The Fed Weighs Who Should Win in November

In an above-the-fold article called “Fed Moving Closer to Action” in Thursday’s Wall Street Journal, the authors state, with a blandness fitting the topic:

Democrats have urged the central bank to take steps to bolster growth, pointing to high unemployment, but Republicans have urged caution, pointing to the risk of inflation and a weaker dollar.[1]

Does anybody believe that these are really the motivations behind the two political parties’ exhortations for Fed action (or inaction)? It seems obvious to me that it is all about the election in November. The Democrats want the Fed to do something that will make the economy look good in the short term because that will help President Obama win, and the Republicans want the Fed to stand still so that the economy continues to be just as it is--which is to say, lousy--thus working against Mr. Obama in November. It's as simple as that.

Of course, any action the Federal Reserve takes (short of dissolving itself, abolishing fiat currency, and apologizing for a century of grand theft unprecedented in the civilized world) is harmful to the economy in the long run. But the central bank can artificially prop up certain benchmarks that can be measured to make it appear that the economy is doing well. The Fed can, in effect, clip little pieces off of all the coins in our pockets without our noticing it, then generously distribute the loot to a population in ways calculated to make us feel (temporarily) just a little bit wealthier. 

And it can do this just in time for the election.

I realize that this observation--that the Board of Governors of the Federal Reserve has significant control over elections--is stating the obvious, but it is worth pointing out from time to time. For one thing, it highlights the perils of voting according to short-term, personal concerns (such as whether you are currently employed, or in debt, or feel well-off) instead of to long-term, fully integrated principles. Also, for those interested in the “inside baseball” of practical politics (I am not one), the Fed will reveal by their actions in the coming weeks who they want to win the election.

NOTES

[1] Jon Hilsenrath and Kristina Peterson, “Fed Moving Closer to Action,” The Wall Street Journal, August 23, 2012, p. A4.

Let's Pretend

Surprise, surprise. The New York Times reported that it is not only politicians at the local and national levels that can drive our cities and our country into bankruptcy. States can go bankrupt, too. And let’s face it: When they do, the federal government will bail them out just as they’ve rushed to prop up every other failure that bureaucrats deemed “too big to fail."

Policymakers are working behind the scenes to come up with a way to let states declare bankruptcy and get out from under crushing debts . . .

'All of a sudden, there’s a whole new risk factor,' said Paul S. Maco, a partner at the firm Vinson & Elkins who was head of the Securities and Exchange Commission’s Office of Municipal Securities during the Clinton Administration."[1]

All of a sudden? How this—the fact that state governments are spending like there is no tomorrow—could catch anybody by surprise is bewildering to me. But the most remarkable aspect of this article is its uncritical adoption of the view that is evidently held by the politicians that caused the problems: namely, that things are not what they are until they are spoken of.

For now, the fear of destabilizing the municipal bond market with the words “state bankruptcy” has proponents in Congress going about their work on tiptoe. . .

It would be difficult to get a bill [addressing state bankruptcy] through Congress, not only because of the constitutional questions and the complexities of bankruptcy law, but also because of fears that even talk of such a law could make the states’ problems worse.[1, emphasis mine.]

So, as long as nobody on Capitol Hill faces his problems—as long as everyone tacitly agrees to “tiptoe” past the mess and avoid talking about it—all is well? This is a glimpse into the nature of the welfare state. Because every policy flies in the face of reality, bureaucrats attempt to craft their own “reality” in the hopes that everyone plays along. (After all, it is absurd to think that “constitutional problems” represent an obstacle for most members of Congress.) The fact that The Times is complicit in this game of pretense is outrageous.

This brings to mind the scene in Atlas Shrugged in which Francisco D’Anconia confronts James Taggart, who is reluctantly shadowing Francisco at his (Taggart’s) wedding reception.

“What in hell do you think you’re saying?” Taggart cried furiously, seeing the tension on the faces around them.

“Be careful, James. If you try to pretend that you don’t understand me, I’m going to make it much clearer.”

“If you think it’s proper to utter such—”

“I think it’s funny. There was a time when men were afraid that somebody would reveal some secret of theirs that was unknown to their fellows. Nowadays, they’re afraid that somebody will name what everybody knows. Have you practical people ever thought that that’s all it would take to blast your whole, big, complex structure, with all your laws and guns—just somebody naming the exact nature of what you’re doing?”[2]

NOTES

1. “Path Is Sought for States to Escape Debt Burdens,” The New York Times, 20 Jan 2011,
“http://www.nytimes.com/2011/01/21/business/economy/21bankruptcy.html?_r=1&nl=todaysheadlines&adxnnl=1&emc=tha2&pagewanted=all&adxnnlx=1295614874-xYaH18gluchcvAIUS3ZkeQ”.

2. Ayn Rand, Atlas Shrugged (New York: Signet, 1996, orig. 1957), p. 377.

Bernanke's Assurances

I didn’t watch the program, but apparently Ben Bernanke appeared on 60 Minutes last night to assure the world that he knows what he is doing. He claimed “’100%’ confidence that he could prevent runaway inflation.”

And how will he do that?

“’We’ve been very, very clear that we will not allow inflation to rise above 2% or less,’ he said. ‘We could raise interest rates in 15 minutes if we have to. So, there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation, at the appropriate time.’”[1, emphasis mine.]

First of all, I don’t believe for an instant the Fed will stop printing money under any circumstances. But even if we take Bernanke at his word, I am astonished at how brazen and “very, very clear” he is about his use of force and whim to destroy any semblance of a free economy. How can any businessman develop a new product, expand manufacturing facilities, and plan for the future, when the monetary czar actually boasts of his power to impose dictatorial fiat to change the playing field “in fifteen minutes”?

Rational individuals in a free country pursue long-term goals, with the coming years and decades in focus. The economic "stimulus" engineered by Obama, Geithner, and Bernanke discourages anyone from thinking into the future more than a quarter of an hour. And these are the guys who claim to be driving economic recovery! How can anyone miss the inconsistency?

Either Ben Bernanke is insane for thinking this message is actually an assurance . . . or he is crafty enough to know that a perpetually gullible American public will swallow the message whole.

NOTES

1. “Inflation Risk Is Low, Fed Says,” The Wall Street Journal, 6 Dec 2010, http://online.wsj.com/article/SB10001424052748704493004576001792213292076.html.

Marc Faber - Mirror, Mirror on the Wall

I’ll have to listen to this excellent Marc Faber lecture at least once or twice more; there is a lot to digest.

The lecture is rather long, but I highly recommend listening to the whole thing. To motivate my readers (yes, both of you!) to do so, I’ll tease you with the fact that Faber makes some extremely sobering and significant points a little before the fifteen-minute mark and a few minutes after the one-hour point.