Monday, April 28, 2008

What The Smart Money Folks Are Talking About Today...

The Fed's Bender on today's WSJ Editorial Page.

The 3 key graphs (from a presidential election standpoint):

The practical impact [of the Fed rate cuts] has been to send energy and food prices soaring. This is a direct tax on both the world's poor and America's middle class. Just when the U.S. economy needs a resilient consumer given the fall in housing prices, these price increases have eviscerated consumer pocketbooks. In its attempt to help Wall Street and the financial system, Fed policy is punishing average Americans. The public is frustrated and angry with these price increases, and it has a right to be. Inflation is the thief of the thrifty middle class.

The Fed's weak dollar policy has also done great harm to overall financial confidence, which is essential to any growth revival. A main source of the credit crisis is a lack of trust. Investors stop taking risks, bankers stop lending, and everyone flees to the safety of Treasurys or cash. But how can the Fed expect people to calm down and begin taking risks when it is clearly debasing the currency? Monetary easing itself also becomes less effective, because without confidence more liquidity is merely "pushing on a string," in the famous phrase.

The Fed's problem has been both political and intellectual. Politically, Mr. Bernanke has been unwilling to say no to Wall Street and the Beltway political class, which reflexively demand easier money in a crisis. This demand has become almost Pavlovian since Wall Street came to believe during the late 1990s in what was known, fairly or not, as the "Greenspan put." It takes character to resist this political pressure, but that is what Fed chairmen are supposed to have.

Read the whole thing.

And then, if you're a legitimate member of the political press corps, wipe the fog away from that jackass party you went to this weekend and ask one of the presidential candidates what they think about all this.

h/t Aaron Z for forwarding on the article.