Skip to main content

Seventy-Five (75) bp Fed Rate Increase

The Federal Reserve’s move to increase interest rates by 75 basis points will not only impose significant costs on the economy, it will do so needlessly. It won't reduce inflation, but it will add to political and social instability.

The key skill of a central bank in the current environment is identifying inflation generating sectors and providing targeted, anti-inflationary support to the rest. There are a number of ways to do so, but, given the capture of the Fed by financial institutions, we do not expect them to be familiar with these techniques. (We suggest they review our Maternal Mortality Reparation Facility for Black Women at https://www.prlog.org/12876083-maternal-mortality-reparation-facility-for-black-women.html and our proposal to create a $50 billion-dollar Black Bank financing facility, outlined in Black Enterprise Magazine on October 21, 2019, online at https://www.blackenterprise.com/black-banking-crisis-economist-offers-50-billion-solution/).

We continue to believe that the recent inflation spike is due to fear and greed-based labor and supply chain disruptions resulting from the unprecedented and ongoing COVID crisis. This is confirmed by the fact that corporate profits are at record levels. In authentic inflation episodes, neither corporate profits nor private sector wealth are as elevated as they are now. These entities suffer along with the rest of the economy. Further, to control inflation, the Fed needs to reduce corporate tendencies to raise prices. An analysis revealing who these firms are is available and easy to produce.

Rather than subject the whole of the economy to costs associated with higher interest rates, the Fed should increase rates only on financial institutions and corporations most responsible for inflation. The Fed will also need to prevent them from passing price increases onto consumers by promising further targeted rate hikes if they do so:

The broader issue is the inefficiency of monetary policy, confirmed by the creation and broad acceptance of digital currency. Despite having shown an ability to provide support to selected firms via the creation of several credit financing facilities (the Primary Market Corporate Credit Facility, the Secondary Market Corporate Credit Facility, the Paycheck Protection Program Liquidity Facility, the Main Street Lending Program, the Term Asset-Backed Securities Loan Facility, the Municipal Liquidity Facility and the Temporary Foreign and International Monetary Authorities Repo Facility) to aid the implementation of monetary policy, the Fed is unable or unwilling to apply this tactic to this use case. This is consistent with their past behavior.

In 1994, we suggested the Fed purchase mortgage-backed securities issued by Black owned banks as a way to address housing inequality while enhancing the impact of monetary policy, a suggestion the Fed ignored until majority-owned banks could profit. In 1995. we suggested the creation of the Community Reinvestment Act (CRA) investment test as a way to evaluate community development performance, another suggestion that was ignored until non-Black firms could profit. We understand the desire to use old, inefficient monetary policy tactics. After all, the institution is comfortable with these old methods. The environment and risks have changed significantly, however, and reliance on these old ways will foster increased social volatility.

Our economic forecast shows a period of increasing global political instability. Reducing this will be critical.

The real risk is not inflation: it is civil war.  


Popular posts from this blog

Maternal Health Financing Facility for Black Women: A Solution to an Urgent Problem

Maternal mortality is a significant issue in the United States, with Black women disproportionately affected. Research conducted by the Centers for Disease Control and Prevention (CDC) has shown that Black women are more likely to die from pregnancy-related causes than their white counterparts. However, the issue is not new, and despite the increasing amount of data available, the disparities have remained unaddressed for far too long.  Creative Investment Research (CIR) is among the organizations that believe there is a solution to the problem. Through our proposed impact investing vehicle , the Maternal Health Financing Facility for Black Women (MHFFBW), we aim to tackle the mortality gap and support Black women during childbirth, which will, in turn, benefit their communities. The Facility, based on legally binding financing agreements containing terms and conditions that direct resources to individuals and institutions capable of addressing supply-side conditions at the heart of

Projected Impact of Gun Laws on Corporate Profits in Texas

More Fortune 500 companies are located in Texas than in any other state. Texas successfully used low taxes and minimal regulations as bait to recruit companies like Tesla and Oracle. The state promoted these “advantages” in ads highlighting their “free-market” environment and criticizing the "tax and spend policies of liberal leadership" in Democrat-run states. Four million people migrated to Texas over the past ten years. Our economic models predict a reversal, however. State of Texas corporations on the Fortune 1000 list generate $2.2 trillion in revenue, $158 billion in profit. They have a market value of $3.8 trillion and employ 2.5 million people nationwide. We continue to believe this increased corporate presence in Texas imposes a tax on the nation as a whole. Texas allows anyone 21 or older to carry handguns without training or licenses, and maintains lower gun purchase age limits. Beyond the recent abortion bill, which allows people to sue those who "aid and abe

BRICS Summit 2023: Navigating the Transformation of Global Finance

Recent developments in the global financial landscape have captured the attention of the finance world, promising a new era of integration, transformation, and collaboration. Amidst the excitement, however, it is essential to acknowledge the formidable obstacles that stand in the way of realizing these ambitions. The 2023 BRICS Summit , slated to convene amidst this shifting landscape, is poised to be a significant juncture that could have profound implications for the future of international finance. The resurgence of Bitcoin, marked by an impressive, if smaller, year-to-date price surge, has underscored its enduring relevance. Similar concerns surround the exploration of central bank digital currencies (CBDCs). The UK's digital pound initiative, while forward-looking, raises questions about stability, security, and privacy and potential economic power imbalances. The notion of a BRICS digital currency, potentially extended to include several countries, reflects a desire to chall