Doug Casey on the New Fed Chair

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by Doug Casey, Casey Research:

Justin’s note: The markets and our offices are closed for the holiday. So for today’s Dispatch, I’m sharing a brand-new essay from Casey Research founder Doug Casey. Hope you enjoy…and have a wonderful Thanksgiving.

By Doug Casey, founder, Casey Research

A few words are in order about the likely new Chairman of the Federal Reserve, Jerome Powell.

I don’t know the man personally. Not that it would make any difference; denizens of the swamp within the Beltway usually present well, and a brief meeting rarely allows you to penetrate someone’s social veneer. But I’m pretty confident that if we dined together it would be tense and unpleasant. We’d have no common ground, after the obligatory two minutes on the weather and the state of the roads.

He’s a lawyer, has been a Fed Governor for five years, and appears to be a “steady as she goes” so-called moderate Republican. He’s a lifelong Deep State player. But let’s not waste time psychoanalyzing this bureaucrat; he’s just a cog in the machine. And the machine, at this stage, has a life of its own.

Many of my friends in the alternative press deplore Trump’s appointment of yet another conventional money printer. They were hoping for a “hawk,” who would start liquidating the Fed’s $4.5 trillion balance sheet, and raising interest rates. And they’re right. That $4.5 trillion of super money has driven stock, bond, and real estate prices to insane levels. And today’s artificially low interest rates are discouraging saving, and encouraging people to live above their means.

In an ideal world there would be some radical changes. The best thing for the US in the (famous) long run is to go “cold turkey.” To abolish the Federal Reserve, fire its thousands of employees with their worthless PhDs. Return to 100{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} reserve banking with a strict separation of demand and time deposits. Depoliticize money by using gold, not Federal Reserve Notes. And default on the national debt, which is rewarding crony capitalists, and will turn future generations of Americans into serfs. And massively deregulate. And abolish the income tax, while cutting spending 90{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528}. Etc. Etc.

The chances of that happening are exactly zero. So let’s talk, instead, about what is going to happen.

We’re going to have much higher levels of inflation. The new Fed Chair will open a monetary hydrant, at least if he doesn’t want to be hung from a lamppost by his heels. But I’m quite pleased Trump has appointed the guy. That may sound shocking. Let me explain why.

A sound economist would work to stop money printing and let interest rates find a market level. But that would precipitate a deflationary collapse after decades of monetary debasement. And the powers of darkness would again be able to paint sound policies and the free market as the cause for the problem, when actually it’s the only cure for economic problems.

From an economic point of view an inflationist like Powell is a disaster. It’s too bad he’s nominally a Republican, since for some reason they’re associated with the free market. As is Trump. Wearing our speculator hats, we’d likely be better off under Hillary—even more inflation, even more distortions to capitalize on. Even wearing our economist hats we might be better off under her, because if the whole rotten structure collapsed on her watch, it might discredit her ideas for at least a few years. But, as ever, I suspect I’m being too optimistic.

For decades—at least since I started following these things in the early ‘70s—free market economists have argued whether the Fed’s ever-increasing money printing would result in a deflationary depression, or a hyperinflationary depression.

As to why a catastrophic depression is inevitable—despite the fact most people try to produce more than they consume, and despite the fact science and technology are advancing exponentially—is beyond the scope of this brief article. I refer you to these pieces (here and here) I’ve done in the past on that topic.

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