Friday, June 17, 2011

If Not Now, When, Ben?

Pretense of Knowledge Continues

Workers was pretty happy that the Fed chair went on the record saying that central bank monetary policy is not a "panacea" and that the US government too played a role in improving the economic outlook, specifically regarding the out-of-control spending of the welfare state.

These welfare state programs were set-up decades ago and just aren't sustainable given demographic shifts. People are living longer, there are less young taxpayers to support the not so young who are paid - way too early given new length-of-life expectations - to stop working, and concomitantly based on a decreasing rate of population growth. It would be nice, yes, to have a cogent immigration policy.

Well it turns out our optimism was premature. It's the same old thing. Yes balanced budgets and a fiscal policy which doesn't mean deficits, inflation, higher borrowing costs and debt build-up into the indefinite future is a good thing for business optimism and "job-creating investment", but well, just not yet, because we need fiscal stimulus (government deficit spending) to keep the recovery on track in the short-term.

So the question is when, then. Government spending crowds-out (replaces) private wealth-creating entrepreneurial profit-seeking because a dollar or a worker can't be two places at the same time, they are either working for the government or for someone privately investing their own money and taking risks from which we all gain.

As long as we hold on to the false notion that "stimulus" actually helps instead of harms there is no end in sight. More fake government "jobs creation" and government "investment". Until that kind of mass-hysteria populism type of thinking and discourse stops emanating from the technocrats (and well too the US President and Chairman of the Federal Reserve), we will forever be in a precarious situation.

There is no dichotomy between the long-run and the short-run. We are always in the long-run, so anything that can be done to make investors less nervous about the future should be done immediately. Increasing government debt and spending means wasted dollars means a devaluing dollar and a devaluing dollar expectation means no private sector dollar investments and no sustainable growth for those that live in the dollar economy.

It is always NOW in terms of doing the right thing to lay the foundation for a decent investment outlook. Workers thought maybe Bernanke finally realized that, especially as his Quantitative Easing has helped to create the largest price spikes in food, energy and other commodities ever. But alas, Helicopter Ben is ready for salvation (balanced budgets) but just not yet.

Central planners (government officials and the Fed, who seem to have a crystal ball, or maybe it is tea-leaves or tarot cards or the i-ching, in front of them) have been saying this for a few years now, we need to have a sustainable government expenditure outlook, but just not yet. It is getting old. Address the structural deficits now, stop saying 'stimulus' is helpful on the one hand, but harmful on the other. How lame.

A friend of Workers said he maybe hoped Ben would fall out of his helicopter. That is kind of mean, let's start with hoping he has enough gumption to be consistent and use his influence to help create a sound monetary policy, fiscal policy and rule of law (not least putting an end to overly complex and uncertain financial regulations that are chasing stock market listings to Asia) so that people actually want to invest in the US economy.