Central Banks Have Signed Their Death Warrants Central Banks Have Signed Their Death Warrants

Monday, February 22, 2016
By Paul Martin

FEBRUARY 22, 2016

During the past year U.S. consumption spending for health care rose by 5%. Spending at restaurants and bars were up by 9%, while spending for gasoline and other energy products was down by 22%.

This was Mr. Market at work—millions of households reallocating their spending in response to relative price changes. It had nothing to do with a macroeconomic abstraction called “weak demand”.

Actually, the medical care component of the CPI rose 3.3% last year. Housing and shelter were up by 3.2%, while gasoline prices were down by 7.3%. It all added up to a 1.34% annual change in the overall CPI index by the sheer coincidence of BLS’s arbitrary weightings of the index components.

Again, it had nothing to do with the pace of total consumption expenditures or any other measurement of “aggregate demand.”

So the MarketWatch “senior economics reporter” who filed the piece I referenced above, one Greg Robb, was writing gibberish and apparently didn’t even know it. Yet without this herd-like transmission of the narrative, the Fed’s ridiculous monthly deliberations about 25 basis points changes to the federal funds rate would be seen for the farce it actually is.

This chronic pretense of fine-tuning the money market to the second decimal point (i.e. 0.38% versus 0.12%) is supposedly all about delivering what the Fed judges to be just the right amount of “accommodation” to the macroeconomy to achieve its inflation and unemployment targets.

But the “lowflation” proposition cited by MarketWatch (“inflation has been trending below that (2%) target for the past four years”) is a modern version of counting angels on the head of a pin.

It’s a pointless exercise that has nothing to do with improving the real world. It’s only a ritual to justify the existence and power of the monetary politburo.

The price of goods like furniture and basketball shoes has everything to do with how much untapped labor remains in the Chinese rice paddies and virtually nothing to do with the monthly adjustments to the money markets at the Eccles Building.

Once upon of time in your grandfather’s economy of the 1950s, when the U.S. economy dominated the world, there may have been a loose connection between the Fed’s policy rate and the U.S. consumer inflation rate.

The Rest…HERE

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