Magazine article Insight on the News

Fed Reserve Inflates Cost of Business

Magazine article Insight on the News

Fed Reserve Inflates Cost of Business

Article excerpt

It must have been quite a sight down at the Federal Reserve a couple of weeks ago. Sitting there in their banker suits, Fed policymakers must have sported lusty grins when the Producer Price Index came in showing a 0.6 percent increase for August. Finally, they were vindicated! Who knows, maybe they even celebrated with steaks, cigarettes and coffee -- the same commodities whose price increases boosted the index.

"Here's our proof, inflation is on the march again," they must have thought. "The five interest-rate increases ordered by the Fed in the past eight months were necessary."

Or were they? The Fed's celebration could have lasted only a few days. Then the Consumer Price Index for August showed once again that inflation is not on the rise.

If the inflation fires aren't burning, why has the Fed been increasing rates, raising the price of money for every producer in our economy -- the farmers and homebuilders, inventors and small-business people -- to put the brakes on our economy? The total cost to American taxpayers from increases in interest rates since February will be at least $250 billion during the next five years. And they made these decisions in secret, behind closed doors, with no public debate.

If these federal officials were in any other business -- pharmaceuticals, say, or oil -- we'd call it a cartel. We'd summon the antitrust lawyers at the Justice Department and demand an investigation. But these executives are bankers, and their little group that meets behind closed doors is called, incongruously, the Open Market Comittee of the Federal Reserve Board. Instead of calling the cops, the media wafts incense -- while the rest of us stand by in reverential awe.

I think it is now time to open up the nation's money clique and give our producers some seats at the table. The people who create our jobs and produce our wealth ought to have a say in regarding the money supply that is the fuel for their endeavors. The events of the last few months show why.

The central bankers say they are increasing interest rates to head off inflation, helping everyone. Actually, they are hijacking the economy, and the getaway car is headed toward the big banks. The media portrays the Open Market Committee as a group of chaste economic monks. But they are bankers, doing what bankers have always done -- protecting the holders of yesterday's wealth against the risks posed by tomorrow's opportunities.

Most importantly, the facts about inflation don't support the Fed's actions. During the last three years, the rate of inflation actually has been falling; the increase in wages last year was the smallest in almost 30 years. "Deflationary forces continue to lurk," the chief investment strategist at Merrill Lynch declared last fall.

Things are changing, and the Fed doesn't seem to see it. American corporations are laying people off, which is what they used to do in recessions; they are coming back to financial health by employing more technology and fewer people. Economists call this efficiency; to many, it's unemployment. Last January, even as the Federal Reserve Board claimed to see inflation on its radar screens, corporate America slashed almost 110,000 jobs, a record for a single month. Such job cuts have increased during each year of this decade. …

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