Inflation Report: Has Bernanke gone mad?
By Adam Lass
In this article
Fed Chairman Ben Bernanke showed up on Cap Hill today to pour more oil on market waters…
The Fed requires flexibility to deal with diminishing economic growth.
If this sounds familiar, it is because this is exactly what his predecessor did.
Inflation Report: Has Bernanke gone mad?
Ostensible Fed Chairman Ben Bernanke showed up on Capitol Hill today to pour more oil on market waters roiled by fear of a banking collapse at home and a new war abroad. But first, he had to put the lie to Alan Greenspan's statement that perhaps this boomlet would simply run out of steam on its own.
It has been said that the very definition of sophisticate is someone who can hold two or more disparate ideas in their mind at the same time without going mad.
If this is so, than Mr. Bernanke is très sophistiqué, for he claims first that the obvious diminishing returns in economic growth indicate no trend whatsoever. Second, he notes that there is no reason to suppose that massive bank defaults will spread (despite all appearances that they may already be doing exactly that).
Inflation Report: There's flexible, and then there's spineless
Third, he notes that while inflation remains a grave threat (okay, I confess: I put in the word grave), he and his compadrés on the FOMC have no stated bias toward doing anything about it. Indeed, just the opposite: The Fed requires flexibility to deal with the diminishing economic growth that they claim isn't really happening and doesn't matter if it is happening.
By flexibility, I presume he means the freedom to lower rates even if it means inordinately lowering the value of the dollar. If this sounds familiar, it is because this is exactly what his predecessor (you know, the one he says is wrong about the coming recession?) did: lower rates to the point where the economy ticked up as measured by dollars, but remained flat when inflation was factored in. In other words, how we got here in the first place.
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Albert Einstein is reputed to have defined insanity as doing the same thing over and over again expecting different results. Now he was a physicist and not an economist, but I would posit that he was a reasonably sophisticated thinker.
Inflation Report: Greasing the skids
So now I must wonder if Bernanke is either insane, or simply a coward unable to select from two distasteful choices. Because if they try the rate- cut trick again this summer, simultaneous to a savage spike in oil prices, then most any economic gain will be purely illusory: you may (or may not) end up with a few more dollars, but those dollars won't be worth the powder to blow `em to hell.
As for those oil prices, I would like to point out that we just breached the EIA's cap for all of 2007. And so far as gas is concerned at this point (which is, after all how oil penetrates the economy at large), my prediction of $4-4.50 is looking less and less like a dyspeptic editor's rant and more and more like the hard cold truth.
Heck, as long as I am quoting Einstein, let's close with this: Ethical axioms are found and tested similar to the axioms of science. Truth is what stands the test of experience.
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Adam Lass is the founder and manager of the WaveStrength Group, and is a contributing editor for Taipan Financial News. As the creator of WaveStrength's proprietary analysis system, Adam's expertise has shaped a franchise of successful investment newsletters and services, including WaveStrength Options Weekly and WaveStrength Apex.
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Crude Oil Prices: And the latest price of oil, because that, after all, will probably matter more than what any old white guys have to say. - NYMEX