Down the Rabbit Hole (And Happy Thanksgiving)!

“In the present case it is a little inaccurate to say I hate everything. I am strongly in favor of common sense, common honesty and common decency. This makes me forever ineligible to any public office of trust or profit in the Republic.”
– H.L. Mencken

“Do you not know, my son, with how little wisdom the world is governed?”
– Count Axel Oxenstierna (1648)

One Liners

Ah that Mencken – a true master of the one-liners. In a November 20th interview with Al Hunt on Bloomberg TV’s “Political Capital” – Treasury Secretary Tim Geithner fired off several gems that had us laughing and frankly intrigued by his audacity. The fact that Giethner made his comments without bursting out in laughter meant to us that he’s either a master of self control – or that we in the US are in big trouble. Or both.

Here they are :

“It is very important to keep politics out of monetary policy… You want to be very careful not to take steps that hurt our credibility… It is not responsible, and I could not recommend to the president in good conscience, that we go out and borrow $700 billion to make those high-end tax cuts permanent… It is very important that we respect and honor what the Congress did when it set up our independent central bank with a mandate to keep prices low and stable over time and to make sure” it promotes “sustainable economic growth.”1

We’d like to know when the Fed has ever kept politics out of monetary policy? If it did, the US Government which is $14 Trillion in debt would not be able to rely on freshly printed money by the Fed. Politicians would instead be forced to cut spending. Constituents might be disappointed, but hey that’s life. In our opinion, very few politicians have the intestinal fortitude to preside over a large scale and necessary national withdrawal from easy money and credit. We believe most Republicans and Democrats are afraid to reign in the Fed. They may demagogue about doing so for a while, but when another “crisis” looms – they’ll be completely fine with the Fed printing ever more dollars. And then another badly run automotive manufacturer, or Wall Street Investment bank will get bailed out “in the best interests of Americans.”

Treasury Secretary Geithner also states “…It is not responsible, and I could not recommend to the president in good conscience, that we go out and borrow $700 billion to make those high-end tax cuts permanent…”1 Really? Why then was it responsible to go out and borrow (via newly printed Fed Dollars) a similar amount to bail out badly run Wall Street Firms?

We believe the Fed has severely damaged its credibility long ago. Since the its creation in 1913 the Fed, due to it’s monetary policies, has presided over the Dollar’s 97% drop in value relative to gold.3 So much for the Fed’s “mandate to keep prices low and stable over time.” In our opinion it looks like the Fed may have dealt its credibility a fatal blow over the past few years by bailing out Wall Street investment banks to the tune of hundreds of $billions – only to have some of those same firms pay out large bonuses the very year they were bailed out.

Wall Street Banks seem to have a really nice gig – getting to privatize their gains and socialize their losses.

This begs the question – who does the Fed really work for?

Happy Thanksgiving

It was Rittswood West Virginia 2001. While reading an old newspaper in a cabin after a hard day of grouse hunting with three great friends (two of them dogs), I turned to my good friend John and said, “John, you know how you can tell how unimportant most things are?” He replied, “How?” I said, “Just read a two day old newspaper.” He chuckled and answered, “You are right Stephan. You are right.”

And it is the truth. While we definitely live in quite interesting times, its nice to know certain things really never change. And those tend to also be the most important things. Thanksgiving ushers in the Holiday season and reminds us all how lucky we truly are. As we share this special holiday with our families and loved ones, let’s remember the many blessings we have in our lives. Here’s to new and old friends – and the ones who are are with us in spirit only. We know they live on. And we’d like to thank all you for giving us the opportunity to do our best to take care of you.

Happy Thanksgiving!

While there is a lot of tough reality going on out there – we maintain our positive outlook. That outlook is based on our belief that a bear market in one thing is often a bull market in another.

As we enter this critical time – now, more than ever – we believe investors need to focus on their investment strategies. Those readers who are clients are fully aware of the strategies we’re implementing in light of unfolding economic circumstances. Others may feel free to contact us to learn more.

Sincerely,

Stephan R. Ernharth, JD
Vice President
Ernharth Group
www.ernharth.com

Go to www.ernharth.com/economic-commentaries to read past articles from our Economic Commentary series.

1. Bloomberg, “Geithner Warns Republicans Against Politicizing the Fed” Nov. 19 2010
2. Ibid
3. http://goldinfo.net