Thu Jan 31st, 2008 at 04:54:03 AM EST
The second Fed rate cut in nine days is obviously much too little, much too late. And listening to the cable show talking heads reveals why this is so. You see, the Fed is at least 30 YEARS behind the curve. The chattering classes think they are only several months.
Let's review. The folks with the power to set monetary policy are institutionally predisposed towards the notions of "sound money." For them, the only possible economic sin is inflation. And the only weapon worth considering in the fight against inflation is naked usury.
The problem with using monetary policy to fight the "inflations" caused by a run-up in energy prices is that the bankers cannot change the facts on the ground.
And the main fact is that too many people want that most incredible of all natural resources--oil. The bankers have been taught by the mega-fool academic economists that if the price of oil increases, there will magically appear more oil. Listening to such fools is like being caught in an airport by a freaking Moonie, but such is the nature of an education in economics these days.
So the bankers are caught between their cultural hatred of inflation and love for usury, and the needs of the real economy--an economy they barely acknowledge exists. In the past 30 years, they have become increasingly separated from reality as they sink ever deeper into their world of electronic money and ever more baroque derivatives as they strive to extract an ever-greater share of the wealth the real economy still, on occasion, produces.
It would be tempting to call for a return of the guillotine. The financial cultists have richly earned such a reward. But merely butchering a bunch of fools, while soul-satisfying, will not fix things. The reason is that other fact on the ground--some sort of banking system is necessary. We need bankers who actually have a serious understanding of their role in society.
The financial community is MUCH too large and expensive. Too many people think they have the right to become obscenely rich manipulating electrons. They have produced a destructive drag on the operations of those who must deal with the real world. The financial community should be shrunken to 1/10th their current size and STRICT usury laws must be enacted.
When THAT happens, the bankers will have demonstrated that they finally "get it" and are over the mental disorders that have gripped them since the first time they couldn't understand the implications of an oil crises in the 1970s.