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Rep. Warren Davidson (R-Ohio), co-chairman of the Congressional Sound Money Caucus, warned that the Federal Reserve’s policy of low interest rates carries the risk of debasing the currency and “undermines the value of money.”
Davidson, in an interview with “American Thought Leaders,” also said that loose monetary policy fuels the disconnect between people who have a large part of their net worth in marketable securities, and ordinary workers with limited exposure to markets, or “people whose only recourse to wealth is labor.”
“As the monetary supply is increased, liquidity on Wall Street has increased massively,” Davidson said, adding that the beneficiaries of artificially low interest rates effectively bypass many Americans.
“Where’s the return showing up? It’s showing up in the structured credit market, where people with access to that market, large hedge funds mostly, can trade intraday, and they get yield that isn’t available to retail investors, that isn’t available to retirees and savers,” Davidson said, adding that easy money policies effectively lock “mainstream, everyday Americans out of that access, unless they happen to have their net worth tied up in marketable securities in large funds.”
“The bottom line is that the Federal Reserve, enabled by Congress, is printing money and it undermines the value of your money,” he said, adding, “If you’ve got your wealth in cash, that cash is being destroyed by printed money,” which he called a “hidden tax.”
Davidson said the solution is to “work toward sound money” by way of a monetary system that addresses current deficits.
“You can’t inflate your way out of this,” he said, referring to the notion that the impact of massive deficits and public debt can be overcome by printing money.
The Federal Reserve flooded the markets with liquidity in response to the CCP (Chinese Communist Party) virus outbreak and said interest rates would stay near zero for the foreseeable future. Besides undermining the value of money as a store of wealth, loose monetary policies also put pressure on profits for banks and other institutions.
On Wednesday, CME Group, the world’s largest futures exchange operator, said third-quarter profits plunged 35 percent as the ultra-low interest rate environment cut demand for some of its top products.
In a statement announcing the establishment of the Sound Money Caucus, which is co-chaired by Rep. Andy Barr (R-Ky.), Davidson said that, “monetary policy, especially since the 2008 financial crisis, coupled with the recent federal fiscal response to coronavirus has inflated asset prices, contributed to the wealth gap, and weakened the U.S. dollar as a store of value.”
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