The terminal stage of Dr. Frankenstein-style central banking is disgorging ridiculous claims of authority motivated by reckless efforts to retain control. One such pincer attack is the Federal Reserve's purported 2% inflation target. Behind our very eyes, this fictional mandate is being raised, all the more reason that savers need to speculate, not a welcome prospect with both inflationary and deflationary influences expanding and bound to burst.
A certainty of this age (post-Western-Civilization) is the ease with which libertine policies escalate to fantastic proportions even as they are failing. The Federal Reserve mumbles its 2% inflation target while the "economic literature" has sown the garden for an 8% inflation rate, in the name of "price stability."
To be more precise, "inflation" to the Federal Reserve is conveniently defined as the consumer price index - without including food and energy. This 2% or 8% target should be understood as a negative interest rate. The Federal Reserve will (through its current policy, although this will boomerang at some point) hold Treasury yields at zero-percent. It will target inflation at 2% to 20%.
In The Beginning, at least in this short narrative, a Harvard economist told a Senate committee the United States must accept a 2% inflation rate as the cost of prosperity. That was in 1957, a very good year to wrap such a career-advancing declaration inside a Cold War mandate. "Growth" would defeat the Soviet Union.
Federal Reserve Chairman William McChesney Martin did not agree. On August 13, 1957, Martin warned that recent inflationary pressures had risen from a period of strong economic growth fostered by "'imbalances in the economy' in which 'rising costs and prices mutually interact upon each other over time with a spiral effect.' . . . The person most likely to be injured in the inflationary cycle was the 'hardworking and thrifty...little man' on fixed income who could protect neither his income nor the value of his savings." (more)
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