The Federal Reserve's New Liquidity Injections And Other Ramblings Learned From The Dalai Lama
The Fed's actions this past Wednesday won't cure what ails the global economy. It wouldn't have fixed the problems a month ago, a year ago or any other time. Those who are now blaming the Fed for upsetting their predictions of global growth ad infinitum have found their scapegoat. The Fed. Fed actions might delay inevitability some period of time but that's about it. As we've discussed, the Federal Reserve doesn't control the economy. But, they do make a convenient scapegoat: everything the bulls have been telling you about forever growth in the global economy is now wrong because the Fed did it. Or so they will say.
The Fed does serve a generally constructive role even though you'd never believe it from reading much commentary. For every argument criticizing a decision the Fed made, one could probably present as compelling a counter argument as to why they did it. Not that I agree with all of their decisions or support all of their policies. But, that doesn't make me right either. Do they make mistakes? Sure. Is hindsight 20-20? Of course. But, frankly as I wrote quite a while ago, I couldn't think of a better chairman for today's ills than Ben Bernanke. Even though he is being ridiculed by many. Especially for not telegraphing his actions to financial markets. Well, to a certain extent, there is an argument to be made that Wall Street takes unfair advantage of the attempted transparency of the Fed. So, I'm not sure that being open to market forces deciding future policy is such a bad modus operandi when dealing with Wall Street. Greenspan learned to deal with this dilemma with doublespeak. Will Bernanke adopt a similar position over time? As long as all Fed actions are clearly transparent concomitant to their actions and Fed officials are openly articulating their thought processes in real time as has been the case, it allows them to refine their position with open criticism and feedback from market forces. That could lead to better and faster policy decisions. To date I believe it is very hard to argue with Bernanke's leadership. But to understand my support for Bernanke, you must realize that I don't hold the Fed responsible for the economy nor do I have some misguided belief that the Fed controls, fixes or saves the economy. If you somehow still hold to this myth of Fed omnipotence and their involvement being the primary fault that the world economy is losing steam, then please tell me how short term rates below market rates for a short period of time post 2000's market crash translated into what will very likely be posthumously called the biggest global asset bubble in history? Yet, it is likely the most commonly accepted position amongst stock market and economic bears that everything we are experiencing was because Greenspan did exactly what I stated above. He lowered rates below market rates briefly. And this caused billions of people in China, England, Brazil, Mexico, Germany, Spain, Australia, India, Canada, Russia, the U.S. and the rest of the world to create this bubble at the same time? The bear case using this argument is entirely inaccurate as is their constant bleating that the Fed is printing money. But it sells for many reasons. Of course, I could be entirely inaccurate and this might not be a global asset bubble. Valuations for assets on a global scale not witnessed at any time in history might just be a new state reflecting new global wealth. That is really quite funny. But, that too is also a position held by many who are bullish.
With the move announced Wednesday the Fed is in the early stages of that generally constructive role. That is attempting to save the banking system and our deposits. Those professing moral hazard and the fact that society shouldn't bail out the messes created by Wall Street are surely correct in theory. (By the way, Herbert Hoover and many government officials held this belief in 1930. They were also right in theory. Unfortunately, 9,000-odd banks failed in the 1930s. Nice theory.) In reality, failure to save those who have benefited greatly from creating this mess would mean society could lose much of our life savings deposited in these institutions. Is a bank bailout fair? Of course not. Does this type of bailout cause banks to do things they wouldn't do if we didn't have a central bank? Maybe.
The reality is that we had bank failures, and alot of them, before we had a central bank. Banker stupidity is not the result of a central bank as many believe. Bankers have been and always will be stupid. Remember that profound bit of enlightenment. The Dalai Lama shared that great piece of wisdom with me in a dream. Something happens to the intelligence of people when they get their hands on other people's money. Just run down the list of global financial institutions this cycle and that becomes apparent. And, it will become more apparent as the rot spreads to names and countries not yet implicated. By the way, this is also why the majority of politicians are timelessly foolish. Another profound vision from the Dalai Lama. Profundity abounds on this blog. Eh?
Why does it seem like most every economist and market participant believes the Fed will save us? Or, as Jim Rogers believes of China, that the communist central bank will save their economy from the consequences of a bubble if they only act to cool the stock market right now? So, where does this belief in divine intervention from the Fed come from? It is what we are taught in school. And that is what is reinforced every single day of our lives by media and 'experts'. But then we are all taught to believe many things that are simply not true. The Dalia Lama is all over this post.
(I'm going off tangent for a brief commentary on an odd historical parallel. There are many people disenchanted with the U.S. right now, Rogers being a prime example, and I'm not interested in debating the merits or demerits of current politics. Mostly because I can never seem to find much merit in any politician. But I really find the actions of Jim Rogers incredibly interesting from historical parallels. As I recall, Rogers has gone so far as to characterize Americans as not wanting to work and having a sense of entitlement--I'm paraphrasing his exact words since I didn't keep the video interview so I apologize in advance for any misinterpretations should there be any.--I find those characterizations rather odd because they don't describe anyone I know. Be that in the U.S. or anywhere else. Are they based on reality or personal bias?
The fact that he is moving his family to communist China and wrote a book espousing communist China's greatness while predicting the demise of the U.S. reminds me of an eerily similar situation with Charles Lindbergh and Nazi Germany. Ironically or maybe more appropriately, bizarrely, that act happened the last time a nondemocratic country arose on the world stage as a great power. There are many more parallels to these two time frames but that would take way too much time to discuss.
How much does history repeat itself? Will the parallels end there? Will trade become a major contention and lead to global conflict as I have talked about? Is Rogers now Chief Sycophant for the Chinese communist Ministry of Propaganda as Lindbergh turned out to be for Nazi Germany? It all seems very odd and historically relevant. Rogers has made a point to make all of his actions very public. And, while doing so has made many dubious statements including such ridiculous notions as the Fed is printing money. Therefore, he is surely exhibiting extreme confidence in his position. A confidence based on reality or personal bias? What is his personal bias? Much of this makes me wonder if Rogers' actions are akin to a great prize fighter. One who cannot seem to retire while on top due to great hubris. Rogers could have retired as an investing legend after writing his book on the coming commodities boom post 2000. Instead, will his legacy be one where arrogance pushed him to fight one too too many fights? Human nature and history surely are fascinating if not often predictable.)
A very brief comment on the topic of commonly held beliefs. The very fact that I was wrong about investments and wrong alot when I was young led me to enlightenment. I was wrong because I listened to 'experts'. That very act in itself resulted in common and recurring failure. That is why I created my own investing and trading models. I had to "unlearn" what I was taught to be true by commonly held beliefs of experts. Now I more generally use their beliefs to refine my contrapositions. And, given no preponderance on Wall Street or economists have ever predicted a recession, being contrary isn't such a bad position. The definition of insanity is doing the same thing over and over and expecting a different result. Relying on Wall Street to enlighten time and again is by conclusion, insanity. Therefore, must have been insane. I'm better now.
On that note, think for yourself. Learn from others but no one knows more about what is best for you than you in every aspect of your life. To stand alone is not a bad thing. It means you have principles. That you walk your own path. That you have given thought to your position. That you are a free thinker. That you add significant intellectual value to society, your business and your life. In many ways free thought has more to do with the success of America's economy than any other variable. And, it most definitely has more to do with our success than Wall Street. A place where Warren Buffett tells us lemmings abound. Bankers and lemmings. Not a good mix.
"Do not fear to be eccentric in opinion, for every opinion now accepted was once eccentric."
-- Bertrand Russell
The Fed does serve a generally constructive role even though you'd never believe it from reading much commentary. For every argument criticizing a decision the Fed made, one could probably present as compelling a counter argument as to why they did it. Not that I agree with all of their decisions or support all of their policies. But, that doesn't make me right either. Do they make mistakes? Sure. Is hindsight 20-20? Of course. But, frankly as I wrote quite a while ago, I couldn't think of a better chairman for today's ills than Ben Bernanke. Even though he is being ridiculed by many. Especially for not telegraphing his actions to financial markets. Well, to a certain extent, there is an argument to be made that Wall Street takes unfair advantage of the attempted transparency of the Fed. So, I'm not sure that being open to market forces deciding future policy is such a bad modus operandi when dealing with Wall Street. Greenspan learned to deal with this dilemma with doublespeak. Will Bernanke adopt a similar position over time? As long as all Fed actions are clearly transparent concomitant to their actions and Fed officials are openly articulating their thought processes in real time as has been the case, it allows them to refine their position with open criticism and feedback from market forces. That could lead to better and faster policy decisions. To date I believe it is very hard to argue with Bernanke's leadership. But to understand my support for Bernanke, you must realize that I don't hold the Fed responsible for the economy nor do I have some misguided belief that the Fed controls, fixes or saves the economy. If you somehow still hold to this myth of Fed omnipotence and their involvement being the primary fault that the world economy is losing steam, then please tell me how short term rates below market rates for a short period of time post 2000's market crash translated into what will very likely be posthumously called the biggest global asset bubble in history? Yet, it is likely the most commonly accepted position amongst stock market and economic bears that everything we are experiencing was because Greenspan did exactly what I stated above. He lowered rates below market rates briefly. And this caused billions of people in China, England, Brazil, Mexico, Germany, Spain, Australia, India, Canada, Russia, the U.S. and the rest of the world to create this bubble at the same time? The bear case using this argument is entirely inaccurate as is their constant bleating that the Fed is printing money. But it sells for many reasons. Of course, I could be entirely inaccurate and this might not be a global asset bubble. Valuations for assets on a global scale not witnessed at any time in history might just be a new state reflecting new global wealth. That is really quite funny. But, that too is also a position held by many who are bullish.
With the move announced Wednesday the Fed is in the early stages of that generally constructive role. That is attempting to save the banking system and our deposits. Those professing moral hazard and the fact that society shouldn't bail out the messes created by Wall Street are surely correct in theory. (By the way, Herbert Hoover and many government officials held this belief in 1930. They were also right in theory. Unfortunately, 9,000-odd banks failed in the 1930s. Nice theory.) In reality, failure to save those who have benefited greatly from creating this mess would mean society could lose much of our life savings deposited in these institutions. Is a bank bailout fair? Of course not. Does this type of bailout cause banks to do things they wouldn't do if we didn't have a central bank? Maybe.
The reality is that we had bank failures, and alot of them, before we had a central bank. Banker stupidity is not the result of a central bank as many believe. Bankers have been and always will be stupid. Remember that profound bit of enlightenment. The Dalai Lama shared that great piece of wisdom with me in a dream. Something happens to the intelligence of people when they get their hands on other people's money. Just run down the list of global financial institutions this cycle and that becomes apparent. And, it will become more apparent as the rot spreads to names and countries not yet implicated. By the way, this is also why the majority of politicians are timelessly foolish. Another profound vision from the Dalai Lama. Profundity abounds on this blog. Eh?
Why does it seem like most every economist and market participant believes the Fed will save us? Or, as Jim Rogers believes of China, that the communist central bank will save their economy from the consequences of a bubble if they only act to cool the stock market right now? So, where does this belief in divine intervention from the Fed come from? It is what we are taught in school. And that is what is reinforced every single day of our lives by media and 'experts'. But then we are all taught to believe many things that are simply not true. The Dalia Lama is all over this post.
(I'm going off tangent for a brief commentary on an odd historical parallel. There are many people disenchanted with the U.S. right now, Rogers being a prime example, and I'm not interested in debating the merits or demerits of current politics. Mostly because I can never seem to find much merit in any politician. But I really find the actions of Jim Rogers incredibly interesting from historical parallels. As I recall, Rogers has gone so far as to characterize Americans as not wanting to work and having a sense of entitlement--I'm paraphrasing his exact words since I didn't keep the video interview so I apologize in advance for any misinterpretations should there be any.--I find those characterizations rather odd because they don't describe anyone I know. Be that in the U.S. or anywhere else. Are they based on reality or personal bias?
The fact that he is moving his family to communist China and wrote a book espousing communist China's greatness while predicting the demise of the U.S. reminds me of an eerily similar situation with Charles Lindbergh and Nazi Germany. Ironically or maybe more appropriately, bizarrely, that act happened the last time a nondemocratic country arose on the world stage as a great power. There are many more parallels to these two time frames but that would take way too much time to discuss.
How much does history repeat itself? Will the parallels end there? Will trade become a major contention and lead to global conflict as I have talked about? Is Rogers now Chief Sycophant for the Chinese communist Ministry of Propaganda as Lindbergh turned out to be for Nazi Germany? It all seems very odd and historically relevant. Rogers has made a point to make all of his actions very public. And, while doing so has made many dubious statements including such ridiculous notions as the Fed is printing money. Therefore, he is surely exhibiting extreme confidence in his position. A confidence based on reality or personal bias? What is his personal bias? Much of this makes me wonder if Rogers' actions are akin to a great prize fighter. One who cannot seem to retire while on top due to great hubris. Rogers could have retired as an investing legend after writing his book on the coming commodities boom post 2000. Instead, will his legacy be one where arrogance pushed him to fight one too too many fights? Human nature and history surely are fascinating if not often predictable.)
A very brief comment on the topic of commonly held beliefs. The very fact that I was wrong about investments and wrong alot when I was young led me to enlightenment. I was wrong because I listened to 'experts'. That very act in itself resulted in common and recurring failure. That is why I created my own investing and trading models. I had to "unlearn" what I was taught to be true by commonly held beliefs of experts. Now I more generally use their beliefs to refine my contrapositions. And, given no preponderance on Wall Street or economists have ever predicted a recession, being contrary isn't such a bad position. The definition of insanity is doing the same thing over and over and expecting a different result. Relying on Wall Street to enlighten time and again is by conclusion, insanity. Therefore, must have been insane. I'm better now.
On that note, think for yourself. Learn from others but no one knows more about what is best for you than you in every aspect of your life. To stand alone is not a bad thing. It means you have principles. That you walk your own path. That you have given thought to your position. That you are a free thinker. That you add significant intellectual value to society, your business and your life. In many ways free thought has more to do with the success of America's economy than any other variable. And, it most definitely has more to do with our success than Wall Street. A place where Warren Buffett tells us lemmings abound. Bankers and lemmings. Not a good mix.
"Do not fear to be eccentric in opinion, for every opinion now accepted was once eccentric."
-- Bertrand Russell
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