The Federal Reserve Bank of St. Louis is regarded as the one “Chicago School” bank among the 12 regional Federal Reserve banks. It is where the monetary views of Milton Friedman prevail. He recently referred to “the monetarist camp,” meaning Friedman’s camp, in which he included his bank’s staff.
The president of the St. Louis FED is James Bullard. In a recent CNBC interview on “Squawk Box,” he admitted that the present rate of monetary expansion by the Federal Reserve is “torrid,” but quite acceptable. The rate is $85 billion a month or $1 trillion a year. “It’s a very reasonable thing to do to substitute for the fact that you can’t lower interest rates any further.”
Reasonable. Yes. A trillion dollars a year of counterfeit money is reasonable.
He admitted this: “I’d rather get out it if we can, but I’d like to meet our goals.” What are these goals? Low unemployment and 2% price inflation.
Price inflation, as measured by the CPI, is below 2%. So, he asked, “What’s the hurry?” The rate is at 1.2%, September to September. Note: the Median CPI, which is a better measure, is at 2%.
What about the balance sheet of the FED. It is at $3.6 trillion, up from $800 billion in the early fall of 2008? No problem!
“If you look at the size of the balance sheet relative to GDP, who’s got the biggest one, Japan, Europe, U.K., U.S.? We’re fourth out of those guys. If something bad is going to happen … with the balance sheet, these other central banks should have passed that and already had that experience and they haven’t.”
So, because the counterfeiting is international, it’s not a problem.
Will Janet Yellen change anything? Very little, he says. Why not? Because she helped craft today’s policy.
What about bubbles? These were bubbles that Greenspan denied and Bernanke denied. Bullard now says they were “blindingly obvious.” To Austrian School economists, they were blindingly obvious. To Keynesians and Chicago School economists, they were invisible. They said nothing. They did not warn the public. But he ignores this.
“Tech bubble was blindingly obvious. And the housing bubble also [was] blindingly obvious. The question is how should the Fed react to those very huge bubbles? I don’t see anything of that magnitude going on right now.”
Neither did his peers in 1999 (tech bubble) and 2005-7 (housing bubble). But Austrians did.