Bernanke to Savers, Unemployed and Wall Street: Drop Dead.
In his essential 1982 book, The Economy In Mind, the late Warren Brookes relayed a story from 1979 in which a Keynesian economist from the United States was passing through customs at JFK Airport. When the customs officer processing his entry saw his profession, he commented, "I don't know whether I should let you back in, Professor, considering what you economists have done to this country."
The officers' words take on special meaning amid Fed Chairman Bernanke's latest attempt to revive the U.S. economy through monetary machinations. Blind to the horrors of his actions, this most self-unaware of economists is bringing major harm to the economy through his efforts to revive it. His actions are tautologically inimical to recovery because they work against the economic chances of the savers, workers, unemployed workers, and creative financiers whose enterprise would lead to it, if not for the Fed.
Savers are most important because without savings, there are no entrepreneurs. This can't be stressed enough. Amid downturns the last thing a wise central banker would ever do is distort the cost of credit to levels lower than what the market would otherwise bear. Bernanke's actions tell savers that they won't be compensated for restoring the capital base, and as a result they'll continue to hide.
Interest rates must be allowed to reach their natural level free of Fed distortion. If that means they rise, that's a positive signal; one telling savers that they'll be properly compensated for taking on more risk. Just as rent controls on apartments lead to scarcity of same, so do price controls on interest rates lead to credit scarcity no matter headline rates of interest.
If you love borrowers and borrowing, you must similarly love savers and saving. The Fed acts as though savers don't matter, and the result is tight credit for everyone not a massive business or the federal government.
It's also the case that savers offer up their credit at a rate of interest with an eye on being paid back dollars down the line. The problem here is that quantitative easing is code for dollar devaluation. Saving is investment, investors are buying future dollar income streams, but with devaluation the policy, there's no incentive to save, and by virtue of saving, no incentive to invest.
Considering the unemployed, here the irony is rich. Bernanke is defending the intellectually bankrupt in the form of quantitative easing given his view that dollar devaluation will lead to increased job creation.
The obvious problem is that there are no companies and no jobs without investment. This is not even debatable. Of course if you're an investor whose capital commitments would foster business start-ups and business expansion, why commit capital if under the best of circumstances you'll achieve dollar returns in the form of wildly debased dollars? In short, Bernanke's arrogant attempts to reduce unemployment will continue to make mass hiring a distant object.
Considering workers themselves, lest we forget, they receive paychecks that pay out dollars. But with the dollar in continued freefall thanks to Bernanke's horrifyingly wrong view that devaluation is the path to prosperity (a lot of good it's done Mexico, Argentina and Zimbabwe over the decades), those lucky enough to be employed will continue to suffer paychecks the value of which will decline. Nosebleed gasoline prices? Those are the direct result of dollar devaluation that began in 2001, and that continues with great speed in 2012.
So while workers will suffer mightily amid Bernanke's cruel efforts to "fine tune" the economy, it should be pointed out that the businesses they work for will similarly be victimized. Channeling John Stuart Mill, when businesses produce for the market, they are tautologically demanding dollars. Devaluation means the real value of their earnings will decline amid reduced investment (see above) in their expansion. It's not a coincidence that the two devaluationist decades since 1971 (the ‘70s and the ‘00s) have occurred alongside limp stock markets. Devaluation scares away investors in companies all the while reducing the real earnings of those same companies.
And then there's Wall Street. Commentators on the right who should know better think that Bernanke's actions actually aid the symbol of finance that is Wall Street, but historical realities reveal that he's Wall Street's greatest enemy.
Though it's assumed that Wall Street loves cheap, devalued money, the greater truth is that Wall Street's glory years in modern times were the ‘80s and ‘90s when the dollar was strong, and as a result, stock markets were rising. Jobs and growth were the norm for finance in those decades.
Fast forward to the ‘00s, and a falling dollar drove massive malinvestment into the wealth sinks of yesterday. The end result was balance sheets totally compromised by dollar devaluation that ultimately led to the bailout of Wall Street's most famous and most successful entities. At present Wall Street's best and brightest owe their existence to a political class that doesn't care about profits, and as a result, hiring and growth is well down from decades past.
Though the commentariat is loath to admit it, Wall Street does best when the companies that line Main Street are thriving such that Wall Street can serve as a source of finance for companies new, old, and in between. But with policy heavily tilted toward devaluation, there's little incentive to invest, market indices since 2001 reveal just that, and Wall Street is a discredited in the eyes of the electorate; it's best days well behind it.
Back to Brookes, the malaise of the 1970s was driven by economists who felt they could engineer prosperity through constant tinkering with the markets. The end result was something much worse. Today our economy suffers too much in the way of intervention from the philosopher kings who populate the economics profession, and too little entrepreneurialism. Ben Bernanke is the greatest miscreant here, and in order for the economy to grow, Bernanke and his ilk must be forced to retreat.