November 30, 2023
November 30, 2023

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The Federal Reserve – Friend or Foe?

A 5-year-old child wrote a heartfelt letter to God and requested from Him $100 for a new video game he craved. The envelope was simply addressed to “God,” affixed with a stamp, but no address. The head postmaster saw the mail and, in sympathy for the child, forwarded the letter to the White House to the attention of the president.

The president read the letter and shared it with his staff, who all thought it was so cute and touching. He told them to put $5 in a reply letter and send it to the youngster, assuming the child would be oblivious to the amount. Upon receiving the letter, the boy immediately tore open the envelope and saw the five-dollar bill. He quickly wrote a letter to God in reply. “God, Thank you so much for sending me the $100. Unfortunately, those pigs in Washington took $95 in taxes before sending me $5.” Welcome to government intervention.

It was a big week for the markets, with the Federal Reserve meeting once again. As I mentioned previously, they would not hike rates – which they didn’t. They indicated they would continue to evaluate additional information to determine whether further action is needed to reach its inflation objective. Their mandate remains the same – to ensure the stability of the nation’s financial system through controlling inflation and employment.

Let’s talk candidly… Inflation has been referred to as a “secret tax” on consumers. When prices rise, the purchasing power of money diminishes, effectively reducing the actual value of savings and income. This means that individuals and households can buy fewer goods and services with the same amount of money, decreasing their standard of living. Furthermore, as the government spends more on its “pet projects” and needs to borrow more money, they are, in essence, fueling the flame of inflation.

A brief history: The Federal Reserve was established in response to a series of financial panics and banking crises in the late 19th and early 20th centuries. In 1913, the Federal Reserve Act was passed, creating the Federal Reserve System as we know it today. The system consists of 12 regional banks, supervised by a Board of Governors in Washington, D.C. While the Board of Governors is an independent government agency, the Federal Reserve Banks are set up like private corporations.

The Fed has been at the center of controversy and conspiracy theories since its inception. Critics argue it wields too much power and is subject to political influence. At the same time, proponents maintain that the Fed operates with a high degree of transparency, and its decisions are made by a board of governors subject to public scrutiny. Some believe that a secretive group of bankers controls the Fed and uses it to manipulate the economy for their own gain. These conspiracy theories often center on notions of shadowy elites and secret agendas.

The bottom line is that the United States has faced massive inflation that is now choking businesses and consumers alike. I believe the government and the Federal Reserve are mainly to blame. Even before COVID, politicians printed money with no regard and went into further overdrive printing excessively during the pandemic. Meanwhile, as I wrote about numerous times in 2021, the Fed held rates “too low for too long,” claiming the spikes in inflation were “transitory.” Obviously, they were dead wrong.

While inflation is calming now, I believe the damage is done because they have now hiked too aggressively. Current civil unrest and the wars in Russia and the Middle East are only going to challenge the Fed’s job further. They have no one to blame but themselves and the debate over their power and influence will continue.

Shoutout to all of our brothers and sisters on the frontline, and a special happy birthday to my father and birthday wishes to Josh Aron, Gav Blum, Miriam Blumstein, Aliza Bochner, Bradley Dock, Banji Ganchrow, Shifra Herzberg, Daniel Krause, Joel Krinsky, Elisheva Rosen, Aline Smolanoff, Stephanie Summers, Rabbi Noam Weinberg, and Janice Zucker. A very special happy birthday to my incredible wife, Esther.

Shmuel Shayowitz (NMLS#19871) is a highly regarded Real Estate & Finance Executive, Writer, Speaker, Coach, and Advisor. He is President and Chief Lending Officer of Approved Funding, a privately held national mortgage banker and direct lender. Shmuel has over twenty years of industry experience, holding numerous licenses and accreditations, including certified mortgage underwriter, licensed real estate agent, residential review appraiser, and accredited investor, to name a few. Shmuel has successfully navigated through many changing markets and business landscapes, making his market insights and experience well-coveted within the real estate industry. He can be reached via email at [email protected].

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