Growing Fed Scandal Could Provide Impetus for More Monetary Mischief

If there’s one organization in Washington that has been able to keep its nose out of the typical Washington political fray, it’s the Federal Reserve. For over 100 years the Fed largely operated outside of the typical political sphere, sticking to monetary policy. And regardless of your opinion of monetary policy or the Fed’s conduct of it, that was at least somewhat admirable.

But today the Fed has found itself in the midst of a scandal that could have and should have been avoided. And that scandal is putting renewed pressure on the Fed and its leaders to shake things up. Unfortunately, given the direction our society has taken since the 2008 financial crisis, and given the current occupant of the White House, that isn’t good news for the dollar or for your savings and investments.

This massive own goal on the part of Fed officials could allow the camel’s nose under the tent, giving left-wing activists the foothold they need to turn the Fed into another organization devoted to advancing left-wing causes and printing money ad infinitum to fund them. Anyone who values the long-term stability of the dollar or any monetary stability at all should fear what could happen to the Fed if this scandal results in the Fed kowtowing to outside pressure.

The Fed Under Fire

When we first wrote about the Fed scandal a few weeks ago, it seemed more like a tempest in a teapot. The real lesson to be learned was the fact that the politically well-connected have opportunities to make money that normal investors don’t have access to. It seemed like yet another example of our elites not following the rules that the rest of us have to follow. But since there weren’t any explicit Fed policies forbidding what they had done, we didn’t expect any consequences.

Evidently the fallout from the scandal has been far more severe than we expected, as both Dallas Fed President Robert Kaplan and Boston Fed President Eric Rosengren have decided to step down from their positions. That’s a shocking and surprising turn of events, although Rosengren was already slated to retire next year.

Adding fuel to the fire is the recent revelation that Fed Vice Chairman Richard Clarida traded out of a bond fund into a stock fund one day before Fed Chairman Jay Powell issued a statement on the Fed’s response to COVID, a response that eventually resulted in stocks shooting to all-time highs after a record amount of Fed monetary stimulus.

Even Chairman Powell has come under fire for the scandal, although the federal Board of Governors of the Federal Reserve System doesn’t control the operations of the private government-chartered Federal Reserve Banks. But left-wing activists are ramping up the pressure, hoping that they can use this opportunity to ram through many of their pet projects.

Among them is a desire to bring more diversity to the Fed’s leadership. They point to the fact that Fed decision makers are largely old white people. Of course, there’s a reason for that, namely the fact that the fields of economics and finance are largely populated with older white people.

These activists want to change that by bringing people from different backgrounds into the Fed’s leadership circles, such as community organizers, housing advocates, etc. The economic knowledge of these people is likely minimal, and their advocacy won’t be for more monetary stability but rather for more monetary largesse.

The Fed’s Printing Press Is a Tempting Target

These left-wing advocacy groups see the Fed as akin to a giant piggy bank, a magical printing press of money that can be doled out to favored constituencies. To an extent their criticism of the Fed’s monetary policy is correct, in that the Fed’s conduct of monetary policy favors Wall Street and financial institutions at the expense of Main Street, and that the Fed’s monetary policy has been responsible for growing economic inequality as a result.

But their solution is not to bring about an end to the Fed and an end to overly accommodative monetary policy, but rather to use that monetary policy to benefit their supporters. They envision a Fed that creates money freely to support public housing, free education and healthcare, and expanded welfare benefits. They believe that prosperity comes from money creation, and not from hard work, saving, and investing.

Imagine a monetary system that combines the worst of Venezuela, Zimbabwe, and Weimar Germany. That’s where we could be headed if this scandal allows left-wing advocacy groups to get their foot in the door. After over a century of relatively sober behavior from the Fed, this scandal could mean the end of any hope for a return to sound money.

The results of such a monetary policy should be plainly obvious to anyone who understands economics. But even the casual observer of history and current events should realize that printing money has never been able to create prosperity. Everywhere it has been tried, throughout all of history, it has only brought ruin and despair.

If the Fed capitulates and allows itself to be influenced by those who advocate even more accommodative monetary policy than the Fed has already allowed, we could be not that far away from a massive collapse in the value of the dollar.

Gold and Silver as Defense

As with previous monetary and currency crises, vast numbers of people would suffer under the burden of crippling inflation. But there would still be some survivors, those who saw the writing on the wall and positioned themselves to defend against the effects of that inflation.

In Weimar Germany, for instance, those who fared best were those who had tangible assets, gold and silver coins, or foreign currencies that were redeemable for gold and silver. When the value of money plummets, the value of tangible goods and assets rises. Everyone wants to get rid of money and hold something of value.

That’s part of the appeal of tangible assets such as gold and silver, which have protected investors for decades. Whether it’s runaway hyperinflation in Weimar Germany, stagflation during the 1970s, or the stock market crash during the 2008 financial crisis, those who owned gold and silver during those periods generally fared better than those who didn’t.

The outlook for the economy is growing bleaker all the time, with major supply chain disruptions, shortages of labor, and rising prices. Throw in the possibility of a Fed that could engage in even looser monetary policy and you have a recipe for a financial disaster.

Have you taken steps to protect your assets and savings? If you’ve accumulated a nice nest egg, and particularly if you’re nearing or in retirement, protecting your assets is an absolute must. You can’t afford to lose money that you won’t be able to gain back.

The precious metals experts at Goldco have over a decade of experience helping customers just like you take advantage of gold and silver to protect your hard-earned savings. Whether you decide to roll over assets from a 401(k) into a gold IRA or directly purchase gold and silver coins, there are precious metals options available to suit everyone’s needs.

Don’t let your retirement dreams fall victim to a declining dollar and monetary mischief in Washington. Call Goldco today and let our precious metals professionals help you through the process of protecting your savings with gold and silver.