Monday, September 17, 2007


"The leading religion in America is not evangelical Christianity, it is the worship of unearned riches, and its golden rule is the belief that is is possible to get something for nothing. Its holy shrines are Las Vegas and Wall Street."

--James Howard Kunstler, "Shocked, Shocked"

In a freshman seminar I am teaching, for the first time ever I had a student state that he dreamed of becoming Fed Chairman. Dreams of being a baseball player, an astronaut, a soldier, even President of the United States have been replaced by dreams of being in charge of overnight bank lending rates. Our young have an uncluttered idea of the most direct path to power, and growing up during the Alan Greenspan years provided a clear lesson on who really mattered in Washington.

I'll bet the one person who certainly doesn't want to be Fed Chairman right now is Ben Bernanke. With oil at an all time high today, the dollar hitting new lows against the Euro and gold inching up to $725 an ounce, cutting rates will really get inflation cooking. Greenspan argues in his book that we are about to reach the end of the "benefits" of globalization - namely, cheap labor whose everyday low prices we import - and that in the future the Fed will have to keep normal rates up in the double-digits. I wonder if Bernanke is finished digesting those nuggets as he gears up to cut rates tomorrow.

However, he knows better than anyone that not cutting rates tomorrow will plunge the financial sector back into the freefall that we experienced in August. Here's something many of you probably never thought you'd see in our lifetime: there have been runs on banks in California and now in England. People are losing confidence in the system, but to restore trust by cutting rates will be to further accelerate the worthlessness of our cash. Everything is getting more "expensive" - another way of saying, there's less of it. We may worship at the altar of St. Something-for-Nothing, but she's a good bookkeeper, and the bill has come due. I'm betting that tomorrow Bernanke will lower interest rates by a quarter percent, and no one will be happy, not the high finance boys who want at least a half-percent, and not the inflation hawks who don't want to subsidize moral hazards. Black Tuesday, here we come.

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