….Prices for commodities are creeping upwards. Each has its own fundamental reality, dependent on its own supplies and demands. How much of this price appreciation is due to those fundamentals and how much is due to government money printing we do not know, but commodity prices, especially precious and strategic metals, are quietly talking. Smart people, who know how dumb they are, will listen.
Are we listening to Fed Chairman Bernanke when he says the economy is improving? Not likely.
And Obama? At least he acknowledged that stupidity exists. After all, he mentioned it in his comments about the police action in Cambridge, so we guess he knows it when he sees it. Obama must be a smart guy – everyone says so. What are we missing?
How can one think that more government control of health care can fix a system whose faults flow from the increasing government involvement since the Nixon years?
How can anyone believe the creation of another convoluted government-enabled speculative scheme–the trading of carbon credits–will not descend into a morass of political cronyism and corruption?
How can more government control of education, where costs have gone up while quality goes down, be something any smart person would wish for?
All simple questions, and Obama seems confident of the answers. But then we remember that a glib sureness is often the cover for an unthoughtful mind.
The next couple of months will be crucial in determining the shape of the financial system for decades to come. And so far, the signs are not encouraging.
The Obama administration is trying to refocus our attention on regulation, beginning with the president’s speech in New York two weeks ago. The financial system, after all, brought us a near-catastrophic crisis that turned a mild recession into a painfully severe one. And Barney Frank, chairman of the House Financial Services Committee, says that he still plans to pass a regulatory reform bill before the end of the year.
But in a clear indication of trouble ahead, Frank signaled his intention last week to scale back the proposed Consumer Financial Protection Agency, one of the pillars of the administration’s reform proposals. This new version of the CFPA would exempt many businesses that are not ordinarily thought of as financial institutions but that may offer some type of financial service to customers, such as telecommunications and other utility companies, law offices and real estate brokerages. In addition, it would not be able to require financial institutions to offer “plain vanilla” versions of certain products, such as a 30-year, fixed-rate mortgage.
Former Federal Reserve chairman Paul Volcker said the rise of China and other emerging economies has underscored a decline in the comparative economic and intellectual leadership of the U.S.
“I don’t know how we accommodate ourselves to it,” Volcker, an economic adviser to President Barack Obama, said in an interview with PBS’s Charlie Rosetaped yesterday in New York. “You cannot be dependent upon these countries for three to four trillion dollars of your debt and think that they’re going to be passive observers of whatever you do.”
The former Fed chairman also said unemployment at 9.7 percent will slow the pace of recovery from the U.S. recession as Americans default on mortgages and consumer loans. Moreover, commercial real estate loans are likely to cause further losses for banks.
“This recovery will be slower,” he said. “We can’t just pump up consumption and pump up housing again.”
To prevent inflation from taking off, the Federal Reserve will need to start boosting interest rates quickly and aggressively once the economy is back on firmer footing, Fed officials warned Tuesday.
“I expect that when it comes time to tighten monetary policy, my colleagues and I will move with an alacrity that, if needed, will be equal in speed and intensity” to when the Fed was slashing rates to battle the recession and the financial crisis, said Richard Fisher, president of the Federal Reserve Bank of Dallas.
Although Fisher has a reputation for being one of the Fed’s toughest inflation fighters, it marked the second such warning by a central bank official in recent days. Fed member Kevin Warsh on Friday said the central bank will need to move swiftly when the time comes to raise rates.
Charles Plosser, president of the Federal Reserve Bank of Philadelphia and also a hawk against inflation, waded into the debate in a speech Tuesday in Easton, Pa., saying the Fed may need to act “well before” unemployment — now at a 26-year high of 9.7 percent — returns to normal. The Fed, he said, will need to be on guard “to prevent the Second Great Inflation.”