The Big Bend Mountain was a mile and a quarter thick and the C&O Railroad couldn't go around so the company decided to cut right through. It would take more than three years and in the process a thousand men would perish from the brutal work, smoke and dust. These were hard scrubbed men and hard as nails, but one stood out from them all. John Henry was born a slave in the 1840's and went on to be the strongest steel-driver for the Chesapeake & Ohio Railroad. He was hard working and prideful.
One day a salesman came to the site with a new steam-powered drill boasting it could outwork any man.
John Henry took this as a personal challenge and the battle began. Henry broke out two 29 pound hammers, one in each hand, while the site foreman powered up the fancy new drill. The battle was joined and after 35 minutes of smoke, dust, noise, cheers and grunts Henry had drilled two seven foot holes for a total of 14 while the steam drill only etched out a nine foot hole. Henry threw his arms up in victory as the cheers came down. This was clearly a victory for man over machine. A victory against all odds.
The cheers soon gave way to a silence, a hush that pierced all the mania for their hero, John Henry, lay dead. According to folklore a blood vessel in his brain, pushed to the limit, popped!
Big Ben and his Sledgehammer
We all know Ben Bernanke is a history buff and in fact it's his knowledge of the Great Depression that made him uniquely qualified to head the Federal Reserve. I'm sure Bernanke is familiar with the story of John Henry, and I'm sure he thinks about his legacy a hundred years from now. Of course it feels like we may still be in this accommodative phase a hundred years from now. Really, the needle simply isn't moving, the economy is stalled. The New GDP number points to a slower recovery this year than expected back in December, although the unemployment rate could be as low as 7.3%.
Ben Bernanke has been hammering and hammering and ... nothing. Sure, the freefall stopped and it is easier to buy a car and household furniture with no money down.
The Fed began cutting rates on September 18, 2008, frantically trying to stop the freefall. There were 11 rate cuts that eventually brought the rate to 0-0.25% from 5.25%, and now $85.0 billion a month in asset purchases designed to spark that virtuous cycle based on a belief there's more wealth. Home prices are climbing again, but even there we've seen them slip dramatically in recent months (new peaked at $254,600 last September and existing at $238,200 in June).
Digging the nation out of this hole has been a task even Hercules might have turned down, particularly in the face of anti-business policies that mitigate all that free money that by now should be sloshing around Main Street. I think the Fed should stop what it's doing right now and stop enabling the White House to engage in a War on Success and instead make a decision that couldn't be covered up in publicly relations spin and media misinformation. Help boost the economy or keep pressing the attack in an effort to build the coffers of the federal government.
That's the irony. Ben Bernanke would be closer to John Henry in legend and influence by putting down his hammers. As it stands now we have the noise, the smoke and the drama but the mountain of doubt remains just as risk of an inflation landslide increases.
When it's all said and done there will be no heroes.
Ben Bernanke doesn't see inflation as a threat so will pump and pump and pump. The market likes the news but there is growing angst, too. While it is hard to argue the US economy is ready to move along without training wheels, there is a sense that it should be made to do so and find a way to stay upright. Again, this would put pressure on the administration to not only stop with the nonsense like threatening not to do the Easter egg roll at the White house.
The market is sort of scratching its head the day after the conclusion of the 2-day Fed meeting as the Street has to reconcile the fact massive money-printing is needed for an economy that the media says has already turned the corner. The trend has been for the stocks to open without direction and momentum to build as the day moves along. For all the boo-birds out there, smart money is reluctant to exit and non-smart money is reluctant to chase although each up day puts a tremendous amount of pressure to get off the sidelines.