All this talk of rate cuts, and the necessity of rate cuts to stimulate immediate posterity, has me thinking of the future. Keynes and his disciples have so indoctinated the higher echelons of the capitalist structure that they must not let the economy fall into recession no matter what the circumstances. Yet everything I have read about markets is that operate most efficiently when left to reach supply and demand equilibrium by themselves. So the quesion is why does the Fed continue to intervene in the markets and not allow them to purge themselves of the excesses of various debt fuelled asset booms? Is it because Bernanke and Co are the standard bearers for the Baby Boomers, the generation who wanted it all and damned be the future?
Does business truely want or need Fed intervention? With the exception of the housing sector and the Wall Street wizards who have profited handsomely from the glut of cheap debt awash in the market, the answer must be a resounding 'no'. Sound businesses with strong balance sheets are in the best position to ride out a natural cycle of economic contraction, safe in the knowledge that they have taken the measures to protect shareholder wealth for use when markets return to a natural growth cycle. Yet, as we have seen, when a bubble bursts, all market participants get savaged in the flight to liquidity. How then do these companies feel when the Fed intervenes time and time again with swads of printed money?
This is a question for the ages. I read an interesting anecdote in an article the other day. Apparently when Jean Baptiste Colbert, the finance minister for King Louis XIV of France in the 17th century ('who was a fanatic government intervener under the Mercantilist economic philosophy'), asked a group of businessmen what he and the King could do for them and their industries, they vehemently replied, "Laissez-nous faire!" Leave us alone!
There are numerous profitable Australian companies who would be shaking their collective heads when faced by Bernanke's continued efforts to provide those who least deserve it with a liquidity boost to simply replace the money they have evaporated with their financially geared business models. This is madness and it will come back to bite future generations of investors as the excesses of the bubble economy remain locked in the balance sheets of the greedy bankers becoming fat off valuations they know can only be propped up by further liquidity.
I have given up boozing and smoking as I know that I will pay in the future for the whims and folly of today. When will the US capitalist machine, and its small Australian and Japanese love children, cure itself of its addiction to cheap US dollars? When will punters accept the natural cycle of supply and demand? The two go hand in hand in there is not the generational will power to accept lower returns today for the good of wealth creation for future generations. So we all sweat on 50 bp to save the day, unsafe in the knowledge that the toxicity of malignant debt will fuel the asset bubble and stock market crash of tomorrow.
Worrying times....