The scene: on one those bloated vacation cruise boats (often cursed with some debilitating gastro-intestinal event). One can vividly imagine one the throngs of really swinging crowd of post 50 years old trying to do the ‘mambo’. [See reader Perusio’s correction below — for ‘mambo’ read ‘limbo’. Our bad, as the kids say]. The rope sinks lower and lower. Until either his or her lower back collapses, the pants rip, or balance fails and the whole stunt ends in adrunken embarrassment.
So now to Bernancke and the Fed. The Fed Open Market Committee’s 5.25% rate has fallen to the brink of free money: 2.0%. Still, nothing. As we have seen with every other rate cut, banks refuse to extend credit to the general market. The U.S. credit crisis continues. Despite Bernake’s efforts including the Fed’s dramatic rescue of Bear Stearns. Even arrangements to allow banks and quasi banks to treat locked and illiquid assets as liquid guaranteed by the U.S. government? Nada. Zip.
Inflationary pressures continue to spiral. Most observers (and we mean beyond the eye candy-Erin Burnett-figurettes) argue that 2% is as low as Bernancke can go in his mambo ‘limbo’. The risk of massive inflation is too great, they say. We disagree with those who argue that Bernancke already has been successful and may actually seek inflation. From what we see, he has acted primarily to save the U.S. and international financial system by injecting capital. Even Asia has caught the U.S. flu.
Commodity hoarding is not too fantastic imagine but is not yet here. It was a hallmark of the Weimar inflation (driven in part by the government of pay off the ridiculous Versailles reparations with junk money). What we see at Costco is merely media driven frenzy. Yet the Stiftung hears more and more talk about it among the chattering classes with soft, unmarked hands. Inflation is taking a toll. I.e., among people whose idea of honest labor is to mark up a document and give it to a secretary (male or female). These are the people who are supposed to take a tax rebate check and put a down payment on a BMW lease. We doubt it. Consumers are cutting back, IRS cheques or not.
All this is not to say 1923 is around the corner. Yet Bernancke really can’t do much more. If he dropped the rate to 0% as the Japanese did in the Lost Decade it is unlikely to change current conditions. Our political leadership have done nothing to prepare the American people for the ‘creative destruction’ ahead. And its impact on consumer lifestyles. There is a curious willful ignoring of the problem, waving it aside as a mere re-enactment of the S&L crisis.
Aside from the effete Crown Prince or the other candidates, one does wonder what real American populism would look like circa 2010. One doubts it would be limited to “crosses of gold” and end with an epic and civilized trial about evolution.