6.5% unemployment or bust; until then, the money spigot is open wide. This was the gist of the Fed’s world-headline-grabbing announcement this week.
Less noticed was that, as the FT reported on the same day, “The US Federal Reserve is carrying out its first ever system-wide stress test of bank liquidity…” Translation: The Fed will be pushing bank reserve requirements significantly higher.
In other words, in the past week the Fed hurled, in succession, loose-money and tight-money hardballs — the first with a big public windup, the other almost slipped by — at the batter that is our economy. But, then, it’s a combination this pitcher has been throwing for four years now.
Not long ago I highlighted at Ricochet economist Steve Hanke’s contrarian analysis of U.S. monetary policy. Hanke points out that even as the volume of “state” money (as he calls high-powered money or, roughly, M1) has ballooned the last four years, “bank” money (his term for lending in various forms) has stagnated under pressure from national and international regulators. With bank money making up 85% of today’s money supply (down from 93.5% in 2008), total monetary growth has languished at 7.5% below trend.