2012 February 02 | timiacono.com

Ben Bernanke Goes to Capitol Hill

Apparently, Fed Chief Ben Bernanke had a fairly interesting visit with elected officials on Capitol Hill today, at least judging by this exchange with Rep. Paul Ryan (R-WI).

It’s kind of amazing that, nearly four years after the financial crisis, Fed economists still think that interest rate policy during the housing bubble mania had little or nothing to do with its formation or subsequent bust.

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Hopes Dim for a Grant Fed Chairmanship

With Mitt Romney pulling away from both Newt Gingrich and Ron Paul in their bid for the GOP presidential nomination, hopes are now dimming that Jim Grant of Grant’s Interest Rate Observer will play an important role in the nation’s monetary policy going forward as Grant is increasingly unlikely to either sit on a new Gold Commission (as suggested by Gingrich) or head the Federal Reserve (as Ron Paul recommended), in the latter scenario, perhaps just exchanging dollars for gold under a new gold standard until such time that the central bank can be disbanded. In this report at MarketWatch, Brett Arends fills in the details:

“Unfortunately, I haven’t heard from Mr. Romney yet,” joked Grant when I called on him in his offices down on Wall Street. “I’m sitting by the phone, I’m ready.”

He may have to wait some time. Romney, a conventional Wall Street figure, is unlikely to tap him anytime soon.

He is best known these days — to Gingrich and Paul, among others — for his long-standing support for the gold standard. The world has moved in his direction. In 12 years, gold has risen from a derided relic trading at $250 an ounce to a hot investment at $1,750. Everywhere paper currency systems are under challenge. In 2008, the world discovered that you can’t just manufacture endless wealth out of thin air, as the gold bugs had long argued, and it is still struggling with the realization.

Many people will think of the gold standard as a relic of a bygone era, something as old-fashioned as bow-ties and stuffed animals. (My caveat: To me, that’s not an insult.) Grant, when we met, argued the reverse. He says paper currencies and our current monetary system are the ones that are out of date.

“The anachronism is today’s system,” he says. We have a “command and control, top down” system where the Fed imposes an interest rate on society. The Fed, in other words, tells us what the price of money should be. It is, Grant says, at odds with the modern age. “We live in a world of collaborative social networks” of the Internet and Facebook, of Wikipedia instead of the old World Book, and so on. And yet when it comes to the price of money, we wait for a committee that sits in private to tell us what it should be”.

There’s lots more in this story on Grant’s views of the financial system as currently constructed and what he would do if he were to sit in Ben Bernanke’s chair at the Fed. If you ask me, his gold standard price of $2,500 an ounce for the metal seems a bit low.

More Government Aid for Mortgages?

After many failed attempts, the Obama Administration takes another whack at bolstering the nation’s housing market, this time by offering $5 to $10 billion in government aid for underwater homeowners to refinance their mortgages as detailed in this WSJ report.

On the one hand, you have to feel for homeowners who have continued to make their mortgage payments despite the declining value of their home, but can’t refinance at today’s freakishly low rates. But, on the other hand, you have to scratch your head about the government intervening to create new loans for more than theses homes are worth.

Those worrying about the latter shouldn’t be too concerned, however, as not much is likely to happen in Congress during this increasingly heated election year.

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Thursday Morning Links

MUST READS
Obama seeks to broaden reach of housing assistance – AP
Bernanke may say more action needed to aid economy – Washington Post
Investors Fret That Portugal Will Ask for Greek Deal – NY Times
Merkel Seeks Euro Zone Investments from Beijing – Spiegel
China’s Wen: May consider bigger role in EU rescue – Reuters
Bundesbank sinks deeper into debt saving Europe – Telegraph
S. Korea, Japan want exemption from Iran oil sanctions – Tehran Times
Private Equity and the Greenspan Put – Macroeconomic Resilience
Just Fill the Darn Potholes, We’ll Do the Rest – Baum, Bloomberg
Wall Street bets big on Romney – CNN/Money
Life – and Death Proposition – Gross, Pimco
Getting back to the gold standard – MarketWatch

MARKETS/INVESTING
Oil hovers below $98 amid mixed U.S. demand signs – AP
Gold retreats from 8-week high as dollar strengthens – Reuters
Fracking Boom Could Finally Cap Myth of Peak Oil – Bloomberg
Why I believe the S&Ps will go to 1517 – Peter Brandt
Cheap natural gas jumbles energy markets – Washington Post
Global Strategists Abandoning Bearish Views After Missing Rally – Bloomberg
BofAML expects gold price to hit $2000/oz in Q4 – Commodity Online
China enhances position as world No. 1 gold producer – Mineweb
Silver off to perfect start with 20% gain in January – BullionStreet
Myth of the Gold ETF Mass Exodus – Resource Investor

ECONOMY/WORLD/HOUSING/BANKING
January Downshift Shouldn’t Be Surprise – WSJ
Another shoddy job on employment numbers – NY Post
Planned layoffs surge in January: Challenger – Reuters
Shilling: China Headed for ‘Hard Landing’ This Year – Bloomberg
Italy top gold scrap buyer sees booming business – Reuters
World from Berlin: Germany’s Power ‘Is Causing Fear’ in Europe – Spiegel
Greeks unsettled by demands of a frustrated Europe – Washington Post
Policies, developers’ cuts push housing prices down again – China Daily
Obama Vows to Cut Red Tape on Home Loans – Bloomberg
Plosser Didn’t Back Fed’s Late 2014 Rate Pledge – Businessweek
Fed Needs To Think About Restoring Monetary Normalcy – IBD
Treasury Ponders Negative Interest Rates – NY Times

 
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