Planet Money

The starting point or the point of departure for an analysis and understanding of peculiar and specific events and occurrences like the raising of interest rates by America’s central bank – known as the ‘Federal Reserve’ – requires an understanding of the overarching theme or underlying structure of such an event and occurrence. The overarching theme or underlying structure of a peculiar and specific event and occurrence like the raising of interest rates by the ‘Federal Reserve’ stems from what the 20th century revolutionary and philosopher Vladimir Lenin called “The Commanding Heights” of the international economy. What Lenin essentially argued was that both microlevel and macrolevel circumstances and decisions would be dictated by “The Commanding Heights” of the international economy, and “The Commanding Heights” of the international economy would consist of three basic elements or sectors, namely, energy, finance, and manufacturing.

Thus, the prevailing argument amongst economists and social scientists is that an economy does not knock itself off course, but rather, that an economy has to get knocked off course by someone or something. A fact that is not insignificant is that all global financial institutions are interlinked with the ‘Federal Reserve.’ Thus, any decision on the part of the ‘Federal Reserve’ – whether major or minor – will have global consequences and implications.

Also, given the fact that an economy does not knock itself off course but rather that an economy has to be knocked off course by someone or something, it follows that inflation is triggered by people rather than by natural phenomena. The argument that inflation is man-made rather than natural was an argument put forth by the British economist and philosopher John Maynard Keynes. What Keynes essentially argued was that inflation amounts to the “debauchery” of a currency by central banks like the ‘Federal Reserve.’ Once a currency is “debauched” or devalued by the central bank, the central bank can then raise interest rates in order to gain more currency for itself than it would gain before the ‘debauchery’ or devaluation of a currency.

And what knocks an economy off course more than anything else and in turn triggers inflation – thus enabling the payoff or utility that can be gained on the part of a central bank from the “debauchery” of a currency through a rise in interest rates – is war. Essentially, the Federal Reserve was the mastermind behind Afghanistan, Iraq, and Ukraine. Without the guidance and material support of the Federal Reserve, the Pentagon could not have carried out these wars. And once the wars are carried out and then inflation rises, the Federal Reserve can then raise interest rates, thus garnering more currency for itself.

Central bank autonomy and freedom is perhaps the core issue amidst the debate between what is known as the “Chicago School” of economics in the West versus the “Keynesian School” which hails from the teachings and thoughts of John Maynard Keynes. The latter school – namely, the “Keynesian School” – calls for greater control and management of central bank activities on the part of national governments, given that the activities of a central bank like the ‘Federal Reserve’ are largely political and social in nature. On the other hand, the “Chicago School” calls for greater autonomy and freedom for central banks. Although the chasm between the “Chicago School” and “Keynesian School” is nothing new, the chasm can now be viewed and interpreted with deeper and greater meaning in light of the Federal Reserve’s decision to raise interest rates today.

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