19 March 2009
 
Deep Down
 
The President got out of town and talked to a friendly audience out in California ye sterday. Everybody likes to get out of Washington, and every speech or conference presentation that a harried bureaucrat gives starts with the observation that a day out of the Capital is a day with sunshine.
 
The most hardened insider will take advantage of the opportunity to bash the system, since you can do that with impunity out there in the real America. President Bush seemed to spend the last three years out there, where things were safe.
 
Right now, with the AIG scandal attracting all the heat on poor Secretary Geithner, it is an excellent time for the President to take the show on the road. And sell the new budget.
0A
 
“What all of you know deep down… and what folks in Washington sometimes forget …is that in the end, a budget is not merely numbers on a page or a laundry list of programs. It is about your lives, your families and your dreams for the future. And you didn’t send us to Washington to stand in the way of your aspirations. You didn’t send us there to say no to change…you sent us there to get things done.”
 
I liked the way he finished with a Harry Truman Buck-Stops-Here flourish. “Washington is all in a tizzy over who’s at fault. Some say it’s the Democrats fault, the Republicans fault. Lis ten, I’ll take responsibility. I’m the president.”
 
I know it is rhetoric, and I know it is nonsense, but it is heartening nonsense. At least the last part. I don’t know about the aspirations piece. I don’t think his people get that part, and the President has a natural blind spot to the aspirations of several of his constituencies.
 
As late as Monday, his people were pushing the VA to press combat-injured vets onto private insurance plans to save money. They abandoned that after a remarka ble joint letter signed by the head’s of a dozen or more veteran’s organizations landed on his desk.
 
I need to be very clear about what was at stake. Not the complaints of old farts like me, who have a bag of ailments suffered since leaving active duty. This was about kids who got blown up in the service of their nation.
 
That is not a real huge aspiration, to have combat injuries taken care of by the government that sent them out to fight. There is another aspiration- the expectation that pensions and social security will be there when the time comes. I am having my doubts on that.
 
The Chief of the Fed, Ben Bernanke, told us exactly what he was going to do last Sunday. Yesterday he acted on what he said. The Federal Reserve pumped another trillion dollars into the financial system by purchasing T-bills and mortgage securities.
 
I am starting to lose track of the trillions- is this three in the emergency bag yet? I’m OK with it, and Ben’s explanation was cogent and well reasoned. If the banks fail, the whole thing fails. This tactic though, is writing a check against the future, which we will deal with when the time comes.
 
He said that would be next year. But at the moment, we are not even selling the T-bills to the Chinese. We are just printing money out of thin air.
 
Again, I am OK with what needs to be done. Down deep, I know that this is what needs happen right now. But there are going to be those pesky consequences.
 
In the short term, the markets were delighted. They are saying that interest rates on fixed-rate mortgages could soon drop below 5 percent.
 
But this amounts to a calculated devaluation of the dollar. We don’t feel it yet, but gold jumped a couple dozen dollars an ounce, to a high of $942.
 
I am having an epiphany. I think we are looking at a time where we have to seize the future, or forever be a hostage to the past.
 
Short and sweet, I am going to rely on the revealed wisdom of the Chairman Bernanke. This is not a secret.
 
The Fed is a blunt instrument, not a scalpel. They will overspend, and then not be able to precisely fine-tune the money supply. The consequences of what Ben is doing will be manifested in  inflation- which really is the only real tool to deal with what the smart guys have done to us.
 
Think about it. Inflation is the only way to get rid of the toxic assets. Inflate your way out of it. I understand and support that, but think of the collateral damages that are going to come with it. The inflation will wipe out savings, pensions, 401Ks and all the rest that is tucked in the mattress.
 
It also means that pensions- civilian, military and social security- will be constantly chasing runaway inflation and losing. The recovery is going to be as scary as the plunge into the sub-prime abyss, only we are all going there.
 
I think it is time to buy, something, somewhere, anywhere. So long as it is at th e bargain basement rates, thirty years or forty terms, it doesn’t matter. Get someplace you want to be, because it you don’t, you will be lucky to stay where you are.
 
I think that is what is going to happen. I have picked the logic apart, and don’t see where the flaws are. It would seem to be a call to action. But acting now is a huge gamble, the personal equivalent of what Ben Bernanke is doing for the public,
 
Deep down, this is a scary thing, isn’t it?

Copyright 2009 Vic Socotra
www.vicsocotra.com