Opinion: Mayan Sacrifice and the Fed
Cenote Sagrado was a sacred pit, geologically a sinkhole in the ancient Mayan city of Chichen Itza Mexico. There, human sacrifices to the rain god Chaac were made. As described by Mayan scholar Hubert Howe Bancroft, the ritual was as follows:
“A long cord [was] fastened round the body of each victim, and the moment the smoke ceased to rise from the altar, all were hurled into the gulf. The crowd, which had gathered from every part of the country to see the sacrifice, immediately drew back from the brink of the pit and continued to pray without cessation for some time. The bodies were then drawn up and buried in the neighboring grove.”
As in many ancient civilizations, calamities were averted, and gods were appeased with regularity. Whatever the catastrophe—drought, pestilence, or hostile neighbors—could be averted by offerings to the gods. So the thinking went in 900AD.
There is a direct connection between these ancient Mayan sacrifices and the Fed’s setting higher interest rates today. In Chichen Itza, the gods had to be appeased. Today it is the evil of inflation. Financial markets are our current gods. They must be kept happy. By raising interest rates in quick succession (to around 4.5 percent), the Fed is attempting to stamp out the rampant rise in asset prices, which they caused by lowering rates (to near zero) after the 2008 financial crisis and then again in 2020, to ward off a COVID recession or worse. These moves spurred speculation in everything from used car dealer Carvana and meme stocks to multimillion-dollar Bored Ape NFT’s and Miami condos. This massive money supply dose also affected grocery store basics and rents nationwide, causing real pain to real people. It destroys savings and lowers the living standards of everyone whose income is from wages.
No longer seized by agents of the Mayan chiefs, today’s sacrificial lambs are notified by emails from Meta, Alphabet, Microsoft, Amazon, Salesforce, and a hundred other companies hurling employees out of their office towers or work-from-home living rooms… into the sinkholes of unemployment. This is why at a senate hearing Elizabeth Warren asked Federal Reserve Chair Jerome Powell, “Just how many jobs do you plan to kill?”
There is an old canard, “A recession is when your neighbor loses his job. A depression is when you lose yours.” That is true today. While unemployment remains at a low 3.5 percent, the massive layoffs will surely increase the percentage in future reports.
If the ancient Mayans are too obscure a reference, here’s an analogy from today’s headlines. Think of the Fed as both a fiscal meth and an Ambien dealer. When economic growth looks shaky and unemployment is high, out comes the meth of low, no, or even negative real rates. (The Fed sets the interest rate tone by lending to the banking system at the rates it wants; low is stimulative, high (Ambien) is soporific.)
So after hyping everyone, then seeing the explosion of housing prices and IPO’s for silly companies, we have what the Economist Magazine so aptly named “the everything bubble,” it’s time for fiscal Ambien. Rather than target the excesses of Wall Street or punish the private equity groups for overpaying for everything, or fining the special-purpose acquisition company (SPAC) promoters for their absurd financing plans, some low-level coder or marketing assistant at Meta gets fired. Disney kicks to the curb 7,000 employees, many with mortgages and families, some of whom may be barely scraping by. Wall Street cheers at this misery and Disney stock soars. How is this different than the Mayan populace cheering the sacrificial victims?
This is the downside of capitalism. Those in power or still with jobs can support the rationale of “creative destruction,” the idea that, as company spokespeople always put it when layoffs occur, “[This] cost-cutting will result in a more robust platform going forward.”
There seems little political pushback to the Fed’s control of the economy. However, some libertarians want to eliminate the Fed entirely and let the market set interest rates. Right wing, market-oriented economists fight the Fed when it floods the economy with liquidity. Left wing economists fight when the Feds tighten. This fight has been going on for centuries. It used to be between those who believed in “hard money”, i.e., gold, vs those who championed “soft money” i.e., fiat currency.
This is where our economy stands today. The Federal Reserve is ramping up interest rates to dampen aggregate GDP demand and is dismayed when the latest report shows that 500,000 jobs were created in the last month. Apparently, the economy refuses to roll over to higher rates. More victims are needed for the sinkhole.
The fact that tens and perhaps hundreds of thousands of fired corporate workers are being sacrificed by fiscal contraction is what capitalism demands. I wish there was a kinder god to appease.