
It is the Fed’s job to uphold the value of money, not debase it
- The repeated calls for inflation targeting by the current and previous Fed chairs illustrate the extent to which modern central bankers have forgotten that their primary duty is to keep control over sound money
There was a time when central bankers cared about money – when they remembered the mass inflation hysteria of the 1920s and the damage that it did to ordinary people’s livelihoods. Similarly in the 1970s and 1980s, when inflation soared. In Hong Kong in 1982, inflation was 11 per cent; in 1991, it was 11.2 per cent – and there was always an inkling that the figures were massaged downwards. I remember that my mortgage rate rose to nearly 20 per cent per annum.
Society adjusts to hyperinflation, as does a golfer with a bad swing. Companies regularly raise prices – and give pay rises. In fact, it is not too bad if you have a job and can save, especially if you can invest in assets or if inflation collapses, as it did from 1995.
Incredibly – due to the Asian financial crisis of 1997, inflation fell to minus 4 per cent in 1999 and since then it has persisted at around the 2-4 per cent level. The suspicions of data manipulation have remained – in all major economies. Does anyone out there think their costs rise by just 4 per cent per year?

Inflation is public enemy No 1 as it devalues the very money we rely on. But wait. Why is Powell saying he must push inflation up? Why have all Fed chairmen since Alan Greenspan, who is old enough to remember the 1920s inflation, called for inflation targeting?
Perhaps they are too young to remember hyperinflation, or perhaps they see it as something that only happens in Zimbabwe. Inflation targeting is bad economics because rising prices are derived from economic conditions, not the other way around; inflation is a result – not a target.
Governments just add a few noughts on a computer. If a private citizen did that, it would be called stealing
Modern-day low inflation has many fundamental economic reasons, including the digital revolution, currency movements, the weak position of labour, and the relative prosperity of the last two generations who benefited from the real estate boom and early pensionable retirement. Governments, however, need to debase money to erode the debt mountain they have created.
For the past 15 years, and most obviously in 2020, central banks have been printing money with the full agreement of their governments, to an extent that was impossible when the printing press was physical. So-called “independent central banks” have folded like a cheap umbrella in a typhoon.
They have believed the press hype and become too grand. Instead of focusing on preserving tight control over sound money, that does not inflate or deflate, they have been taken in by the narrative that they must defend the economy, flatten the cycle, eliminate boom and bust, prevent stock market crashes, and support employment; none of which are their main purview.

That bit is true; but I do understand that modern monetary theory is a sandwich short of a picnic. There is no money tree; you can’t create goodness and light out of thin air, there are two sides to a balance sheet, and debt created in bad times must be paid back in good times. Modern monetary theory is a classic case of popular-narrative finance taking over educated minds and wise counsel.
Why China, like Japan, needn’t worry about paying all that debt back
If the public loses faith in their money, hyperinflation and a bartering economy will ensue. When money costs nothing to borrow, it is telling us something about its value. There is not long for the central banks to put this right – it may already be too late.
In an environment of high inflation, you want to hold assets as they maintain their value; real estate, equities, commodities, and gold. The problem is that recession is likely to come first – before the dreaded stagflation. September and October are traditionally difficult times for the stock market, although funny money has enabled us to avoid the crunch in the past few years.
The inflows of the past six months from money-printing may prevent that happening in 2020, although markets have done extremely well in the past five months and now look very fragile. Cash may be king if we have a stock market crash – but if confidence in funny money collapses, it will be better to be cash poor and asset rich.
Richard Harris is chief executive of Port Shelter Investment and is a veteran investment manager, banker, writer and broadcaster, and financial expert witness
