In “Hard Money Populism” I mentioned Congressman Ron Paul’s coming to Texas A&M University a few years ago to speak to the Young Republican Club and that the attendance was embarrassingly small. I said that he was a good sport about it and nevertheless gave them “the whole load.”

I don’t know how many readers may have misunderstood what I meant by the whole load, but I know of one, which is one too many. It came from the following story, which I heard many years ago. I don’t know the origin of the story.  

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The first and so-far the only person I’ve heard call himself a “hard money populist” was my friend, Wayne Angell. That was several years ago when he was a member of the Board of Governors of the Federal Reserve and we served together on the FOMC. I wanted to give Wayne credit for the expression before someone else adopts it as something new and original.

Populism in U.S. monetary history was usually associated with opposition to the harsh discipline imposed by adherence to the gold standard. Gold money—hard money—was seen to favor creditors over debtors, especially evil bankers over worthy farmers. Going off gold was unthinkable, so the populists wanted to use more plentiful and cheaper silver as the basis or at least a basis for our currency. The battle cry came from William Jennings Bryan’s “thou shall not crucify mankind on a cross of gold” in his cross of gold speech in the 1896 presidential campaign.

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Do you agree with me that inflation has not been a problem lately? Or, do you agree with those who say it has? It depends on what you mean by lately. The difference between inflation in recent months and inflation year to date has been wider than usual this past year, but that’s changing.

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 A couple of people have mentioned to me that the TARP repayments are all over the news and suggested that I write about it. My response has been that I didn’t know how to avoid saying I told you so. I’ve written and said often that TARP would produce a profit for taxpayers, or only a small loss. However, I could always feel eyes rolling.

While I never bought the idea that TARP purchases of preferred stock was only from banks ALREADY in good condition, I do think it was limited to banks that WOULD BE expected to be in good condition AFTER the purchase. In many cases the government investment was conditional on the raising of private capital as well.

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I ended my previous post, Jobless Recoveries: A Look Back, by raising a question; how does the same monetary policy that fosters disinflation in the general economy foster an inflationary bubble in only one sector? By easing monetary policy, the Fed intended to address a very weak labor market, a jobless recovery that threatened to turn back into recession and disinflation that threatened to morph into deflation. But, if the Fed was creating too much money, why was the money spent only on housing?

It is taken as given these days that the Fed created the housing bubble. If this is true, then it must follow that the Fed is responsible for the bursting housing bubble, the ensuing financial crisis and subsequent recession. But, as I recall, the Fed did not create the housing bubble. It was the collateralized subprime loans, not a reversal of home prices, that caused the problems. Maybe there were too many loans, but, if so many had not been bad loans, air could have come out of the bubble without devestation.

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“Turning to the nation, we’re in the midst of the slowest expansion in post-World War II history, as measured by employment. In the previous nine expansions, it took an average of eleven months for employment to regain its pre-recession peak; the high was twenty-three months in the so-called jobless expansion that began in 1991. At twenty months into our current expansion, jobs are still down 2.6 million from the level in February 2001. So we’re certain to set a new high for the number of months it takes to get all the jobs back.”

This quote is from my opening statement at the FOMC meeting on August 12, 2003. According to the Business Cycle Dating Committee of the NBER, the recession had officially ended in November 2001. There were a few months of job growth after that November, but they turned negative again in 2002 and remained weak in 2003.

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The other day a top-notch interviewer on financial radio was paying more than his usual deference to his distinguished guest on the subject of health care. The guest summed things up with an analogy. He said the case for requiring young people who don’t want health insurance to purchase it anyway was the same as the case for requiring automobile owners to have car insurance.

I waited for the interviewer to point out that the required automobile insurance is liability insurance–in case he has an accident that hurts someone else–whereas the required health insurance would be insurance for the purchaser’s own benefit. He didn’t. Required bicycle helmets would have been a more honest analogy.

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We had a couple of bullies in my small high school, but I’m told that they grew up into pretty good citizens. Time seems to cure that ugly disease in most people. The main exception is our elected representatives. Something happens to them when they climb up on the dias and see the red light on the TV cameras. Senator Jeckle becomes senator Hyde. They get to show their constituents how tough they are. I don’t watch bull fights, dog fights, or rooster fights, and it’s getting harder to watch congressional hearings.

What I don’t understand is why politicians think their deviant behavior is so appealing back home. They apparently don’t have a very high regard for the home folks, especially those in Kentucky and Vermont. My guess is that those folks are better than their Senators give them credit for. Surely blue grass and autumn leaves have some calming effect.

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Here is a CNBC video clip from last night’s Kudlow Report where I defend Ben Bernanke and argue that he should be confirmed for reappointment as Chairman.

I just want to make a simple, but important, point about money and credit that is being overlooked by just about everybody except David Malpass. That’s true of a lot of things, by they way.

When a commercial bank makes loans or purchases government securities, both sides of its balance sheet are affected. On the asset side, either loans or investments rise. We usually call that combination “credit.” At the same time, on the liability side of the balance sheet, deposits rise by an equal amount. Those deposits are usually considered part of the money supply. When the deposits are spent, they will end up on other banks balance sheets, but will remain somewhere in the banking system.

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We appear to have an instant consensus that the New York Fed could have reduced the cost of AIG assistance by negotiating a haircut on money owed to its counterparties. I don’t know if that’s the case or not. However, I do have a couple of points to make in the interest of fairness as we rush to judgment.

First, as has been said over and over, the point of a “bailout” or assistance to a systemically important institution is not to save the institution itself but to limit the collateral damage. If that is the rationale of the assistance, it would seem inconsistent to intervene and then inflict the damage on counterparties that the intervention was intended to prevent. And, can you give some counterparties a haircut and not others? It’s a can of worms the New York Fed apparently decided not to open.

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I guess what bothers me most is being taken for a fool.

Let’s see now, breast cancer kills thirty-somethings and forty-somethings, but it kills more fifty-somethings and up. So, since we are all going to be sharing the cost of detection and treatment more than ever, why don’t you gals below fifty be good  sports about it? 

We know best, and we recommend that you not be checked. Heck, we even recommend that you not check yourself. We want to spare you the inconvenience and the potential anxiety of a false positive. It would be horrible to think you have cancer and then find out you don’t.

What about positives, you ask, and false negatives? Well, you won’t get those if you don’t get checked. Trust us. We know what’s best for you. And don’t you be sneaking into the bathroom for a self examination, you hear.

Ron Paul’s proposal to audit the Fed sounds innocuous enough, but it is anything but. 

I know from personal experience as president of the Dallas Fed that GAO auditors are only too eager to support the political agendas of their Congressional sponsors. Past efforts to have ongoing GAO audits have excluded monetary policy and promised financial audits only. The current bill specifically targets monetary policy.

I’ve enjoyed my brief encounters with Mr. Paul. I like him personally, but I can’t get around the fact that his agenda is nothing less than abolishing the Federal Reserve.  Abolishing the Fed is not a hidden agenda on his part. In fact, End the Fed is the title of his latest book.

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Notes made for remarks to the Federalist Society on November 13, 2009 

It’s an honor to be on this panel with all these distinguished people. But I’m afraid I was invited because I’m considered soft on bailouts. That’s a terrible reputation to have. What is it they say about poker? “If you look around the table and you can’t tell who the sucker is, it’s you.”

The case for bailouts is usually systemic risk. You do it, not for the bailout-ee, but to limit the collateral damage, damage to the whole “system.” The case against bailouts is that by saving management and owners from the consequences of their excessive risk-taking or bad decisions, you create moral hazard and encourage similar behavior by others.

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The goods and services trade deficit widened in September, reversing recent improvements. It was good news that both imports and exports increased after a shrinkage of trade resulting from the global contraction. The deficit increased because imports increased more than exports.

Exports or goods and services increased by $3.7 billion to $132.0 billion while imports increased by $9.3 billion to $168.4 billion. The deficit for September increased from $30.8 billion to $36.5 billion, an increase of 18 percent.

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The headline in today’s Wall Street Journal says “World Tries to Buck Up the Dollar.” The headline writer no doubt savored the opportunity to use “buck” for its double meaning even though it might have been more accurate to say “World Tries to Hold Down It’s Currencies.” That would have gotten closer to the world’s motivation.

The second paragraph acknowledges this implicitly when it says “Thailand, South Korea, Russia, and the Philippines have been snapping up dollars this week in order to hold down the value of their currencies.” It goes on to say that Brazil’s finance minister said the country’s currency remained too strong even after Brazil adopted some capital controls to weaken it.

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As now, the dollar was in general decline against some currencies during September 2007. The Euro was strong against the dollar; the British pound reached $2 per pound and the Canadian dollar reached 1 to 1 parity with the dollar.

I have always kept track of the U.S./Canadian dollars by comparing the two prices inside new book dust covers. I wrote about this here on October 4, 2007 in a post titled McTeer on Dollars and Books.

Chairman Greenspan’s book, The Age of Turbulence, was released on September 17, 2007, priced at U.S. $35.00 and Canada $43.50. That was a 24 percent difference despite the parity in the exchange markets that month. His publisher obviously didn’t think the parity would hold.

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My recent interviews on CNBC cover the FOMC’s decision and discussion of the dollar. To access my CNBC profile click here. The videos below were filmed November 4th, November 3rd, and October 30th, respectively.

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My 15 Seconds

I attended a conference in Beijing in 2003 sponsored by the Chinese government. While in China, I also met with several Chinese officials, including the new Premier, Wen Jiabao, officials of the central bank, and the agency in charge of maintaining the exchange rate of the Yuan, or Renminbi.

In several television interviews I was asked about the dollar/yuan peg and whether it was appropriate. I tiptoed through the tulips on the delicate aspects of that question, focusing instead on the basic dilemma.

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Credits in the U.S. balance of payments give rise to a demand for dollars. Debits reflect the supply of dollars. Together, they determined the exchange rate for the dollar. So far, so good. Everybody knows that.

Then why is it that virtually all the commentary on the dollar on financial TV and in blogs fails to mention the balance of payments when discussing the dollar? The dollar is considered super-important these days while the balance of payments isn’t considered important enough to mention. That’s like saying the price is important, but supply and demand don’t matter.

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