Former New York Fed’s Dudley Calls U.S. Economy ‘Like Wile E. Coyote Heading Off a Cliff’
July 3, 2022 (EIRNS)—The former President of the New York Federal Reserve Bank Bill Dudley, the same genius who want to “solve” the current financial breakdown crisis by pulling a “Paul Volcker,” drastically jacking up interest rates to supposedly stop inflation, justified his idiotic position by warning of the unavoidable terminal crash of the entire system if hyper-inflation is not stopped.
In an accurate metaphor for the pending total crash, Dudley wrote in his June 22 Bloomberg column: “Much like Wile E. Coyote heading off a cliff, the U.S. economy has plenty of momentum but rapidly disappearing support.”
The image is much like that presented by Helga Zepp-LaRouche in her June 18 Schiller Institute conference keynote—an accelerating train heading for a cliff with a madman as the engineer, unwilling to stop the train. The difference is that, as Zepp-LaRouche notes, the Dudley “solution” of cutting off credit is just as insane. The system is finished, it can not be salvaged—only the LaRouche solution of a new system, a New Bretton Woods based on LaRouche’s Four Laws, can prevent the poor coyote from the terminal fall, taking the human race with it.
The U.S. economy is heading for a hard landing, and a recession is coming within 12 to 18 months, wrote Dudley. Dudley reported that the Fed’s latest set of projections laid out a benign scenario amid rising interest rates, but he sees several reasons to expect a “much harder handing.”
The central bank’s employment mandate is now subservient to its inflation mandate, and the new focus on price stability will be “relentless.”
“Fed officials recognize that failing to bring inflation back down would be disastrous: Inflation expectations would likely become unanchored, necessitating an even bigger recession later. From a risk management perspective, better to act now, whatever the cost in terms of jobs and growth. Powell does not want to repeat the mistakes of the late 1960s and the 1970s.”
It will take time for considerable monetary policy tightening to have an effect, but the economist thinks the expansion is uniquely vulnerable to a sudden stop. As inflation outstrips wage growth, the personal savings rate has plummeted, from 26.6% in March 2021 to 4.4% this April, significantly below its long-run average.
“No wonder consumer sentiment has fallen to levels last reached in the aftermath of the 2008 financial crisis, and Google searches for the word ‘recession’ are hitting new records,” he remarked.
Dudley concluded, “The Fed has never tightened enough to push up the unemployment rate by 0.5 percentage point or more without triggering a recession. ... Much like Wile E. Coyote heading off a cliff, the U.S. economy has plenty of momentum but rapidly disappearing support. Falling back to Earth will not be a pleasant experience.”