On Wednesday, U.S. Federal Reserve Chairman Ben Bernanke told the National Bureau of Economic Research that “highly accommodative monetary policy” would be needed for the foreseeable future. In other words, the Fed will continue with its stimulus and printing madness to feed Bernanke's crony friends on Wall Street.
The political class understands the dynamics of the economy only through the lenses of interventionism and has systematically passed on the tradition to Europe. Their view is that the job market will never recover unless the “well intended” Fed and ECB take matters into their own hands.
We are in an interventionist era where the political elite — and even the academic elites — simply don’t trust in the capacity of their people to self-organize and bring prosperity without a big brother telling them what to do.
Be that as it may, the point is that Bernanke is obviously trying to allay recent concerns from his crony friends that the Fed might soon restrict its expansionary bond-buying policies. Financial agents have been concerned about the fact that in September Bernanke could begin to scale back the $85 billion monthly bond-buying program.
And it worked! Bernanke’s reassurance propelled shares around the world to record highs. However, this ephemeral sugar high may only prove an inflationary tendency in the long run. In fact, the dollar keeps losing ground against all major currencies, even minutes after Bernanke’s dovish remarks this week. Of course, if the dollar plummets the amount of dollars needed to buy stocks would rise… the price of everything would rise! I didn’t have to be a genius to figure that one out.
But this is nothing trivial. Bernanke’s statements fuel a very dangerous behavior. Financial agents’ speculations are back in place again and are playing a very risky game. But the stock market hasn't priced in tapering and still has room to fall. A few months ago, when Bernanke strongly defended the Fed's stimulus packages in a Senate hearing, I noticed that if we stay down this road, we will inflate a much larger bubble, the dollar. I also tried to explain how this interventionist paradigm could eventually destroy the U.S. economy.
In A Monetary History of the United States, Milton Friedman and Anna Schwartz clearly pointed out that the Fed did too little in The Great Depression. Nevertheless, their argument was also very clear regarding both excesses: He who controls the money supply does either too much or too little. Moreover, Friedman was very clear to suggest he would abolish the Fed, but that since it exists, he tried to fix the glitches: “So while I'd like to abolish the Fed, I've written many pages on how the Fed, if it does exist, should be run.”
Today’s deviation of the theory incarnated in the Bernankes and the Krugmans is really unfair to Friedman and really unfair to the American people (and to the Europeans who enjoy mirroring the same interventionist paradigm).
So, the story we hear today — and quite successfully somehow — is a story of Armageddon had we let the market correct itself. If Bernanke stopped the interventionist path, the private sector would have gone wild and succumbed to the foolish and irrational forces of the market. Without the Fed, the story goes, the American economy would be finished. Without the ECB and Brussels, the European Union as we know it would have also ceased to exist.
I’ve said this before and I will repeat it as many times as necessary: It is time to bring some common sense and stop the interventionist madness. Let the market breathe and clear malinvestments. Allowing the big financial elephants go under will not cause an end to the world. It will be painful, but it is the necessary medicine we need today. It is the only medicine based on common sense. This is the only way to avert the collapse of our currency.
Or, do you really think that the dollar bubble is never going to burst?