The Fed, as an Institution, is Lost

The Panic of Ought-Seven

Tardive Diskinesia is a condition caused by long-term use of antipsychotic medications, usually in the treatment of schizophrenia. Diskinesia refers to "an impairment of voluntary movement," usually tics of the face, but other extremities can be affected as well. Tardive refers to the fact that the tics usually persist long after the drugs are no longer taken.

Haldol (Haloperidol) was hailed as a miracle drug in the sixties for patients with schizophrenia. It was the first drug truly effective in controlling psychotic episodes. But sadly, after years of use, many schizophrenics developed Tardive Diskinesia - which doesn't go away. Some Benzodiazepines, such as Valium, Ativan, or Klonopin may improve the situation, but Benzodiazepines have their own set of issues.

Having been gone last week (on vacation in the Islands), I sort of feel like the guy that walks in on the middle of a conversation (about the current market action) and thinks he knows what everyone is talking about. After a few minutes, I can't help but observe that the Federal Reserve is acting to forestall any further damage from an unwind of a speculation that occurred partly as a result of Fed action taken in 2002, which was taken to forestall any further damage from an unwind of a speculation that occurred partly as a result of Fed action taken in 1998. Et cetera.

The Fed, as an institution, is lost. They are not hawks. They are chicken hawks.

But God bless Cramer, by the way. The man has a right to his opinion. And I love it when opinions are expressed passionately. Lord knows I get a little animated myself from time to time. But I disagree with him wholeheartedly.

What is the role of the Fed? Easy - inflation and employment. That is what it says in black and white. But the one thing that separates us from a banana republic is the Fed's independent authority in protecting the purchasing power of the currency in your wallet. That unspoken doctrine is the one link between today's economy and the past.

What does a Fed-free world look like? You have panics. The panic of 1819. The panic of 1873. The panic of 1907. Some people lose everything. Some other people, prudent people, do not. Panics are good. They punish the losers and reward the winners. But somewhere, in the interest of the collective, the idea permeated that one could prevent financial panics by, simplistically, printing more money.

In the movie "Dave," Kevin Kline, as President, announces that, by fiat, all Americans will have a job. There is a cost to providing everyone with a job. And there is a cost with providing everyone with a market safety net. It does not come out of nowhere. It comes out of your wallet and mine. Building more and more houses makes existing houses worth less. Printing more and more dollars makes existing dollars worth less. Am I some wild-eyed Libertarian gold bug? Yes, I want to buy gold more than ever, though I try to resist classification.

Without losers, there can be no winners. If you keep bailing out jerks, then it should not surprise you if you breed more jerks. If you keep administering drugs, it should not surprise you if your patient twitches uncontrollably.

Bring back "debtor's prison" and see how many credit problems you have.

A Market Professional
August 20, 2007

Red State Patriot commentary: Without winners, there can be no losers - the central thesis of liberalism, and the antithesis of liberty and a market economy.

Posted August 20, 2007 10:03 AM
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