U.S. inflation reached its highest level in 40 years last month at 9.1 percent annualized. So far, the Federal Reserve has grown their balance sheet by another 1.5 percent in 2022. A growth that follows a 19 percent increase in 2021 and 77 percent in 2020. To what extent is the Federal Reserve playing a role in creating this record inflation?
Interestingly, no one asks the U.S. central bank, the Federal Reserve, about this during its press conferences. At the last FOMC meeting, where the new interest rate is announced, there were as many as zero questions on the subject.
That’s pretty extraordinary when you consider that the Federal Reserve’s balance sheet has grown from $732 billion to $8,890 billion since 2002.
Over a 20-year period, the Federal Reserve’s balance sheet has grown by more than 1,100 percent. Investment legend Charlie Bilello has been wondering for months why this “elephant in the room” is not being addressed by journalists.
Everyone focuses on the level of interest rate hikes and the reasoning behind them. That the Federal Reserve itself may be part of the reason for high inflation remains unaddressed.
The elephant in the room
When it comes to inflation, politicians and central bankers shout that the pandemic is causing problems in the production chains and that the war is the cause of high energy prices.
It’s never about interest rates hovering at or below zero and the massive buyback programs central banks are running around the world.
Government debt also remains unmentioned. “We just have to pretend that never happened and we suddenly woke up to a climate of skyrocketing inflation that has nothing to do with monetary or fiscal policy. To top it off, we should also compliment them on their response to raise interest rates, saving us from the situation they themselves created,” Bilello said.
Explosion of the money supply
Over the past 3 years, the M2 money supply of U.S. dollars has increased by more than 50 percent. “There has not been a single question about that in FOMC press conferences. There is incredible incompetence there on the part of the industry’s highest regarded financial journalists or questions are not allowed. Which of the two is it?” So Bilello continues in his thread on Twitter.
Somehow it makes sense that the Federal Reserve cannot openly admit that they are part of the problem. That immediately brings to mind a famous quote from Henry Ford: “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”
Ford believed that there would be another revolution before tomorrow morning if the people figured out how the money system worked. Henry Ford lived from 1863 to 1947, but he would probably feel exactly the same way today. Somehow it’s interesting to think that bitcoin is that revolution. After all, more and more people are saving in bitcoin to escape inflation.