Handmaid Of Leviathan, Whore Of Wall Street, Part 2

As we pointed out in Part 1, there has been a live fire test of the Fed’s monetary central planning regime and it has been found utterly wanting. To wit, between 1951 and 1966 the Fed’s balance sheet grew by just 1.48% per year, but the economic metrics of main street were spectacular: Inflation stayed exceedingly low while real output, jobs, productivity and real median family incomes marched smartly higher.

By contrast, during 2000 to 2o24 the Fed’s balance sheet exploded by nearly 22% per annum, even as the main street metrics went decidedly south. Despite the Fed’s fevered and relentless money-printing during the most recent 24-year period, the jobs growth rate was 54% lower; the rate of productivity gain was down by 28%; real median family income growth dropped by 80%; and real final sales of domestic product expanded at a 44% slower pace.

Oh, and the inflation rate was 70% higher, to boot!

Per Annum Growth Rate: June 1951 to June 1966 Versus June 2000 to June 2024:

• Fed Balance Sheet: 1.48% versus 21.74%.

• CPI: 1.49% versus 2.53%.

• Nonfarm jobs growth: 1.66% versus 0.77%.

• Labor productivity gain: 2.43% versus 1.75%.

• Real Median Family Income Increase: 3.00% versus 0.59%.

• Real Final Sales Of Domestic Output: 3.64% versus 2.04%.

To remind: The Light Touch monetary policy of 1951 to 1966 under William McChesney Martin was conducted largely within the “banker’s bank” model of central banking. That is to say, Martin wanted nothing to do with coddling the stock market or providing anything that remotely resembled what became the Greenspan et. al. “put” of modern times.

And for good reason: He had grown up in the household of one of the dissenting governors of the early Fed during the Roaring 20s and had become the youngest ever Chairman of the New York Stock Exchange during the 1930s. Given the speculative rot that was exposed by the 1929 Crash and the painful house-cleaning that occurred in the stock market during the decade thereafter, he had no interest whatsoever in using the tools of central banking to fuel the gambling spirits on Wall Street.

Likewise, Martin would not have dreamed of being complicit in the large-scale monetization of the Federal debt. By the 1950s, of course, the original Glassian ban against Federal Reserve ownership of the public debt had been cast aside to finance WWI and WWII, even as open market buying and selling of debt securities had largely displaced the Discount Window as a source of Fed credit.

But Martin did not wish to own one more dime of Federal debt than he felt was minimally necessary to keep the money market and Federal funds rate reasonably stable over the business cycle. Accordingly, he was neither in the business of pro-actively buying government debt in order to stimulate main street activity nor selling Treasury paper in order to fine tune the inflation rate to something like today’s hideous 2.00% target.