reporting this or stating the fact that the Fed didn't accomplish what they pretended to accomplish and compliments to CNBC.com because they have put this out and reported it to show what is really going on.
Total Failure Revealed00:00:48
This is the information that people know of the total failure.
And this has been my argument that things will change for the better because the total failure of the Keynesian system, the fiat money system, the dollar reserve standard, as well as our foreign interventionism.
It has been a disaster and it's going to become more evident.
The answers are out there in the freedom philosophy and more and more people are joining us in this.
So the failures are going to be there and they're going to be much more vivid.
The most important thing is that the solution, that is the freedom philosophy, becomes more vivid where all of us can see it and we can invite others, especially the policymakers, to realize what Mr. Williamson realized.