Bryon King sends us this note:
“While Ms. H. Rodham-Clinton and Mr. B. (No Middle Name) Obama battle out over who will be the Democratic Party nominee for U.S. president, there is another Great Smack-down occurring within American politics.
“This other match – a true eye-gouging, ear-biting cage-match by any standards – may well determine the success or failure of the next U.S. president, no matter who is elected next November. (Presumptive Republican nominee John McCain has admitted one of his own limitations, ‘I don’t know as much about economics as I should.’ He gets points for honesty, if not candor.) And this other knock-down, drag-out competition is taking place within the marbled hallways of a certain institution located prominently on Constitution Avenue in Washington, DC, just across from the Lincoln Memorial.
“It appears that a certain Mr. Richard Fisher, of Dallas, Texas (and by occupation, president of the Dallas Federal Reserve Branch) is lobbying for the job of ‘Successor to Ben Bernanke.’ That is, Mr. Fisher wants to be the next Chairman of the U.S. Federal Reserve.
“The current course of U.S. monetary policy is not sustainable. The Bernanke monetary policy is wrecking the value of the U.S. dollar. The charts don’t lie. Inflation is rising. The prices for gold and silver are soaring, as is the price of oil. The dollar is at historic lows against the euro, as well as numerous other world currencies. U.S. import costs are exploding. And despite his academic credentials as a historian of the 1929 crash and Great Depression of the 1930s, Bernanke is simply in over his head.
“We may be witnessing some macabre and tragic drama scripted by the gods. And in this play, it may be the unpleasant role of Mr. Bernanke to lower interest rates to the point where he must take the sword. Bernanke may or may not understand that he is the star of the R-rated version of a snuff film. Bernanke’s sad destiny is – paraphrasing the words of Gen. George Patton here – to grease the treads of someone’s tank. The best that Bernanke can hope for is a relatively dignified and hasty departure from the Fed, with perhaps a final limo ride in which he is not garroted like in the chilling scene that occurs at the end of The Godfather.
“No matter what, and in the best of possible outcomes, Mr. Bernanke will not escape the Circus-Circus atmosphere of a summary dismissal from his current job. His trip to the unemployment lines will be heralded by calls from Congress for his removal, if not his head.
“This is all another way of saying that over the long term the world’s bond markets cannot afford – and will not tolerate – the current sordid state of monetary affairs. Bernanke is costing a lot of people a lot of money. He is bad for business. And so Bernanke as Fed Chairman cannot last much longer. He is going to go, sooner or later. Probably sooner.
“It is the nature of the position of ‘America’s Central Banker’ that someone will have to take Bernanke’s place. At 81 years of age, Paul Volker is probably too old to retake the job he held from 1979 to 1987. And Volker may not be ready for a replay of his previous efforts, marked by angry mobs burning his figure in effigy. (And second acts do not play well in Washington D.C. Look what happened to Donald Rumsfeld during his rerun at the Department of Defence.) So someone will have to step up to the plate, take the seat as Fed Chairman and start pulling triggers. Someone will have to call a halt to the serial interest rate reductions that have occurred on Bernanke’s watch. Someone, in fact, will have to raise interest rates and squeeze the monetary poison out of the U.S. economy – and by extension the connected world markets.
“Someone will have to administer the medicine that both the United States and the world requires. Someone will have to do the dirty work. Someone will have to take the hit – ‘for the team,’ as they say down at the football pitch. Richard Fisher appears to be volunteering for the job. Good luck, Mr. Banker-Man. You are going to need it. Really. You are going to need a lot of luck.”
Markets and Money