|Has the Fed really put an end to easy money?
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Not much follow-through in the stock market. Investors are drifting away, preparing for the holidays. Dow up only 11 points.
But whoa...what's this? Gold took a pounding yesterday, down $41, to close below $1,200.
Remember when gold began its correction from over $1,900? We guessed that the correction could wipe out half the gains...which would put the bottom at about $1,150.
Gold came close to that level once...and bounced. It looked like the correction was over. Now we're getting close again. If gold doesn't bounce again, we could be in for a more vicious price collapse.
Why? Is it because the Fed is now in tightening mode Is the Great Experiment over? Was it a success?
Or have gold investors misjudged things?
Our guess: no, no, no and no. The Great Experiment is not over. The Fed is not tightening. The economy has not revived. And gold investors have understood correctly that the feds' policies won't cause growth...or inflation. Instead, they lead to stagnation, which could last for many years. Just look at Japan. Gold's day will come; but it may not come tomorrow.
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"Fed's taper decision signals end of era for easy money," declares the Financial Times.
The Financial Times always seems to get the story wrong, at least on the editorial pages. Editor Martin Wolf is a giant in his field. And lest readers still be able to think clearly after reading him, he brought Larry Summers onto the editorial page to obscure any residual clarity.
But rarely is the news portion of the paper as mixed up as the editorial pages. Yesterday was an exception. Bernanke's decision to cut $10 billion of QE per month hardly qualifies as the "end of era for easy money." He's still pumping up the Fed's assets by $900 billion a year. Not only that, but he made it clear to investors that the age of EZ money was by no means over.
Interest rates are likely to stay near zero "well past the time when the jobless rate declines below 6.5%," he told the world.
How long will that be? For all the talk about "transparency" we have no better idea now than we did before he opened his mouth. As always, the Fed can do what it wants when it wants. And it can do so for reasons of its own.
When the merde hit the fan in '08, then US Treasury chief Timothy Geithner was on the phone almost around the clock with Goldman Sachs head Lloyd Blankfein. Was it really any surprise that the feds rushed to the scene of the accident with painkillers? Is it really any mystery now that the financial industry is hooked on them?
Nah. Here at the Diary we like to keep things simple. We can't understand anything that is too complex. The gist of the story is as follows:
The role of government is to protect the people who control it - almost always the people who own the most assets.
Before the feds stepped in, Bear Stearns and Lehman Bros. had collapsed. The crisis of '08-'09 was on course to destroy all major Wall Street institutions. When the papers applaud Ben Bernanke for having "avoided another Great Depression," what they really mean is that he saved Wall Street speculators from getting what they deserved. Even Goldman Sachs probably would have gone broke and been forced to re-organize.
That is why government is (almost) always extremely conservative ...looking into the future and doing its best to prevent it from happening.
But capitalism is forward looking. It needs the air and light of an open economy...where people can fail and well as succeed.
So, the elites gradually pervert capitalism, turning it from a dynamic system full of booms and busts, into a crony program meant to protect the rich from crises of 'creative destruction.'
So too, the crisis left the feds with sharply lower tax revenues and should have brought much lower spending. Left to live on actual tax receipts, US federal government spending would have been cut by a third in 2010. Lobbyists would have been fired. Contracts would have been lost. Giveaways would have stopped, for the simple reason that there was nothing to give away. Real wealth would have been reclaimed by the productive private sector. This money would have been redeployed in new ventures by now...with new hiring and new output.
In other words, a good, old-fashioned crisis was lost. And with it was lost an opportunity to cut back the zombies, the insiders, the Wall Streeters and K Streeters and the undeserving 'rich' generally.
But here at the Diary, we also look on the bright side. There will be another crisis!
Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.
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