Saturday, June 27, 2009
Hanging out with the Forbes journalists at Fox
I was over at Fox yesterday to do a taping of Cashin' In and I was hanging out in the Green Room talking to the guys from Forbes on Fox. These are a bunch of veteran Forbes' journalists.
We got into talking about the economy and the Fed and I told them about the ECB's $622 repo (liquidity injection) that happened last week. All of them were unaware. When I explained to them what it was their eyes glazed over. They were clueless. Then I said that if the Fed did something like that--inject $600 billlion into the banking system in one day--there'd be a firestorm in the media and lawmakers on Capital Hill would be screaming about "taxpayers on the hook" and wanting the Fed's powers to be reined in while calliing for Bernanke's head at the same time.
I told them that none of this took place in Europe. There were no cries from punidits about "debasing the euro," or "printing money." Peter Schiff and Jim Rogers were conspicuously absent. The euro was not sold down by waves and waves of speculation. News organizations were not suing the ECB.
When the blank stare from one of the Forbes journalists faded he said, "Yes, but the Fed's actions are still going to cause inflation and lots of it."
Ten seconds before the guy was clueless as to what the ECB had done, but now he spoke authoritatively on monetary operations.
I asked him, "How does a rise in reserve balances fuel inflation?"
"Simple," he said. "Too much money chasiing too few goods."
Of course that was Milton Friedman's classic line; a beautiful sound bite...one that has never faded in the minds of monetarists everywhere. (Don't tell them that Uncle Miltie himself didn't even believe that at the end of his life!)
I said, "Well if it's too much money chasing too few goods, wouldn't that money have to at least be spent? And reserves are not spent."
Suddenly the glazed look returned. Then I added, "And please show me the, 'too few goods' because from where I sit we have 13 million people without jobs, 5 million unsold homes, industry that is only running at 68% of capacity, 3 million unsold vehicles, 43 million people without health care even though the services are there for them, half the families in America that can't send their kids to college even though there is the place for them. Where are the too few goods, or the, too few services?"
The one guy was determined to teach me something and said, "We were not running at higher capacity in the 1970s either, but we had inflation then. And it was because we were priinting too much money, just like now."
I informed him that capacity use in the 70s was bumping up near 90% and we had these two other little events called oil embargoes. He said nothing about the oil embargoes, but here's what he said about the capacity use...
"Your data's wrong!"
I kid you not.
For my friend from Forbes Magazine and anyone else who's interested, here's the data: http://research.stlouisfed.org/fred2/data/TCU.txt