Money Matters

One of our perennial gold bugs on the Conservative Coffee house mailing list posted these two depressing links:

https://www.newsmaxstore.com/nm_mag/free_mischief.cfm

Advertisement for Milton Friedman's last book, written before his death.

and http://english.pravda.ru/opinion/columnists/107459-0/

More or less your standard post-Soviet Russian sour grapes. How these people hate us - and what did we do to them ? As for the person who posted this informatsia, I see that his hatred of central banking has pushed him out into the deep end, even more than usual. I suppose we'll soon be treated to his occasional homilies on the importance of returning to the gold standard, or the gold exchange standard, whatever.

Now, I'll grant you that under Bernanke's chairmanship, money is pretty worthless right now. Indeed, if Bernanke did actually put in a negative discount rate, it would be less than worthless, it would be a negative asset. And, yes, lenders are reacting to all this by putting a premium on interest rates, essentially demanding a higher yield for the money they lend you, This is not a good time to be in debt, at least if you hold undsecured debt. As far as secured debt is concerned, there is a deep problem for those whose jobs are threatened, and whose equity positions have eroded. I would be one of those people. Still, if you can just hang in there, there are good deals to be had - unless inflation wipes out the restructuring of these markets. This is true in housing, it is true in stocks. Not true in bonds, which just are not a good investment right now. I admit it is tempting to try and hide one's money in commodities, but there is no way to shield your money from speculative forces. Jim Cramers rules are the best - if you want to buy something. make sure that something is what you really want. Don't sell short unless you need to do so, and you know it is the right thing to do.

So, is there no long-term effect, no hangover ? Well, I will not go that far. There will be winners and there will be losers from these "adjustments". Mostly, China is in the catbird seat. I see in the news today that the Russians, through the Canadian firm Magna, just sealed the deal for GM Europe aka Opel. Merkel needed to get this done so as not to expose German assets to the bigger raid on GM by the US government and the UAW, so this happened just in time - however there is risk that Opel jobs will be moving east to Russia; maybe some of the Turkish Gastarbeiter can move with the trade, but this is the best deal the Germans could get. VW is likewise embroiled in Eastern Europe - they invested all over the place, and now have a good bit of overcapacity and too many brands to worry about.

Anyway, back to the Keynesian front along Connecticut Avenue. Bernanke is out of runway. He cannot drop the discount rate without causing serious damage to the dollar, and to the US economy. Oil prices are rising, and it is clear that OPEC thinks it can now continue to fleece the golden goose without killing it. As far as the Treasury is concerned, I've never seen such a nightmare. In theory loose fiscal and loose monetary policy is the most stimulative possible policy - a real full court press. As is well known, it will take some time to burn down all this pork and it will not burn cleanly. Obama's policies on defense and the environment will result (at best) in structural unemployment and (at worst) create recessionary forces that cannot help slow the economy. Add health care restructuring to the mix and you have a real mess on your hands. These guys, even if some of their goals are laudatory, are off trying to do too much, too fast. So if you thought the Bush 43 administration had no sense of limits and boundaries, the Obama adminstration makes them look like pikers. Guys like Kudlow and Cramer are out there every day reporting what is happening to the markets, but the political reporters are rather - slow on the uptake. But even they cannot completely ignore what is happening, even if it is not in their range of expertise. It was fun watching Paul Krugman squirm on the Stepanapoulos panel today as all the other members gasped in horror at what is going down with GM. But this is serious stuff, and nothing you do is risk-proof, so:

I did find a hedge fund for all you doomsayers out there. They call it the "Black Swan" fund:

http://online.wsj.com/article/SB124380234786770027.html#mod=rss_whats_news_us

As for the rest of us...

Fac fortia et patere (Do brave deeds and endure)

Bill R.