Competing Whistles Past the Economic Graveyard

Saturday's edition of The Wall Street Journal carried an essay by Thomas F. Siems, a Federal Reserve Bank of Dallas economist and policy advisor, calling for policy certainty to foster the confidence necessary to restore a healthy economy. Here is an open letter response to that essay from one successful entrepreneur and investor who regularly follows and occasionally contributes to this blog:

Dear Mr. Siems:

     There was a time that your essay would have been a contender for what was described in Barbarians at the Gate as "a blinding glimpse of the obvious."     That would have been about 15 years ago when Republicans took control of our congress and went on a spending binge wilder than anything their Democrat predecessors had done. That made it clear that our elections were morphing into contests between constituency purchasing panderers, and led me to begin buying gold.
 

     The major development since then has been the additional and hugely more significant uncertainty created by the nation's abandonment of the rule of law. This dramatic change was signaled by the government, in the General Motors and Chrysler bankruptcy proceedings, running roughshod over the rights of bond holders to reward the administration's union supporters and being permitted to do so by a supine judiciary. That motivated me to move off shore (i) business activities that I formerly conducted (providing employment for others) domestically, and (ii) virtually all of my assets that were or could be made liquid.
 

     Meanwhile we have a government staffed by individuals who demonstrate the absolute accuracy of the comment that "only the little people pay taxes" for which Leona Helmsley, the reputed Queen of Mean, was sent to prison.

     In any event, insofar as I am concerned, the U.S. is becoming -- if it has not yet already become -- a third world entity with its institutions corrupt and corrupting from the top everything they touch, and your observations now are no more relevant than a call to lock the barn door years after the barn has burned down, having been looted of the horses and everything else it once contained.

     Incidentally, the average cost basis of my modest stash of gold is under $400 an ounce, my insignificant offshore accounts have done almost as well by investing in securities that cannot be purchased in the U.S., and my small enterprises are thriving without any American employees -- all of this beyond the reach of our country's predatory and insatiably rapacious unions and government.

     Finally, I am unlikely to give much weight to advice from anyone associated with the Federal Reserve. At the inception of that organization a $20 bill and a $20 gold piece were interchangeable, being of roughly equal value. Either would purchase a good quality man's suit. As we approach a century of Fed control of our currency a man still can use the $20 gold piece to purchase a top quality suit. But the $20 bill barely will pay to have that suit cleaned. What is certain is that the Fed is endeavoring to inflate a new and supposedly improved bubble that it hopes will float the economy up and out from the swamp into which the fed and its fellow financial regulators have permitted it and us to be driven. This is being attempted by using excess liquidity and credit -- the same tools that made possible the last bubble -- to recreate an illusion of prosperity. Having bailed out and lavishly rewarded those whose excesses caused the debacle with resources extracted from the meltdown's innocent victims, the economic barons now are trying to convince those victims, whom they have left to fend for themselves, that their betters, the authorities, can this time be trusted to keep things under control and humming.

     Good luck. Perhaps in time what is being passed off as an educational system will produce a new generation of gullible suckers. In the meantime though, with many of the productive having taken and retaining their chips off the board and out of  reach, the confidence necessary for an economy to thrive is a thing of the past, and there is a real, albeit still slight, risk that pitchfork and torch bearing peasants will surround the governmental and financial castles to wreak well deserved vengeance on those occupying those premises.