Scandal-ridden ex-Federal Reserve governor gets consent for rate hikes

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“We need to increase unemployment. We need to slow down the economy. We have to interrupt a great recovery.

Witness the message that the most important American financial talk show sends to the markets. In a widely watched segment last Friday, Joe Kernen, co-host of CNBC’s morning show scream box, sighed and shrugged that unfortunately there is simply no alternative to the Federal Reserve raising interest rates to at least 4%, with the explicit purpose of putting millions of people out of work so that they stop spending money and slow down inflation.

“I guess there’s no reason to talk about how we got into this mess, but it’s just a shame that we need to do things that are counter-intuitive or counter-productive,” he said. growled Kernen. “We’re in this mess of cutting off our noses because of – ah, for some reason, and the answer we’re giving, what does that have to do with Putin’s price hike? What’s has to do with inflation everywhere caused by other factors So our people here in this country [have] I have to take it on the chin to keep inflation down – not a good way to do business.

Unlike Kernen, there really is a “reason to talk about how we ended up in this mess.” As it has been shown more and more and more again, the root of our current inflation is the supply chain chaos caused by COVID-19, exacerbated by the war in Ukraine, more merciless price gouging companies with significant market power. Reducing the money supply is not decongest the Port of Los Angeles, or get more wheat from Ukrainian ports. The only way to reduce inflation is to make a significant fraction of Americans too poor to buy what is produced.

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Indeed, it could likely aggravate medium-term inflationary factors. The most recent Consumer Price Index figures also maintain a trend of incredibly high rent increases, which hit toughest small towns and represent 40% of overall underlying inflation. The obvious way to reduce these increases is to build more apartments in hot markets, but Fed rate hikes have significantly slowed down the pace of construction by increasing the cost of financing.

A letter at the White House from more than 220 tenant organizations last month outlined steps six different federal agencies could take immediately to alleviate the crisis, but the Federal Reserve is not one of those agencies. If rate hikes eventually cause landlords to lower rents, that would only happen once landlords could not fill empty rental units at current prices because too many people are unemployed or underemployed to replace tenants they have already evicted. All of this would only exacerbate the severe housing shortage in many cities.

Kernen’s analysis is blind and callous to the suffering of millions of people that rate hikes would deliberately aim to impose. Yet even when invoking the people the Fed intends to hurt, Kernen was one of the most sympathetic voices in the scream box segment. Far more blunt was the guest Kernen was responding to: disgraced former Federal Reserve Vice Chairman Richard Clarida.

The worst harm politicians can do, apparently, is to not hurt the poor fast enough.

“Until inflation comes down a lot, the Fed is really a one-mandate central bank,” Clarida declared. This is an extremely radical statement: the Fed is legally bound by a “dual mandate” to balance fighting inflation with achieving full employment. (Coretta Scott King, among other civil rights icons, played a key role adding the full employment mandate via the Humphrey-Hawkins Act of 1978.) Clarida’s assertion, which he repeated later in the interview, meant that he was explicitly saying that the Fed should ignore its legal responsibility to support workers.

Clarida has made it clear that he doesn’t ignore the causes of our supply-side inflationary shock, he just doesn’t care. “The problem is that the shock that the economy has suffered globally, with the shutdown, the pandemic and the reopening, has been a huge shock. … I think President Powell is right to say that in the long run, you can’t thrive in the economy, as we saw in the 70s – you [Kernen] and I remember the 70s, with unchanging high inflation.

It’s unbelievable that Clarida is even allowed to show her face in polite society, let alone speak her mind about the actions of her former employer. Clarida left the Fed in January after Bloomberg reported last October that he had moved between $1 million and $5 million of his money out of safer bond funds and into riskier stock funds on Feb. 27, 2020, a day before Powell signaled the Fed would take extraordinary steps to support the stock market during the early days of the COVID pandemic. As the Fed’s second-in-command, Clarida would have been aware of the Fed’s speech and deliberations at the time for more specific policy interventions. On the day Clarida moved into equities, the Dow Jones, S&P 500 and Nasdaq had been fall for four consecutive daysand Wall Street was shaking at the thought of what COVID was going to do to the economy.

Clarida was the third Fed Governor to transact at a suspicious time at the start of the pandemic. Former Federal Reserve Bank of Dallas President Robert Kaplan made multimillion-dollar stock trades throughout 2020, and former Federal Reserve Bank of Boston President Eric Rosengren entered into d important real estate investment trust agreements during a time of urban housing unrest. All three finally quitand all three have done well since.

Kaplan, who continues to deny wrongdoing, sits on the board of numerous philanthropic and charitable organizations, according to his personal website. These include medical research organizations like Project ALS, but also the Baker Institute, which is a policy think tank based at Rice University, and the George W. Bush Institute.

Rosengren opened a consulting firm, according to his LinkedIn profile, but the company itself does not have a website or digital presence. Many high-ranking policy makers who open off-the-grid consulting firms end up trading on their connections as “shadow lobbyists,” but without any paper trail, there’s no way to tell what’s going on. actually Rosengren Consulting LLC. Rosengren also teaches at the Sloan School of Management at the Massachusetts Institute of Technology.

Next month, Clarida will join $2 trillion investment giant PIMCO as chief executive, in a position similar to the one he held for 12 years before joining the Fed.

There’s no reason to think any of these men will lose their jobs if the Fed causes a recession. Kaplan and Clarida were wealthy investors before entering government service, the three men tried to get even richer with deals at the suspicious time, and, aside from the resignations, none seem to have suffered much on the job. reputational or financially.

On CNBC, Clarida was mostly greeted as an old friend. Notably, it was a print reporter, not a TV talking head, who ultimately raised the difficult question. The New York Times‘ Andrew Ross Sorkin, who also co-hosts scream box, asked Clarida if he felt his trades affected the credibility of the Fed. “The Fed has put in place new rules and regulations on this which I think make a lot of sense, and I think they’re nice efforts,” Clarida replied dryly. When Sorkin pushed it further, Clarida added, “I can’t imagine anyone who would be able to do that. [serving at the Fed] would say no to the position based on the rules that are now in place.

But for most CNBC hosts, the damage Clarida did to the Fed’s credibility was not due to its potential insider trading, but by not raising rates when it had the chance. or trying to block pandemic relief programs. “Would you agree that the Fed allowed fiscal policy to run wild?” Kernen asked. “Has there been any groupthink on the Fed during this time in 2021? Steve Liesman added, after asking, “Why hasn’t there been more dissent on the Fed? Why weren’t more people showing up and saying, ‘You know what, we have to put the brakes on this?’

According to the dominant logic in our economic and financial media, it is the unfortunate price of doing business that millions of people who have done nothing wrong must see their lives ruined if inflation eats away too much at wallets and margins. beneficiaries. The worst harm politicians can do, apparently, is to not hurt the poor fast enough. Meanwhile, it is also unfair or rude to scrutinize suspected or known white collar criminals if they are wealthy or sufficiently connected. We see it with Clarida, we see it with Steven Ratnerwe see it with Michael Milken.

For these elites, unemployment is an abstract concept – something loosely related to those unattractive homeless people they constantly have to see as they drive through town, but not something they will ever have to experience. themselves. In this free space, trying to stop the Fed from raising unemployment is like trying to stop the ocean from producing tidal waves.

But of course it is not true that there is no alternative to bludgeoning the entire economy with rate hikes. We could target rent increases responsible for much of our current inflation. We could coordinate an interagency council focused on price regulation of industries, like Nathan Tankus of the Modern Money Network has proposed. Representative Jamaal Bowman even introduced a bill allow temporary price controls and regulations on inflationary sectors, in a nod to John Kenneth Galbraith’s support for permanent price control offices. Endorsers of the bill include a slew of labor unions, consumer groups, anti-monopoly organizations and racial and climate justice groups.

No one watching CNBC is likely to hear any of this, and like it or not, CNBC and other cable programs are teaching most Americans how to think about the economy. Instead, they are likely to hear multi-millionaire talking heads asking multi-millionaire experts, some of whom are would-be criminals, how to get rich from the suffering poor for hungry demand. The American public deserves better from its mainstream media than the glorification of corrupt elites and manufacturing authorization to throw innocent people into poverty.

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