One important aspect of the public debate which I find conspicuously absent is the role of monetary policy in the maintenance overall American foreign policy.
The reason monetary policy isn’t part of the public debate is easy to identify: given the historically cryptic explanations issued by the Federal Reserve (the Fed) as well as the obfuscation added by the Congress and the White House, monetary policy is rather difficult to understand.
In reality, however, there is little about monetary policy that’s terribly difficult. First and foremost, monetary policy is policy, that is, a political judgment on the part of the Fed as to the proper maintenance of the economy, and who should benefit most.
Of late, discussion around Fed policy has had to do with keeping interest rates high enough to ward off inflation. I should add parenthetically that because there is no substantial difference between the Democrats and the Republicans on the issue of inflation, there is no debate about whether the Fed’s political stance, i.e., its policy, is appropriate for the citizenry.
Everyday experience indicates that inflation is not in check. Anyone who goes to the grocery store, puts gas in a car, sends a kid to college or pays for medical care knows this fact rather painfully. Government pronouncements to the effect that inflation stands at an annual rate of about 3 percent are such brazen understatements that one’s intelligence is insulted.
At any rate, what can be gleaned from the Fed’s maintenance of a de facto inflationary monetary policy is that the Fed has determined that the present inflationary pressure being applied to the hoi polloi acts to advance the interests of the powerful, whose interests the government seeks, above all, to protect. Otherwise the Fed would simply raise interest rates.
But Fed interest rate policy, inflation notwithstanding, has remained neutral since June, 2006. The mainstream media and government officials, be they from Congress, the White House or the Fed, say that raising interest rates would “hurt economic growth,” “hurt the economy,” or some other banal incantation. (They forget to mention that the economy has already been hurt by the wholesale export of the manufacturing sector, as spearheaded by the ever-globalizing Clinton Administration, and as ably assisted by the Republican-dominated Congress.)
What they do not mention, however, is the elephant in the room: we have been at war for four years, at an economic cost, according to a recent report in the Chicago Sun-Times, of nearly $500 billion, which is “more than the total for the Korean War and nearly as much as 12 years in Vietnam , adjusting for inflation.” Link
Government officials and media pundits claim that the war is being paid for by foreigners, purchasing US Treasury securities on the open market.
True enough, but Treasury securities are debt securities, that is, obligations which must be paid back. There are two ways to pay back these debts: either to raise taxes or to inflate the money supply. Because raising taxes would be suicide to elected politicians, both political parties have come to a tacit agreement whereby a de facto tax increase – inflation – brought about by an unelected body of experts (the Federal Reserve Board) can be used to fund the war in Iraq , at least for the present. That it brings about pain and suffering to the populace is of no moment, because any blame for the discomfort can be laid at the doorstep of the Fed, as opposed to those who are accountable at the polls.
And thus it is that monetary policy is a powerful instrument in the perpetuation of American imperialism: our government can attack other countries almost with impunity, so long as others remain willing to bankroll those imperial practices and the hoi polloi in this country remains willing ultimately to pick up the tab, as demonstrated by steadily-declining standards of living.
Never is it mentioned that there are people and institutions that benefit greatly from such imperial practices, such beneficiaries including major defense contractors, infrastructure developers, oil companies, and financial institutions, just to name a few.
In my view, Fed interest rate policy has much more to do with the perpetuation of the power and privilege of this country’s elite than it does with keeping inflation under control. If one looks at monetary policy in this way, it becomes much, much easier to comprehend.