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FX MONETARY POLICIES


bank is triggering now. The Fed Tightens the Screws


Rather than stimulating the economy with new demand, the Fed has been engaging in “quantitative tightening.” On December 19, 2018, it raised the fed funds rate for the ninth time in 3 years, despite a “brutal” stock market in which the Dow Jones Industrial Average had already lost 3,000 points in 2-½ months. Te Fed


is still


struggling to reach even its modest 2% inflation target, and GDP growth is trending down, with estimates at only 2-2.7% for 2019. So why did it again raise rates, over the protests of commentators including the president himself?


For its barometer, the Fed looks at whether the economy has hit “full employment,” which it considers to be 4.7% unemployment, taking into account


the “natural rate of


unemployment” of people between jobs or voluntarily out of work. At full employment, workers are expected to demand more wages, causing prices to rise. But unemployment is now officially at 3.7% – beyond technical full employment – and neither wages nor consumer prices have shot up. Tere is obviously something wrong with the theory, as is evident from a look at


74 FX TRADER MAGAZINE January - March 2019


Japan, where prices have long refused to rise despite a serious lack of workers. Te official unemployment figures are actually misleading. Including short- term discouraged workers, the rate of US unemployed or underemployed workers as of May 2018 was 7.6%, double the widely reported rate. When long-term discouraged workers are


in particular markets when there are shortages, bottlenecks, monopolies or patents limiting competition, but these increases are not due to an economy awash with money. Housing, healthcare, education and gas have all gone up, but it is not because people have too much money to spend. In fact it is those necessary expenses that are driving people into unrepayable debt,


and it is


this massive debt overhang that is preventing economic growth. Without some form


of


jubilee, debt


bubble


will continue to grow until it can again no longer be sustained. A


included, the real unemployment figure was 21.5%. Beyond that large untapped pool of workers, there is the seemingly endless supply of cheap labor from abroad and the expanding labor potential of robots, computers and machines. In fact the economy’s ability to generate supply in response to demand is far from reaching full capacity today. Our central bank is driving us into another recession based on bad economic theory. Adding money to the economy for productive, non-speculative purposes will


not


drive up prices so long as materials and workers (human or mechanical) are available to create the supply necessary to meet demand; and they are available now. Tere will always be price increases


Author of:


Web of Debt and


Te Public Bank Solution


UBI can help correct that problem without fear of “overheating” the economy, so long as the new money is limited to filling the gap between real and potential productivity and goes into generating jobs, building infrastructure and providing for the needs of the people, rather than being diverted into the speculative, parasitic economy that feeds off them.


Ellen Brown President of the Public Banking Institute


debt the


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