A Benevolent Deity?
January 23, 2008
I’m by no means a protectionist. I wasn’t the least bit concerned back in 2006 at the prospect of Dubai Ports World owning select U.S. docks, and I’m more inclined to yawn than blink at the billions being thrown around by the sovereign wealth funds of countries like China, Abu Dhabi and Singapore. In fact, I’d rather those countries bail out our banks than place it on the shoulders of Tommy and Tina Taxpayer.
With that said, I don’t understand why we’re making it so easy for them. Our addiction to rate cuts and our dependency on the Fed has undoubtedly spawned inflation (which I’ve discussed in previous posts), yet nobody wants to link it to the low interest rate.
Why would they? It would mean that we’re not quite as clever as we think. And this latest cut, a surprise move that chopped 75 basis points off of the federal funds rate, reeks of panic in my humble estimation.
On one hand, we had George Bush politicking in Saudi Arabia last week for cuts in oil prices, and on the other, we have the stock market celebrating Ben Bernanke’s best impression of Edward Scissorhands. (After a 460-point drop Tuesday morning, the stock market reversed course following the FOMC's trimming.)
Wouldn’t the companies who make up the Dow Jones Industrial Average be better served by a stronger dollar that ultimately lowers commodity prices? How about a consumer who isn’t cutting their budget so they can afford milk for their cereal? I’d bet at least some of those savings would find their way to Sears, or other struggling retailers.
And didn't Japan prove that low interest rates aren't necessarily a long-term fix? The country's central bank maintained a 0% interest rate for six long years.
We’ve just experienced a stretch of dipsomanic spending, fueled by a fabricated debt market, an intemperate housing boom and a government that maintains a budget no better than M.C. Hammer. Sorry people, but it’s not as if we deserve a free pass.
Rate cuts may stave off a downturn in the immediate term, but they’re weakening our dollar to the point that we make for an easy target. It’s the same way that Excedrin cures headaches, but it never helped ace an exam if the two previous evenings were spent engaged in beer die and flip-cup tournaments.
I’ve vouched before that I’m not an economist. However, I’d love to see the Fed hold the line and make us go cold turkey on this one. We’re capitalists. That used to mean something. And I’d still like to believe the market can take care of itself if left to its own devices…
... and, if I’m wrong, well, Fed Chairman Ben does seem like a benevolent kind of deity, doesn’t he?
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