The Federal Reserve Cut Rates So the Rich Get Richer
Summary
Federal Reserve Rate Cut: The Federal Reserve's FOMC cut the target policy rate by 0.25%, marking the first reduction since last year's cycle, amid pressure to address slowing job growth.
Monetary Policy Criticism: Critics argue the Fed's rate cuts prioritize Wall Street's asset prices over reducing costs for ordinary people, highlighting the Fed's focus on maintaining rising asset prices and cheap credit.
Inflation Concerns: Despite the Fed's actions, inflation remains above the target, with CPI and core CPI showing significant increases, challenging the Fed's narrative of controlling inflation.
Political Influences: The Fed's rate cuts are suspected to be politically motivated to stimulate the economy ahead of elections, despite claims of a solid labor market.
Federal Deficit and Spending: Federal spending continues to rise, leading to a significant deficit, with recent data indicating a $2 trillion deficit for the fiscal year, driven by increased spending and insufficient revenue growth.
Debt and Interest Payments: The growing federal debt, now over $37 trillion, results in rising interest payments, consuming a significant portion of tax revenue and highlighting the need for lower interest rates to manage deficits.
Tariff Revenue Limitations: Despite increased tariff revenues, they remain a small fraction of total federal spending, insufficient to significantly impact the growing deficit and fiscal challenges.
Call for Non-Intervention: The podcast suggests that the Fed should refrain from market interference, allowing the economy to adjust naturally without central bank intervention.
Transcript
Welcome back to Radio Rothbart. I'm Ryan McMaken, executive editor at the Mises Institute. Now, on Wednesday, the Federal Reserve's Federal Open Market Committee, the FOMC, cut the target policy rate by 0.25% or 25 basis points, bringing the target down to 4.25%. This cut is the first since the Fed implemented a cutting cycle last year that reduced the target rate from 5.5% to 4.5%. That series of cuts began with a 50 basis point cut in September of last year, ending with a 25 basis point cut that December. Now, this month's meeting is among the most watched meetings of recent years with the FOMC now being expected to do something in response to a clear slowdown in job growth in recent employment data. Since January, the Fed has faced immense public pressure from the White House, from Wall Street, and from many financial sector pundits, demanding that the Fed cut the target interest rate and adopt an even more dovish stance. A frequent criticism of the Fed through this period, made by those who believe more monetary inflation can somehow strengthen an economy, is that the Fed is quote unquote too late in implementing additional rate cuts to stimulate the economy. The pressure to cut rates gained additional strength in the wake of new jobs reports this month released uh earlier in September, showing that job growth had substantially weakened during June, July, and August of this year. Moreover, the release of revised benchmark employment data for much of 2024 and early 2025 showed that job growth had not been nearly as strong as previously reported in that earlier period. Those pushing for more easy money used this weak jobs data as an opportunity to demand more rate cuts from the Fed. So not surprisingly, Fed Chair Jerome Powell and the FOMC this week voted to lower the target rate and the Fed will accelerate its open market operations using newly created money to intervene in the marketplace to further reduce short-term interest rates. That's what lowering the target policy rate means. Now, in the Fed's willingness to do this, uh, we also see what really concerns the Fed. The Fed's concern is not reducing prices and improving the cost of living for ordinary people. What really concerns the Fed is ensuring rising asset prices for Wall Street while pushing cheap credit to finance federal deficits. Now, generally, the mainstream narrative around Fed policy works like this. When inflation is too high, as defined by the Fed itself, then the Fed will allow interest rates to rise. This will slow monetary inflation and prices will stabilize. On the other hand, when employment is not sufficiently robust, again as defined by the Fed itself, then the Fed will lower the target interest rate. That will lead to more monetary inflation, which will stimulate job growth. This narrative, however, depends on the idea that when employment growth is weak, price inflation will also be weak and vice versa. That's what's supposed to happen. you're not supposed to have uh a situation where uh you have employment strengthening and inflation going down or inflation going up and employment weakening. So if a weakening employment situation were the only thing going on right now, then it would be very easy for the Fed to claim right now using the popularly accepted narrative that it is necessary for the Fed to cut the target rate to stimulate employment. But the Fed faces a comp complicating factor right now in that price inflation has been rising in recent months and shows no signs of returning to the Fed's arbitrary 2% inflation target. That's generally not supposed to happen. Uh and we see this inflation according to the latest consumer price index report from the US Bureau of Labor Statistics. The CPI rose in August by 2.9% year-over-year. And that was an 8-month high. During July of this year, the CPI uh year-over-year increase was 2.7%. So, it rose from July to August. When compared month-over-month, the CPI rose in August by.3 38%, which was also an 8-month high. Month over month, CPI inflation rose in July, the previous month, by.19%. In other words, price inflation accelerated during August, coming in at the highest rate since January of this year. Looking to core CPI inflation, which excludes volatile food and energy prices, the situation was no better. Year-over-year, the CPI rose by 3.1%, uh, a 7-month high, and above July's increase, it was also above July's increase of 3.05%. Month overmonth, the CPI rose in August by.34%, an 8-month high. This put core CPI even further from the Fed's arbitrary target of 2%. The latest CPI numbers also reflect the trend in the Fed's preferred inflation measure, personal consumption expenditure or PCE. August data is not yet available for PCE. Uh but in Wednesday comments, uh Powell said that their estimate is 2.9%. For PCE and in the published July report, uh we saw that regular PC was growing by 2.6% 6% and core uh PCE was was doing no better with a July reading of 2.9% which had accelerated above June's core PCE growth rate of 2.8%. So why has price inflation been so sticky following 2022 and 2023 which saw 40-year highs in price inflation? Part of the reason is the Fed turned dovish long before price inflation had actually returned to the Fed's 2% target. Uh when the Fed cut rates last fall, the US was in the waning days of the 2024 presidential election and the Fed began a series of new cuts to the federal funds rate in September. Many didn't understand why that was necessary uh and especially since the Fed was claiming at the time that the labor market was solid. So why bother cutting rates? It was widely suspected at the time and still today that the interest rate cut was being done for political reasons to facilitate economic stimulus to help the incumbent political party win reelection. To counter these accusations, uh, Fed Chairman Powell claimed that price inflation was quickly returning to the 2% target and the Fed could cut interest rates without any danger of reigniting inflation. The Fed was clearly wrong on this. A year later, core CPI inflation is higher now than it was when Pal declared victory over price inflation last year. Moreover, the FOMC's members now don't expect the Fed to hit its target price inflation rate until 2027. At least that's what the members are saying according to the Fed's summary of economic projections, also known as the SEP. The SEP, however, can always be counted on to portray the economy as stable and generally improving. It's the best scenario that Fed voting members think they can get away with predicting publicly. So, if the SEP is telling us that price inflation will not fall to the 2% target until 2027, uh we can expect that there's probably still plenty of monetary inflation out there along with price inflation that they're expecting to see over the next two years. This is an established pattern in in recent SEP reports. By the way, every report over boy, the last 10 years or so has tended to show that a return to 2% inflation is still 2 years away. So the report says, "Oh, we'll get back to 2% 2 years from now." And then a year goes by and then the SEP still says, "Oh, we'll get to the 2% 2 years from now." So that gives us a sense of how useless Fed forecasts generally are. Uh however, the SEP exists largely for political optics. Uh the scenario projected by the SEP is this that the Fed will wisely manage the economy back to a state of growing employment and moderating price inflation as the Fed threads the needle of discovering just the right target interest rate to optimize economic conditions. That's what they want the public to believe. If price inflation does come in uh come in low in coming months and years, the more likely scenario is this that lower inflation is not going to be because of some great Fed management. It's going to because uh be because the economy was weakening just as is now suggested by recessionary trends in the index of leading economic indicators and new home construction and stagnating job growth and in delinquency rates. Uh prices will fall as demand collapses in the face of rising unemployment, falling real wages and overindness. So price inflation looks less bad when employment falls because demand falls with it. The demand side of a recession of course is temporary unemployment and everybody's aware of this. Uh the upside though in the absence of central bank meddling is that many inflationary bubbles that have grown as a result of monetary inflation finally pop and prices fall. Zombie companies that only existed thanks to cheap credit go bankrupt and more efficient owners take over and build a more productive economy and more prosperous one out of the rubble of the old Fed created inflationary bubble economy. This is all to the good in terms of the cost of living because the bubble economy has become unaffordable for ordinary people who are forced to deal with incessantly rising prices and unaffordable homes. That's what would happen if the Fed actually cared about sustainably reducing price inflation. Unfortunately, the Fed isn't going to let that happen. Rather than allow prices to fall substantially and allow for a new, less wasteful, less frothy and bubbly economy to arise. The Fed will instead continue to force down interest rates and push more monetary inflation as the economy slows. This will prevent a reset in prices, and it will help ensure that the same wasteful bubble enterprises continue to dominate the economy. The Fed will say as it is already now saying that it must balance its efforts to combat inflation against the need to stimulate employment. Uh this alleged need to stimulate employment of course is primarily driven by electoral politics. There is no long-term vision at work here uh for building a sustainable economy. They just don't do that at the Fed. Now, as the economy slows, American policy makers have the opportunity to allow home prices to fall and to make homes available to millions of Americans who have been priced out thanks to decades of easy money fueled asset price growth. That's something that policymakers could let happen. They have an opportunity to do that. American policy makers also have an opportunity to allow a flowering of new competition and new efficiency in the economy as the old incumbent firms that now subsist on debt and speculative manas uh make way for new entrepreneurs in a new dynamic economy. Uh that's what would happen. But as we saw this week, the Fed will be doing everything it can to stop that from happening. Even as price inflation continues to grow, the Fed is telling us it has to print more money to ensure that number go up in terms of asset prices and GDP. Now before we go on, we should know that it should never surprise us if the Fed appears to be disinterested in truly reducing price inflation. Those who are skeptical of the official narrative around the Fed already know, of course, that the central bank is not now and has never been actually committed to controlling price inflation. After all, the central bank was created to facilitate monetary inflation. It was it was to make it easier and that ine inevitably leads to price inflation sooner or later. In the present context, if the central bank were committed to reducing price inflation, it would at the very least stop using monetary inflation to purchase assets. Uh since 2008, for example, the Fed has purchased more than$5 trillion dollars in mortgage back securities and treasuries. The Fed did this with newly printed money, quote unquote, meaning that these asset purchases have since 2008 created nearly 1/4 of the entire current money supply. This has translated into much of the price inflation that is presently making life unaffordable for so many Americans. The Fed does this to ensure ongoing asset price inflation uh for wealthy asset owners who of course are very politically powerful. Now, sure, the Fed will frame all this as a service to ordinary people and as a prudent means of ensuring a vibrant job market. In truth, the central bank is serving its most important clients, Wall Street and the US regime. On the one hand, the Fed is intervening to make sure that asset prices uh especially stocks and to some extent real estate continues to rise for the benefit of existing wealthy asset owners. On the other hand, the Fed is lowering interest rates to ensure the Treasury can borrow at low interest rates as the federal debt continues to climb to 40 trillion. This last point is not something that people talk about uh in the media very much. Uh but it's very important in understanding the motivations behind Fed easy money. Publicly, the Fed will claim that it's only interested in prudently managing the economy. In fact, as we know from historical experience, the Fed can always be counted on to help the federal government finance its debt. And so that's that's really kind of a central purpose of the central bank. And this is only becoming more important as federal debts and federal deficits mount. And this problem certainly isn't going away with the new administration. According to the Treasury Department's monthly statement released on Thursday, federal spending surged again in August, rising to the highest spending level reported in 30 months. At the same time, the deficit rose to the second highest August deficit on record, topped only by August of last year, 2024. In spite of the administration's claims that its higher taxes on imports, i.e. tariffs, would lead to smaller deficits, the fact is federal spending has risen faster than tariff revenue. Moreover, even if tariff revenues were to rise faster than spending, this would do little to decrease the overall size of federal deficits. Nonetheless, tropes Trump spokesman like Treasury Secretary Scott Besson continued to invent increasingly implausible narratives about how any day now the federal government will begin paying off the federal deficit and federal spending will be reigned in. Since Trump was sworn in, there's never been any evidence at all that the administration has any plans to make any meaningful cuts to spending. Rather, the administration has only celebrated its tax increases as a great victory. Moreover, there is now good reason to suspect that overall tax revenue will actually fall as the employment situation continues to worsen. That means falling revenue from income taxes, including payroll taxes and tariffs. uh when revenue begins to fall as they inevitably do uh during the bust phase of any business cycle we can expect to see deficits rise quickly then tariff revenue which is still only a small percentage of total revenue will not change this so during August federal tax revenue increased month overmonth by 5.8 8 billion to 344 billion. And okay, great. Tax revenue went up. Unfortunately, the federal spending increased during the same time by 59 billion to a total of 689 billion. In other words, spending was almost twice as high as revenue. So, the deficit for August surged to 344 billion, the largest deficit since March of 2023, 30 months ago. Compared to August of last year, both spending and revenue increased with spending up year-over-year by 2.5 billion and revenue up by 37.7 billion. This led to a slight improvement in the August deficit compared year-over-year. But this is nowhere near enough to change the trajectory of the annual deficit. We now have data for the first 11 months of the 2025 fiscal year, which ends September 30. And this fiscal year is on course to finish with a $2 trillion deficit, the largest since 2021 when the federal government was engaged in runaway deficit spending in the name of COVID stimulus. 2025's deficit will likely be the third worst on record behind only Trump's 2020 deficit and Biden's 2021 deficit. Looking at the first 11 months of each fiscal year, we find that the 2025 fiscal year deficit is 1.97 trillion. And uh that's up by 4% compared to the same 11-month period of last year when the deficit totaled 1.9 trillion. Again, the administration as for several months claimed has been it will soon bring out of control deficits down significantly using revenues from the administration's large tax heights on imports. This has never been realistic given that in recent years tariff revenue has not exceeded 2% of total federal spending. Even if the administration were to to increase tariff revenue by tenfold, this would hardly eliminate or even substantially reduce deficits. This can be seen in recent numbers. For example, uh Bessant declared on Fox that uh the federal government collected more than $ 31 billion in tariff revenue in August, already the highest monthly total so far in 2025. Now, that may sound impressive to some, but 31 billion is less than 5% of total federal spending during August and less than 10% of federal receipts. To be sure, this is an impressive increase in the amount of revenue from import taxes. But in the context of total spending, it's a small amount and certainly not anything meaningful when federal spending is coming in at 30-month highs. Moreover, overall federal receipts from all sources has shown no signs of trending upward. On average, monthly federal receipts have been 442 billion uh per month since Trump was sworn in. August receipts fell below that average. Indeed, if the employment situation continues to worsen, as has been the clear trend over the last 3 months, we can expect revenues to fall further. So, there is no reason to expect that raising taxes on imports will increase employment or over overall demand certainly. And no country has ever taxed itself into prosperity. So tariffs simply make goods more expensive and these include goods used by employers who themselves produce goods and services. So we should not be surprised to find that in spite of the administration's claims that tax hikes on imports would lead to a surge in manufacturing jobs, manufacturing payrolls have fallen by 7 million over the past 3 months. Moreover, total employment actually went down in June, an indication of recession, and we're still waiting on revisions for July and August, uh, which may show job losses as well. So taken all in all it is clear that the fiscal situation in the United States continues to worsen. In the 7 months since Trump was sworn in uh total federal debt has increased by 1.2 trillion surging to above 37.4 trillion in total. Federal spending also continues to grow just overall as we've seen. Uh so an extra 30 billion here and there and tariff revenues. Uh while Besson thinks that's a good political point, which it probably is with many people, uh it's it's simply not anything of consequence in terms of changing the current overall fiscal trend. And this will continue to impact ordinary Americans. As the US continues to see increases in interest payments on the debt. As of course, as the overall debt goes up, so does overall payment uh on debt service. So during August, the federal government paid out $111 billion in interest on federal debt. That's more than the federal government paid in that period to the Department of Defense, which was 78 billion. And only 32 billion less uh was paid out uh in terms of interest. That's 32 billion less than was paid out to Social Security, which of course everyone knows is a huge expense, a huge part of the federal budget. Year-to-date interest payments are now up 7.2% following years of previous increases. In other words, the federal debt is slowly devouring tax revenue, which increasingly must go to pay interest and which offers no value to current taxpayers. So, we see here the other side of why the regime needs lower interest rates and why the White House is pressuring the FOMC so much. Moreover, the US Treasury faces a challenge of refinancing more than $9 trillion in US debt during the next year. Uh because a lot of that debt will mature, needs to be rolled over somehow. So, they're going to have to refinance. And with Treasury yields now at much higher levels than they were in recent years, refinancing at current interest rates will add an enormous amount of new interest expense for the federal government as the debt to GDP ratio continues to to climb up to 120%. The administration really wants to see the Fed force short-term yields back down to ease the expense of massive federal deficits. So Trump wants more monetary inflation so he can more easily finance his huge deficits, but ordinary people will pay the price in terms of inflation. More tariffs certainly will not fix this problem. In contrast to all this central planning from the central bank, what the Fed should be doing now is nothing. The Fed should simply refrain from taking any action toward meddling in the private economy at all. The Fed could end its open market committee operations, which employ monetary inflation to manipulate interest rates. The Fed could allow markets to function and could allow the economy to heal. Unfortunately, the Fed was created to do anything but allow the private economy to function. It has always been an instrument of central planning and we should not expect anything different from it. Now, [Music]
The Federal Reserve Cut Rates So the Rich Get Richer
Summary
Transcript
Welcome back to Radio Rothbart. I'm Ryan McMaken, executive editor at the Mises Institute. Now, on Wednesday, the Federal Reserve's Federal Open Market Committee, the FOMC, cut the target policy rate by 0.25% or 25 basis points, bringing the target down to 4.25%. This cut is the first since the Fed implemented a cutting cycle last year that reduced the target rate from 5.5% to 4.5%. That series of cuts began with a 50 basis point cut in September of last year, ending with a 25 basis point cut that December. Now, this month's meeting is among the most watched meetings of recent years with the FOMC now being expected to do something in response to a clear slowdown in job growth in recent employment data. Since January, the Fed has faced immense public pressure from the White House, from Wall Street, and from many financial sector pundits, demanding that the Fed cut the target interest rate and adopt an even more dovish stance. A frequent criticism of the Fed through this period, made by those who believe more monetary inflation can somehow strengthen an economy, is that the Fed is quote unquote too late in implementing additional rate cuts to stimulate the economy. The pressure to cut rates gained additional strength in the wake of new jobs reports this month released uh earlier in September, showing that job growth had substantially weakened during June, July, and August of this year. Moreover, the release of revised benchmark employment data for much of 2024 and early 2025 showed that job growth had not been nearly as strong as previously reported in that earlier period. Those pushing for more easy money used this weak jobs data as an opportunity to demand more rate cuts from the Fed. So not surprisingly, Fed Chair Jerome Powell and the FOMC this week voted to lower the target rate and the Fed will accelerate its open market operations using newly created money to intervene in the marketplace to further reduce short-term interest rates. That's what lowering the target policy rate means. Now, in the Fed's willingness to do this, uh, we also see what really concerns the Fed. The Fed's concern is not reducing prices and improving the cost of living for ordinary people. What really concerns the Fed is ensuring rising asset prices for Wall Street while pushing cheap credit to finance federal deficits. Now, generally, the mainstream narrative around Fed policy works like this. When inflation is too high, as defined by the Fed itself, then the Fed will allow interest rates to rise. This will slow monetary inflation and prices will stabilize. On the other hand, when employment is not sufficiently robust, again as defined by the Fed itself, then the Fed will lower the target interest rate. That will lead to more monetary inflation, which will stimulate job growth. This narrative, however, depends on the idea that when employment growth is weak, price inflation will also be weak and vice versa. That's what's supposed to happen. you're not supposed to have uh a situation where uh you have employment strengthening and inflation going down or inflation going up and employment weakening. So if a weakening employment situation were the only thing going on right now, then it would be very easy for the Fed to claim right now using the popularly accepted narrative that it is necessary for the Fed to cut the target rate to stimulate employment. But the Fed faces a comp complicating factor right now in that price inflation has been rising in recent months and shows no signs of returning to the Fed's arbitrary 2% inflation target. That's generally not supposed to happen. Uh and we see this inflation according to the latest consumer price index report from the US Bureau of Labor Statistics. The CPI rose in August by 2.9% year-over-year. And that was an 8-month high. During July of this year, the CPI uh year-over-year increase was 2.7%. So, it rose from July to August. When compared month-over-month, the CPI rose in August by.3 38%, which was also an 8-month high. Month over month, CPI inflation rose in July, the previous month, by.19%. In other words, price inflation accelerated during August, coming in at the highest rate since January of this year. Looking to core CPI inflation, which excludes volatile food and energy prices, the situation was no better. Year-over-year, the CPI rose by 3.1%, uh, a 7-month high, and above July's increase, it was also above July's increase of 3.05%. Month overmonth, the CPI rose in August by.34%, an 8-month high. This put core CPI even further from the Fed's arbitrary target of 2%. The latest CPI numbers also reflect the trend in the Fed's preferred inflation measure, personal consumption expenditure or PCE. August data is not yet available for PCE. Uh but in Wednesday comments, uh Powell said that their estimate is 2.9%. For PCE and in the published July report, uh we saw that regular PC was growing by 2.6% 6% and core uh PCE was was doing no better with a July reading of 2.9% which had accelerated above June's core PCE growth rate of 2.8%. So why has price inflation been so sticky following 2022 and 2023 which saw 40-year highs in price inflation? Part of the reason is the Fed turned dovish long before price inflation had actually returned to the Fed's 2% target. Uh when the Fed cut rates last fall, the US was in the waning days of the 2024 presidential election and the Fed began a series of new cuts to the federal funds rate in September. Many didn't understand why that was necessary uh and especially since the Fed was claiming at the time that the labor market was solid. So why bother cutting rates? It was widely suspected at the time and still today that the interest rate cut was being done for political reasons to facilitate economic stimulus to help the incumbent political party win reelection. To counter these accusations, uh, Fed Chairman Powell claimed that price inflation was quickly returning to the 2% target and the Fed could cut interest rates without any danger of reigniting inflation. The Fed was clearly wrong on this. A year later, core CPI inflation is higher now than it was when Pal declared victory over price inflation last year. Moreover, the FOMC's members now don't expect the Fed to hit its target price inflation rate until 2027. At least that's what the members are saying according to the Fed's summary of economic projections, also known as the SEP. The SEP, however, can always be counted on to portray the economy as stable and generally improving. It's the best scenario that Fed voting members think they can get away with predicting publicly. So, if the SEP is telling us that price inflation will not fall to the 2% target until 2027, uh we can expect that there's probably still plenty of monetary inflation out there along with price inflation that they're expecting to see over the next two years. This is an established pattern in in recent SEP reports. By the way, every report over boy, the last 10 years or so has tended to show that a return to 2% inflation is still 2 years away. So the report says, "Oh, we'll get back to 2% 2 years from now." And then a year goes by and then the SEP still says, "Oh, we'll get to the 2% 2 years from now." So that gives us a sense of how useless Fed forecasts generally are. Uh however, the SEP exists largely for political optics. Uh the scenario projected by the SEP is this that the Fed will wisely manage the economy back to a state of growing employment and moderating price inflation as the Fed threads the needle of discovering just the right target interest rate to optimize economic conditions. That's what they want the public to believe. If price inflation does come in uh come in low in coming months and years, the more likely scenario is this that lower inflation is not going to be because of some great Fed management. It's going to because uh be because the economy was weakening just as is now suggested by recessionary trends in the index of leading economic indicators and new home construction and stagnating job growth and in delinquency rates. Uh prices will fall as demand collapses in the face of rising unemployment, falling real wages and overindness. So price inflation looks less bad when employment falls because demand falls with it. The demand side of a recession of course is temporary unemployment and everybody's aware of this. Uh the upside though in the absence of central bank meddling is that many inflationary bubbles that have grown as a result of monetary inflation finally pop and prices fall. Zombie companies that only existed thanks to cheap credit go bankrupt and more efficient owners take over and build a more productive economy and more prosperous one out of the rubble of the old Fed created inflationary bubble economy. This is all to the good in terms of the cost of living because the bubble economy has become unaffordable for ordinary people who are forced to deal with incessantly rising prices and unaffordable homes. That's what would happen if the Fed actually cared about sustainably reducing price inflation. Unfortunately, the Fed isn't going to let that happen. Rather than allow prices to fall substantially and allow for a new, less wasteful, less frothy and bubbly economy to arise. The Fed will instead continue to force down interest rates and push more monetary inflation as the economy slows. This will prevent a reset in prices, and it will help ensure that the same wasteful bubble enterprises continue to dominate the economy. The Fed will say as it is already now saying that it must balance its efforts to combat inflation against the need to stimulate employment. Uh this alleged need to stimulate employment of course is primarily driven by electoral politics. There is no long-term vision at work here uh for building a sustainable economy. They just don't do that at the Fed. Now, as the economy slows, American policy makers have the opportunity to allow home prices to fall and to make homes available to millions of Americans who have been priced out thanks to decades of easy money fueled asset price growth. That's something that policymakers could let happen. They have an opportunity to do that. American policy makers also have an opportunity to allow a flowering of new competition and new efficiency in the economy as the old incumbent firms that now subsist on debt and speculative manas uh make way for new entrepreneurs in a new dynamic economy. Uh that's what would happen. But as we saw this week, the Fed will be doing everything it can to stop that from happening. Even as price inflation continues to grow, the Fed is telling us it has to print more money to ensure that number go up in terms of asset prices and GDP. Now before we go on, we should know that it should never surprise us if the Fed appears to be disinterested in truly reducing price inflation. Those who are skeptical of the official narrative around the Fed already know, of course, that the central bank is not now and has never been actually committed to controlling price inflation. After all, the central bank was created to facilitate monetary inflation. It was it was to make it easier and that ine inevitably leads to price inflation sooner or later. In the present context, if the central bank were committed to reducing price inflation, it would at the very least stop using monetary inflation to purchase assets. Uh since 2008, for example, the Fed has purchased more than$5 trillion dollars in mortgage back securities and treasuries. The Fed did this with newly printed money, quote unquote, meaning that these asset purchases have since 2008 created nearly 1/4 of the entire current money supply. This has translated into much of the price inflation that is presently making life unaffordable for so many Americans. The Fed does this to ensure ongoing asset price inflation uh for wealthy asset owners who of course are very politically powerful. Now, sure, the Fed will frame all this as a service to ordinary people and as a prudent means of ensuring a vibrant job market. In truth, the central bank is serving its most important clients, Wall Street and the US regime. On the one hand, the Fed is intervening to make sure that asset prices uh especially stocks and to some extent real estate continues to rise for the benefit of existing wealthy asset owners. On the other hand, the Fed is lowering interest rates to ensure the Treasury can borrow at low interest rates as the federal debt continues to climb to 40 trillion. This last point is not something that people talk about uh in the media very much. Uh but it's very important in understanding the motivations behind Fed easy money. Publicly, the Fed will claim that it's only interested in prudently managing the economy. In fact, as we know from historical experience, the Fed can always be counted on to help the federal government finance its debt. And so that's that's really kind of a central purpose of the central bank. And this is only becoming more important as federal debts and federal deficits mount. And this problem certainly isn't going away with the new administration. According to the Treasury Department's monthly statement released on Thursday, federal spending surged again in August, rising to the highest spending level reported in 30 months. At the same time, the deficit rose to the second highest August deficit on record, topped only by August of last year, 2024. In spite of the administration's claims that its higher taxes on imports, i.e. tariffs, would lead to smaller deficits, the fact is federal spending has risen faster than tariff revenue. Moreover, even if tariff revenues were to rise faster than spending, this would do little to decrease the overall size of federal deficits. Nonetheless, tropes Trump spokesman like Treasury Secretary Scott Besson continued to invent increasingly implausible narratives about how any day now the federal government will begin paying off the federal deficit and federal spending will be reigned in. Since Trump was sworn in, there's never been any evidence at all that the administration has any plans to make any meaningful cuts to spending. Rather, the administration has only celebrated its tax increases as a great victory. Moreover, there is now good reason to suspect that overall tax revenue will actually fall as the employment situation continues to worsen. That means falling revenue from income taxes, including payroll taxes and tariffs. uh when revenue begins to fall as they inevitably do uh during the bust phase of any business cycle we can expect to see deficits rise quickly then tariff revenue which is still only a small percentage of total revenue will not change this so during August federal tax revenue increased month overmonth by 5.8 8 billion to 344 billion. And okay, great. Tax revenue went up. Unfortunately, the federal spending increased during the same time by 59 billion to a total of 689 billion. In other words, spending was almost twice as high as revenue. So, the deficit for August surged to 344 billion, the largest deficit since March of 2023, 30 months ago. Compared to August of last year, both spending and revenue increased with spending up year-over-year by 2.5 billion and revenue up by 37.7 billion. This led to a slight improvement in the August deficit compared year-over-year. But this is nowhere near enough to change the trajectory of the annual deficit. We now have data for the first 11 months of the 2025 fiscal year, which ends September 30. And this fiscal year is on course to finish with a $2 trillion deficit, the largest since 2021 when the federal government was engaged in runaway deficit spending in the name of COVID stimulus. 2025's deficit will likely be the third worst on record behind only Trump's 2020 deficit and Biden's 2021 deficit. Looking at the first 11 months of each fiscal year, we find that the 2025 fiscal year deficit is 1.97 trillion. And uh that's up by 4% compared to the same 11-month period of last year when the deficit totaled 1.9 trillion. Again, the administration as for several months claimed has been it will soon bring out of control deficits down significantly using revenues from the administration's large tax heights on imports. This has never been realistic given that in recent years tariff revenue has not exceeded 2% of total federal spending. Even if the administration were to to increase tariff revenue by tenfold, this would hardly eliminate or even substantially reduce deficits. This can be seen in recent numbers. For example, uh Bessant declared on Fox that uh the federal government collected more than $ 31 billion in tariff revenue in August, already the highest monthly total so far in 2025. Now, that may sound impressive to some, but 31 billion is less than 5% of total federal spending during August and less than 10% of federal receipts. To be sure, this is an impressive increase in the amount of revenue from import taxes. But in the context of total spending, it's a small amount and certainly not anything meaningful when federal spending is coming in at 30-month highs. Moreover, overall federal receipts from all sources has shown no signs of trending upward. On average, monthly federal receipts have been 442 billion uh per month since Trump was sworn in. August receipts fell below that average. Indeed, if the employment situation continues to worsen, as has been the clear trend over the last 3 months, we can expect revenues to fall further. So, there is no reason to expect that raising taxes on imports will increase employment or over overall demand certainly. And no country has ever taxed itself into prosperity. So tariffs simply make goods more expensive and these include goods used by employers who themselves produce goods and services. So we should not be surprised to find that in spite of the administration's claims that tax hikes on imports would lead to a surge in manufacturing jobs, manufacturing payrolls have fallen by 7 million over the past 3 months. Moreover, total employment actually went down in June, an indication of recession, and we're still waiting on revisions for July and August, uh, which may show job losses as well. So taken all in all it is clear that the fiscal situation in the United States continues to worsen. In the 7 months since Trump was sworn in uh total federal debt has increased by 1.2 trillion surging to above 37.4 trillion in total. Federal spending also continues to grow just overall as we've seen. Uh so an extra 30 billion here and there and tariff revenues. Uh while Besson thinks that's a good political point, which it probably is with many people, uh it's it's simply not anything of consequence in terms of changing the current overall fiscal trend. And this will continue to impact ordinary Americans. As the US continues to see increases in interest payments on the debt. As of course, as the overall debt goes up, so does overall payment uh on debt service. So during August, the federal government paid out $111 billion in interest on federal debt. That's more than the federal government paid in that period to the Department of Defense, which was 78 billion. And only 32 billion less uh was paid out uh in terms of interest. That's 32 billion less than was paid out to Social Security, which of course everyone knows is a huge expense, a huge part of the federal budget. Year-to-date interest payments are now up 7.2% following years of previous increases. In other words, the federal debt is slowly devouring tax revenue, which increasingly must go to pay interest and which offers no value to current taxpayers. So, we see here the other side of why the regime needs lower interest rates and why the White House is pressuring the FOMC so much. Moreover, the US Treasury faces a challenge of refinancing more than $9 trillion in US debt during the next year. Uh because a lot of that debt will mature, needs to be rolled over somehow. So, they're going to have to refinance. And with Treasury yields now at much higher levels than they were in recent years, refinancing at current interest rates will add an enormous amount of new interest expense for the federal government as the debt to GDP ratio continues to to climb up to 120%. The administration really wants to see the Fed force short-term yields back down to ease the expense of massive federal deficits. So Trump wants more monetary inflation so he can more easily finance his huge deficits, but ordinary people will pay the price in terms of inflation. More tariffs certainly will not fix this problem. In contrast to all this central planning from the central bank, what the Fed should be doing now is nothing. The Fed should simply refrain from taking any action toward meddling in the private economy at all. The Fed could end its open market committee operations, which employ monetary inflation to manipulate interest rates. The Fed could allow markets to function and could allow the economy to heal. Unfortunately, the Fed was created to do anything but allow the private economy to function. It has always been an instrument of central planning and we should not expect anything different from it. Now, [Music]