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Category: Campfire

Around the Campfire: Too much punch

William Chesney Martin was chairman of the US Federal Reserve, America's central bank, between 1951 and 1970. In October 1955, he gave a speech to the...

26 August 2021

Jason Cozens

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William Chesney Martin was chairman of the US Federal Reserve, America’s central bank, between 1951 and 1970. In October 1955, he gave a speech to the New York group of the Investment Bankers Association of America.

In that speech, Martin reminded us about the danger of inflation: “there are some who contend that a little inflation – a creeping inflation – is necessary and desirable in promoting our goal of maximum employment”. That idea was a fallacy: “inflation seems to be putting money into our pockets when it is in fact robbing the saver, the pensioner, the retired workman, the aged – those least able to defend themselves”.

He concluded by saying that the Fed, after a recent interest rate rise, “is in the position of the chaperone who has ordered the punch bowl removed just when the party was really warming up”.

It’s a metaphor that central bankers in the major economies seem to have forgotten. Today the punch bowl is not just full but overflowing.

Trillions of US Dollars have been pumped into the global money supply in the past 18 months. The US fiscal deficit – the difference between government spending and the revenues it gets through taxes – is currently more than $2.5 trillion (£1.8 trillion). That’s about 10% lower than in 2020 but triple that of 2019. In July, thanks to rising inflation and growing debt, the federal government paid $10 billion more in interest than in July 2020. Somehow the US government will have to square this circle – and it won’t be pretty.

The US government’s aim has been to maintain high employment levels – and let the risks of inflation go hang.

But we don’t know any longer – if we ever did – how labour markets are really behaving. We scour reports from the media, banks, governments, to try to figure out whether our economies are running too hot (threatening inflation) or too cold (threatening a recession). But they all disagree.

So we have zero certainty about the level of risk facing financial markets. With the US apparently little interested in acting as democracy’s policeman, the financial and monetary risks will become wider and deeper. Will the US defend the Dollar as the world’s international reserve currency? Fifty years since President Nixon finally removed the Dollar’s gold backing it feels to me that the world is going through seismic shifts – a boat without a rudder headed into a tornado.

Founding Glint – which allows anyone to use gold as everyday currency – seems to me to be increasingly prescient. As we say here at Glint: Gold is security. Glint its key.

Till next time,


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