But now, commodities are looking toppy. Oil seems to be slipping. Gold too. And the feds are talking about reversing direction - raising rates in order to protect the dollar!

Has something important changed? Well, yes…and no. More tomorrow…

*** Hillary seems to have come to the end of the road.

“Clinton’s White House dream draws to an end,” says the Guardian.

Too bad. She was such a wonderful reminder of what politics is all about - empty, fraudulent, jingoistic, ready to say anything to anybody if she thought it would get her back in the White House.

But it is an historic moment for America, says the press. Rather than choose a white woman to represent them, the Democrats have chosen a black man. You’d think history would have better things to talk about.

*** The older you get, the more doubtful you become. If you’ve had your eyes open you’ve seen countless plans, predictions, and programs go awry. Plan A is almost always replaced by Plan B…and then Plan C. And you’ve discovered that the people who are most sure about things are those who turn out to be the biggest numbskulls.

“I don’t know,” said our old friend Lord Rees-Mogg over lunch yesterday. “I think when you get older your mental faculties change, so you’re not as quick or as smart in some ways, but smarter in others.”

We were about to ask: ‘In what ways do you get smarter?” But the subject changed to the pudding. The dining hall in the House of Lords has to be one of the best restaurants in London. We recommend the calves liver.

Our old friend is celebrating his 80th birthday this year.

“Age may not be a great advantage when you are mountain climbing,” he went on. “But it helps when you are investing. Because you’ve seen so much more than young investors. And you tend not to get too excited. Your emotional reactions are more moderate. Tempered by time and experience. You’re not as likely to make big mistakes because of an excess of enthusiasm.”

Lord Rees-Mogg may be right; but we’d rather be younger anyway.

*** As you may remember, dear reader, we put in a Country Hotline Service here at the Daily Reckoning headquarters. We offered to give advice to central bankers and heads of state - for free.

Well, we’re still waiting for the phone to ring. But if the phone ever rings, we’re ready. We can imagine the call:

Ben: “Gosh Bill, I’m in a bit of a jamb. I’ve got rising consumer prices on the one side…and a falling housing market on the other. I should raise rates to head off inflation, on the one hand, but if I do that, I risk sending the economy into a recession. Then, I’ll get blamed for everything. The Republicans will lose the White House - and blame me, of course. The economy will sink - just like Japan in the ’90s - and I’ll get blamed for that too. It isn’t fair…”

DR: “Well…you…

Ben: “Wait…it’s actually worse that I made it sound. Because either way I go, I’m screwed. If I cut rates, the dollar will go down and the “crude oil cowboys” are going to push the price up to $200 - and the whole world economy could go into some kind of crisis. If I raise rates, on the other hand, I’m almost certainly dooming all those marginal homeowners to bankruptcy. They all live on credit. And if the cost of credit goes up…they’re going to be squeezed hard. What’s really happening is that we’re on the downside of the credit cycle. So the cost of credit is going up…no matter what I do.

“And don’t even think about mentioning Paul Volcker. I’m sick of hearing his name. Let’s face it, he wasn’t a genius; he was just lucky to be on the right side of the credit cycle. Lending rates peaked out early in his term at the Fed…he could coast the rest of the way. I’ve got the opposite situation. Lending rates are bottoming out…just as I get started. It’s going to be uphill from here on…and I’m left holding the bag.

“Did you see what happened in the bond market recently? The 10-year note yield went over 4%…and it didn’t come back down until speculators started to bet on a rate increase.

“What can I do? Sit tight? But if I do nothing…and sit pat…I’ll get even more criticism. People will forgive you if you do the wrong thing; but they’ll never forgive you for doing nothing. Doing nothing is not an option.”

DR: “Well…what we’re seeing is pretty much what you could have expected, isn’t it? Isn’t this what happens when…”

Ben: “Look…I don’t need any of your lectures…I just want to know what lever to pull on. The one marked ‘fight inflation’ or the one marked ‘fight recession’?”

DR: “Sorry, Benny…it’s not that easy.”

Ben: “What do you mean? There are only two levers. I just wan to know which one to pull.”

DR: “It doesn’t really matter, does it?”

Ben: “What do you mean by that?”

DR: “Just as you said; you’re in a jamb. If you raise rates, while house prices are falling and GDP is nearly flat, you’re almost surely going to have a recession. But if you cut rates, oil is going up…inflation will rise…bonds will fall, and interest rates will go up anyway. Either way, the economy goes into a slump.”

Ben: “Yeah…so what do I do?”

DR: “Well…you’ve got to think about it in a whole different way. People made mistakes. They built too many houses. They paid too much for those CDOs and MBSs and all the rest of it. They bought businesses for more than they were worth. You can’t do anything about those bad mistakes…except help people correct them as soon as possible.

“You’re not doing any favors by offering more credit to a guy who is too deep in debt. And you’re not doing anything good for an economy that is living on borrowed time and borrowed money. What the whole system really needs is a correction. Why not give it one? Raise rates - a lot. That’ll send a message. That’s what Vol….never mind. Give people a reason to save again. And give the speculators a good spanking. Liquidate housing. Liquidate the banks. Liquidate the farmers. Liquidate the stock market. Liquidate the consumer. Liquidate the whole damned bunch. And while you’re at it, go on TV and tell the public the truth; that modern central banking is as fraudulent as Freudianism…and that from now on, you won’t be putting out any more funny money.

Ben: “Hold on…you know I can’t do that…

DR: “Then get out while the getting is good. Maybe you could fake a heart attack or something, and announce your retirement…that would give you some public sympathy…while you leave the next guy holding the bag.”

The phone is still silent.

Until tomorrow,

Bill Bonner
The Daily Reckoning

Source: Big Ben’s Loose Lips

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