Is the Fed Trying to Rig the Election?
Less than seven weeks before the elections, the Federal Reserve decided to cut the interest rates aggressively – by 50 basis points. But inflation is still above its target. And the Fed has yet to receive distress signals from the labor, housing, or stock markets. So, what does that mean for you? The candidates? The economy?
Few people realize that the Fed has an awesome power to destroy. If they don’t mess up, price stability provides favorable conditions for sustainable economic growth. If they make a mistake, the result is inflation, recession — or both. And when America sneezes, the world catches a cold.
The worst defect of our central banking system is that we have charged it not only with maintaining low inflation but also low unemployment. Money, however, is just a tool facilitating exchanges. It can’t be magically transformed into wealth. Making goods requires resources such as labor and technology.
The Fed controls our money supply. If more dollars chase fewer goods, the dollar’s purchasing power goes down. It happened after governors like Gretchen Whitmer (Michigan), Gavin Newsom (California), and Tim Walz (Minnesota) forced half of the workers in their states to stay home while Pelosi rammed her huge spending bill through Congress in 2020. And despite initially calling the massive stimulus package a “disgrace,” former President Donald Trump signed it into law.
Intent to Flood the Economy with Cash
The Fed does not determine your mortgage rate or how much your credit card company charges you. That’s between you and those private businesses. However, when the Fed sets a lower target for the interest that banks charge each other, they signal their intent to flood the economy with cash.
Recessions are not a disease that needs a cure. They are the cure for irresponsible governance such as the massive overspending of the Biden-Harris administration who inherited a booming economy about to overheat due to the Fed’s unprecedented 14-year stretch of low-interest policies (2008-2022).
Politicians who run for reelection hope that lower interest (cheap credit) can lure us to spend more, creating jobs and prosperity. Economists warn that the Fed’s monetary injections are not real savings and cannot be invested without distorting price signals – producing a temporary boom, followed by a bust.
Recession is Imminent
Vice President Kamala Harris, the Democratic presidential nominee, may be clueless about how markets work, but her advisors are aware that a deep recession is imminent. As an incumbent, her only chance to stay in power is to keep the illusion of a healthy economy until Nov. 5. The Fed just put it on steroids in an attempt to thwart Trump’s return (though the Fed claims the move was made because inflation has cooled enough to ease the cost of borrowing).
Will the Fed give Democrats the White House? It depends on how naïve the voters are in a handful of states like Michigan.
No matter what happens come Nov. 5, someone should tell each presidential candidate to be careful what they wish for. Whoever becomes our next president will be staring at a total disaster in the first year in office — and the Fed will quickly run out of ammo.
But enough about the candidates and the economy. What should you do If you believe these pessimistic predictions? Get out of the stock market. Like now! Keep your cash safe. Wait for the recession to bring the S&P below 3000, then buy everything back. America will recover.
About this Piece
This piece was authored by Northwood alumna Kristin Tokarev, of Stossel TV, based on an interview by Dr. Alex Tokarev, Associate Professor in Economics at Northwood University, on RTVI.