Rick Santelli was Right

The ongoing monetary inflation we’ve seen from the Federal Reserve over the past several decades has produced a period of apparent wealth due to asset price inflation.

As the Fed’s fiat debt currency is a debt-based system, the Fed’s monetary inflation has, at the same time, been accompanied by a record growth in total system debt that now totals $95 trillion.

The Fed’s monetary inflation has, until recently, been difficult for citizens to detect as the cycle of loose money was primarily sequestered to rising financial asset values which the Fed’s supporters said was beneficial.

However, the temporary sequestration of monetary inflation into financial assets is just that - temporary. What we face now is the disgorgement of the Fed’s prior loose money out of financial assets such as bonds into real assets and potentially suddenly revealing the Fed’s decades of previously occult loose money through rapidly increasing good’s price inflation.

One steady voice warning of the Fed’s monetary malpractice has been CNBC’s Rick Santelli who has repeatedly warned the the Fed’s inflationary (loose) monetary policy is sophistry with brutal consequences down the road as it is ultimately revealed in inflating goods prices and spiking interest rates.

This clip from June 2021 is informative as Santelli warns that “None of this is free. Nothing in the world is for free. Someone always pays. … … we lower the bar for pain and all the payments that have come due - we just keep stacking them up in the future. … … (After 2008) you know what I said? I said asset prices - financial asset prices. They screamed. That was inflation all right. Financial asset inflation. Because they (the Fed) crowded it all on their balance sheet to stop it from escaping. And they won’t be able to do that again, Scott.”

Santelli’s must-see comments above can be viewed on video here or here .

Santelli had indeed previously warned of the consequences of QE. In 2010 he said on air “Is it something to be proud of, asset prices going up, because we're printing money to buy them?” See: Santelli: The Fed Is Making This Equity Market Rally And We Shouldn't Be Proud Of It

The Fed’s policy since the 1980s has been generally described as ‘the Greenspan Put’ as former Fed Chairman Alan Greenspan began the policy of blowing bigger financial and economic bubbles to address the collapse of prior Fed bubbles caused by first loose then tightening Fed monetary policy.

Santelli’s repeated warnings have not been well received over the years.

In 2014, after Santelli had been challenging the Fed’s loose money Quantitative Easing policy for years, Paul Krugman penned a piece in the NY Times ascribing Santelli’s opposition to the fact that Santelli did not like poor people or people who helped the poor. Krugman’s article included a video clip of CNBC’s Steve Liesman labeling Santelli and those who supported his concerns about the Fed’s loose money and QE policies as “Inflationistas”.

In the vernacular and at its core, the Fed’s monetary reflation and QE policies can be described as faking asset prices to address a collapse of asset prices previously elevated by the central planners at the Fed. This is unsound policy that compounds problems each time they are applied by the Fed.

Santelli has stood fast each time on CNBC waging a one-man battle against the loose money promotion of the Fed, Paul Krugman, Steve Liesman, Scott Wapner, Jim Cramer, Josh Brown and virtually the entire investment industry that temporarily benefits from the Fed’s loose monetary policy that drives the market higher.

The Fed’s support of its monetary policy has been deception. In December 2010, Fed Chair Ben Bernanke said: “One myth that’s out there is that what we’re doing is printing money. We’re not printing money. The amount of currency in circulation is not changing. The money supply is not changing in any significant way. What we’re doing is lowering interest rates by buying treasury securities. And by lowering interest rates we hope to stimulate the economy to grow faster. So the trick is to find the appropriate moment when to begin to unwind this policy. And that’s what we’ll, that’s what we’re gonna do.

Scott Pelley: Is keeping the inflation in check less of a priority for the Federal Reserve now?

Bernanke: No, absolutely not. What we’re trying to do is achieve a balance. We’ve been very, very clear that we will not allow flation (sic), inflation, to rise above 2% or less.

Pelley: Can you act quickly enough to prevent inflation from getting out of control.

Bernanke: We can raise interest rates in 15 minutes if we have to. So there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation at the appropriate time.”

Bernanke’s claim that the Fed was “not printing money” or “changing the money supply in any significant way” is laid to rest by the graph below.

In 2009 and 2011 the Fed increased the True Money Supply (TMS) and M2 money supplies by more than 16% and 11% respectively as shown below. Perhaps Bernanke does not consider that to be significant. :

The Fed’s policy of loosening money supply to inflate the economy and markets after each recession or market slow-down can be seen in the graph above.

And, yes, the Fed did ‘print money’ to buy devalued assets at book value from banks as part of its QE program.

(the True Money Supply (TMS) measure is described here.)

Austrian School economists have shown analytically that attempting to create growth by fiat credit expansion (fiat debt-currency) always leads to economic distortion as consumption driven by credit creation from nothing leads to consumption beyond the productive capacity of the economy. Sustained consumption driven by credit creation leads to collapse.

In the graph below it can be seen that since 2000, M2 Money in the economy compared to GDP of the economy has increased by 68% witnessing the economic distortion relative to fiat debt money/currency creation driven by Fed policy.

The consequences of decades of central bank monetary inflation are now beginning to vest in materially higher real asset prices.

Determination of what constitutes money and controlling the money supply and interest rates is far too important to left in the hands of central planners and government.

Best regards,

David Jensen