Key News

Oil Tops $50, Copper, Wheat Rise as Fed Debt Plan Spurs Optimism on Growth (Bloomberg)

Editor's Comment:

The tail end of that headline explains it all right now:

“Fed Debt Plan Spurs Optimism on Growth”

Are you optimistic?


“There were of course extraordinary gaps in his knowledge. His knowledge was aesthetically guided, with the result that he was completely ignorant of nineteenth-century economic history. Totally ignorant. He just disliked it.

“I had to tell him every day, not so much about economic history, but even about earlier English economists ... if I had introduced him to English inflationist of the nineteenth century, that might have put him off.

“... if you take his time of study, I don't think he spent more than a year learning economics ... I like to say, I liked Keynes and in many ways admired him, but do not think he was a good economist.”

F. A. Hayek

FX Trading – Rambling for an Answer ... Has Anything Changed?

I sat in my chair yesterday afternoon, as I'm sure many of you did, staring at the trading screens. A six-chart spread of the major currencies on one computer monitor looked a lot like a fireworks show.

Aren't Federal Reserve announcements fun?!

Bloomberg picked up a sound bite where an economist dubbed the Federal Reserve the “Rambo Fed.” I particularly was thinking more along the lines of the “Kamikaze Fed,” but perhaps that's not appropriate -- my diction has never really been very precise.

But anyway, now that the Fed and Ben Bernanke are officially becoming movie and TV stars, respectively, I ask: ‘What else has changed?' Of course, the Fed tweaked their policy yesterday. Instead of messing around with scissors, scalpels and kitchen utensils they're now taking on our economic shortfalls with a trio of combat and bowie knives.

And thank goodness ... because people were starting to think they really didn't have an interest in this battle.

The raging political debate since this economic meltdown commenced has been between two parties, it seems: those who want more stimuli and those who want less (or none at all).

The argument for less (or no) stimulus measures taken by government and pseudo-government entities rests largely in the defense of capitalism, free markets and sound money. Jack and I have made some efforts at arguing from this side.

But of course, on the other side are shouts of “We HAVE to ... We NEED to ... We MUST help this economy and we must not hold anything back.” It has seemed that after each additional step towards bailing out or stimulating or pumping cash into this economy that we continue to look back and say “It wasn't enough,” and “This problem is much bigger,” and “This time we need to do XX and XX …”

But really, I wonder how long these efforts will last. And how long will they prove unsuccessful; maybe as long as they last?

I mean, Ben Bernanke has basically unloaded the heavy artillery and is willing to employ whatever crazy Rambo-style tactics it takes to emerge victorious. Ok, but minus the Rambo reference, haven't we already talked about how Ben Bernanke has said he's willing to take whatever steps necessary to shore up the economy and initiate healthy growth?

Perhaps he needs to take a vacation. And there are probably a few pals he could take with him when he goes. “Just go ... have a good time ... the tax payers will cover it ... it'll probably cost us more with you people here anyway.”

So again, I ask: what has changed? Is it the commitment to buying treasures rather than a mere insinuation? Is it the buying up of a whole bunch MORE mortgage debt? Is it the opening up TASLF (or whatever the current acronymic-fund that's being tried now)? Sure, these are changes ...

But nothing has yet changed for the better. Nothing has yet turned this economy around. Could the recent efforts do the job? Sure. I guess. Do I think Ben Bernanke has finally gutted the ruthless enemy that's left only economy destruction in its path? I wouldn't get comfortable.

Until we're proven wrong, we can't help but turn back to glaring imperfections of “stimulus” ...

Recent efforts are said to have been taken to help loosen credit markets ... so that everyone is able to borrow. The stated goal is to help consumers and small businesses. (I wonder if this is a requisite remark to conceal the fact that consumers and small businesses are actually being taken to the woodshed in many ways already.)

Lower rates (of all varieties) seem to be the intended means towards revitalization and recovery, so they say. But is it not the case that rates can go too low? Is it not the case that we're running the risk of stimulating unhealthy investment ... again? Can sustainable growth actually be built on such a simulated foundation?

I want to say borrowing can become inflated, that we are condoning irresponsible financial behavior, and that we do risk building ourselves up for another more treacherous collapse. I want to say there's no way we can spend our way to prosperity.

But that's just the pessimist in me talking, I'm sure.

Either way, what can we do but watch the currency charts? Yesterday was a tough one for the buck. And though, as I've tried to convey in today's missive, it doesn't seem like a whole lot has changed yet. For the dollar, the sentiment shift came hard and fast, and it came at a time when the buck already looked due for a rest, technically speaking.

The risk-takers have sounded the rallying call and are taking bets that this time the Federal Reserve has got it figured out; that this time they've done what was necessary to have done many months ago. As long as these ideas prevail, the US dollar loses its risk-aversion appeal and sinks.

But for how long? Let me just say: I wonder what weapons the Fed will unveil at their next policy meeting.