The two big wigs in the financial community testify before congress on the same day and the market drops nearly 5%. What does that tell us?
If you listen to the commentators, you might think the market did not like precisely what those specific individuals said. On that basis Tim Geithner got the most criticism because he did not say exactly what the Treasury Department will do next. Markets definitely do not like uncertainty. But, markets also have more intelligence than most people realize. (See the Wisdom of Crowds.)
I think the market saw the symbolism represented by the testimony of the heads of these two government agencies. (Oh, don’t argue with me about the private ownership of the Fed. What private company has the CEO appointed by the President of the United States and gives its profits to the U. S. Treasury?) These two men symbolize the system that created this problem in the first place. Their appearance before congress reinforces the mistaken believe that the source of the problems can also provide the cure.
Ben Bernanke. The man and his beliefs symbolize faith in the reserve banking system, in which banks create money virtually at will. This system destroys the wealth of millions of U. S. citizens, distorts the pricing mechanism, and causes the booms and busts that rock the economy with too much regularity. The money supply has grown steadily through the tenures of all these Fed Chairmen:
|
William McChesney Martin, Jr. |
April 2, 1951 – February 1, 1970 |
|
Arthur F. Burns |
February 1, 1970 – January 31, 1978 |
|
G. William Miller |
March 8, 1978 – August 6, 1979 |
|
Paul A. Volcker |
August 6, 1979 – August 11, 1987 |
|
Alan Greenspan |
August 11, 1987 – January 31, 2006 |
|
Ben Bernanke |
February 1, 2006 – |
As well as those who preceded them.
So don’t blame these men. The problem lies with the system in which they operate.
Tim Geithner. Most people, most of the time, don’t know who holds the position of the Secretary of the Treasury. The relative importance of these men depend a lot on the responsibilities given them by the President in office at the time. This guy and his predecessor, Henry Paulson, have the distinction of holding the position at a time in which it seems important. The position, however, has more significance than the man holding the position.
The Treasury Secretary symbolizes the foolish idea that government spending plays a positive role in the health of the American Economy. Government only redistributes economic resources to less than optimum utilization. Having the Treasury Secretary testify only verifies the fact that legislators have not given up the foolish idea of redistribute.
If Roadrunner and Wiley Coyote held the titles of Fed Chairmen and Treasury Secretary, the market would have reacted the same. Deep down the market understands that only the system matters; the men do not.
