Pimco Loses Confidence in Bernanke

It's not a good sign when Bill Gross of Pimco, probably the foremost bond trader in America, loses confidence in Bernanke, as he has according to this Bloomberg report. Gross does not think that Bernanke is committed to fighting inflation. Bernanke is more concerned about cutting interest rates to keep the stock market up, which seems to be working, since it's up over 100 points at the moment. But what's best for America's future? Probably not another stock market bubble.

Bill Kristol's Patriotism

Bill Kristol's op-ed in the NYT criticizes Barak Obama for making a point of not wearing a flag pin in his lapel. I guess the NYT is printing Kristol to show how open minded it is. It just happens that I agree with Obama on this issue. In the old days when American presidents were patriots they earned military decorations, and chose to wear them or not, depending on their personal attitudes toward public displays.

The most notable example is probably President Lyndon Johnson's Silver Star, a lapel pin that he wore most of his life, although it was probably undeserved. See this CNN story. Many true heros feel no compunction to wear their decoration, believing modestly that their actions were more important than any display. Because most of the politicians in Washington today were cowards who failed to serve their country, they don't have any military decoration to wear and therefore have chosen to wear the flag. No modesty for the Republicans!

I'm guessing that Bill Kristol is not a combat veteran, and probably not a veteran at all. He's a flag man, and a typical Republican coward, who has no hesitation about sending our troops to fight in Iraq, although he would not go himself. Barak Obama shows his patriotism and courage by standing up to cowardly bullies like Bill Kristol.

I still have bad memories of seeing Zbigniew Brzezinski introduce Vice President Al Gore to an audience of Polish World War II veterans at the Ambassador's residence in Warsaw, Poland. Brzezinski introduced Gore as a Vietnam veteran. The Polish veterans greeted the introduction with applause, but the Americans murmured, "Doesn't he know that President Clinton didn't serve in the military?" Military service is no longer admired in the US, especially by slackers like William Kristol.

Bushies Gut Non-Proliferation Effort

Just for the record, I worked with Linda Gallini and Dean Rust who are mentioned in this Mother Jones article about the Bush Administration's true believers who gutted the US non-proliferation efforts.

Will America Repeat Japan's Recession

The recession that Japan experienced in the 1990s, and that still pervades Japan today, started out in a very similar way to the way the subprime mortgage/credit crunch started in the US. The real estate market was in a bubble, and when that burst, the banks' problems made it worse. The NYT looked at the similarities and found that a better response by the US will prevent us from following Japan's downward trend.

The people whom the NYT interviewed are probably smarter than I, but I am not so sure we can beat the downturn without following the Japanese example, although I don't think we should be doomed to stay in the doldrums for a decade as the Japanese have been. The NYT sees the big difference as fiscal policy. The Japanese used only monetary policy -- keeping interest rates at almost zero for almost a decade -- but apparently not so much fiscal policy.

First, the fact that the Japanese have kept interest rates at almost zero demonstrates the limits of monetary policy as practiced by the Fed. Secondly, the Republican tax cuts mean that we have been running our fiscal policy as if we have been in a recession for the last seven years. Now that we are in one, inplementing a strong anti-recession fiscal policy is likely to ignite inflation, because we are not starting with a balanced budget. We are starting with a budget already badly in the red. Printing money is a recipe for inflation.

I don't think the Republicans care much about inflation, because it allows them to decrease the value of the debt they have run up the last seven years. It allows them to pay if off in cheaper dollars. Of course, for everyone else, it means that they are stuck with cheaper dollars when they get paid, when they buy things and for everything else.

The lesson of inflation, and low interest rates in general, is don't save. Spend what you've got and borrow at low interest because you can pay it back in cheaper dollars. But look at Latin America: the chickens come home to roost. People won't invest in your country, because their investments lose money as the inflated currency depreciates. We are already seeing foreigners (Chinese, Saudis) talk about diversifying out of the dollar into the Euro or a basket of more stable currencies. At some point, inflation and the depreciating dollar will force interest rates to rise, back to the high rates of old days (the 1970s) of 15-20 percent, or more if things get really bad. Such high rates are very bad for domestic business. Maybe globalization will make the coming scenario different from the 1970s scenario, but it will be a first test; so, who knows.

I would like to know what Paul Volker thinks, who got us out of the 1970s stagflation painfully, but successfully.