When it comes to bread-and-butter economics, UniParty policy has been an utter failure—and one that is getting steadily more severe. Real hourly worker compensation has been lagging for two decades, and is now lower than it was in Q1 2020. Real median family income is also down from 2019 levels, while inflation-adjusted wages in the higher paying manufacturing sector have actually fallen below where they stood when Gerald Ford was president.
On the other hand, since Q1 2020 the net worth of the top 1% has risen by a staggering $16.5 trillion. That’s $12.5 million each for the 1.3 million households at the tippy-top of the economic ladder, which compares to an average wealth gain of just $28,000 each for the bottom 66 million households.
Yet these baleful outcomes do not reflect free market capitalism at work. Rather, they are the spoiled fruit of too much spending, borrowing, printing and war-making in Washington and the associated crony capitalist capture of the Federal regulatory agencies and tax code. So nothing will get better for the American people unless the Kennedy-Trump Unity ticket prevails in November and launches a clean sweep of policy.
That must start by shackling the great enablers—the unelected bureaucrats who operate the Federal Reserve. During the 30-months ending in March 2022, they printed $5.2 trillion of new money—double what the nation’s central bank had issued during the first 98 years of its existence. In turn, this flood of cheap credit fueled the highest main street inflation in 40 years, unleashed an unprecedented cornucopia of windfall wealth on Wall Street and funded a Washington orgy of stimmy spending that added $12 trillion to the public debt within the last four years—or more than the first 44 Presidents had accumulated during the initial 211 years of the Republic.
Fortunately, the Fed’s outrageous political interference gambit in lowering interest rates by 50 basis points on the eve of the 2024 election has finally ripped the band-aid off the myth of its vaunted “independence”. The truth is, after Nixon severed the dollar’s anchor to gold in 1971, and especially since Alan Greenspan orchestrated a continuous and massive monetization of the public debt in the name of “wealth effects” policy in the 1990s and after, the Fed has become a thoroughly political enterprise.
That is, there is no longer any honest “price discovery” on the free market for debt, stocks, real estate and other financial assets. Instead, a 12-member monetary politburo known as the FOMC now inherently politicizes the money and capital markets by pegging interest rates, manipulating the yield curve and heavily influencing the price of stocks and every other asset that moves or stands still on Wall Street. The theory is that inflated financial wealth will “trickle down” to main street, but that’s just a cover story for the Fed’s subservience to the gamblers on Wall Street and the spenders on the banks of the Potomac.
Unfortunately, the soaring debt, persistent inflation and reckless financial speculation that the Fed has enabled has cut the growth rate of national income and jobs by more than 50% from levels attained in the decades after WWII, even as it has enabled the Warfare State, the Welfare State and the political pork barrels of Washington to drive the public debt skyward. In fact, under even the Rosy Scenario projections of the CBO, today’s $35 trillion public debt will reach $65 trillion by the early 2030s and a cataclysmic $150 trillion by mid-century.
Upon their election victory, therefore, the Kennedy-Trump Unity team needs to strike hard at the Fed’s fake independence by moving to decentralize and depoliticize its operations. This would restore its populist roots as envisioned by its 1913 legislative author, Congressman Carter Glass, who was one of the greatest financial statesmen of the 20th century.
Carter Glass firmly believed in free market capitalism and that the new central bank should function on a decentralized basis through 12 regional Reserve Banks spread across the land, operating as far away from both Wall Street and Washington as possible. The crucial mechanism was a Discount Window at each of the regional Reserve Banks that would provide back-up loans to main street banks based on sound commercial collateral, not government debt; and which liquidity support would be priced at a penalty spread above free market interest rates, not at administered rates arbitrarily set by monetary bureaucrats in Washington.
Accordingly, Carter Glass’ “bankers’ bank” was meant to be no friend of Washington spenders nor was it to coddle and subsidize speculators down in the canyons of Wall Street with cheap carry trade financing or bailouts and price-propping operations in the stock market. Instead, new central bank credit was to be created passively at the regional Reserve Banks in response to the ebb and flow of commerce on main street.
This meant, in turn, the Reserve Banks were inherently non-inflationary because all new central bank credit required commercial loan collateral representing goods already produced or sold. Furthermore, the Reserve Banks could not be captured by spenders, speculators or crony capitalists because central banking would be conducted by the decentralized actions of tens of thousands of main street banks and businesses spread across the length and breadth of the land.
As it happens, the sweeping house-cleaning implied by a return to the Glassian model for central banking could largely be accomplished today by strong presidential leadership. The Fed could be instructed to—
- abolish the FOMC.
- refrain from further buying, selling, lending or borrowing securities on Wall Street.
- end further purchases of US Treasury bills and bonds.
- restore robust Discount Window operations at the 12 regional banks.
In short order, the Wall Street carry-trade speculators would be routed; the great Silicon Valley tech bubble would be punctured; credit would flow to main street investment rather than financial engineering; and the 1% would be required to generate new wealth the old-fashioned way through profitable business enterprise and profit growth on main street, not front-running the Fed on Wall Street.
Equally important, the so-called bond vigilantes would return to the trading pits because the Fed would not have its thumb on the scale, injecting trillions of artificial demand for Treasury debt. In turn, elected officials would face the political consequences of the natural “crowding out” and rising bond yields caused by Federal borrowing. Local business, household and mortgage borrowers would now blame deficit spending politicians, not the Fed, for onerous increases in their borrowing costs.
Leveling the playing field on the spending and borrowing front, in turn, would permit the Kennedy-Trump Unity team to bring the Empire Home and get Washington out of the Forever Wars and neocon intervention business all around the planet. In an honest fiscal environment, the number #1 target for urgently needed spending cuts would be the hideously bloated $1.3 trillion national security budget.
The fact is, a non-interventionist Homeland Defense would cost less than half of current levels based on $75 billion per year for the strategic nuclear deterrent and several hundred billion at most for North American coastal and airspace defense. Washington’s current land, air and sea armadas aimed at invasion and occupation of foreign lands and bases all around the globe would become unnecessary and unaffordable.
Finally, a restoration of honest financial markets could be coupled with a modified version of Trump’s 10% tariff. As long as it was applied on an across-the-board basis it would function as a de facto consumption tax, bringing in roughly $350 billion per year. And another $300 billion of permanent deficit reduction could be achieved by broadening of the tax base to eliminate most of the current corporate and upper income loopholes and preferences.
Combined with the sweeping defense rollback to a homeland-focused America First foreign policy and the elimination of Federal programs that are the proper function of the private sector or state and local governments, these measures would reduce the deficit by upwards of $1.5 trillion per year. This would not only dramatically slow the current runaway growth of the public debt but would also powerfully reinforce the return of Fed operations to the noninflationary business of Discount Window lending.
Needless to say, it has been Washington’s pro-inflation policy that has caused massive parts of America’s industrial base to be off-shored and which has also caused housing prices to soar. Just since the turn of the century average home prices have risen from $200,000 to $500,000, putting the dream of homeownership out of reach for a growing portion of the middle class.
Under a regime of sound money and fiscal discipline, however, these destructive outcomes of UniParty policy could be sharply reversed. Housing inflation would grind to a halt and affordability would return. Likewise, capital would flow from the gambling pits of Wall Street back into a steadily less inflationary and more competitive US industrial base. Middle class wages would flourish as a consequence of renewed plant, equipment and technology investment.
At the end of the day, windfalls for the rich and stagnation for everyone else was not due to a defect of American capitalism or too little government. They were a consequence of a rogue central bank, a bloated Empire and Warfare State and a UniParty delusion that we can spend, borrow and print our way to prosperity.
In just forty days, the voters will have an opportunity to give the Kennedy-Trump Unity ticket a solid mandate for change. Let’s be sure they seize the chance.
