Federal Reserve Chairman Ben Bernanke just announced Operation Twist, a new combat operation that will supposedly fix our market woes. Supposedly. (Hey, pass the vodka, will you? I need a drink before I listen to this guy.)
I am not a financial markets expert, and I have not heard that much on the actual details of Operation Twist, but, courtesy of CNN, here’s a brief explanation:
NEW YORK (CNNMoney) — The Federal Reserve announced “Operation Twist” Wednesday, a widely expected stimulus move reviving a policy from the 1960s.
The policy involves selling $400 billion in short-term Treasuries in exchange for the same amount of longer-term bonds, starting in October and ending in June 2012.
While the move does not mean the Fed will pump additional money into the economy, it is designed to lower yields on long-term bonds, while keeping short-term rates little changed.
The intent is to thereby push down interest rates on everything from mortgages to business loans, giving consumers and companies an additional incentive to borrow and spend money.
So basically, they’re selling bonds and buying bonds. Nothing exactly Earth shattering here. And definitely not anything that will get us out of this rut.
Interestingly, some members of the FOMC agree with my assessment, and one of them had a speech about it. Mr. Richard W. Fisher, president and CEO of the Federal Reserve Bank of Dallas, had this to say about recent monetary policy, using a Nordic weather station as a metaphor:
This week we celebrate the 235th anniversary of the signing of the Declaration of Independence, the act of which broke ties with King George’s England and gave birth to a new nation. The decision to break with England was not one made lightly, but one that came after “a long train of abuses and usurpations” which finally made the oppression unbearable. And what comprised this long train of abuses? In part, it was the denial of self-governance and obstruction of the administration of justice. It was the erecting of “a multitude of New Offices, and [sending] hither swarms of Officers to harass our People, and eat out their substance”, the subjection of citizens “to a jurisdiction foreign to our constitution”, and cutting off our trade. It was imposing taxes on us without our consent, and exciting domestic insurrections.
It was this and more that led us to dissolve our political bands with England, declare our independence, and shed our collective blood in defense thereof. Yet, if we truly believed that “all men are created equal, that they are endowed by their Creator with certain unalienable rights”, including life, liberty and the pursuit of happiness, what else could we have done? When we truly comprehend that we are all children of God, sovereign by virtue of our very creation, how can we be content to be slaves? How can we be content to suffer the indignities of oppression?
It was this new philosophy that emboldened the hearts and minds of Americans. It was this belief that led Patrick Henry to declare “give me liberty or give me death!”, and that led Nathan Hale to proclaim moments before his execution by the British that “I only regret that I have but one life to give for my country”.
Once again, the question of future inflation is boggling the minds of many a financial forecaster. Are we headed for a rise in prices that will carry the Dow up and away, hopefully carrying the rest of us with it, or are we going to suffer the second leg of the W Recession as commercial property and/or the inevitable rise in interest rates hits the skids?
The questions I would pose are quite different. We are already engulfed in a sea of inflated purchasing media that is constantly roosting, taking off, and realighting in its search for new quick profits. Unfortunately, given the current labor market, it won’t even be dipping a little toe in the ordinary person’s paycheck on its way by, at least not anytime soon.
So where is it now, and what is going on? It is where it has gone for the last two years, to wit ten years or more: into speculative investment, biding its time. In America, at least, it isn’t going into production, and it isn’t going into salaries. It’s going into profits and speculative investments, instruments like Greek bonds and credit default swaps so popular with the hedge fund crowd.
This means that the answer to the introductory question is yes, inflation, but be careful how you define it. As I have harangued before, the word is used flippantly to mean at least two things: on the one hand, price increases represented supposedly by the CPI; and on the other: excess purchasing media, the kind that used to cause price increases before the market got savvy, but that now finds itself blowing bubbles while maintaining general prices that should be falling so that the ordinary consumer gets a break. This definition we could differentiate by naming the process “inflating.”
In reading the daily commentary of the American Institute for Economic Research for April 29, 2009, my speculative little crystal ball began to light up. AIER is the only serious business cycle analyst group that points out reality, and reality is that contraction is everywhere in the stats, in spite of the recent “good news” in the stock market. (Desperate exuberance, anyone?)
So let’s think it over.
Texas Governor Rick Perry raised a few eyebrows recently when he used the “S” word in public. Secession, he said, was always an option on the political table as far as Texas was concerned.
Just a random thought today…
I may be betraying my ignorance of history, but I’m willing to take that risk.
I am trying to find a situation in all of recorded history analogous to the present U.S. economic crisis, where a government has spent $ TRILLIONS of fiat money within a few months to “solve a problem” and hyper-inflation (or massive taxation) DID NOT occur as a result.
If anyone out there in cyberspace knows of an example, please post a comment.
What if we wake up one day and learn that the terrorist threat is a predictable consequence of our meddling in affairs of others and has nothing to do with us being free and prosperous?
In this video, Dr. Paul cuts to the chase by pointing out that Obama is really making an argument for more and bigger government, while attempting to camouflage it behind fanciful (perhaps one could say “Orwellian”) rhetoric.
Anti-government and bank rage reached a boiling point Monday in the small island nation of Iceland, where residents have seen unemployment and inflation skyrocket following the fall collapse of the Icelandic banking system. Iceland, a nation recently prided as a great example of the “Scandanavian Model” of a prosperous welfare system, has in a matter of months been transformed into the least politically and ecnomically stable nation in Europe. The International Herald Tribune reports below-
Schiff points out that civil unrest is coming if the government continues to focus on the symptoms of inflation and not the solution.