|Why Larry Summers is not an honest man...
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The Dow up 96 points yesterday. Gold down $22.
These are the opposite of 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.
In the meantime, we've been pre-occupied by a looming wedding. A daughter 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. On several days, we were out of the office. Perhaps we missed Mr. Obama's phone call? Or maybe he was just too busy with preparing an act of war against a foreign country to pay much 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/CIA/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 evident on the surface that we would be a deep embarrassment to whatever government allowed us to take a top position.
Why? Because we just don't share the core fantasy of all modern central bankers - that they can know better than all the rest of the world put together what interest rate, what employment rate and what inflation rate the country should have.
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We mention the three because the Fed sets short term rates and influences other rates by direct intervention. And it does so, it says, to change the two other 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.
And here's the bad news. It appears that our campaign is being eclipsed by Mr. Larry Summers. The New York Times reports:
As Summers's Odds Rise, Stimulus Easing Is Seen
We don't know what Larry might do either. But we don't want to find out.
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."
He's a grand intervener...a meddler extraordinaire.... a world improver non pareil. He has a solution for every problem...and every solution brings even more problems. How, exactly, he would improve the world - with lower rates...or higher federal deficits...or whatever -- is just a matter of current detail.
But...put this question to Mr. Summers: 'will your policies make the world a better place...or a worse place?'
Mr. 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 are allowed to pursue their own policies?'
Again, an honest man must reply "I don't know."
But unless we misjudge our man, Mr. 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 gods.
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 Mr. Summers deserves.
Which is why Mr. 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 live 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 is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.
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