Gold News

An Honest Fed Chairman

One last chance to choose an honest man as Fed chair...
 
WE'VE BEEN preoccupied with a wedding, writes Bill Bonner in his Daily Reckoning.
 
One of our daughters was getting married last weekend. The father of the bride had to prepare certain formalities...a speech...a parking plan...and otherwise stay out of the way.
 
So the distraction of connubial bliss has kept us from pursuing our campaign to become the next Federal Reserve chairman.
 
We were out of the office for several days. Perhaps we missed President Obama's phone call. Or perhaps he was too busy preparing another act of war in the Middle-East to pay attention to the nation's monetary regime.
 
Who knows? For whatever reason we didn't get the call. We have not been asked. Nor has the NSA, the CIA or the FBI run a background check to make sure we wouldn't cause shame or regret to the administration.
 
They hardly need to do so. It's perfectly evident that we would be a deep embarrassment to whatever government allowed us to take a top post.
 
We don't share the common fantasy of central bankers: that they can know better than the market what interest rate, employment rate and inflation rate the country should have.
 
We mention the three because the Federal Reserve sets short-term interest rates through its conventional monetary policy. And it tries to keep a lid on long-term Treasury yields through its 'unconventional' QE programs (which involve buying trillions of Dollars of bonds using money created ex nihilo).
 
And it does so, it claims, to adjust two other important rates: employment and inflation.
 
Every candidate for the top post at the Federal Reserve – except us – believes it is his right and duty to do these things. Which means none should be allowed anywhere near the Fed.
 
Our campaign is being eclipsed by Larry Summers. The New York Times reports:
"Businesses raising money and people buying homes and cars all have faced higher interest rates in recent months as the Fed's campaign to suppress borrowing costs has faltered. The rise in rates reflects optimism that the economy is gaining strength, and an expectation that the Federal Reserve will begin to pull back later this year. But a wide range of financial analysts also see evidence of a Summers effect.
 
"Many investors expected that Ms.Yellen would be nominated to replace Ben S. Bernanke as head of the central bank, a choice that would have sent a clear message of continuity. Instead, investors are now trying to anticipate how Mr.Summers might change the Fed.
 
"'People don't know what Larry might do,' said Mohamed El-Erian, chief executive of Pimco, the giant bond fund manager. 'There's a lack of a lot of information on Larry's views. We don't have enough information to make an assessment, just some second- and third-hand accounts.'"
We don't know what Larry might do either. But we don't want to find out.
 
He's a grand intervener...a meddler extraordinaire...a world improver nonpareil. He has a solution for every problem; and every solution brings even more problems.
 
How, exactly, he would improve the world – with lower interest rates...or higher federal deficits...or helicopter drops of Dollars – is just a matter of detail.
 
Put the question to Larry Summers: Will your policies make the world a better or a worse place? Summers, if he is an honest man, must answer: I don't know.
 
Now, ask: Will the outcome be better or worse than if buyers and sellers were allowed to pursue their own policies?
 
Again, an honest man must reply: I don't know.
 
But unless we misjudge the man, Summers is not an honest man. Instead, he will give you all the 'reasons' why his policies will produce more employment or more inflation...and why this would be a better outcome than nature herself could come up with. In short, he will tell you why he is smarter than either man or God.
 
This is the sort of jacked-up conceit that must make a fat target for the jealous gods. They will have their revenge. They will have the last laugh. They will make damned sure the US economy gets not what it expects...but what Larry Summers deserves.
 
Which is why President Obama would be a lot better off if he'd called us. At least we are aware that central banking is subject to the rule of declining marginal utility – just like everything else.
 
A little of it – keeping the currency at a fixed value – may be a good thing. But as soon as the central bankers stick their nose in employment rates, inflation rates, or interest rates, the return on investment quickly sinks below zero.
 
Then it is all downhill to disaster.
 
Barack: This could be your last chance. Call 1 (800) Fed Boss. Ask for Bill.

Bill Bonner has co-authored a number of New York Times Bestsellers including Financial Reckoning Day, Empire of Debt and Mobs, Markets and Messiahs. In his own opinion, Bill's most recent title, A Modest Theory of Civilization: Win-Win or Lose, is his best work yet. Bill also founded The Agora, a worldwide community for private researchers and publishers, in 1979. Financial analysts within the group have exposed and predicted some of the world's biggest shifts since that time, starting with the fall of the Soviet Union back in the late 1980s, to the collapse of the Dot Com (2000) and then mortgage finance (2008) bubbles, and more recently the election of President Trump.

See full archive of Bill Bonner articles

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