Fed President Blames Neverending QE On High Incarceration Rates Of Blacks And Latinos

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by Tyler Durden
Tuesday, Jul 13, 2021 - 11:45 PM

Over the past year, Fed watchers have observed a deeply ironic and circular paradox: the Fed, which has been engaged in $120 billion in monthly QE ever since the covid crisis, has vowed it will continue to inject $120 billion in monthly liquidity - in the process making the rich richer, the poor poorer and decimating the middle class while pushing inflation higher - until such time as there is "substantial progress" on the employment front, meaning there will be no taper as long as the unemployment and labor participation rates remain elevated.

And yet, it is the Fed itself that is enabling this lack of "substantial progress" whatever it actually means, by monetizing the trillions in US deficit which makes it possible for Biden to send out periodic stimmy checks to the population, which eliminates the urgency for millions of Americans to go back to work, and also keeps the unemployment and labor participation rates artificially elevated even as there is a record number of job openings in the US at this moment.

Of course, the Fed knows this - it knows that most finance professionals (at least those who don't merely play finance professionals as finance tv anchors) know this - but so far the Fed's role in enabling this pernicious economic cycle has been kept out of the public view as the outcry would be vicious and would also risk a popular backlash against the central bank, something which the establishment needs to avoid at all costs, or else.

That's why the Fed has been especially focused on finding diversions and distractions to its own role in perpetuating this circular scheme, distractions which include global warming, LGBTQ activism and now - minorities in jail.

In a lamentable excuse for economic analysis, today Atlanta Fed President Raphael Bostic said that it was the high level of incarceration in the US especially among black, hispanics and indigenous people, that constrains the labor market and the economy’s ability to reach its full potential. Not the Fed, not the Fed's monetization of trillions in stimmy checks. No - it's criminals in prison that have caused the biggest labor shortage in modern US history.

"Incarceration is a drag on our ability achieve our maximum-employment goal,” Bostic said Tuesday at the start of the latest iteration of the Fed’s Racism and the Economy series, this one focused on the criminal justice system. And since it is the Fed's inability to hit its maximum-employment goal that is greenlighting the Fed's $120 billion monthly injections month after month indefinitely, Bostic effectively blamed the continuation of QE on minorities in prison.

What is bizarre about this argument is that the U.S. has - and has had long before covid struck - the world’s highest incarceration rate. Somehow this did not prevent unemployment from hitting 3% last January. But now it's somehow different, and the formerly incarcerated people are less likely to find employment and have much lower lifetime earnings, factors that weigh on the economy at large, Bostic said, blaming minority crime for the Biden's administration's catastrophic labor crisis.

But wait, there's more: it's not just that minorities tend to end up in jail - according to Bostic it is the very criminal justice system that is broken and is forcing the Fed to keep injection trillions into the economy stock market.

“Incarceration and how we execute criminal justice inhibits global competitiveness,” Bostic said. Incarceration and who it targets in the U.S. “can have the effect of exacerbating race-based employment, income and wealth disparities, which can limit economic mobility and resilience and ultimately constrain labor markets and compromise the performance of the overall economy.”

Bostic added that Black, Latino and indigenous Americans are overrepresented in the prison population and disproportionately targeted by the criminal justice system. It was unclear if Bostic substantiated his argument with facts demonstrating that blacks and latinos commit a minority of the crimes in the US.

The bigger question is why is a Fed president - an unelected career economist - discussing flaws in the US criminal justice system? The answer is simple: to deflect attention from the Fed's own ruinous boom bubble bust track record, and certainly today's soaring inflation which is happening in a time when 15 million Americans are collecting some sort of unemployment benefits.

It wasn't just Bostic: his colleague, Boston Fed President Eric Rosengren, said that the U.S. may need to take a look at what it considers criminal offenses, especially when it comes to non-safety issues. With marijuana now legalized in many places, it may make sense to examine if other things can be decriminalized.

He said that disproportionate rates of incarceration have contributed to the difference between the White unemployment rate, at 5.2%, and the one for Black Americans, at 9.2%.

“Once you’ve gone through an experience with our criminal justice system, you’re permanently scarred by the labor market in a way that just can’t be justified from a society standpoint,” Rosengren said.

In other words, the Fed is gradually making the case that i) unless criminals are released on US streets, and ii) employers are mandated to hire felons, QE may never end.