Every time I fly with my good friend Dora, just as the plane begins its takeoff, she’ll lean over to me and inform me, one more time, that the takeoff is the most dangerous part of the flight. Then, just for good measure and my peace of mind, she’ll tell me, immediately upon the descent beginning, that landings are every bit as dangerous as the takeoff. My personal belief is that she enjoys seeing my knuckles resembling the same shade of white one sees in the proverbial Bing Crosby White Christmas. (I have to have my little laugh here, so please indulge me for just a second. It gives me great pleasure that the greatest selling Christmas Song in recording history, “White Christmas,” was written by a Jewish guy, Irving Berlin, and recorded by another Jewish guy, Bing Crosby. I now return you to your voluntary reading.)
You may ask yourselves why I would relate this fear I have of flying with Dora, not her real name by the way, and it is a good question. Tomorrow, our Federal Reserve Board will once again release the minutes to their monthly meeting, and will do so late in the day, so as to not affect Wednesday’s trading, like those reactions won’t happen on Thursday instead. There is some conjecture in the investing community as to whether or not Ben Bernanke will announce an end to the drunken revelry known as Quantitative Easing, otherwise known as a flat out robbery of the value of your savings by the Federal Reserve and the Obama Administration.
The last time, if your memory is capable of recalling the third week of June, that Chairman Bernanke hinted at ending this silliness, the capital markets saw a three day loss of 5% of the value in America’s equity holdings. On day number three of the sell off, Big Ben said, “just kidding,” and once again all was well with the Dow Jones Index, climbing once again to record highs. The more astute of you may have noticed some slight turbulence once again in this flight, and that turbulence is once again due to people trying to guess when this five year long drunk will be shut down. Even the most advanced airliner after all must one day land, thus ending its flight. Just like real air travel, a safe landing is more important to the passengers than how spectacularly smooth the flight felt.
Peter Schiff will explain it better than I ever could.
I don’t really care if the market sets record highs if the end result will be an unsafe landing at the end. Now that we’ve gotten ourselves on the Jetson’s famous malfunctioning dog walking treadmill, the question is, how do we stop this crazy thing. Bernanke knows, thanks to his test of our ability to pay attention in June, that once the stopper is placed back on Granny’s whiskey jug, investors will abandon the capital markets with the same artificially inflated vigor that they used to drive prices up to begin with. Bernanke does not want that to be his legacy, leaving with an even scarier crash that heralded the beginning of the Obamanomics economy based on misdirection and snake oil. So my guess is that the Fed Minutes will put the inevitable off until his term ends in December at least. Who ever replaces him though, that person will have some hard decisions to make, like when to deal with the massive hangover that follows any foolish excess in imbibing hard spirits.
Like all great parties in which we drink way more than we can handle, a price must eventually be paid. Hangovers will be felt, and someone will have to clean up the mess. Ben Bernanke has no clue as to how to alleviate the harsh landing that awaits us all, and the dirty little secret is that there is no way to accomplish this. Economic discomfort is as important a part of the price system, otherwise known as capitalism, as economic reward, perhaps more important. Discomfort tells us when we are making mistakes, producing more inefficiency than useful goods and services. The only result of government interference for the purpose of trying to alleviate that discomfort, ignoring important market signals or attempting to subvert them, has been to create much greater pain at a later date. Welcome to the granddaddy of all such market interventions, and the inevitable attempt to stave off that pain. The Keynesian Theory has been proven wrong in its practice each and every time its been applied, and this will be no different. Ben Bernanke and Barack Obama don’t really care though. They’ll be gone, and we’ll be the ones cleaning up the mess.
Tags: Federal Reserve