The Fed chief America deserves - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 14 October 2013
The Fed chief America deserves A  A  A

Salta, Argentina

We spent the last week up at our ranch, high in the Argentine Andes. The ranch was meant to be an investment. It has turned into a social welfare project. More on that tomorrow.

Checking the news on Sunday night, we were thrown into the blackest funk, when we found that our bid to head the Fed was rejected. The phone never rang. The person who never called, of course, was Barack Obama himself.

So, we missed an opportunity to run the world's biggest and most powerful central bank. And President Obama missed a chance to put the nation's monetary house in order.

Not that it would have been easy. Not that it would have been painless. Not that people would have liked it. Most likely, our plans would have been thwarted and we would have been assassinated or committed to an asylum for the insane. That's why we had planned a quick getaway to our ranch in Argentina, where there is no phone, no TV...and internet.

The whole system depends on credit. And anything that threatens the flow of credit must be crushed...or ignored. In the event, we were ignored.

Instead, the Prez chose Janet Yellen, the first woman to lead America's banking cartel. She is not, however, the first woman to lead a major government-sponsored banking boondoggle. That honor goes to Christine

Lagarde, who heads the IMF...and who knows even less about what she is doing than Ms. Yellen.

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Lagarde, who heads the IMF...and who knows even less about what she is doing than Ms. Yellen.

Still, the markets celebrated - sending stocks substantially higher and gold substantially lower.

On both scores, we suspect Mr. Market is pulling a fast one, setting up investors for greater losses later on. Stocks were already on the high side --- in an economy which appears to be deflationary, depressive, and despondent. Ms. Yellen is committed to send stock prices even higher - with easier credit policies.

We are in risky territory. If monetary stimulus could really make equity more valuable, Zimbabwe would have the most valuable stocks in the world. And here in Argentina, stocks would be moving up nicely too - thanks to a real inflation rate near 30%.

In America's depressive economy, on the other hand, the most recent trend in consumer prices - as reported by the nerds at the Bureau of Labor Statistics - is down. No kidding. The last quarter showed falling prices...a deflationary trend which surely is part of the reason that the price of gold is slipping. It's also the reason that QE, ZIRP et al don't work. But that's a long story...for another day.

Gold is a defense against inflation...and financial chaos and uncertainty. Now, the uncertainty is gone. We know that the Fed will keep to the program set up by Ben Bernanke. It will continue funding the feds' zombie projects with printing press money...possibly becoming even more aggressive and ambitious.

Stocks should benefit - in the short run. Speculators should come out ahead. And the rich should get richer (QE and ZIRP are fundamentally transfer programs, not stimulus programs. They increase the value of anticipated streams of income - from stocks and bonds.)

But if it were that easy to create real wealth, of course, everybody would do it. Real wealth, like everything else that is precious, takes time, patience, and forbearance. You don't get it by using cheap tricks and economic gimmickry. Instead, you have to pay for have to give something up in the present to gain more prosperity in the future. The feds' programs promise the opposite; Americans will get something now...and pay dearly later. And eventually - soon or late - Mr. Market will come down hard on investors' heads, like a murderer armed with a claw hammer.

But hey...Barack had his chance. And we want dear readers to know that our feelings aren't hurt. Not in the least. We didn't really want to be Fed chairman anyway. We just suggested it as a gesture of civic our little mite to help the cause of prosperity and human happiness.

And if Barack et al. think the nation would be better off with Ms. Yellen, who gives every indication of understanding absolutely nothing about real wealth in any form, we will line up fully in support of his choice. And we also want Ms. Yellen to know that we will do whatever we can to help her in this difficult job. They have our number.

Really, no hard feelings.

The feds now have the Fed chief they prefer...and they'll get what they deserve.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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