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David Stockman On Why The Fed Is Running Out Of Monetary Oxygen


What passes for central banking today is really a perverse form of Wall Street-pleasing monetary manipulation. It employs the vocabulary of central banking, but in practice it fundamentally undermines main street prosperity, even as it showers the 1% (the top wealthiest people) with unspeakable financial windfalls.

Stated differently, virtually everything the Fed does for the alleged benefit of the American economy is both unnecessary and a ruse. The Fed has actually become a captive of the Wall Street traders, gamblers and high rollers, and functions mainly at their behest.

The proof of this proposition starts with the startling historical fact that the post-war US economy did just fine without any interest rate targeting, heavy-duty bond-buying or general macroeconomic management help from the Fed at all. For all practical purposes today’s omnipresent Fed domination of the financial and economic system was non-existent at that point in time.

We are referring to the full decade between Q4 1951 and Q3 1962 when the balance sheet of the Fed remained flat as a board at just $51 billion (black line). Yet the US economy did not gasp for lack of monetary oxygen. GDP grew from $356 billion to $609 billion or by 71% (purple line) during the period. That’s nominal growth of 5.1% per annum, and the majority of it represented real output gains, not inflation.

Change in Federal Reserve Balance Sheet Versus GDP, Q4 1951 to Q3 1962.

As it happened, this halcyon span encompassed the immediate period after the so-called Treasury-Fed Accord of

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