The Fed Chief America Deserves

We spent the last week up at the family ranch, high in the Argentine Andes. The ranch was meant to be an investment. It has turned into a social welfare project. More on that tomorrow…

Checking the news on Sunday night, we were thrown into the blackest funk when we found that our bid to head the Fed was rejected. The phone never rang. The person who never called, of course, was President Obama.

So, we missed an opportunity to run the world’s biggest and most powerful central bank. And President Obama missed a chance to put the nation’s monetary house in order.

Not that it would have been easy. Not that it would have been painless. Not that people would have liked it.

Most likely, our plans would have been thwarted, and we would have been assassinated or committed to an asylum for the insane. That’s why we had planned a quick getaway to our ranch in Argentina, where there is no phone…no TV…and, lately, no internet.

The entire system depends on credit. And anything that threatens the flow of credit must be crushed…or ignored. In the event, we were ignored.

Instead, the Prez chose Janet Yellen – the first woman to lead the United States’ banking cartel.

But she is not the first woman to lead a major government-sponsored banking boondoggle. That honour goes to Christine Lagarde, who heads the IMF…and who knows even less about what she is doing than Ms. Yellen.

Still, the markets celebrated – sending stocks substantially higher and gold substantially lower.

On both scores, we suspect Mr. Market is pulling a fast one, setting up investors for greater losses later on. Stocks were already on the high side…in an economy which appears to be deflationary, depressive and despondent. Ms. Yellen is committed to sending stock prices even higher – with easier credit policies.

We are in risky territory. If monetary stimulus could really make equity more valuable, Zimbabwe would have the most valuable stocks in the world. And here in Argentina, stocks would be moving up nicely too, thanks to a real inflation rate near 30%.

In America’s depressive economy, on the other hand, the most recent trend in consumer prices – as reported by the nerds at the Bureau of Labor Statistics – is down.

No kidding. The last quarter showed falling prices: a disinflationary trend that surely is part of the reason that the price of gold is slipping.

It’s also the reason that QE, ZIRP et al don’t work. But that’s a long story…for another day.

Gold is a defence against inflation…and financial chaos, and uncertainty. Now, the uncertainty appears to be gone. We know that the Fed will keep to the program set up by Ben Bernanke. It will continue funding the feds’ zombie projects with printing-press money – possibly becoming even more aggressive and ambitious.

Stocks should benefit – in the short run. Speculators should come out ahead. And the rich should get richer (QE and ZIRP are fundamentally transfer programs, not stimulus programs. For example, they increase the value of anticipated streams of income from stocks by reducing the rate at which future cash flows are discounted.)

But if it were that easy to create real wealth, of course, everybody would be doing it. Real wealth – like everything else that is precious – takes time, patience, and forbearance.

You don’t get it by using cheap tricks and economic gimmickry. Instead, you have to pay for it. That is, you have to give something up in the present to gain more prosperity in the future.

The feds’ programs promise the opposite: Americans will get something now…and pay (dearly) later. Eventually – sooner or later – Mr. Market will come down hard on investors’ heads, like a murderer armed with a claw hammer.

But hey…Barack had his chance. And we want dear readers to know that our feelings aren’t hurt. Not in the least. We didn’t really want to be Fed chairman anyway. We just suggested it as a gesture of civic generosity…offering our little mite to help the cause of prosperity and human happiness.

And if Barack et al think the nation would be better off with Ms. Yellen, who gives every indication of understanding absolutely nothing about real wealth in any form, we will line up fully in support of his choice.

We also want Ms. Yellen to know that we will do whatever we can to help her in this difficult job. They have our number.

Really, no hard feelings.

The feds now have the Fed chief they prefer…and they’ll get what they deserve. The bastards.

Regards,

Bill Bonner
for Markets and Money

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Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities.

Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and MoneyDice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010. 

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