Thursday, September 06, 2007

Jackson Hole: Saving Us From Themselves

'As Nathan Mayer Rothschild was fond of saying, “I care not what puppet is placed upon the throne of England to rule the Empire on which the sun never sets. The man that controls Britain’s money supply controls the British Empire.” '

Interesting quote from this article at, by one of my favorite gold bugs, Gary Dorsch, blogger at

Gary's article points out some of the data you don't get from the dailies and makes my case look all the more scientific. (Gadflies can always use a little support.)

What I find the scariest element of our present quandary is that top economists, including 34 central bankers, are in complete opposition to each other on (1) the problem, and (2) the solution. Take a look at this article if you care to watch how our top-notch economic-scientist central bankers are scrambling for their next move.

Tenniel Mad Hatter's Teaparty
[Thanks to for the image.]

Mishkin thinks that, due to positive "[r]apid financial change, triggered by innovation and deregulation", all this wonderful lending has simply "outstripped the available information sources"; and so he wants to lower the target rate. Feldstein of the NBER [National Bureau of Economic Research, the major supplier of much of the statistics available] sees the bad writing on the wall and agrees the Fed should lower it by 1 percent. Shiller decries a classic housing bubble and seems to want something to be done. Leamer warns about the coming recession. Fisher from Israel says do something about the bubble before it explodes.

Then you have Mayer flipping off everyone's worries, saying this whole housing-boom thing was simply a sign that it's now cheaper to own a home than to rent one. (Sure.) Others say that the bubble is simply an effect of monetary policy but not the cause of any recession. (Right.)

Bernanke himself walks the tightrope between one side and the other, saying the economy can handle this and maybe we'll do something, maybe we won't.

The consensus seems to be summed up this way: We'll have to "rely on judgment more than models." Okay. But whose judgment are you gonna pick? I admit there's a consensus that now is not the time to raise rates; but whether to lower or not (and/or pump more credit into the system), they're all over the charts but seem to be leaning towards easing/pumping.

I get the heebie-jeebies when I read that a year ago "the Bernanke Fed ... heavily inflate[d] the broad US M3 money supply, after it decided to hide the figures from the general public in March 2006. Since then, the US M3 money supply has expanded at a 13% annualized clip, up from 8% when the Bernanke Fed stopped reporting the key figure." (Look at the charts if you don't believe him.)

I thought they were holding money supply steady. Why would they increase it, when they've supposedly been combatting the inflationary pressure all this time?

And then I cringe again when I read this:

"[China] has been a net seller of US T-bonds for three straight months by a record amount of $14.7 billion, the longest period of sales by China since November 2000."

This is not the time for China to bail out on our T-bonds (although I don't think they really will, given the amount they hold.)

And this is an interesting quote:

' “At some point, you have to choose between trusting the natural stability of Gold, and the honesty and intelligence of members of the government. With due respect for these gentlemen, I advise you, as long as the capitalist system lasts, to vote for Gold,” said George Bernard Shaw in 1928.'

GBS is not my paragon of economic virtue, but I like his occasional common sense and wit. I might just add that today the marketplace is more savvy and may have already factored in much of this wisdom. No one can really predict how things will play out. But we can take our chances....

And this:

'Should you place your faith in Federal Reserve notes? “Money is too important to be left to central bankers. You essentially have a group of unelected people who have enormous power to affect the economy. I’ve always been in favor of replacing the Fed with a laptop computer, to calculate the monetary base and expand it annually, through war, peace, feast and famine by a predictable 2%,” said Milton Friedman.'

He's another one whose gift of gab--indeed in his case genius of gab--got him places; but I note that he had the remarkable ability to say opposite things within the same paragraph. Here we have a committed devotee of small government saying both "power is bad" and "use the power anyway." Why not just be consistent and recommend we get rid of both the central bankers and the central bank (i.e. throw out the centralized computer, too)? Why can't we just let it all go and allow people to write contracts in gold? End of problem. (Perhaps an oversimiplification....)

Bernanke's job at the head of our monetary policy is an impossible one; but he wanted the job, so now he's got to at least pretend he can handle it. I don't envy him. The higher you fly, the harder you fall.

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