I just didn’t know—until the other day, when it finally hit me. Jerome Powell is God, and the FOMC is the Holy of Holies. The cherubim floating above them, fluttering their wings and singing praises, are all econ majors. The Wall Street sycophants and Washington insiders are the seraphim. Meanwhile, the media resemble Jim Jones devotees in Guyana, never questioning the absurdity of it all. I’ll have another glass of punch, please!
On Wednesday, I was driving up I‑95 to Washington, tuned to Bloomberg Radio. I listened to all of Jerome Powell’s remarks and the subsequent press conference regarding the Fed’s 0.25% rate cut.
Really? All this breathless attention over a 0.25% reduction in what Federal Reserve banks charge each other for overnight deposits? Depositors lose and borrowers win. Powell droned on about the Phillips Curve and how the Fed—gloriously, bravely, and with perfect moral balance—had harmonized monetary and labor policy with this single bold move. In doing so, Powell saved the Republic. The applause suggested he’d just stormed a machine‑gun nest, à la Alvin York or Audie Murphy receiving the Medal of Honor.
Call me an unbeliever. Call me a heretic. Hell, call me a Judas. I reject this absurd religion.
I cannot imagine a single business owner rushing to hire new employees because banks are earning 0.25% less on deposits or saving 0.25% on loans. Hiring decisions are made by the Big Boss Man based on capital availability and a non‑obtrusive regulatory environment—things achieved through policy, not priestly incantations from the Eccles Building.
If I were king, I could create full employment and zero “inflation” with the stroke of a pen. Employment is easy: eliminate income taxes and most labor laws. Now, dear reader, I hear you asking, “But how would we fund the government?” A fair question. The government needs funding—but if the goal is employment, isn’t it better to move closer to fewer taxes and fewer labor laws than to believe the fiction that the Fed can micromanage the economy by shaving the Fed Funds rate by a dinky 0.25%?
A stable dollar measure is a policy choice, and in no way requires a central bank to achieve. Inflation has a funny way of disappearing when money is defined in terms of gold. Better policy wins the day. Tinkering with Fed Funds rates is like peeing in the ocean and expecting sea levels to rise.
What if there were no Fed? We would still have banks. They would still lend to each other. There would almost certainly be far less regulatory red tape and many more banks competing against one another.
One reason the Fed exists is the FDIC’s insurance of bank deposits. That insurance begets examiners, reserve requirements, and a sprawling web of costly, mostly politically driven regulations. If there were no FDIC, deposits would still be insured—banks already pay for that insurance. Private insurers would happily accept those premiums and, crucially, compete for banks’ business.
Since 1933, the federal government has bailed out the FDIC multiple times, at tremendous cost to taxpayers. Bank failures will always occur. But wouldn’t banks be better managed—and more profitable—if deposits were insured privately, without an implied government backstop? Shouldn’t consumers decide whether to place their money in an insured or uninsured bank?
I’ve long been puzzled by the waste that occurs when the FDIC takes a bank into receivership. Silicon Valley Bank had $175 billion in deposits; $154 billion were uninsured. The FDIC guaranteed them all. Now, I admit I’m just a tobacco‑spittin’ hayseed from the other side of the Beltway, but wouldn’t it make more sense to place such a bank into a bankruptcy‑style proceeding, with uninsured depositors on the hook? They would suddenly become very interested in rehabilitating the bank or liquidating its assets. Ain’t nothin’ free. Shouldn’t depositors bear some responsibility for where they park their money?
Then there’s the management. I’ve read about how Silicon Valley Bank was run—not to mention the fruitcake, woke nutjob Mary Daly, president of the San Francisco Fed. She and Michael Barr, the supervisory official responsible for oversight, ignored clear warning signs. Both remain comfortably employed. Daly’s term was renewed. Barr was promoted to the seven‑member Board of Governors. That’s like making the guy who robbed the liquor store the warden of the prison.
This is Rule No. 1 of fiscal mismanagement: the Other People’s Money Rule. Who is the better steward—those whose money it is and who face real liability, or detached federal employees with cushy jobs who get promoted no matter how badly they screw up?
Another purpose of the Fed is to analyze government data supplied by those fun‑loving, green‑eye‑shade federal workers counting beans within a mile of Lafayette Square. Yet most useful data is already collected by the private sector. And not all data is created equal—just as an editorial by Paul Krugman differs vastly from one by Steve Forbes, even when discussing the same topic.
The Fed routinely bases decisions on meaningless or misleading government statistics. The silliest example is GDP. As compiled, GDP treats government spending as national output. Borrow a gazillion dollars to buy $1,000 toilet seats, and—presto—the economy is booming. Ludicrous.
Rather than appointing the Fed as Moses atop Mount Sinai, statistics tablet in hand, it would be far better to let competing voices compile and evaluate data. In any event, the Fed can do nothing constructive with the data it produces. It is inherently political and inevitably reflects institutional prejudice, and great deference to its preferred politicians. Recall how inflation was declared “transitory” in 2021 and 2022.
Despite employing hundred of economists, more than any other entity on earth, the Fed can’t manage a simple construction project in its own backyard. Renovations to its headquarters are roughly 40% over budget (see OPM Rule above). Yet we are supposed to believe this institution can fine‑tune the national economy? I’ll have another glass of that Jim Jones punch please!
Markets already determine interest rates. Every time the Fed intervenes to help one sector, it harms another. Squeeze a balloon and one side shrinks while the rest bulges. Fifth‑grade science: every action has an equal and opposite reaction.
Rates rise and fall for a million reasons. Markets usually solve the very problems the Fed tries to fix. Too often, Fed interventions are disruptive and leave long‑lasting scars. The housing market is frozen today because millions are sitting on 2–3% mortgages courtesy of an overzealous Fed. Why sell?
When the economy runs hot, the Fed’s instinct is to slow it down and make everyone poorer. A fast‑growing economy—a rising tide—lifts all boats. How has making people poorer ever been a winning strategy? Last year’s “what-cha‑ma‑call‑it” may cost 3% more, but if it delivers 50% greater productivity, everyone wins.
Productivity crushes old methods and produces better goods and services at lower real prices. It is not driven by dinky Fed Funds cuts. It is driven by capital flowing to its most efficient uses.
I don’t believe in false gods or fairy tales. I worship at the altar of the almighty Invisible Hand.
