The Dow rose 96 points yesterday. Gold fell by $22 an ounce.
These moves run contrary to what we believe to be the major new trends.
Are we wrong? Or was yesterday just a mixed-up trading day?
Hold on… we’ll find out later.
We’re preoccupied with a wedding. One of our daughters is getting married this weekend. The father of the bride has to prepare certain formalities… a speech… a parking plan… and otherwise stay out of the way.
But the distraction of connubial bliss has kept us from pursuing our campaign to become the next Fed 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 Fed 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 Fed – except us – believes it is his right and duty to do these things. Which means none should be allowed anywhere near the Fed.
A Grand Intervener
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 Fed 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.
A Fat Target for Jealous Gods
Put the question to 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.