My Little Talk About "The Creature from Jekyll Island"

According to the headlines, the Federal Reserve didn't really do anything at its March meeting.

But it did.

True, the central bank held interest rates steady, however, it still made a very significant move.

It dramatically slowed balance sheet reduction. 

What does this mean, and why did the Fed do it now? 

In this week's Money Metals' Midweek Memo podcast, host Mike Maharrey explains the move and its potential impact, and puts it in the context of Fed monetary policy history. He also talks about what we should make of Jerome Powell's insistence that the economy is "fine."

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Mike opens the show talking about how people using drugs need more and more to get the same high as they build up a resistance. 

"So, we have an economy that is addicted to a drug called easy money, and it needs more and more to produce the same effect."

Mike notes that we can see the impact of this "resistance" in the trajectory of monetary through each succeeding boom and bust. Each series of rate cuts has gone deeper than the last, and each round of quantitative easing has gotten bigger.

"I had the privilege of interviewing G. Edward Griffin, the author of 'The Creature from Jekyll Island.' I asked him if he thought the Fed would ever lose control of this thing. He said no. When he said it, I was kind of taken aback. Be he quickly added, 'Because it already has.'"

Mike noted that while the headlines generally gave the impression that the Federal Reserve didn't do anything at the March meeting, it made a very substantial change to monetary policy.

"The Fed will drastically slow its balance sheet reduction process beginning in April. ... This is a significant loosening of monetary policy. In fact, I would argue it is far more significant than a quarter-percent rate cut. As one analyst told CNBC, 'The Fed indirectly cut rates today by taking action to reduce the pace of runoff of its Treasury holdings.'"

Mike goes on to explain the role of the balance sheet in monetary policy, pointing out that it is arguably more significant than interest rate movements. He explains the scope of balance sheet expansion since the 2008 financial crisis and emphasizes, "This is, by definition, inflation."

Mike proves his point by highlighting the changes in the money supply since 2022.

"In other words, despite all the talk about fighting price inflation, the central bank has been creating monetary inflation (the cause of price inflation) for over a year. And it just announced plans to speed up that process. That should be the headline coming out of this Federal Reserve meeting."

So, why would the central banker make such a significant easing move now?

"It's the national debt, my friends."

Mike explains how quantitative easing and the expansion of its balance sheet facilitates government borrowing and spending. Given the level of spending, it makes sense that the Fed would have to adjust its policy to compensate. 

But the Fed has another problem.

"The Federal Reserve is trying to have its cake and eat it, too. On the one hand, it held interest rates steady and said all the right things about inflation worries. On the other hand, it just loosened monetary policy significantly. This further underscores the Catch-22 facing the Federal Reserve. It simultaneously needs to hold rates higher for longer to rein in price inflation and cut rates due to the excessive levels of debt and malinvestments in the economy. Obviously, it can’t loosen and tighten monetary policy at the same time. The Fed is balanced precariously on a tightrope. The question is, which way will it fall?"

Mike notes that Jerome Powell insists the economy is strong, and he doesn’t think you should be worried about a recession.

"If history is any indication, you should probably be worried about a recession."

Mike then provides a little history lesson, highlighting the fact that Fed chair Ben Bernanke was saying almost the same things in 2007. He insisted everything was fine, we were heading for a soft landing, and the issues in the subprime housing market were "contained."

"Most of the mainstream media followed Bernanke's lead. In fact, most people insisted everything was fine as late as the summer of 2008. Of course, we all know how the story ends. The saying goes, 'History doesn’t repeat, but it often rhymes.' Well, we can easily hear echoes of 2008 in the trajectory of today’s economy."

Mike points out, "And today, we have the same kinds of people telling us there’s nothing to worry about."

"Maybe it’s time to worry. But worrying doesn’t actually solve anything, right? You need to be prepared."

That leads to Mike's call to action. Since you know that the Fed is going to keep devaluing the dollar, you need real money - gold and silver. You can get it by calling Money Metals at 800-800-1865 and talking to a precious metals specialist.

Articles Mentioned in the Show

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G. Edward Griffin Exposed the Fed: Secrets, Cartels, and the Battle for Monetary Control