‘Reserve Currency’ My Eye!
The yield on the 30-year US Treasury bond just crossed the 5.0% mark for the first time in 17 years. So it might be useful to revisit where we have been lo these many decades.
We are referring to the long bond’s utterly fabricated 54 year journey since the Camp David event in August 1971. By our reckoning, the latter provides proof positive that the Donald’s blunderbuss attack on the Fed is fully warranted and that his negative characterization of its competence is absolutely correct.
To wit, Jay Powell and the whole parade of Keynesian central bankers who came before him—save for William McChesney Martin and Tall Paul Volcker—were neither competent nor deserving of the Fed’s vaunted “independence”. Indeed, you could have gotten a better result from a posse of random names snatched out of the Cleveland phone book—which is to say, from the nation’s vast private markets in interest rates, stock, bonds, derivatives and other financial assets.
The real import of the Donald’s current attack on Powell, therefore, is not actually about his cockamamie judgement that the Fed funds rate should be 300 basis points lower at this particular point in time. The real gravamen of Trump’s complaint is that the Fed should not even be fiddling with the rate on overnight money or the level and shape of the entire debt market yield curve in the first place.
In fact, neither the 12 men/women on the FOMC, nor the one man or woman who is temporarily domiciled in the Oval Office each four years nor the clown car battalions on Capitol Hill who mostly spend a lifetime there, are competent to set interest rates. That’s a job for free, flexible, dynamic, competitive, information-rich private markets, not an agency of the state. Full stop.
The evidence for that proposition is that the Fed has been dead wrong about the long-term interest rates for at least the five decades since Nixon manhandled Chairman Arthur Burns into cranking up the Fed’s printing presses in behalf of his 1972 reelection campaign. In short order that brought the demise of the Breton Woods gold exchange system, which was already on its death bed owing to Fed financing during the prior decade of LBJ’s “guns and butter” fiscal extravaganza.
Thereafter, of course, the world entered the era of fiat central bank money, dirty (government manipulated) floats in foreign exchange markets and the financial rule of a few fallible monetary apparatchiks. The latter claimed, of course, to be in the high-minded business of delivering the greater good for all the people as opposed to market-based traders, investors, businesses and other economic players with skin in the game merely attempting to pursue their own selfish good.
Indeed, the dispositive proof of the generic incompetence of monetary central planners (aka central bankers) is the four decade’s march of the long bond relentlessly down the yield hill as depicted in the graph below. It shows that from the peak of 15.2% in September 1981, to the bottom at 1.20% in March 2022, the long-bond’s yield traversed 1400 basis points of nearly continuous decline. Yet nothing remotely like this 49-year one-way journey could have occurred on the free market operating under a regime of sound money.
To wit, sound money rates would never have been this high in the first place, nor would they have tumbled this low eventually. And that’s to say nothing of a one-way direction of travel the whole time in between. To the contrary, the graph has “central bankers at work” written all over it because the price of bonds (i.e. yields) on the free market would have continuously zigged and zagged in a narrow but directionless range for the entire half century running.
30-Year US Treasury Bond Yield, 1981 to 2025
That the above anomalous path was the handiwork of the Fed and its foreign central bank accomplices is further reinforced by the graph below, which extracts CPI inflation on a Y/Y basis from the nominal yield. And on this “real yield” basis, the range is even more stupendously unmarket-like, ranging from a +940 basis points high in June 1983 to a -610 basis points low in March 2022.
Agai
Article from LewRockwell
LewRockwell.com is a libertarian website that publishes articles, essays, and blog posts advocating for minimal government, free markets, and individual liberty. The site was founded by Lew Rockwell, an American libertarian political commentator, activist, and former congressional staffer. The website often features content that is critical of mainstream politics, state intervention, and foreign policy, among other topics. It is a platform frequently used to disseminate Austrian economics, a school of economic thought that is popular among some libertarians.
