• Bernanke And The Super Fed Say It's Over

The loud, national sigh we heard this week was America gratefully, but suspiciously, acknowledging Ben Bernanke’s claims that, well, it’s over. The Fed Chair is satisfied that the recession is in a turn around mode, or at least stabilizing. Covering his backdoor, he added that America can look forward to a sluggish recovery. Just in case anyone missed it, he added, with all the vigor and compassion of a snail, “Unemployment will stay high for some time. It’s not going to feel like a very strong economy.”

You cannot get more confident than that, can you? With that level of insight you can now go out and make major decisions for your own future, such as, whether or not to buy a house, upgrade your car, perhaps even fly to Europe on the wings of hope. No? This is the kind of foggy thinking and direction we have come to expect from the independent organization that controls America’s most important economic element – America’s money. Did he define an exit strategy for the money being fed into the system? Did he even describe where, or how, that money is doing anyone any good? Not so much.

Bernanke is the same expert who only last year told Congress wonderful fairytales about housing, the markets, and the economy just as the bubble was beginning its implosion. This is the also the Bernanke who, along with Geithner, in a desperate moment of panic made a deal with J.P. Morgan, taking on $30 billion of toxic derivatives from Bear Stearns. Even former Fed Chairman Paul Volcker thought the deal impelled the Fed to, “extend to the very edge of its lawful and implied powers.” What an incredible understatement. The agreement viewable here, was not a loan as claimed, but an outright purchase of an ephemeral mountain of garbage. It was in effect a gift. Did anyone in Congress jump on this breach of law? Of course not. No one would dare question The Fed. Did anyone explain why Lehman was sent over into the abyss, but not Bear? Don’t ask. You don’t want to know. You also won’t be told how it was possible that giant firms including A.I.G., were allowed to gamble with complex derivatives that their own executives didn’t understand. The crumbs leave a trail from Wall Street, all the way to Congress.

You will note that the first signature on the hastily created agreement (linked above) is Tim Geithner’s. You can judge for yourself with a little analysis of Tim’s “signature,” what help such a massive ego (IMHO), will bring to your neighborhood. While you’re at it, also check out Morgan CEO James Dimon’s scribble on the signature line. Let me know what you think he’s all about. Looking at that signature, I doubt anyone really knows, but in the meantime, understand that he has more influence on your life than most of your friends do. These are some of the egos that were so overwhelmed with arrogance, and so confident in self intelligence, that there was nothing that the economic super-bubble would throw at them which couldn’t be handled. As the world economy melted about their ankles, all they could do was panic, and in turn panic everyone around them.

Bernanke, Geithner and their buddies are effectively in charge of taking good care of the largest members of the banking industry. This does not include your pocket book, or your wellbeing. Although Greenspan was vilified, and slapped into anonymity for having completely missed the housing bubble, Bernanke was right there with him promoting almost non-existent interest rates, downplaying obvious dangers of the bloated borrowing, and belittling concerns of inflation. The fact that no one in America was saving a dime since there was no Interest incentive to do so, didn’t seem to matter. In fact, it still does not seem to matter to Bernanke. How much are You getting on your savings account? How’s your borrowing capacity coming along? Getting any good business loans at cheap interest rates lately? Wall Street will make money if you spend, if you churn, but not so much if you build equity in those resources that matter most to You or if you invest in yourself.

When you listen to The Fed Chairman's claim that he can tighten monetary policy, and actuate programs such as selling securities from its portfolio to take cash out of the market, as needed to head off inflationary pressures, .... based on past record, you can now bet against him. Beyond applying common sense to his present prognostications, his track record suggests that he will not be able to reign-in inflationary pressures. You can assume that with the fast expanding money supply, inflation is returning for a visit that may be reminiscent of the late ‘70s. The amounts flying into the system are enormous, and making the assumption that The Fed will be able to “repurchase,” or appreciably retract the process, is to assume the improbable will occur. When Bernanke says things like, “I don’t regret anything we’ve done,” heed the arrogance in the context of the domain which is his sovereignty. Most importantly take everything else he says with a grain of salt, and let's remember that he’s referring to such things as taking taxpayer money/debt for the bailout of institutions that should have been left to flail in the currents of the options available to them in law.

Are we to believe anything Bernanke, or his pal Tim, tell us? Nothing he did or said in the past was either rational, intelligent, or truthful. Alright, so it’s easy to beat up on him. Oh, but wait, he’s still in charge of The Fed. Along with Geithner, he remains in complete control of all things monetary in America. Why? Because neither the President nor Congress have either the knowledge or the backbone to question The Fed and its friends on Wall Street. They certainly don’t have the intellectual or emotional capacity to implement any serious change at the top of the money food chain where it is most needed.

It is unclear what has misfired in the President’s acumen when we hear yesterday from Bernanke that Obama wants to give The Fed new supervisory powers to oversee the financial system. Isn’t that just what you wanted to hear? The same Fed and Bernanke who have been so intuitive, diligent and ingenious over the past decade will be given more power? They don’t report to anyone now, if they’re not in the mood, so how will more influence be of advantage to the overburdened taxpayers, exactly? How about calling for the observance and application of existing laws, or implementing current oversight capabilities before expanding and swelling expensive government bureaucracies? How about appealing to Washington politicians for some demonstration that they understand why taxpayers have elected them? How about demanding a little transparency? Apply the controls available, without inventing new ones, and refrain from creating a Nation dependent on its government (through politicized cronyism) for financial success. Prosperity has no address on that road.

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• A Nation Changing First 100 Days

Marking the First Hundred Days of a Presidency is a benchmark, a reflective moment of sorts, and more importantly it is a point at which a nation assesses the job done by its new leader. In an environment where the vast majority of the national media has demonstrated no objectivity in its reporting on the Obama White House, America is being aggressively rushed into potentially destructive economic adventures.

Two social objectives of the new Presidency that should be commended are Obama’s goal to extend the availability of education and the provision of universal health care. That he plans to achieve both in a time of economic crisis is difficult to comprehend, nevertheless, these should be long term objectives worthy of a modern nation since superior education of a country’s youth ensures its stability for the foreseeable future. Even the much maligned George Bush initially set out to bolster educational spending when he stepped into the Oval office.

Obama came to the White House an ideologue, with experience very distant from the world of economics, business and entrepreneurship. He has been energized by a voting public seeking renewal, promises of a better tomorrow, end to the war in Iraq, and deliverance from the weight of the recession.

The President’s principal focus and attention through the First Hundred Days should have been the economy, and should have remained the economy. His shotgun approach to administration has exposed his weakness on the economic front which allowed Bernanke, Geithner and Summers to wreak havoc over the taxpayers’ futures with commitments of trillions of dollars to the banking community. Obama’s lack of knowledge, experience and interest in all things economic, have left individuals who were responsible for the mess, in charge of directing the grand Wall Street bailout program, the stimulus package, and the restructure of corporate America.

Seemingly stuck in silent stupor, the MSM uncritically observes an administration already heading to almost $2 trillion dollars of deficit, and planning the spending of $4 trillion in the 2010 fiscal year. It almost appears as if the numbers have numbed taxpayers. "The size of such spending is incomprehensible, so why worry about it?" “The Administration and Congress aren’t worried, so why should we be?” “Wall Street seems to be in agreement, so that must be good? No?” Bankers on Wall Street are in fact ecstatic with the Administration’s profuse distribution of taxpayer dollars.

Somewhere floating through the ether is the assumption that all this bailout and stimulus spending of trillions by the government will magically create a vibrant surging economy that will enable repayment of the trillions borrowed. Preventing failures of major financial institutions has been sold to taxpayers as “a must do or we all starve,” concept with absolutely no valid presentation of the facts underlying either the size or nature of the bailouts or the assets being bailed or even where the cash really went. All the while Obama promised transparency, … well, actually he pretended he wanted transparency. There is no transparency, but this is a minor footnote on the real agenda.

The escalation of government presence, government interference and government corporate welfare is an ideologically launched imperative that has very effectively used fear to restrain objection. The public has acquiesced. This government expansion will not only never be reversed, as is the tendency with most government expansions, but it will create a fundamental shift in the core of the American psyche, the American business landscape and in the American social system.

We can expect that the commitment of such unprecedented government intervention, expansion and spending will lead the nation into double digit inflation since the economy will not generate the surge in tax payments necessary to cover the debt, the interest on that debt, and the total government committed funds over the coming twenty years.

As noted here previously, this President’s First Hundred Days should have been spent understanding the complexities permeating the economy of the great nation he was taking charge of, and most of all he should have established for himself a thorough grasp on the nature of this peculiar economic ingredient we call inflation. Inflation is a destructive force that destroys the wealth of a nation, of companies and of individuals.

With all the brain power available to the largest media outlets, it would be enlightening to occasionally hear a perceptive question, or a contrarian article of substance objectively assessing the measures being implemented by Washington. All Presidents obfuscate when selling themselves, however, after One Hundred Days, it is about time the media presented taxpayers with some analysis that might bring about some restraint on the abuse being escalated on them and the next generation by the Obama White House and its suppliant Congress.

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• Recession? Depression? Deflation? Inflation?

The world of internet search has become a reasonable gauge of a population’s concerns. Obama has almost disappeared from the top of the list and has been replaced by the economy. The shift suggests more than an elemental change in unfolding interests. The first has been a result of serious preoccupation with the new face of America as he becomes the 44th President, the latter and current driver of search engines, is a deepening concern for personal economic well being.

Our stress propels the investigation. We are anxious. The uncertainty of tomorrow, clouds our present. Until we find answers that might lead to a plan, the apprehension will persist. On our individual paths, along the trail of our human endeavors, we encounter various challenges to our physical, intellectual, emotional, or spiritual vitalities. Relief usually arrives in the form of clarity and a plan. Knowing what we are going to do provides a relief valve for the anxiety, even before we step into action mode. Our disposition improves and we then walk with purpose.

This week brought news that the U.S. has been in a recession since December 2007. That is what economists have decreed, after thorough analysis of past economic activity across numerous indicators, including incomes, production and employment. That is not helpful to our cause. The ability to look backwards is great, but what will tomorrow bring, and how do we deal with it? Expertise tells us that we are in a deflationary period. No one is raising the likelihood that inflation may be around the corner as the printing presses accelerate to satisfy the currency demands of the national debt and payments on maturing obligations. (more on this in future articles)

Our media is particularly adept at elevating confusion and adding drama to the unraveling economic events whirling conscious thought into a frenzy. This also is not helpful. One pundit provides an explanation and prognostication that appears valid, only to be immediately followed by another expert with a completely different and opposite view, which also seems valid, and based on its delivery, appears even more so. And both read the same tea leaves.

No matter what comes tomorrow, or next year, whether recession, depression, deflation, or inflation, you will get through it because what matters is not so much what might be, but what is. Your common sense will guide your steps as it did yesterday. You already know that it is time to do all that is in your power to get rid of your personal debts starting with your credit cards. You already know that it means making extra payments, however small, until debts have all disappeared. You also already know that it means doing without a long distance holiday, or taking the time to look for discounts on daily purchases. Your natural spending to meet your needs will over time sustain the economy. Discount any implorations from certain leaders who would want you to return to profligate spending.

This economy will lead us to become more reliant on communal groups, including family, where support and encouragement is available, and where shared perceptions can yield gratitude for the smallest gifts of life. Attitude can lighten the path and crystallize solutions, easing anxiety. We will all become just a little more productive in small ways that impact the whole.

Perhaps the internet will soon gauge that the level of voices clamoring to be heard by their elected officials represents a majority of traffic until common sense is evidenced in Congress, reversing the abusive past indiscretions and their listening skills have been sharpened. Then we can expect some abatement in national anxiety levels and the next July 4th celebration will be an observance of national renewal.

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• LEADERSHIP MISSING IN ACTION, DON’T BLAME THE PLAYERS

The unfathomable complexity of the current financial crisis has political campaigns pointing fingers of accusations. Not a finger in sight is pointing to a path out of the toxic mess. Neither of the Presidential candidates has a clue, and Congress is busy with the business of creating a new perception – that of smoking out culpability. They will do nothing, since the controlling side of Congress was on the receiving end of much financial support distributed by individuals and organizations Congressmen should have been conducting oversight on. Congress will be pained to dispense any punishment or censure onto anyone in any way affiliated with its own benefactors.

We expect supposed experts or leaders to engineer a path out of the confusion and panic. They have none. Adding to the long-term borrowing that will squarely fit on the backs of present and future taxpayers is not an answer, and is absurd. The members of the financial community that remain standing and who went along with the abuse of the system which was fuelled by Federal demands for easy money, should be required to bear half the burden rather than be able to pick-off the bargains. Unfortunately the lender of last resort is being forced by Congress to bear the whole load, fully subsidizing irresponsible institutions, no matter what is pretended.

In the face of the current international financial crisis, any Presidential candidate pretending that middle class taxes will be reduced is purchasing votes with empty promises. It is surprising that few in the media are questioning such obvious but very fallacious pandering. It also underscores a disturbing dearth of understanding. Not only will the government not be able to lower taxes, it will have to raise them.

Although very few predicted this crisis, all are surprised at the speed with which the unraveling has occurred. Accelerating the printing of dollars will be necessary to provide amongst other things, enough liquidity for banks to prevent collapses on Main Street, and such liquidity will also have to be provided to other financial institutions, and might even have to be extended to businesses. This will unfortunately impact the value of the dollar, and therefore will require a magician’s hands to find balance on the levels of intervention.

Responsibility for the evolution of the volatile liquidity crisis lies with a coalition of disparate participants, mortals and organizations. From the White House of the late ‘90s, to Congress, banks, non-bank lenders, brokers, money market funds and borrowers, the abuse spread through all levels of society. Although we may relish witnessing the spectacle of some of the most egregiously offensive abusers parading in front of Congress, we should remember that trillions of dollars were made, spent or put away throughout the period of the bubble’s creation. Whether such dollars found their way to political campaigns, oceanfront mansions in the Hamptons, or Senators’ homes purchased with favorable mortgage rates, or to Toshiba for wide screen TVs, all who participated ate from the feast. That some ate more, much more than others, is basic common human nature where egos often serve the self first and best.

Human nature also being what it is, the creativity tapped for structuring the complex financial instruments that provided energy to the economic boom, and extended its life, will in time find similarly innovative answers to solve the wreckage that it has wrought.

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• WHERE IS THE ECONOMIC LEADERSHIP?

Ben Bernanke delivered a bleak message to Congress today with the usual waffling and back door escapes on any firm statements related to the Nation’s economic future, even its near term prospects. Although, in fairness, we should note that with as much aplomb as he could magnetize from Greenspan’s past performances in front of Congress, he emphatically stated, “accurately assessing and appropriately balancing the risks to the outlook for growth and inflation is a significant challenge for monetary policy makers.” No kidding? How long did his staff stay up to come up with such vapid pronouncements?

How does someone with so little spine get to such position of power and influence? Even as a front man for back room boys he comes off badly. At least when Greenspan double-talked his way through the halls of Congress we could admire the extent of his obfuscating turn of phrase. He said nothing, but he said it with a nonchalance, even a sang-froid that made you smile in wonderment questioning if this guy was human.

America looks for leadership out of the mess it finds itself in, and the best the Fed Chief can do is warn Congress against doing anything about the futures markets, but he does tell lawmakers to tackle the uncertainty in the housing market. So now, Congress, as confused as ever, will head to the commissary for a free meal on the taxpayers, and mumble to itself over the perplexing state of affairs with no answers in sight, and no one to turn to for guidance.

Inflation continues to advance, although to what degree is unclear since it very much depends on what one measures, but the price index is expected to exceed 4%. The food staples are seeing much higher increases however, but since non-food finished goods and services are in the calculation mix, the numbers that have the most impact on the average family are distorted.

The millions of small businesses at the core of the economy are being affected by the credit crunch, but their plight is ignored while they watch major Wall Street firms getting bailed out. Have no fear though, the SEC is actively investigating the subprime meltdown, stock manipulations and short sales, as well as false rumors tainting brokerages and hedge funds. …And heads will roll. OK, well, maybe not. Effective scapegoating is an extremely difficult art to practice. Where is Eliot Spitzer when the Nation needs him?

The recent blame for the housing market deterioration placed on the hapless borrowers who indebted themselves beyond their capacities has not been very subtle. Policy makers’ only planned action is to set restrictions preventing borrowing by the great unwashed. Credit quality standards will be raised. Oh, joy. Is Congress asking the guys who ran those disasters called Fannie Mae and Freddie Mac into bailout territory to return their million dollar bonuses? Congress is mute. Is anyone on The Hill or the White House raising an eyebrow over the usurious interest rates being charged by banks and credit card companies to a majority of clients? Bernanke’s tarot cards predict a late fall interest rate increase to 2.25%, which is a number as foreign to most borrowing taxpayers as the number of stars in the sky.

We cannot expect superhuman talent to accurately read crystal balls, and obviously economics is not a science, but leadership imbued with some common sense is not too much to expect from Washington and its expensive hired help. Leadership, plus some effectively placed oversight.

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• 44th. PRESIDENT - YOUR FIRST CHALLENGE

The 44th. President of The United States will inherit a financial house in state of disarray. Upon assuming the Office, the new President will have to be furnished an unobstructed perspective on a slowing economy clouded with surging inflation baring its indignant and unprejudiced fangs. Add, to the context of this vista, the enormous interest on the national debt, along with the long term consequences of sustained budget deficits of the size America has been consistently incurring, and you have potential for serious adverse impact on the social fabric of the country. First and foremost, this troubled and uncertain economic scene has to be effectively addressed.

The recent rate of commodity price advances, particularly oil, and the resulting hikes in the costs of goods is unsettling all forecasting based on economic indicators and cycles. Price escalation on certain products will simply reduce their consumption, however strong price increases in all staple goods are placing hard upward pressure on inflation, and demand continues unabated. These price pressures are coming in significant measure from a large number of developing countries that have created a demand that was not present in the pressures responsible for the wild inflation swings of the mid 70’s to early 80’s.

There is debate as to how inflation should be calculated, however, Inflation rates are currently fundamental measurements dependent on the contents of the basket of prices used for the calculations. Such calculations can be manipulated. Accurately defining current inflation toward the higher levels might not be advantageous if it were shown to be at a rate of 8%, for example, instead of the 3.9%, while ten year treasuries are at 4%. A central bank may enjoy the current understatement of inflation, and such understatement might also serve to minimize government liabilities which are indexed to the floating rate, like Social Security. Furthermore, a high level of inflation would suggest stagnant, if not contracting GDP. Then if this isn't enough to unscramble, we will likely see a reduction in total lending which will incite the winds of deflation. Amidst the confusion of reporting, the new President will have to provide some guidance and leadership to the Federal Reserve, rather than humbly await its decisions, and doing so will require accurate, untainted information. Altering the course on the Fed’s current strategy to continue dropping interest rates would affect inflation and the current slowdown inversely, making any decision difficult.

From the perspective of any conventional analysis and whatever the published inflation rate might be, the reality is that purchasing power of the dollar, meaning the purchasing power of the taxpayer, is dropping. That is the critical element that all taxpayers can feel without being fed convoluted or distracting statistics. Their real income is shrinking.

The medicine, which may well include higher government revenues coupled with reductions in spending, while initially having a bitter taste, would satisfy one critical leg of managing any government, that of paying current bills without laying off staggering debt onto future generations of taxpayers.

The current economic climate and feelings of uncertainty affecting North America differ from those of previous downturns in relative breadth and depth, and require unique solutions. Even a decision to overtly confront the challenge would be reason for applause since it would present a sign of impending responsible governance.

The 44th. President with have to rapidly re-establish a long lost sense of confidence, that perennial footing upon which national and international leadership, as well as economic progress, are built. The new White House will have to assertively confront the fiscal challenge, sell it to the taxpayers, and energize Congress to support the required major budget overhaul toward sound fiscal policy.

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