Advertisements

What Goes Down Must Come Up

After Wednesday’s brutal day on America’s major stock markets President Donald can no longer brag about their record highs, but if he wants to attempt a complicated and counter-intuitive argument he can claim some credit for the rosy economic conditions that have caused the recent swoon.
The markets tanked because the Federal Reserve Board now intends to slightly raise the artificially low interest rates that fueled the markets’ record run, which is because by now they’ve successfully brought the economy to below full employment and a potential 4 percent growth rate in the gross domestic product, and for now it’s more worried about an inflation rate that’s slightly outpacing the long-awaited wage increases that have lately occurred. According to the perverse logic of the stock markets, good news is bad news, just as back when high unemployment and low GDP growth were bringing interest rates down and raising the indices up bad news was good news.
All of this damnably good news started shortly after the big financial meltdown of ’08, which was caused by the subprime mortgage social engineering of President Bill Clinton’s administration but came to fruition in the final days of President George W. Bush’s administration. Bush and most of the Democrats and Republicans in Congress — including both both of the party’s presidential nominees — responded with a big bailout of some major banks that annoyed people on both the left and the right, and the Fed started printing money at a rate that alarmed any conservative old enough to remember the hyper-inflation of the ’70s. In retrospect, though, the center-left and center-right compromise seems to have more or less worked.
The economy was already officially out of recession by the time President Barack Obama was elected by a scared-to-death electorate and passed a pork-laden “stimulus package” through the overwhelming Democratic majorities in Congress, and after that a historically slow recovery slogged along on the easy money the Fed was printing. We’re still convinced that Obama’s anti-business regulatory and tax policies slowed the recovery, and that only the Fed’s foolhardy money-printing sustained it, but after a scared-to-death electorate elected a Republican majority in the House of Representatives in the “tea party” wave of ’10 there were no more “stimulus packages” or other major interferences and thus things improved slightly. As much as we still disdain Obama-nomics and hate to give the guy credit for anything, we have to admit that during the last two years of Obama’s presidency the economy was on a clearly upward path.
By the time a scared-to-death-of-something-or-another electorate gave an electoral majority to Trump, the unemployment rate was a respectable 4.8 percent and the GDP was growing at a not-great-but-not-bad 3 percentage points or so. As much as we disdain Trump’s trade wars and attempts to restore the coal-driven and low-tech economy of the ’50s, and as much as we hate to give the guy credit for anything, we also have to admit that economy has been on pretty much the same upward trajectory ever since Trump’s inaugural speech promise that “The American carnage ends right here, right now.” Trump’s exceedingly business-friendly regulatory and tax policies have no doubt helped, and his stupid trade wars and economic nostalgia haven’t yet hurt much, and by now the economy is rolling along at a rate we can’t blame the Fed for applying some slight pressure to the brakes.
Trump is already grousing about it, though, as he’d much rather be bragging about record stock market highs and new land speed records in economic growth and how nobody has ever seen anything like it. As much as we hate to give the guy credit for anything, we have to admit it’s another brilliant political ploy. If your stocks are down it’s because of that damned fellow who’s Chairman of the almighty Fed, that quintessentially quasi-governmental institution that actually runs everything according to all the leading “deep state” conspiracies since the days of President Andrew Jackson, and has nothing to do with Trump, who is surely an innocent bystander and fellow victim.
Trump did in fact appoint Jerome Powell as the chairman of the Fed, and Powell was confirmed by a Republican Senate, but so was Attorney General Jeff Sessions appointed by Trump and confirmed by a Republican Senate, and for now both are suspected conspirators in a “deep state” plots to overthrow Trump. Those smarty-pants know-it-alls at the Fed have a darned convincing case for raising the prime interest rate to a few notches lower than historical norms, tough, and if it keeps the economy chugging along at a optimal if not the-greatest-anyone’s -seen rate without inflation we’re sure Trump will be glad to claim the credit, and boast about how great it could have been if only he had been in charge. At this point the labor market is tight enough that further economic growth will require an increase in immigration, and Trump should also be grateful if the Fed spares him that dilemma.
These days our only interest in the stock market is in the long run, and over that dreary amount of time it’s survived the Great Depression and Stagflation and the Dot.com and subprime bubbles, and it’s even survived Obama and we figure it will probably survive Trump. We give some of the credit to those smarty-pants know-it-alls at the Fed, but most of it to all those anonymous schmucks who get up every morning and go to some office or factory or shopping mall and make the decisions and do the work that keeps our still mostly-free economy slogging along through good times as well as bad times.

— Bud Norman

Advertisements

Trump Gets Fed

Way back when politics and economics and all that made some sort of sense, before this crazy election year, much of the media would always devote a great deal of ink and internet pixels to the latest oracular pronouncements of the Federal Reserve Board. These days it takes a lot to knock president-elect Donald Trump off the front pages, but the almighty Fed was still able to elbow its way to a column just above the fold on Wednesday with a mere slight upward tweak in the interest rate, and we expect plenty of further commentary about it as the commentariat figures out the hard-to-figure Trump angle.
The Fed’s quarterly-or-so oracular pronouncements were damned hard enough to decipher even way back when politics and economics and all that made some sort of sense, and even the smart guys on Wall Street always seemed to have a hard time figuring it out, but in the age of Trump it’s exponentially more complicated. All of the inviolable laws of economics will ultimately be enforced, which does not bode well, but all of the inviolable laws of politics have been so brutally violated in this crazy election year that there’s no reliable guide to what comes next. What’s come before has been worrisome enough
For the past eight years or so the Fed has been “quantitative easing” enough money at pretty-much-zero-percent rates into the economy to sustain a a doubling of the national debt and two percent-or-so growth rate in the gross domestic product and a stock market boom that has outrun that pace like a hare past a tortoise. The past eight years or so have also seen the unemployment rate go from a depth-of-recession rate over 10 percent to a relatively robust 4.6 percent, with household wages and a few other economic indices also showing recent improvement, and given the latest enthusiasm of the stock markets the Fed has apparently decided that now is the time to put an ever so slight foot of the economic brake.
History shows that recessions have always come to an end, though, and always with a more robust and v-shaped recovery than the last eight years or so have seen. That 4.6 percent unemployment rate is not bad, but the numbers of the underemployed and those of working age but out of the work are horrible by modern standards. As for the ongoing stock market boom, we place more faith in Aesop’s fable about the tortoise and the hare. That long awaited uptick in household income is welcome, but doesn’t seem to have placated the most recent electorate. For the past eight years or so we’ve groused that President Barack Obama’s penchant for government-run health care and similarly disruptive regulatory schemes have had something to do with this, and enough people in a few key states were just as eager to put the brakes on Obamanomics, and thus Trump won, so at this point it becomes murky.
Since Trump’s victory the stock markets have been exuberant, perhaps irrationally so, as Alan Greenspan might have said, at the prospect of all that quantitatively eased money flowing at pretty much zero interest rates through an already recovering economy suddenly disencumbered of all those Obama-imposed layers of regulations and taxations and rhetorical scoldings, along with all the cheap oil that’s going to come gushing through the Environmental Protection Agency’s weakened barriers. As much as we dispute the Fed’s self-congratulatory reasons for its slight touch on the economic brakes, we’re the self-doubting sorts who can’t really fault their decision as we head with one headlight into the economy’s dark and twisting road. Even before taking office Trump has intervened in the affairs of businesses ranging from aerospace to air conditioning, and is proposing a bigger-than-Obama-sized infrastructure plan to revive an economy that isn’t in recession but isn’t all that great, none of it bodes well for the national debt, and so far Trumponomics looks to be just as disruptive as its predecessor but in all in sorts of unpredictable ways. so perhaps some pat on the brakes is indicated.
Way back when Trump when merely a long shot candidate for the presidency he was “tweeting” his outrage that the Fed was keeping interest rates artificially low for the political benefit of Obama, which we didn’t argue, and so far as we can tell at this moment he hasn’t “tweeted” anything to the contrary since the Fed’s announcement. Perhaps he’s trying to figure out the political and economic implications himself, and finding it damned complicated, and maybe he’s cocky enough to think that he can make his deregulation of this and regulation of that work well enough even with slightly higher than zero percent interest rates, and in such a crazy election year as this he might even be right. This is a complicated matter, though, even for such a savvy businessman as Trump.
Trump has always come out ahead of his creditors, through six bankruptcies and two divorces and untold lawsuits by everyone from stiffed busboys to disgruntled real estate students, but now he’s up against the biggest bank of them all. The Fed is by law entirely independent of any branch of the federal government, and that law is likely to be backed by all the Democrats and a bigly number of Republicans in the legislative branch and a majority of the judicial branch, so we expect that Trump will sooner or later pick a fight with them. In the past the Fed has usually won these these confrontations, most famously when the aforementioned Greenspan agreed to open the monetary spigots in exchange for President Bill Clinton’s more business friendly policies, which wound up winning Clinton reelection in ’96 but couldn’t win his re-relection in ’16, but in this crazy election year everything seems up for negotiation.

— Bud Norman

Giving Thanks for the Holiday Pause

Our heartfelt thanks have been duly given, and we’re slowly coming out of our annual tryptophan coma, so it’s back to our usual business of going on about the sorry state of the world. There’s usually not much in the news during the long Thanksgiving weekend except the easily avoidable fisticuffs over Black Friday bargains, which is another thing to be thankful for, but we expect that by Monday the news will be back in force and we want to be braced.
Several intriguing stories have been temporarily replaced with holiday programming but are bound to be back on the air before all the Christmas specials start up. There’s that 13-month-old video of a fatal and highly suspicious shooting of a black man by police in Chicago, and the shootings at a Black Lives Matter protest in Minneapolis, and the spreading epidemic of protests at American universities over far less macro-aggressive racial matters, and a gnawing suspicion that it’s going to be a long, hot winter. Such unanticipated problems of the post-racial era will likely complicate the on-going debates about the refugees from the Syrian war and the broader issue of unfettered immigration, which will be going on through New Year’s and into the coming primaries.
There’s always a chance those obligatory annual Black Friday estimates will be disappointing, and that the Chinese economy will further suffer as a result, and that the long-feared rate hikes by the Federal Reserve will spook the markets that have so long relied on the intoxicating sweetness of quantitative easing, and that the economy will once again be a pressing issue. The Syrian civil war that’s fueling the aforementioned refugee crisis, as well as a recent spate of terror attacks around the world, will surely not go unnoticed even in a holiday news season. There’s also the big climate change conference coming up in Paris, which the President is touting as a huge blow against the terrorists, unless they manage to blow it up, in which case they would still be a less urgent threat than climate change, but barring any such mishaps we can’t see that story having any legs.
All of which will continue to affect those primaries, which are another thing to grouse about. In almost every cast those suspicious police shootings of black men seem to happen in Democrat-controlled cities, and in the case of that-suppressed-for-13-months-video it happened in a community that was once personally organized by the President himself and is now run by his former Chief of Staff, but we expect that all the Democratic candidates will try to out-do one another in their indignation about the Republicans and their weird insistence on the need for law enforcement and a right to self-defense. The Syrian stuff will make the Democrats all the more insistent in their belief that climate change really is the biggest threat America faces, which polls about as well as the gun-grabbing rhetoric, and the ramped-up share-the-wealth talk isn’t likely to sway a public that can’t help noticing how the wealth seems to be shrinking. Meanwhile the Republicans seem intent on picking whichever candidate can muster the greatest bluster about it all, and it’s hard to hold on to tryptophan-induced sense of serene gratitude.
There’s something to that Thanksgiving insight, though, and we’ll try our best to bitterly cling to it through the coming news. We hope you’ll let that holiday happiness linger at least through the weekend, too, although we can’t promise we’ll have any good news come in the inevitable Monday.

— Bud Norman

Oh Yeah, the Economy

Perhaps it’s just because we’re not hanging out with a high-rolling crowd, or because baseball season is underway and the National Basketball Association’s playoffs just concluded, but nobody seems to be talking about the economy these days. All of the non-business news media seem equally uninterested, to the point that it takes another announcement from the Federal Reserve Board to get any front-page play for those poor newspaper scribes stuck on the economy beat.
We suspect this has something to do with the diocletian nature of all that boring data that the Fed went on about Wednesday. The economy isn’t quite bad enough for the Republicans to make an issue of it, and not nearly good enough for the Democrats to do any bragging, and apparently not so bad that the Fed feels obliged to again ramp up the money-printing that fueled that newsworthy stock market boom, but not so good that it intends to raise interest rates above 0 percent any time soon, and only the economics geeks understand what any of that means and none of them seem agree about it. Better to talk about baseball and basketball and whatever else might be going on, we suppose, but we can’t shake a nervous feeling that something important is going unremarked.
Perhaps it’s also because no one seems to know what to do about it. President Barack Obama’s only big economic initiative since that pork-laden “stimulus” bill and all the other debt-increasing “investments” he and his Democratic majorities in Congress foisted on the country back in the bad old days has been his Trans-Pacific Partnership free-trade deal with most of Asia, and the Republican congressional majorities that resulted from those earlier fiascos have been largely supportive, and it’s suddenly the remaining Democrats who are balking, and by now it’s more a story about our troubling politics than our troubled economy. David Brooks, The New York Times’ token “conservative” who fell in love with the perfectly pressed crease in Obama’s pants way back in ’08 and has never quite gotten over it, blames it all on what he calls the “Tea Party” faction of the Democratic party, which is wedded to labor unions and their protectionist preferences, and although he admits that Obama’s characteristic secretiveness prevents anyone without top-secret security clearance from knowing what the free-trade deal is he rightly notes that those same Democrats don’t seem to mind they have no idea about the wacky deal he’s making with the even wackier mullahs of Iran about their nuclear weapon ambitions. Our conservatism requires no quotation marks, and we’re staunchly Republican, and will grouse that the “Tea Party” analogy belies Brooks’ putative conservatism because the “Tea Party” was pretty much right about the growing debt and all the regulatory red-tape resulting from all those expensive “investments” and everything else, and we’re free-traders to our Adam Smith core, but even we are so spooked about Obama’s negotiating record and what might be hidden in that Trans-Pacific partnership that we’re willing to wait another two years or more for a better and more transparent agreement. There’s some fun in watching all the presidential hopefuls in both parties try to finesse this mess, even if the smart ones seem to understand they can simply ignore it, but otherwise we can well understand why people are following the divisional races in major league baseball and The Golden State Warrior’s long-awaited basketball championship.
Eventually everyone will be forced to pay some attention to the economy, certainly by November of ’16, and at that point it will be all about politics. The Republicans will argue that the numbers regarding jobs and household wealth and Gross Domestic Produce could have and should have been been much better, the Democrats will reply that those admittedly unimpressive numbers would have been so much worse without the president’s “investments” and resultant regulations and trillions of dollars of debt that everyone would have stopped going to work and buying groceries and falling for the latest advertised seductions and we’d all be rubbing sticks together in some cave, and that the same president’s secretiveness and lack of meaningful relationships with anyone else in government sank that Trans-Pacific Partnership that might have helped, and there’s no way way of knowing who the public will blame.
They’ll blame somebody, though, because there’s no getting around the end-of-the-month fact that economy isn’t that good. Even through the rose-colored glasses of the Federal Reserve Board the economy is expected to grow at at only 1.8 to 2 percent this year, barely enough to sustain those much-touted jobs number that haven’t quite kept up the arrival of new legal and illegal immigrants, another issue proving problematic for both Republican and Democratic presidential candidates, and on those rare occasions when people talk about the economy nobody seems to singing that happy days are here again. Whatever the economic numbers might be deep inside the business section around the next election day, we expect the Democratic nominee will be griping about the inequality of it all, which will resonate with a large resentful population of the country, and the Republican nominee will be talking about tax-cutting and de-regulating and unleashing the potential of the economy, which will resonate with the more hopeful portion of the electorate, nd the electoral numbers will decide the matter.
Until then, we’re as confused as anybody else. Zero percent interest rates don’t seem to provide any incentive for making the loans that could fuel an economic boom, and it isn’t any good for those poor old folks counting on interest-bearing retirement plans, but anything higher is likely to scare away investors in such uncertain and debt-laden and over-regulated times such as these, and that free-trade deal with a crucial foreign might or might not be a good idea, as only those with a top-secret security clearance would know, so we’ll anxiously await whatever happens. In the meantime we note that The Kansas City Royals are back on top of the American League’s Central Division and that The New York Yankees are within striking distance of the lead in the Eastern, and we’ve had a certain sympathy for The Golden State Warriors ever since they won their last title 40 years ago with that arrogant white boy Rick Barry as the star, so we’ll hope for the best.

— Bud Norman

Free Trade and the Devil in the Details

Rarely do we find ourselves in agreement with President Barack Obama, but the finite range of political options and the law of averages and that old saw about even a stopped clock being right twice a day have led us agree with him on the need for a free trade pact with Asia. We agree with the basic idea of free trade with Asia, at least, although we’d very much like to know what devilish details might be in the pact he intends to negotiate.
The administration has been suspiciously tight-lipped about those details, to the point that even such administration-friendly media as Politico are reporting that even the most administration-friendly Democrats in Congress are complaining about it. So far as we can tell the administration’s explanation is “trust us,” which of course we don’t, especially after the gymnastic capitulations in its negotiations with Iran, not to mention every other foreign policy move the administration has made, and we are heartened to see that this time around a solid majority of the congressional Democrats are also suspicious. A solid majority of the congressional Democrats is predisposed to oppose any sort of free trade, a result of the party’s fealty to protectionist labor unions and those black-masked and brick-hurtling anti-globalist types who are somehow impeccably multi-cultural and cosmopolitan, and they have plausible arguments about a lack of pressure on China’s currency manipulation, even if it’s made slightly less plausible about all the money-printing the Fed has done to keep Obama’s economy above water, but it’s still good to hear them adding the administration’s characteristic lack of transparency and trustworthiness to their gripes.
A solid majority of the congressional Republicans seem willing to go along with it, which we hope has more to do with a sensible predisposition to support free trade than any newfound trust in the administration’s competence in negotiating such matters, so if the whole deal falls through, as it very well might, at least Obama won’t have his usual scapegoats. Some Republicans are also reluctant about approving Obama’s “fast track” authority to negotiate a deal, which we hope has more to do with their doubts about his negotiating skills than any aversion to free trade, but if there’s no deal it’s because of Obama and those darned Democrats that he couldn’t get to trust him.
A stopped clock is only right twice a day, and the law of averages dictates that the Obama administration is right far less often than that, so it’s a shame if one of our rare agreements should come to naught. A certain paranoia born of previous experience makes us wonder why Obama has settled on such a sensible policy as free trade with Asia, though, and we suspect that some sense of colonialist guilt isn’t why, even if none of the nations involved have ever been American colonies, and that it might all be some sort of multi-billion dollar reparations scam, so maybe we don’t agree with the administration after all. Perhaps a free trade act with Asia is a good idea whose time won’t yet come for another 18 months or so, or until however it long it takes to administration that can be trusted to negotiate a deal in America’s interests. As of now a solid majority of Democrats don’t seem to trust this administration, and although they’ll be predisposed to oppose free trade and distrust any Republican on the matter, but perhaps in another 18 months or so there won’t be enough of them the block a better deal.

— Bud Norman

One Weird Trick

We seem to be living in the age of the one weird trick. The phrase is now frequently encountered in advertisements, which promise one weird trick that will do almost everything from reducing belly fat to increasing penis size to providing a steady income stream, while the concept seems to be popping up everywhere.
The one weird trick for reviving an ailing economy, for instance, has been to print gazillions of additional dollars. This is called “quantitative easing” in the modern parlance, but it is an old weird trick that has been frequently attempted over the years. It didn’t work out well for the Weimar Republic or Zimbabwe or countless other countries inclined to such weird tricks, but this time around it is credited with keeping America from sliding into third-world poverty and the earth from hurtling into the sun. Future historians will adjudge these claims better than we can, but it already seems clear that after more than five years of unprecedented money-printing the program has worked well enough that for the time being the Federal Reserve will slow down to pumping a mere $65 billion of bond purchases into the economy every month. This one weird trick is called “tapering,” and is prompted by the fact that enough Americans have at last given up any hope of finding a job to reduce the unemployment rate to below 7 percent, which is the one weird trick the government uses to make the economy look rosy.
The stock markets are supposed to be reassured by the optimistic rationale behind the tapering, but thus far investors seemed more concerned about the suddenly missing billions of newly-printed money that wouldn’t have had anywhere to go in a zero-interest environment other than the irrationally exuberant stock markets. Aside from the phony baloney unemployment numbers the stock markets’ recent unaccountable record highs were the only reasons for the Fed’s optimism, so a steep dive in stock values might cause a perception or a slumping economy which leads inevitably to the reality of a slumping economy and thus forces a return to the quantitative easing that created the perception of a booming economy, so there might be hope for your 401-K yet. The one weird trick then becomes even weirder, and thus all the more brilliant.
Anyone who contemplated economics back in the days of Ronald Reagan or Calvin Coolidge or Adam Smith would probably prefer unleashing the entrepreneurial energies of a free people from the heavy hand of taxation and government regulation and subsidization of sloth, in which case they would almost certainly find the current supply of dollars quite sufficient to meet demand, and they might have a point. We would be tempted to use weird tricks to flatten our bellies and swell our endowments and thereby earn a steady income stream in the gigolo trade, thus contributing a far greater share to the gross domestic product, and there’s no telling what weird tricks more imaginative and industrious fellows might come up with, but apparently free market capitalism is a bit too weird a trick in a the age of the one weird trick.
That “one weird trick” catchphrase always seemed a strange marketing ploy, as “weird” had previously implied a troublesome sort of strangeness and “trick” had negative connotations in almost every sense of the word. Tricks are what cheesy nightclub magicians do to make an audience think they’re witnessing something extraordinary, or what prostitutes do with their clients, or what the devious pull on the trusting and gullible. In its most modern incarnation the word seems to hold out the promise of a short-cut to success that doesn’t entail hard work or actual accomplishment. We’re still trying to figure out what weird trick Justin Beiber used to become famous, or Barack Obama used to be elected and re-elected, or how we arrived at this age of the one weird trick, but we are not happy to be here or at all confident that it is a sound economic policy.

— Bud Norman

Yes, Wall Street, There is a Santa Claus

“Santa Claus rally” is a stock market slang term that the highly-caffeinated fellows on Wall Street like to throw around this time of year, but the jolly bearded fat man who delivered Wednesday’s big gains was Ben Bernanke.
The out-going Federal Reserve Chairman has been very generous to the stock markets during his long reign, having printed up so many billions of dollars of that had nowhere to go in a zero-interest economy but Wall Street, and his parting gift was an announcement that the printing presses will now slow a bit. This might seem at first glance a veritable lump of coal to investors who have become addicted to the Fed’s unprecedented “quantitative easing,” but the stock market responded by pushing the Dow Jones Industrial Average up an impressive 293 points to a new record close.
Most of the media, who occasionally take time out from bashing those greedy Wall Street fat cats to tout their obscene profits as proof of a roaring economy, at least when there’s a Democrat in the White House, saw the gains as a reason to declare that happy days are here again. The Fed is “tapering” its money-printing because of recent encouraging economic data, the media helpfully explain, and the markets are now responding to same hopeful signs of growth. This beats writing stories about the record number of workers who remain out of the labor force, and there might even be some truth to it, but the good news seems wildly overstated.
Although the Fed will cut back on its bond purchases by $10 billion a month, it still believes that the economy is wobbly enough to require a $75 billion monthly infusion of freshly-printed cash. This is still a huge amount of monthly money even by Washington standards, and the more likely explanation for Wednesday’s big jump was the market’s relief that it will likely keep coming when incoming Fed Chairwoman Janet Yellen takes over. A 7 percent unemployment rate and the best year for housing starts since the immediate aftermath of the catastrophic popping of the last housing bubble might be good news by recent standards, but it’s hardly a reason for the record highs on the stock market.

— Bud Norman

The Good News is Killing Us

On Wednesday the experts at the Federal Reserve once again reported that the  economy is not at all well, something plainly obvious to all the non-experts who have given up all hope of finding a job, and the stock markets celebrated with yet another record-setting close. In the convoluted world we now live in, bad news is good news.
The bad news that the economy is sputtering and will likely continue to do so is good news for the stock markets, because it means that the Fed will continue to flood the economy with newly-printed dollars that have nowhere to go in our low-interest world except Wall Street. That record number of former workers now resigned to long-term idleness is good news, too, as they’re no longer counted among the unemployed and thus unemployment rate is falling. Should the bad news ever get so good that economy comes grinding to a complete halt that will also be good news, as America’s carbon emissions will also come to an end and we’ll all be saved from global warming, although the stock market might see that differently no matter how many dollars are printed onto recycled paper.
Those of a more glum disposition might think that the good news about an over-inflated stock market is actually bad news, or will be when the Fed is at long last forced by economic reality to stop printing money and the bubble is inevitably popped, and that a 7.3 percent unemployment rate is insufficient compensation for the lowest work force participation rate in decades, but that is why they aren’t editors or producers at the big news media outlets. The cheerier sorts of people who do get those jobs are content to report a record closing at the stock market and a declining unemployment, then move on quickly to the latest murder spree or celebrity divorce. Much of the public is therefore unaware of what the Federal Reserve is or what it’s been up to or what the consequences might ultimately be, and we’ve doubt they’re cheerier yet.
Many of the public officials who have to worry about this stuff as a requirement of their jobs are more concerned with other matters, judging by the debate about who will be the new boss at the Fed. Current Chairman Ben Bernanke is coming to the end of legally-limited term, during which he has been so obliging to the stock markets, and some of the Senators who will be voting on his successor seem more interested in the applicants’ race and gender than their monetary theories. President Barack Obama had hoped to appoint former Treasury Secretary, White House economic advisor, president of Harvard, and lifelong white male Larry Summers to the post, but so many Democrats objected to Summers’ past friendliness to business and his white maleness that he politely declined to be considered.
One of the leading foes was Sen. Elizabeth Warren of Massachusetts, the fake Indian and bona-fide left-wing nutcase, who was serving on the Harvard faculty during Summers’ presidency there and apparently developed a personal dislike for him. Much has been made about Obama’s inability to get a high-level appointment past his own party, with some seeing it as another encouraging indication of his weakened political standing, but even the shrewdest politician would find it difficult to placate a personally offended Ivy League professor.
There are good reasons that Larry Summers shouldn’t be the Fed chairman, but his whiteness, maleness, and insufficient anti-capitalism are not among them. The poor fellow has a strange record of being fired for the wrong reasons, though, and was pushed out of his post at Harvard by the likes of Warren not because he had badly mismanaged the school’s finances but because he quite reasonably stated that the Harvard math faculty was mostly male for reasons other than sexism. This is how positions of responsibility are now filled and vacated, though, and it looks likely the next several years of monetary policy will be determined by the same sort of silly identity politics.
The two most likely candidates are now Janet Yellen, currently a vice chairman of the Fed but invariably described as someone “who could become the Fed’s first woman chairman,” and Roger Ferguson, a former Obama advisor who is invariably described as someone “who could become the Fed’s first black chairman.” There are no doubt good reasons that either should Fed chairman, even if that “former Obama advisor” line on Ferguson’s resume is distressing, but their femaleness are blackness are not relevant qualifications any more than another candidate’s maleness or whiteness would be. Any applicant who is invariably described as “most likely to keep the foot on the pedal even after the car has gone flying over the cliff” would be the clear frontrunner for the gig, and you’ll want to be in the market on the day that good news is announced.

— Bud Norman

The Cloud in the Silver Lining

Federal Reserve Chairman Ben Bernanke offered an upbeat assessment of the economy on Wednesday, and of course the stock markets immediately took a dive. So convoluted is the American economic system that bad news such as the latest jobs report will prompt a stock market rally, while any talk of good news such as the Fed is now peddling will as surely cause a sell-off. Should the country somehow ever again achieve robust growth and anything close to full employment it will surely be the ruination of the economy.
Although counter-intuitive, the stock market’s recent tendencies are easily explained. After the crash of ’08 the Fed started churning out dollars at unprecedented rate, and with interest rates and bond yields being held artificially low those dollars had nowhere to but the stock markets, which have since expanded at a noticeably faster pace than the overall economy. Anything that would ordinarily be considered good economic news will tempt the Fed to take its foot off the metaphorical pedal, which makes it bad news for those invested in stocks.
Investors might find reason to keep buying if the economic news is good enough, but what Bernanke was touting on Wednesday was just good enough to be bad news. The Fed raised its forecast for economic growth to 3 to 3.5 percent in the next year, reduced its outlook for unemployment to 6.5 percent, and although Bernanke left himself ample wiggle room he made it quite clear that such statistics would justify at least a slow-down in the pace of money-printing. Those statistics aren’t good enough to justify a Dow Jones at 15,000, though, and private forecasters think they’re suspiciously rosy anyway, and with Europe in recession and China rapidly slowing and Obamacare offering massive incentives for employers to hire no one for more than 29 hours a week there is plenty of reason to suspect things are going to get worse rather than better. If a precipitous drop in the stock markets occurs, the worry that caused it could easily become self-fulfilling.
All that dollar-printing must eventually come to an end, lest people start using the things to paper their walls, and it is most unlikely that the stock markets can maintain their historic highs while the economy catches up to it, and it is altogether impossible that the government will cease its ever-increasing meddling, so considerable economic turbulence seems likely in the coming months. This should be good for stocks, though, and perhaps we should just have that this somehow makes sense.

— Bud Norman

Easing Into Darkness

The Arab spring has turned to a brutal fall, the president can’t quite decide if the Egyptian government that he helped bring into power is a friend or foe, and there seems to be a similar question in the president’s mind about Israel as it readies for a war with Iran. The folks down at the stock market are happy, though, because the economy’s so lousy that the Federal Reserve has decided to hand it a whole lot of newly-printed money.

Citing all the familiar economic doom and gloom, a statement from the Fed on Thursday announced that it will buy $40 billion of mortgage-backed securities every month for an indefinite period of time as part of a third round of “quantitative easing” that will wind up increasing the money supply by more than $3 trillion. Given that the Fed also signaled its intention to keep interest rates at their current historical lows for the foreseeable future, making bonds and other fixed-income investments a mug’s game, much of that money will quickly make its way to Wall Street.

This made for a big rally on the big boards, naturally enough, but it’s hard to see how it will do much for a real economic recovery on less fashionable roads. The first two rounds of quantitative easing clearly didn’t work, or there wouldn’t be any need for a third one, and there is no convincing theory to explain why this effort will be any more successful. There’s an old adage that the third time’s a charm, but we can find no scientific basis for this notion, and our thrice-married friends assure us that it’s bunk.

What’s troubling the economy is not a lack of pieces of paper printed with green pictures of federal buildings and former officials, as these are already in greater abundance than ever, but rather a lack of incentives for people to start moving them around. Until the tax codes, regulations, and prevailing political climate all signal that Americans can expect to keep most of what they earn, the Fed can roll out the dollars at a Weimar-era rate and the smart money will still be seeking a safe haven far offshore.

The Fed’s actions entail considerable risks, too. One of the reasons that people are sitting on their money is a reasonable expectation that the government’s about to go broke, and although Fed Chairman Ben Bernanke said in a Thursday news conference that his plan won’t affect the budget it is unlikely that it will induce any non-Tea Party politicians to cut back on their spending. Should the plan actually stimulate the economy, whatever goods and services are created will be chasing so much money that a ‘70s-style inflation rate might prove a best-case scenario. More dollars mean a weaker dollar, as well, and could even threaten the reserve currency status.

None of the negative effects will be immediately apparent, however, unless you’re a retiree who was suckered into bonds and other traditional retiree-age investments, and by the time the worst of it hits the election will be long past. Any short-term benefits that might occur will be more immediate, on the other hand, but surely it would be paranoid to think that politics had anything to do with it.

— Bud Norman