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Part I
It was a bit nostalgic for me to see footage of Ron Paul addressing Ben Bernanke on live TV yesterday, as it was almost five
years ago that I was first introduced to Ron Paul in the same way. Back then
(February 27, 2002), I saw Dr. Paul for the very first time, live on CNBC as
I was getting ready for work. At the time I didn't know who he was, but I was
astounded by what I heard. He was addressing then Fed Chairman Greenspan on
the Federal Reserve, and speaking plain and honest truths: "In many ways
I feel that the system you have been asked to manage is similar to an Enron
system..."
Enron had just recently gone bankrupt, so I couldn't
believe my ears. He continued on, stating truths about the fraudulent Federal
Reserve System that nearly everyone else in Washington actively seeks to avoid.
I was hooked, and five years later Dr. Paul is still
at it. Yesterday he was addressing Ben Bernanke,
hauling the Fed's polite euphemisms out into the sunshine, naming them for
what they are: "...they don't say inflate the currency, they don't say
debase the currency, they don't say devalue the currency, they don't say
cheat the people who save...They say, 'lower interest rates.' But ... I don't
hear you say too often, 'The only way I can lower interest rates is to create
more money.' ...So my question boils down to this: 'How can we expect to
solve the problems of inflation...with more inflation?"
..
..
Part II
I've had the pleasure and the good fortune to meet
Dr. Paul and spend some time with him. He is as kind and as humble as any neighbor. So every time I see the good doctor in such a
situation, going head to head with the likes of Greenspan, Bernanke or Rudy Giuliani - men who seem somehow larger
than life - I feel a certain warmth and kinship. I root for him the way I
root for any underdog, for the little guy, for Rocky Balboa. I cheer when he
scores points, as he always does with truth and common sense.
What I want to impress more than anything is that
Ron Paul is just like you or me. He is one of us. The difference is that he
has somehow found the strength to fight for us - for all of us. He refers to
his seat in Congress as "our seat." Without hesitation he steps
right up to the plate, looks down the middle and swings the bat, no matter
who the pitcher might be.
Even on television, his sincerity is somehow
immediately apparent. So each time he makes an appearance on TV, whether it
is during a debate or in his official role as legislator facing off against
the Chairman of the Federal Reserve, I just have to smile and wonder how many
people are seeing him for the first time and dropping their toothbrush, their
bowl of cereal, turning up the volume on the TV and wondering - who is this
man? How many people are having their faith restored that there are still
honest people who are working tirelessly for us in the government?
Part III
After Bernanke's first non
answer, Dr. Paul persisted: "How can you pursue this policy that you
have without further weakening the dollar?" Then, his voice
rising in almost the same manner and pitch as that of Jimmy Stewart,
"There's a dollar crisis out there, and people's money is being stolen!
People who have saved, they're being robbed!"
Unlike his predecessor Greenspan, who could speak
eloquently for hours without saying anything, Dr. Bernanke
laid an egg. He stuttered and responded with an answer that any high schooler should be able to see through: "If somebody
has their wealth in dollars, and they're going to buy consumer goods in
dollars, as a typical American, then the only effect it has on their buying power
is that it makes imported goods more expensive."
Has Bernanke forgotten
that hardly any consumer goods are made in the US anymore, and that most typical
American buy gasoline, which is made from imported oil? And what about
atypical Americans like me who travel overseas from time to time? And by now
we all know that it was excess credit creation, facilitated by the Fed, that led to the internet bubble and subsequent
housing bubble.
It smacked of a desperate answer, and Bernanke looked extremely weary and tired, bags under his
eyes as though he hadn't slept in days. Bernanke's
poor performance reminded me of something I'd read two years and have been
carrying around in my head ever since. It was a report by Robert Prechter, just as Bernanke was
taking over his new job as Fed Chairman. The report appeared in the November
17, 2005 issue of the Elliott Wave Theorist and is titled,
"The Coming Changes at the Fed." I dug it up from my hard drive,
and with permission have reproduced some pertinent excerpts below.
Remember, Prechter wrote
this almost exactly two years ago:
The consensus appears to be that the long-term
expansion in the credit supply will continue or even intensify under the Fed
chairmanship of Ben Bernanke. One reason many
people share this belief is their recollection of Bernanke's
November 2002 speech, "Deflation: Making sure "It" Doesn't
Happen Here," in which he likens the Fed's printing press option to
dropping money from helicopters. There are reasons to believe, however, that
the outcome will not be as the majority expects...
Prechter continues:
When credit expands beyond an economy's ability to
pay the interest and principal, the trend toward expansion reverses, and the
amount of outstanding credit contracts as debtors pay off their loans or
default. The resulting drop in the credit supply is deflation. While it seems
sensible to say that all the Fed need do is to create more money, i.e. FRNs, to "combat deflation," it is sensible
only in a world in which a vacuum replaces the actual forces that any such
policy would encounter (emphasis mine). If investors worldwide were to
become informed, or even suspicious, that the Fed would follow the 'copter
course, it would divest itself of dollar-denominated debt assets, causing a
collapse in the value of dollar-denominated bonds, notes and bills. This
collapse would be deflation...
This illustrates perfectly the bind that Bernanke finds himself in today. As a man who has spent his
entire career in academia, he is finding out that the real world is not so
clean and neat as his theories and models:
Bernanke's plan, according
to articles, is to aim for a 2% annual inflation rate. "Bernanke has called that the Goldilocks idea: not to hot,
not too cold. The just-right spot..." He is convinced that such a policy
is all the economy needs to keep it steady. Clearly, Bernanke
is a firm believer in the idea that the economy is a machine, whose carburetor simply needs fine-tuning to get it to run
smoothly. Economists, deep believers in the potency of social directors, are
convinced that "monetary policy...moves the entire economy." ... Because of this proposed targeting plan, Bernanke is expected to act "More openly. More
methodically. More predictably." Well, Ben might aim to do those things,
but society, the economy, the credit supply and the stock market do not
behave in such a manner. When you think you have them under your thumb, they
have you.
Prechter closes with the
following, very blunt statement:
Bernanke will surely
reign in a bear market when every decision he makes will be seen as dumb.
This prophecy finally appears to be coming true. Prechter did not say it to be mean, but rather as a
reflection on the position that Bernanke has put
himself in. Bernanke has studied the Great
Depression his entire life, and he's convinced that he can prevent the US from
suffering another. "I will do everything in my power to ensure the
prosperity and stability of the US economy," he said.
But that is far too large a responsibility for one
man to take on, especially considering the mess that he inherited. The coming
collapse will not be his fault. But he'll take the blame, which is already
beginning, according to this NY
Times article:
But in a disappointment to investors, Mr. Bernanke offered no signal that the central bank might
soften the blow by lowering interest rates for a third time this year at its
next policy meeting on Dec. 11...
And
Mr. Bernanke's message did
not sit well. Wall Street analysts quickly criticized him for ignoring the
real risk of a serious downturn. And at least one Republican, Senator Sam
Brownback of Kansas,
begged him at length to cut interest rates as soon as possible.
What can Dr. Bernanke do?
No matter what he does, no one will be happy. His decision to raise, lower or
leave interest rates unchanged will be met with severe scrutiny and second
guessing as the economy worsens. Whatever happens, Bernanke
will take the blame.
Prechter was right.
After a brief honeymoon, Bernanke is starting to
look dumb.
[Note:
I've made special arrangements with EWI to have a four-page excerpt of Prechter's November 2005 report - which is well worth
reading - available this week (Nov 7 - 14, 2007) by clicking here.]
By :
Michael A. Nystrom
Editor, Bull not Bull
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