One of the great mysteries of our troubled times is how the Federal Reserve generally escapes the kind of searing examination such a powerful institution ought to undergo.
The Fed’s economic model is profoundly flawed. It assumes that the way to fight inflation is to slow down or even depress economic activity.
The real cause of monetary inflation is weakening the value of the dollar, usually by creating too many of them. Yet the Fed never talks about defending the integrity of the dollar.
The Fed can’t be held responsible for nonmonetary inflation—higher prices resulting from regulation, higher taxes and, as happened during Covid, wild disruptions of supply chains. Yet the Fed’s assumption regarding this is never seriously challenged.
Another related Federal Reserve mistake is its belief that manipulating interest rates is the best way to guide economic activity. It forgets that interest rates rose sharply in the 1970s—and so did inflation.
The best cure for inflation is a return to the gold standard—which may come sooner than most people think.
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