The takeaway: Massie wants to end the Fed. That is low-hanging fruit.
The Federal Reserve again finds itself as the political football for a congressman, this time in the name of U.S. Representative Thomas Massie. The Kentucky congressman today announced the introduction of HR 1846, the Federal Reserve Board Abolition Act. The Act would abolish not only the Board of Governors of the Federal Reserve System but all twelve federal reserve banks. According to Mr. Massie, the Board and its 12 federal reserve banks are economic evil incarnate, responsible for the inflation created during the government’s battle with the COVID-19 pandemic.
“Americans have suffered under crippling inflation, and the Federal Reserve is to blame,” said Rep. Massie. “During COVID, the Federal Reserve created trillions of dollars out of thin air and loaned it to the Treasury Department to enable unprecedented deficit spending. By monetizing the debt, the Federal Reserve devalued the dollar and enabled free money policies that caused high inflation.”
The bill makes provision for winding down whatever assets and liabilities are on the Fed’s balance sheets. (I wonder what they will do with the Fed building on the corner of 10th and Peachtree Street here in Atlanta. Oh well …).
What the four-page bill does not do is spell out how Congress will have its bonds underwritten. Yes, by increasing the money supply, the Federal Reserve System is at the heart of the scheme that generates “money” out of thin air. When more money is in circulation, prices on goods and services get bid up which erodes the purchasing power of consumers with greater negative impact on lower income consumers.
What inflation also does is provide asset owners a boost in the value of their capital. When asset owners bring their higher priced stocks, bonds, income, and land to a prime broker, they are able to borrow more money for business investment or personal consumption. A Federal Reserve System, one made up not only of an independent government agency, but hundreds of member banks, is that public-private hybrid that amplifies private wealth. I do not believe that high net worth individuals along with banks, hedge funds, and pension funds want to see the Fed go away anytime soon.
Nor do other global commercial banks and central banks want to see the Fed disappear. During the pandemic, global commercial banks short on dollar reserves were able to garner green backs via swap agreements entered into between their respective central banks and the Federal Reserve. Foreign central banks then distributed greenbacks to their member banks to meet their trade or other lending needs.
If Mr. Massie really wants to control inflation, he should first start off by redefining the meaning of money and clarifying the difference between money and currency. It is the currency that is being inflated, not money. Real money which is the combination of effort (energy), and output cannot be inflated by a central bank when the currency is tethered to a hard asset proxy for money. Redefining money is the hard but necessary work.
Getting rid of the Federal Reserve System is simple and will only cost a few hundred PhDs. It is a short-term solution in the face of changes happening in the global economy.
Alton Drew
6 March 2025
News scan:
Federal Reserve. Thomas Massie. Today, U.S. representative Thomas Massie, Republican of Kentucky, introduced a bill, HR 1846, that would abolish the Board of Governors of the Federal Reserve System along with the 12 Federal reserve banks. U.S. Senator Mike Lee, Republican of Utah, introduced a companion bill, S. 869.
Federal Reserve. Beige Book. Today, the Board of Governors of the Federal Reserve System released its Beige Book, a compilation of anecdotal reports on economic activity across the System’s 12 districts.
“Overall economic activity rose slightly since mid-January. Six Districts reported no change, four
reported modest or moderate growth, and two noted slight contractions. Consumer spending was
lower on balance, with reports of solid demand for essential goods mixed with increased price
sensitivity for discretionary items, particularly among lower-income shoppers. Unusual weather
conditions in some regions over recent weeks weakened demand for leisure and hospitality ser
vices. Vehicle sales were modestly lower on balance. Manufacturing activity exhibited slight to
modest increases across a majority of Districts. Contacts in manufacturing, ranging from petro
chemical products to office equipment, expressed concerns over the potential impact of looming
trade policy changes. Banking activity was slightly higher on balance among Districts that reported
on it.” — Board of Governors of the Federal Reserve System.
Federal Reserve. Liquidity. “A Federal Reserve Bank of New York official who manages the implementation of monetary policy indicated Wednesday the central bank has room to further shrink its balance sheet, while noting government financial management issues will create challenges for the process over the short run.” — Reuters.
U.S. dollar. Gold. “Gold inched up on Thursday, helped by a pullback in the U.S. dollar, while investors awaited U.S. non-farm payrolls data due later this week to assess the Federal Reserve’s interest rate trajectory as global trade tensions escalated.” — Reuters.
Debt-ceiling. Reserves. “The current debt-ceiling impasse could threaten the Federal Reserve’s ongoing balance-sheet runoff causing gyrations in the central bank’s liabilities that create volatility in money-market rates, according to Federal Reserve Bank of New York’s Roberto Perli.” — Bloomberg.
Banks. Recession risks. “Financial markets are signaling that the risk of a recession is growing as tariff-related uncertainty and indicators of economic weakness spread fear across Wall Street.” — Bloomberg.
The data:
U.S. Treasury rates
The two-year, ten-year, and thirty-year Treasury rates ticked up today. According to Treasury data, the two-year rate moved from 3.96% to 3.99% while the ten-year rate ticked up from 4.22% to 4.28%. The 30-year rate also climbed from 4.53% to 4.57%.
Board of Governors of the Federal Reserve System
The Board of Governors reported that the EUR/USD is priced at 1.0402 while the USD/JPY is priced at 150.6400.
The Discount Window Rate is 4.50% while the Interest on Reserve Balances is at 4.40%. The Overnight Reverse Repurchase Rate is at 4.25%.
Federal Reserve Bank of New York reference rates.
The Federal Reserve Bank of New York reported changes in two of its overnight interbank rates. The Effective Federal Funds Rate for domestic unsecured borrowings between commercial depository institutions is at 4.33%. The Overnight Bank Funding Rate, a measure of wholesale, unsecured overnight bank funding costs, also held at 4.33%.
The Secured Overnight Financing Rate, which measures the cost of borrowing cash overnight secured by Treasury securities, came in at 4.33%, while the Broad General Collateral Rate, a measure of rates on overnight Treasury general collateral repurchase agreement transactions, came in at 4.32%.
The Tri-Party General Collateral Rate, a measure of rates on overnight, specific counterparty, tri-party general collateral repurchase agreement transactions, came in at 4.32%.
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DISCLAIMER: I am not a financial adviser. These blog posts are for educational purposes only. Trading of any kind involves risk. Your trading decisions are solely your responsibility. It is imperative that you conduct your own research and seek professional advice as necessary.
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