We spent the last week up at our ranch, high in the Argentinian 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 Barack Obama himself.
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 whole 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 America’s banking cartel. She is not, however, 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 send 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 deflationary trend which surely is part of the reason that the price of gold is slipping. It’s also the reason that QE (quantitative easing), ZIRP (zero interest rate policy) et al don’t work. But that’s a long story for another day.
Bill Bonner on markets, economics & the madness of crowds
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Gold is a defence against inflation and financial chaos and uncertainty. Now the uncertainty is gone. We know that the Fed will keep the programme 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 programmes, not stimulus programmes. They increase the value of anticipated streams of income – from stocks and bonds).
But if it were that easy to create real wealth, of course, everybody would do 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, you have to give something up in the present to gain more prosperity in the future.
The feds’ programmes promise the opposite: Americans will get something now and pay dearly later. And 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, giving our little might 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. And 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.
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