True independence can be yours

The independence of central banks today is one of the sacred cows of economic theory. But dig a little and this prized independence is revealed as a myth, like much else in orthodox economics.

Take the UK's central bank, the Bank of England (BoE). One of its most important parts is the Monetary Policy Committee (MPC). The MPC decides the level of the Bank Rate, which in turn decrees the interest rates for the country. This power decides how much your mortgage costs.

The MPC also decided the Quantitative Easing (QE) program which the BoE started in March 2009. By 2021 this program had injected about £1.2 trillion (more than $1.6 trillion) into the economy. QE is a central banker's trick, creating money out of thin air. The justifications for this QE, like those rolled out by other countries, was the Great Financial Crash of 2008 and the Covid-19 pandemic.

Over the same period the US central bank, the Federal Reserve, used QE to inject at least $4 trillion (almost £3 trillion) into the US economy. The Fed's version of the MPC is the FOMC (the Federal Open Market Committee).

In the UK and the US those who sit on the MPC and the FOMC are political appointments. In the UK the Chancellor of the Exchequer (the Treasury Secretary) makes the appointments; in the US the President nominates and the Senate confirms the seven members of the Fed's board of governors, who are a majority on the FOMC.

Can anyone really sustain the argument that these central banks are truly independent of government influence?

It's a delusion

The issue of central bank independence has come into play again thanks to a wrangle in the US over President Trump's attempt to fire a Fed governor. Lisa Cook has been accused of mortgage fraud. I have no idea if she has committed any wrong-doing. This will no doubt go all the way to the Supreme Court. Lawyers are already rubbing their hands with glee.

Supporters of the President naturally take his side. Opponents accuse him of using the Cook case as a means of undermining his real target, the Fed's chairman Jerome Powell. They say his effort to fire Cook is groundless, illegal, and possibly racist.

Most seriously they say the Cook kerfuffle threatens to politicize the Fed. It undermine's the Fed's independence. More than that - by trying to fire a governor the President is trying to "bend monetary policy" to his will, says Janet Yellen, herself a former chair of the Fed. If he succeeds, the credibility of US monetary policy goes out of the window.

That credibility has long been a delusion. Credibility started to die in August 1971 when President Nixon strong-armed the Fed chairman, Arthur F. Burns, and John Connally, Treasury Secretary, into abandoning the gold standard. It breathed its last in 2008, when the Fed responded to the Crash by flooding the world with trillions of 'new' Dollars.

These actions were political, panicky, mistaken. Since 1971 the Dollar has lost more than 80% of its purchasing power. One of the Fed's functions is to maintain price stability. It's done a rotten job of that - as well as protecting its supposed independence.

Independence is a personal thing

If the credibility of monetary policy is shot to ribbons, the need to become independent of the lies and hypocrisy of government becomes ever more important.

In the US and the UK it's becoming clearer by the day that the social structures that have evolved are unsustainable. Our governments are either unwilling or unable to raise sufficient revenue from taxation to pay the looming bills they have blithely racked up.

There are only three ways to pay these bills - renege on them, borrow more money, or print money. The first would truly destroy credibility, the second is becoming more expensive, the third will destroy more of fiat currency's value. None of these choices is welcome. We cannot know which choice, or combination of choices, our government might make. But in order to defend ourselves against them we need to find an asset that we can also use as money in our daily life - and that's gold, with Glint. Let the lawyers have their day, stand aside, stand free of worry.