Tuesday, May 30, 2023
  • About Us
  • Contact Us
  • Privacy Policy
  • Terms & Conditions
  • Email Whitelisting
Best Retirement Wishes
  • Economy
  • Editor’s Pick
  • Investing
  • Stock
  • Top News
No Result
View All Result
Best Retirement Wishes
Home Economy

Crowding Out: The Fed May Be Killing the Private Sector to Save the Government

by
May 20, 2023
in Economy
0
Crowding Out: The Fed May Be Killing the Private Sector to Save the Government
0
SHARES
1
VIEWS
Share on FacebookShare on Twitter

The Federal Reserve’s balance sheet reached its all-time high in May 2022. Since then, it was supposed to drop at a steady pace and shed three trillion US dollars by 2024. The normalization of monetary policy was built on the idea of a soft landing for the economy. However, the Fed may be killing the private sector to save the government.

Curbing inflation requires a significant reduction in the money supply and aggregate demand. However, if government deficit spending is left untouched, the entire burden of normalizing monetary policy will fall on families and businesses.

Related posts

Republicans Fail on the Debt Ceiling in 2023

Republicans Fail on the Debt Ceiling in 2023

May 30, 2023

In the Event of an Official US Bankruptcy

May 29, 2023

The current situation is the worst possible. The Fed’s balance sheet is not falling as fast as it should; government spending has not even been scratched, but the money supply is falling at the fastest pace since the 1930s, and rate hikes are hurting the productive economy while the government seems unaware of the need to reduce its bloated budget.

The first-quarter GDP figure is extremely concerning. Government spending showed yet another big rise at +4.7 percent, much higher than expected. However, consumption, at +3.7 percent annualized, was well below estimates and driven by a worrying new record in credit card debt. Even more concerning, gross private domestic investment fell by a massive 12.5 percent.

There is robust evidence of a negative trend in the real economy. Rising federal expenditure, more bureaucracy, higher taxes, and weaker activity in the part of the economy that drives growth and jobs

Rate hikes have two direct negative effects on the economy if the government does not reduce its deficit spending spree. They mean higher taxes and a massive crowding out of available credit. The government deficit is always going to be financed, even if it is at higher rates, but this also means less credit for businesses and families. The crowding-out effect of the public sector over the productive economy means lower productivity growth, weaker investment, and declining real wages as the government keeps inflation above target by spending additional units of newly created currency, but the productive sectors find it harder and more expensive to find credit. Additionally, the government borrows at a much lower cost than even the most efficient and profitable businesses.

It is impossible to achieve a soft landing for the economy when the Federal Reserve ignores the signals of the banking system and the real economy. The first pillar of a true soft landing must be to preserve the real disposable income of workers and the job creation and investment capabilities of businesses.

When the government continues to increase spending, there is no signal of the mildest budgetary control, and the entire “landing” comes from the private sector, what we get is upside-down economics.

The Federal Reserve has stopped paying attention to monetary aggregates just as the money supply is contracting at an almost historic pace. Even worse, the money supply is contracting but federal deficit spending is untouched, and the debt ceiling was raised again.

The money supply is collapsing due to the inevitable credit crunch and the difficulties faced by consumers and businesses. It is impossible to grow with rising taxes, persistent inflation—a tax in itself—and carrying the entire burden of the normalization of monetary policy.

Fighting inflation without cutting government spending is like dieting without eliminating fattening foods.

Previous Post

Thanks to Sanctions, The US Is Losing Its Grip on the Middle East

Next Post

Rothbard: Essentials of Money and Inflation

Next Post
Rothbard: Essentials of Money and Inflation

Rothbard: Essentials of Money and Inflation

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Get the daily email that makes reading the news actually enjoyable. Stay informed and entertained, for free.
Your information is secure and your privacy is protected. By opting in you agree to receive emails from us. Remember that you can opt-out any time, we hate spam too!

RECOMMENDED NEWS

Karl Marx Was Not an Economist

Karl Marx Was Not an Economist

2 months ago

Fighting Inflation Really Means Fighting the Federal Reserve

3 months ago

New York City, Rhode Island, and Now Minnesota Defy the “Crack House Statute”

6 days ago

The State Uses Trauma as a Weapon against Innocent People

4 months ago

BROWSE BY CATEGORIES

  • Economy
  • Editor's Pick
  • Stock
  • Top News
Get the daily email that makes reading the news actually enjoyable. Stay informed and entertained, for free.
Your information is secure and your privacy is protected. By opting in you agree to receive emails from us. Remember that you can opt-out any time, we hate spam too!

POPULAR NEWS

  • How Can We Restore Freedom and Sound Money in the US and the UK? Some Ideas

    How Can We Restore Freedom and Sound Money in the US and the UK? Some Ideas

    0 shares
    Share 0 Tweet 0
  • How not to answer the question “Why are carbon taxes unpopular with policymakers and politicians?”

    0 shares
    Share 0 Tweet 0
  • I went to 2+ climate change sessions at the ASSA meetings

    0 shares
    Share 0 Tweet 0
  • Just Say No to the New Forever War

    0 shares
    Share 0 Tweet 0
  • Mises Institute Awards

    0 shares
    Share 0 Tweet 0

Disclaimer

BestRetirementWishes.com, its managers, its employees, and assigns (collectively "The Company") do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

Recent News

  • Jimmy Lai: Prisoner of the State
  • Republicans Fail on the Debt Ceiling in 2023
  • In the Event of an Official US Bankruptcy

Category

  • Economy
  • Editor's Pick
  • Stock
  • Top News

Recent News

Jimmy Lai: Prisoner of the State

May 30, 2023
Republicans Fail on the Debt Ceiling in 2023

Republicans Fail on the Debt Ceiling in 2023

May 30, 2023
  • About Us
  • Contact Us
  • Privacy Policy
  • Terms & Conditions
  • Email Whitelisting

© 2021 BestRetirementWishes. All Rights Reserved.

No Result
View All Result
  • About Us
  • Contact Us
  • Email Whitelisting
  • Home 1
  • Privacy Policy
  • suspicious-engagement
  • Terms & Conditions
  • Thank You

© 2021 BestRetirementWishes. All Rights Reserved.