As the end of Mr. Bernanke's term approaches, if things seem to be going well in the economy, Mr. Obama will go with the safe choice - Janet Yellen. If they are going badly, as in the scenario you should be worried about above, he will go for the bolder candidate, Mr. Summers.
Alas, your Diary editor is unlikely to get the nod. The president is too busy claiming to 'save the middle class' to spend any time actually trying to figure out what's wrong with the middle class. Since he hasn't figured it out...he won't call the only candidate who could turn things around (albeit in a very unpleasant way).
If Mr. Summers takes over we can expect some real excitement. He is less sure of the benefits of QE than Ms. Yellen. But he is more sure of himself. He will be more direct...
So, when the sound of helicopters reaches the news media, that is the moment when you will wish you had taken our advice and done your gold shopping now. We don't know what will happen...or when. But no credit-based money system has ever survived a full credit cycle. This will be no exception.
But enough of that. Let's talk about something else. Besides, it is not very civic minded of us to kvetch about our authorities this week. The feds have mounted a full-on charm offensive. From what we read, the progress of mankind depends on them.
Edward Luce in the Financial Times: "Washington ain't that bad."
Clyde Prestowitz: "Thank Washington for shale oil"
Martin Wolf: "The state is the real engine of innovation."
What all these headlines have in common is a kind of breathtaking cloddishness...an appreciation of government that is so naive that you wonder about the species itself: how could the brightest people in the human race be so dull-witted?
Of Martin Wolf, we would expect no less. Said to be one of the "100 most influential people" on the planet, it just raises questions about the other 99. His influence comes from his post at the Financial Times, where he leads the 'pink paper' to its wrongheaded ideas. In his article this week, in the very first sentence, with no hesitation nor even a qualification, he sets out in the wrong direction: "Growth in output per head determines living standards."
He should have hesitated. Imagine an economy where everyone is given a tiny shovel and told to turn the earth. Then, in an effort to improve output per head, each is given a bigger shovel. Will living standards improve? Not a bit. They are all wasting their time, no matter how much dirt they turn over.
Having set out in the wrong direction, naturally, Mr. Wolf soon arrives at the wrong destination. There, he discovers a world well suited only to simpleminded intellectuals - where molecular research, Google's search engine, the internet itself, and even hydro fracking are the products of what he calls "state-supported innovation."
Of course, the people who supposedly benefit from these innovations are the taxpayers. Do they want them? Do they get their money's worth? Is this the best way to get these benefits? Are they actually beneficial at all...and how does anyone know? The questions never seem to occur to Mr. Wolf. Instead, he accepts the feds' storyline without quibble or irony and regards the failure to appreciate the feds' contributions as "the greatest threat to rising prosperity." What? Greater than the lack of real savings? Greater than the burden of crushing debt? Or unfunded pensions? Or over-funded, over-leveraged, over-hyped speculations? Or jackass economists?
Meanwhile, here comes Clyde Prestowitz, an agreeable and intelligent man whom we met in Georgetown just last year. "The truth," he says, "is that virtually none of America's great inventors and entrepreneurs did it on their own. In the overwhelming majority of cases, they received taxpayer supported federal help along the way."
When we started our business we looked around for a place to put it. At the time the city of Baltimore was such a rundown dump that it was giving away buildings for $1. We took two of them. Was our business also "supported by government?" You bet.
It is almost impossible to do anything without receiving some form of taxpayer support. The feds pass out money as if they were seeking re-election. Support the universities? Support research? Support everybody! As long as it's not your money, why not?
But does that mean that government funding is an efficient or effective way of allocating capital resources? How do you know if the investment will pay off? With hundreds of billions of dollars' worth of taxpayer money running in every direction, some of it is bound to rub up against something that is actually useful. But why would public officials, with no skin of their own in the game, do a better job of investing it than the people who earned the money in the first place? It's easy to piddle away money. It's hard to get a good return on it.
Nevertheless, Edward Luce looks on Washington with favor. It is "home to some of the brightest people in the US," he says. Hmmm.. We lived in and around Washington for many years. As we recall, the gas station attendants and bootblacks were about as clever as those in any other city. But the closer you got to the halls of power, the more you ran into real nincompoops.
Years ago, sharing a car with a member of Congress from California, at first, we thought he was just stupid. But after a while, we began to wonder. His conversation was so mindless, it was as though it was recorded elevator music playing in a continuous loop. Soothing. Senseless. When he turned his head, we took the opportunity to peer in his ear, thinking we might catch of glimpse of the electronic gear that made him work. We saw nothing but a normal ear...which just goes to show what great advances in bionics the feds have made!
But at least Washington has "the decency to apologize for itself," says Luce. Huh? We can't remember getting an apology. During our lifetime, I estimate that the feds may have squandered as much as $30 trillion. In addition, in Vietnam, Iraq, Afghanistan, Pakistan...they have gotten approximately 2 million people killed...for no apparent gain. Over the years, we have suffered countless imbecilities and indignities, from pointless gas lines and Whip Inflation Now buttons in the '70s, to TSA, NSA and a silly 'War on Terror' today. The war in Iraq alone cost an estimated $5 trillion (most of it still to be paid) and some 100,000 lives. Apology? Public hangings would be more appropriate.
But respect for authority is cyclical. And presently, the authorities are enjoying an upswing. People look to them to get things they can't get on their own. Health care paid for by someone else ...a retirement they can't afford...and foolish pride they don't deserve. US troops patrol the streets of towns we never heard of...American drones wipe out families we never met...the NSA listens in on the world's conversations... Yes, thanks to the NSA, TSA, CIA, IRS, FBI and the Pentagon no sparrow can fall anywhere in the world without it setting off alarms in America's command centers.
Larceny, bullying, eavesdropping, assassinations...they all help us to stand a little taller and hold our heads a little higher.
Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.