Worry About Inflation

FT columnist Martin Wolf argues that the Fed can't ignore the risk of inflation as it fights recession. It says:

To critics it is now the "Bernanke put" - the belief that, as under Alan Greenspan, the US Federal Reserve will always ride to the rescue of Wall Street. The jubilant response of traders to the Fed's 50 basis point cut in the short-term interest rate might justify this suspicion. But saving Wall Street from its follies is not the Fed's objective. It is an (unfortunate) by-product of the attempt to do its job.

The "unfortunate by-product" reference is similar to Alan Greenspan's reply to Jon Stewart on the Daily Show. Stewart asked Greenspan why it was that the Fed 50 basis point interest rate cut sent the stock market up over 300 point, thus benefitting the rich, while it meant that banks would pay less interest to the ordinary people who had savings accounts in banks, rather than stock market investments. Greenspan responded that this was an "unintended effect."

I agree with Wolf that one inflationary risk the US runs is that the dollar's value will decline against other currencies (as it has already), thus making everything imported more expensive. However, inflation is the easiest way for debtor nations to try to get out from under their debts; as the dollar's value decreases, the absolute value of the debt decreases, too. So, you pay off your debt in cheaper dollars. This is usually only attempted by pariah states, currently Zimbabwe comes to mind, but George Bush has such contempt for the international community that it is not beyond possibility that he will try it. He may think it will help him pay off his Iraq War debt. As Wolf describes the situation:

Externally, the US is a huge net debtor. A large dollar devaluation is then a far less painful way to turn it into a net creditor than running current account surpluses, since its liabilities are denominated in dollars.

Given these facts, it is going to be an enduring struggle for the Fed to convince those who have put their faith in the dollar that it is safe. This is not some remote danger. In financial markets, the future is now. If holders of the dollar conclude it is no longer a secure store of value they will dump both the currency and assets dependent on its future value. If that were to happen, the Fed would confront a dreadful dilemma - whether or not to cut rates as the dollar plunged and long-term interest rates soared. Its freedom of manoeuvre would be gone, as in 1979, when Paul Volcker became chairman.

In retrospect it looks as if Volker may have been a better Fed chairman than Greenspan, if only because Volker had more difficult issues to deal with.

Chinese Buy Rothschild Jewish Conspiracy Theory

The Financial Times reports on a best selling book in China, Currency Wars, which claims that the Rothschild banking dynasty controls money issuance. According to the article:

...the US Federal Reserve remains a puppet of private banks, which also ultimately owe their allegiance to the ubiquitous Rothschilds.

The thing that most shocked [the author, Song Hongbing], he says, was his “discovery” that the Fed is a privately owned and run bank. “I just never imagined a central bank could be a private body,” he says.

The Fed does describe itself “as an unusual mixture of public and private elements”. While its seven governors are all appointed by the US president, private banks do hold shares in its 12 regional reserve banks.

But Mr Song ignores the government’s role and argues that the Fed’s key functions are ultimately controlled by five private banks, such as Citibank, all of which have maintained a “close relationship” with the Rothschilds.

Mr Song is defensive about his focus on the Rothschilds and what the book depicts as their Jewish clannishness.

“The Chinese people think that the Jews are smart and rich, so we should learn from them,” he says. “Even me, I think they are really smart, maybe the smartest people on earth.”

No New York Candidates Please

All the fuss over Ahmadinejad's visit to the UN in New York has reinforced my dislike of any Presidential candidate from New York, and there are at least two and one-half of them: Hillary, Rudy and Mike Bloomberg (the 1/2).

I was inclined to dislike New York anyway because:

1. The families of New Yorkers killed on 9/11 got millions in compensation from the US government, while those killed in the Oklahoma City bombing got nothing. It might show the power of the New York congressional delegation, but more likely it shows the greed of New Yorkers, compared to regular people who live in Oklahoma.
2. Wall Street's stock market continued to go up during the worst of the Iraq War, which according to at least one explanation (0f many given by Bush), was in response to 9/11. I saw no gratitude on the part of New Yorkers for the sacrifices that young people from middle America, including Oklahoma, were making for New York when they died or were injured in Iraq.
3. Now with the Ahmadinejad visit, New Yorkers have shown their contempt for the Constitutional guarantee of free speech, not to mention the fact that they should be grateful that their city is the site of the UN which must invite all types of world leaders if it is to advance the cause of world peace. New Yorkers reviled the assertion that if Hitler were invited, he should be allowed to talk. But wouldn't that talk have been worthwhile if it could have avoided the Holocaust, not to mention the tens of millions of gentiles who died in WW II. One problem in the lead up to World War II was that the League of Nations had ceased functioning.

There are lots of other candidates not from New York. Why not choose one of them. Of the New Yorkers, the least objectionable is probably Bloomberg, not least because he is fondly spoken of by Senator Chuck Hagel, whom I respect.

Ahmadinejad and the New York Jews

The conduct of Columbia University's President Bollinger while introducing Iranian President Ahmadinejad was reprehensible. It made him and the university look foolish. Why did he do it? I don't know, but I would guess it was for money, in particular money from New York Jews, who have a lot of it. Bollinger probably got a message from some big Jewish donors that his invitation to Ahmadinejad put their future contributions to Columbia in jeopardy. So, Bollinger decided that if he insulted Ahmadinejad sufficiently while introducing him, he might keep his donors under control.

The New York Times' report on the incident closed by saying:

It remains unclear whether Columbia’s leaders were able to mollify critics through their critical treatment of Mr. Ahmadinejad. But they made some headway: the American Israel Public Affairs Committee sent out an e-mail message shortly after the speech with the subject line, “A Must Read: Columbia University President’s Intro of Iran’s Ahmadinejad today.”

Inside was a transcript of Mr. Bollinger’s introduction.