False Premise

"Our nation has come to expect the Federal Reserve to step in to avert events that pose unacceptable systemic risk...But the central bank has neither the clear statutory authority nor the mandate to anticipate and deal with risks across our entire financial system.

We should quickly consider how to appropriately give the Fed the authority to access necessary information from highly complex financial institutions and the responsibility to intervene in order to protect the system so they can carry out the role our nation has come to expect."

Short but sweet, folks...this is an argument, not a debate. The argument is based upon this entirely false premise put forth today by our idiot savant Treasury Secretary, Henry Paulson.

Just who said that we have "...come to expect..." the FED to step in and do anything? I didn't. You didn't. Nobody asked them to save us from anything. Did you ask them to bail out a private investment bank with the ultimate result that risk taking actually increased because there is a new sheriff in town with bail cash for all?

And, petty though this may sound, who in Hell asked them to save us from them?

Though many voices will say this is wrong...well...who really cares what "many voices" will say. The fact is that inflation is a monetary occurrence. Inflation is not possible without too much liquidity. And the FED has accommodated this liquidity rush with the best financial drugs known to man...massive credit and low interest rates and ridiculously low reserve requirements. Oh, and by the way, virtually no enforcement of existing regulations. Remember Greenspan's "What could I have done?" bit?

A house of financial mirrors...every direction looks right and yet every direction is wrong. Raise rates and kill any hope of a real estate recovery and huge losses become unimaginable losses. Lower rates and systematic inflation is assured and the dollar drops like George Michael's pants in Central Park.

In reality, the FED wants inflation and a lower dollar. Inflation, in the vision of the FED, will lead to rising incomes. At least that is their hope. Wage pricing power is completely non-existent right now. But IF the FED can move wages up, then perceived purchasing power increases and real estate has a chance. Values begin to grow again, the existing debt may be paid off in cheaper (devalued) dollars and everyone feels better and richer.

But, like a stripper bathed in red stage lights, all is not what it seems. The FED is actually focusing NOT on commodity prices as their "canary in the mine" but rather the very thing that they need to make this whole plan work...wages! That's right, the FED is actually using wage increases as a signal to "act decisively" to ward off that nasty inflation because it should be obvious to all that rising wages are bad and rising prices are good.

What kind of world does the FED live in? You are going to tie your decision to fight inflation to an increase in wages...Really?...Seriously?

Didn't the FED just assure us of the next worst thing next to deflation - stagflation? That is the very definition of stagflation - rising prices and flat wages.

The name of the game right now is real wealth preservation, adjusted for inflation. A rate of return of even 12% is a sucker's bet with inflation running 7-10% and taxes of 35%. Add a risk free rate and a risk premium and you need high teens returns to beat inflation and earn a small net return to assure growing purchasing power.

I can still hear Will Rogers saying "Last year we said, 'Things can't go on like this', and they didn't, they got worse."