Judd Gregg: Libra, the Federal Reserve and debt

Until this Congress and President Trump put in place policies that will slow rather than expand our debt, the Federal Reserve should not consider reducing interest rates.

This is not a particularly popular view, but it is the correct one.

The economy is beginning to slow. A view has gained wide acceptance that the Fed should undertake a rate cut, or possibly a series of rate cuts, to reinvigorate the engine of economic growth.

{mosads}But such reductions would also breathe life into a very serious threat.

By moving back towards, essentially, a zero interest rate environment, the Fed would become an enabler of the deficit binge of this Congress and this president.

The primary purpose of the Fed is to protect the value of the dollar by not allowing rampant inflation.  There is also the secondary purpose, written into law well after the Fed was setup: to push the economy toward full employment.

Both purposes have today been met and exceeded.

Another goal the Fed should aim for is avoiding policies that make it easier for the Congress and president to run a debt-based government.

To the extent that the Fed enables a malfeasant Congress and president to grossly expand the deficit, it is actually guaranteeing that it will be virtually impossible to control inflationary pressures in the future.

Those pressures will arise from the debts this Congress and president are heaping upon the country — and from the interest costs that will soar as a consequence.

At some point, the debt will simply be unsustainable by any means save inflating the money supply and reducing the value of the currency.

When considering these facts, it is a unique irony that members of Congress are concerned with the creation of the new, potentially disruptive currency by Facebook and its partners called Libra.

Congress, or at least the few in Congress who have any awareness of this new initiative, see it as a threat to the role of the dollar as the world’s currency — and to the role of governments in setting the terms of world commerce.

They are right.

If successful, which it may be, this new currency could literally lead to a new world order.

The primary purpose of this new form of money, Libra, is purportedly to enable billions of people who do not have access to traditional banking to participate in markets. This seems a stretch, at best — and one apparently generated by the need for a positive PR spin.

In fact, almost all the users of this currency are expected to be folks who can be counted among the 2.5 billion or so people and 90 million businesses that now participate in Facebook.

This means that the targeted users of Libra are both reasonably sophisticated and rather worldly.

It also means that roughly two-thirds of the world’s population is excluded.

One suspects, listening to the language of Facebook founder and CEO Mark Zuckerberg, that while in high school at Phillips Exeter Academy, he was forced to read George Orwell’s “1984.”

Rather then being turned off by the book’s concept of a world ruled by a few unelected people, he sounds as if he might have been attracted to the idea.

Now, a few decades later, he may have developed the capacity to execute on this approach.

This will be a new world order based on a world currency controlled by people from Silicon Valley and their associates.

This is a new generation who feel they are uniquely gifted to lead such an order — and surely believe themselves to be more qualified to do so than those who populate the halls of Washington or other democratic capitals.

But some of the vibrancy of Libra is down to the Congress, the president and the Fed.

The primary selling point of Libra is rooted in the desire to create a medium of exchange that is free of the threat of inflation, monetary or fiscal manipulation by elected and appointed officials, or confiscation (directly or through devaluation).

If Congress really wants to get a handle on the forces that are driving the popularity of such an idea, they need look no further than their own policies of debt-financed government.

The massive debt which is now being put on the books daily by this Congress and this president — and which is receiving singular support from the policies of the Fed — is going to rob future generations of their standard of living.

Those generations will bear the burden of dealing with the current extravagance.

But, maybe even more importantly, the threat that all this debt generates to the stability of our present currency will become a primary driver of people and businesses towards Libra.

There are many arguments being floated as to why the Fed needs to cut interest rates.

Trump believes in low rates because he sees the sugar high they create in the economy as good for his reelection hopes.

Congress wants lower rates so the real cost of borrowing is hidden from the voters in the next election.

{mossecondads}The Fed seems to feel it needs to lower rates so it can meet its obligation of managing inflation (which is now below its two percent target); and avoiding an economic slowdown or possible recession, which would negatively affect its full employment goals.

But none of our elected officials, or their appointed cohorts at the Fed, seems to be looking into the future.

Their interest rate dance could easily lead not only to a reduced lifestyle for most Americans, but to their losing control over the single most important element of our nation’s and the world’s economic wellbeing: the money supply.

Libra is the answer from the “smart people” of the tech world to the failure of governments to be the protector of stable money.

Libra reflects the desire of those Silicon Valley types to insulate themselves from what they see as the inherent inferiority of elected governments.

Libra, if it is successful, will be a unique transfer of power with unpredictable consequences — but with the potential to deliver extraordinary debilitating effects to democracies.

Congress, the president and the Fed must consider this — and stop destabilizing our monetary and fiscal system with their ever-expanding debt-driven policies.

Judd Gregg (R) is a former governor and three-term senator from New Hampshire who served as chairman and ranking member of the Senate Budget Committee, and as ranking member of the Senate Appropriations Foreign Operations subcommittee.