Channel-flipping the other night, I happened to catch a bit of Jim Cramer's manic show, "Mad Money." In the show Cramer advises "investors" where to move their money next as market conditions change from minute to minute. To follow Cramer's recommendations, you would have to change your investment portfolio daily if not hourly. Hence, the reason why I put the word "investor" in quotes.
During the segment I watched, Cramer bemoaned the Fed's adamancy on not yet lowering rates, and plaintively foretold baleful consequences for those poor people without portfolios. A true man of the people, he lamented the hardships now being faced by the indigent folks who had taken loans that they could not afford, and who are now having their houses foreclosed. All along we thought he was worried about the Hampton houses of the high finance boys, but his summertime rants have been actually motivated by Christlike sympathy with the poorest among us. The fact that he expressed no concern for the poor folks when they were being peddled these gimmicky loans should not dissuade us of the genuineness of his charity.
I have good news for Cramer: there are several economists who have thought up a nifty policy that would prevent foreclosures on the impoverished while avoiding the moral hazard of bailing out the predatory lenders who are now looking for a guvment handout. It's an "own-to-rent" idea, in which strapped sup-prime borrowers would begin paying market rate rent on their houses while the lenders would have to keep the loans and be forced to become landlords. They made the loans - make them live with the consequences of their chicanery. I'm not betting that Cramer is going to float this idea on his next airing of "Mad Money": now that's a show with an appropriate name, for once.
However, I'm beginning to warm to the idea of a Federal Reserve rate cut. Yes, it will help the Hampton boys, and could potentially reinflate the bubble for a few more months or years. The "downside" of this strategy is now being seen in the respective price of gold (which closed yesterday at $720 an ounce) and the fall of the dollar against the world's currencies (the dollar fell to an all time low against the Euro this morning). The rest of the world knows that the cheap money option will make U.S. bonds increasingly worthless, and foreign investors will begin dumping them faster than they already have. We'll inflate the economy at the real cost of making our currency increasingly worthless. No more everyday low prices. Unless you've already stashed some gold. Natch.
The upside of an inflationary scenario is that, in the long term, an increasingly worthless dollar will require the United States to stop living beyond its means: as there are fewer purchasers of guvment debt, we'll have to start paying as we go. Inflating the dollar may also reverse the outsourcing of production and force us to begin to making things of value here at home once again. The hard truth of our inflationary future is that the Treasury printing presses will effectively make everything we buy more expensive (oil closed yesterday at an all time high). Our incomes, stock prices and housing prices will make us feel wealthy, but we'll really start to feel the pinch of rising oil, food and commodity prices. With a falling dollar we'll find that all our wealth in fact only results in our inability to afford those everyday low prices what we once took for granted. It'll actually start to be more expensive to buy a product from China than a product from the town next door. To begin to be able to afford things of value, we'll have to start making them at home again. We won't be able to buy as much, but we will buy from each other and re-create an economy of more local and regional interconnection. So, thinking about it further, maybe Cramer isn't just thinking about a guvment bailout for the high finance boys - he's really a localist at heart. Whatta guy...