Short Comment On Bernanke Presser

What I missed in watching this farce was any sense that the Fed is going to fail in achieving the fulfillment of its mandate by virtue of the very policies it is pursuing. It reminds me of the oft-heard proverb that one often meets ones destiny on the road one takes to avoid it, something i think I first heard in Kung-Fu Panda. And our domestic situation is going to resemble a cartoon more and more, led by cartoonish “leaders” such as Timmaaay Jeethner at Treasury and an apparently well-meaning but obviously closeted liberal academic like Bernanke, to say nothing of the “President” who at least apparently really was born in Hawaii we found out today, though why it took so long I have no idea.

What Bernanke misses, and the press corps failed to elicit, is that the Fed, which despite having no responsibility for the dollar, surely affects its value more directly than Timmaayyy ever could. It is therefore, intellectually dishonest protestations to the contrary, stoking the commodity inflation fires that rage across the globe. And sure as you can say “new low on the dollar index” and “new highs in gasoline, gold and silver” there will be a breaking point that imperils what growth there is. This will have the effect of both transmuting into unanchored inflation expectations in the intermediate term and simultaneously crimping growth and therefore employment. The response will therefore be what? If they tighten policy to attack inflation expectations, then the employment mandate will slip further out of their grasp. If they do not, then they will have both inflation and low employment, a situation actually worse than the status quo ante. As I write this an hour after the big event, gasoline prices are up over 8 cents a gallon at 3.44 basis may and gold is up $26 to a new all-time nominal high while silver is up over $3 clawing back toward Sunday night’s high. Do these markets know something about intermediate inflation expectations that the Fed’s preferred and massaged intermediate term inflation expectation measures are missing? Tragedy lurks.

Comments are closed.