Tuesday, October 25, 2005

New White House Theme Song

Should I stay or should I go now?
Should I stay or should I go now?
If I go there will be trouble
An’ if I stay it will be double
So come on and let me know

New White House Theme Song performed by The Clash according to CHB

I remember watching a power struggle for the NY trading operation at Chase Manhattan, as a pawn, mind you, and in wondering how life must be like in Washington DC these days those memories serve as a possible hint. In any hierarchy the guys at the top will have different projects they have sponsored and depending upon how well their projects do they will rise or fall. In the instance I watched the metric was profit of the desks each prospective boss had created and staffed. Those of us on the trading desks knew who was going to win well before the quarterly profit and loss statement was released, the day which marked the changing of the guard. One day you reported to this guy and the next day, to another. Quite soon the changes in philosophy became apparent. Also, as they say in war, to the victor go the spoils, to which we on the trading desks add, to the loser go the losses. We found an awfully big loss in the loser's desks' portfolios, shame, shame.

With yesterday's announcement of Bernanke as new Fed head and continued raising of the stakes in the CIA leak/Niger Uranium forgery case; VP Cheney is now reported to be the source of Scooter Libby's info, two of the more powerful corporate offices in the world will soon be under new management. In the case of the Fed, the change is overt, while in the case of the White House, the change might not be, by which I mean, the Neo-cons might be purged but Bush might remain. Then again, perhaps we will get a full-Nixon. In any event I imagine the words of the Clash song are playing in the minds of many at 1600 Pennsylvania Ave.

I haven't finished reading through Bernanke's academic papers on monetary policy but my first impression is that he believes monetary policy is a more powerful force than do I. In my view, particularly when the token currency in question is also used as global reserve currency, the power of monetary policy is severely limited, except in choosing the side towards which the deck will be stacked, savers or debtors. Of more import is the continuation of political and military hegemony.

In that regard, I think the next few years will be retrenchment years for the US on the world stage. The great problem for any expansion effort by an empire comes when the expansion runs out of steam, in much the same way that any corporation is great to work for when it is growing but much more difficult when revenue growth stalls or goes negative. I also expect to see a fair bit of house cleaning of a financial sense now that scape goats have been produced.

This is where Bernanke's helicopter speech may prove quite prescient. To the extent Refco proves to be another Enron, by which I mean a corporation whose books were radically imbalanced, and there are more Refcos to be exposed, the die is cast, we are going to inflate.

I don't think the experience will be pleasant but then again, a loss of faith in the central institutions of a society never is. Neither are the first few weeks of a new diet regimen, but that doesn't mean it isn't useful in the long run. Oh well, let the resolution commence.