Incompetent Federal Reserve Goofs Again
Paul Craig Roberts
The Federal Reserve decided it had not wiped out enough banks and again raised interest rates, thereby pushing more banks toward insolvency.
The goofs think, or pretend to think, that too many Americans are working, making and spending too much money, and causing inflation despite the obvious fact that the rise in prices is due to the lockdowns and sanctions which busted up supply chains and reduced supply.
The quickest and surest way to reduce prices is to remove the sanctions and repair the Nord Stream pipelines. Putting people out of work by pushing the economy toward recession reduces supply and will add to price pressures.
As Michael Hudson and I have made clear, higher interest rates cause lower interest rate instruments on the banks’ balance sheets to decline in value, but the banks’ liabilities don’t decline. The rising interest rates thus push banks into insolvency.
Some economists said the Federal Reserve must remain strong against inflation to reassure Wall Street, blah, blah. Well, Wall Street wasn’t reassured by the Federal Reserve’s stupidity. The Dow Jones Average fell 530 points in response to the Federal Reserve’s hike in interest rates.
The Federal Reserve’s ill-considered action will feed depositors’ fear of other troubled banks and continue the drawdown of deposits. Is the Federal Reserve trying to create a financial crisis?