The Fed’s Cloud of Unknowing

Aside from not existing, an “ideal” central bank requires the ability to hold trust over a long period of time. The problem with the current central bank is that it changes strategies every few months depending on outside political pressures or what it thinks will smooth a period of volatility. This pattern means that all fiat currency has an inherent risk of fluctuations in real purchasing power, and no example to the contrary has been successfully undertaken. A state of inflation would be sub-optimal, but predictable inflation would be far preferable to our current state of inflation rate volatility through time. Discretion and waning trust have resulted in inflation which makes it difficult for both private individuals and businesses to make contracts in the future. The inherent instability of fiat currency makes a cloud of unknowing surround all future transactions. With margins of error in the dozens of percentage points for inflation predictions for the next 15 years, it is impossible for people to agree on a fair price. Considering that the main goal of money is to allow transactions to take place and value to be stored, this rampant neglect of the future is not sustainable.

While any seasoned SchiffGold reader should know that fiat money is inherently unpredictable, it bears emphasizing that even in times of overall governmental stability unlike our own, fiat currency is constantly fluctuating in value. All money will necessarily be a victim when the government that supports it loses trust, or is revolted against. However, the daily operation of central banks in stable times still allows for an insidious slow shift of value. Inflation targeting would work much better if it was held consistently, but the central bank acts as though they don’t need to undo their mistakes in the past. If one year saw 17% inflation, rather than trying to undo that inflation and make the monetary growth rate over time stable, the best they can do is go back to seeking 2%, which does nothing more than slow down the underlying decline. Political tensions can also have a huge effect on any currency, and those are completely unpredictable as they are inherently human.…