Rethinking Federal Reserve Policy

There is a serious disconnect between the monetary policies as administered by the Federal Reserve Bank and the fiscal policies of the U.S. Government. The Fed is trying to manage the economy rather than manage the impact of its biggest component, the US Government, which is about 38% of GNP (Gross National Product). The U.S. Government may be only 38% of the economy, but it eats up a disproportionate amount of the market capital and has a negative influence on productivity. Its goals are not growth and profit, but rather, growth at the expense of the profits of the other 62% of the economy.

We currently see the Federal Reserve Bank trying to manage the U.S. rate of inflation through deflating economic demand by driving up interest rates in hopes of driving down the inflation rate to a 2% target. Both these factors will increase the current U.S Government budget deficit even more. Meanwhile the U.S. Government’s spending is ignoring its most serious problem, the trillion-dollar shortfalls in the available revenue stream to finance its annual budget. This is our fiscal policy, and it is the main (but not only) cause for the inflation the Fed is currently trying to manage. This situation is economic lunacy. It reflects a disconnect between the U.S. Government’s fiscal policy and the Fed’s monetary policy. Left to continue, current projected deficits will soon create a financial crisis triggered by overwhelming government debt service costs driving fiscal policy out of control.