Federal Reserve Chairman Ben Bernanke told the Senate Banking Committee yesterday that he rejected being cast in “That ‘70s Show.” Bernanke told Committee members that he does not believe inflation poses a threat to the economy, since the show’s producers made it clear he could not demand Ashton Kutcher’s salary.
The Fed Chairman displayed his usual nervousness in his semi-annual testimony to Congress. However, Bernanke became somewhat testy when asked by several Senators if the economy is experiencing the s-word: stagflation. Bernanke kept reiterating that “I don’t think we’re anywhere near a 1970s-type situation.” This is because “our anticipation is inflation will come down later this year.” With his Sun, Mercury, and Venus in Jupiter-ruled Sagittarius, Bernanke is only focused on economic growth and expansion.
Bernanke attributes the rise in food and energy costs (core inflation) to investor speculation. While that is partially true, commodity and energy prices have been on a tear since the FOMC began lowering rates last September. This coincides with the entrance of Saturn (contracted supply) in Virgo. Virgo rules consumer staples, and is represented by a maiden holding a shaft of wheat. Saturn was last in Virgo from 1977-1980. The FOMC’s monetary policy has resulted in the U.S. dollar at record lows, causing commodity users to spend more dollars for those materials.
Even some members of Congress along with a few Permabulls are getting angry that he refuses to acknowledge his other mandate of price stability as enacted by Congress under the Full Employment & Balanced Growth Act. Ironically, this mandate came into being in 1978, one Saturn cycle ago during the last period of stagflation.
It is clear that the only beneficiary of the Fed’s lower rates is the banks. Mortgage rates have risen since the rate cuts (and lending requirements are tighter). This morning’s release of January Personal Income and Spending shows consumers are spending more than they are earning. Even the Fed’s favorite, the Core PCE Index, was 2.2% - once again above the Fed’s so-called “comfort level.” As today’s Wall Street Journal editorial rightly points out, “The people who aren’t being fooled by all this are the American people. They don’t pay their bills with “core” dollar bills, and they know those dollars buy less with each passing month.”
Because consumers can no longer tap into their home equity to offset the higher cost of living, demands for higher wages are about to arrive. Companies will have no choice but to acquiesce to higher wage demands as the low hanging fruit of productivity and outsourcing has already been picked.
Sir John Templeton once said: “The four most expensive words in the English language are ‘this time it’s different’.” Cycles repeat themselves, but this time it is different. This time is worse than the 1970s as we have stagflation AND a housing and credit crisis like the world has never seen.
Allan Meltzer, an economics professor at Carnegie Mellon, wrote an outstanding op-ed piece* in the Wall Street Journal, which Bernanke was asked about at yesterday’s hearing. Bernanke stated he disagreed with the piece. In the piece, Meltzer warns of the repercussions of not taming the inflation beast: “A country that will not accept the possibility of a small recession will end up having a big one when the politicians at last respond to the public’s complaints about inflation. Instead of paying the relatively small cost of a possible recession, the public pays the much larger cost of sustained inflation and a deeper recession.”
If Bernanke wants to bring back “That ‘70s Show”, we need Paul Volcker in the starring role. Volcker took over as Fed Chairman in 1979 after another Chairman whose last name began with a B – Arthur Burns, fed inflation in the name of growth. With his Sun, Mercury, Venus, and Mars in no-nonsense Virgo, Volcker put inflation on a starvation diet. His tough love approach ushered in the prosperity of the 1980s.
* Professor Meltzer’s WSJ op-ed piece is entitled “That ‘70s Show”
Related Posts: “The Fed’s Future”. Also check out the Cycles section of Wall Street Weather.
Ben Bernanke: December 13, 1953 time unknown Augusta, Georgia
Paul Volcker: September 5, 1927 time unknown Cape May, New Jersey