Recession

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Once again, the Federal Open Market Committee (FOMC) commonly called “The Fed,” is turning the mild recession during the first two quarters of 2022 into a deep two-year recession by raising interest rates too high and keeping them high for too long to control inflation. The Fed’s track record is deplorable. In the last 60 years, The Fed has only once in 11 recessions got it right and avoided a deep recession. Turning mild short recessions into deep long ones causes great suffering for America’s workers. You would think The Fed would have been stripped of its power and eliminated long ago. We need to keep the Federal Reserve Bank because it acts as the lender of last resort to provide credit when commercial banks fail, but not the FOMC.

Competitive free market economies such as the US economy, tend to be self-correcting. They naturally have periods of rapid growth and recession. They also have periods of high inflation. However, when prices go up because of inflation, consumers stop buying and producers must lower their prices or fail. Left alone, the economy tends to self-correct. However, The Fed will not leave it alone. They interfere and raise interest rates.

Businesses and consumers run on credit, not cash. When interest rates rise, their costs for credit go up and consumers stop buying and producers stop producing and the economy settles down. It seems wrongheaded to me that during inflation The Fed raises interest rates to stop it which drives costs and prices higher, not lower. The above is a quite simple description of how economies like ours work. In truth, economies are extremely complex and slow-moving. It takes 6 to 12 months for one rise in interest rates to have its full effect. But The Fed won’t wait so they always raise them too high and keep them high for too long.

One previous chair of The Fed bragged The Fed has 400 of the smartest Ph.D. economists in the world. That is the problem. They are not smart, they are dumb. Economists claim that economics is a science as dependable as Newton’s laws of physics. It is not. Economics is the study of individual and group economic behaviors. The Fed’s economists assume humans always act logically and rationally and in their own best interests. Any observant adult knows that is not true. The Fed’s economists build complex economic computer modes using advanced mathematical equations based on their wrong theory of human behavior which is absurd. Their models produce results contrary to all common sense. For The Fed’s economists’ theories to be science they must be reproducible by other economists with controlled experiments. Controlled experiments are impossible because economic outcomes in the US economy are determined by the individual economic decision of 330 million Americans. The Fed’s economic decisions about inflation and interest rates are no more than wrong opinions based on false theories and guesses.