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The Banker Who Was God

The Banker Who Was God

From this week's Market Shadows Newsletter, The Banker Who Was God (6-23-13).

American writer and cartoonist James Thurber wrote, "The Owl Who Was God" in 1940, long before the Chairman of the Federal Reserve would become the de facto ruler of the world's financial system. It begins as a typical fable about relationships among animal characters. "Once upon a starless midnight there was an owl who sat on the branch of an oak tree. Two ground moles tried to slip quietly by, unnoticed. 'You!' said the owl. 'Who?' they quavered, in fear and astonishment, for they could not believe it was possible for anyone to see them in that thick darkness."

The owl soon demonstrated accidental highness and gained a reputation as the greatest and wisest creature of the region. He could see in the dark and answer all questions. Except for a particularly observant fox, the neighborhood animals became intoxicated with the owl's splendor and selected him as their leader.

The animal fan-club blindly trusted the owl and followed him everywhere. "He walked very slowly, which gave him an appearance of great dignity, and he peered about him with large, staring eyes, which gave him an air of tremendous importance... So they followed him wherever he went and when he bumped into things they began to bump into things, too.

"Finally he came to a concrete highway and he started up the middle of it and all the other creatures followed him. Presently a hawk, who was acting as outrider, observed a truck coming toward them at fifty miles an hour, and he reported to the secretary bird and the secretary bird reported to the owl. 'There's danger ahead,' said the secretary bird. 'To wit?' said the owl. The secretary bird told him. 'Aren't you afraid?' he asked. 'Who?' said the owl calmly, for he could not see the truck. 'He's God!' cried all the creatures again, and they were still crying 'He's God' when the truck hit them and ran them down. Some of the animals were merely injured, but most of them, including the owl, were killed.

"Moral: You can fool too many of the people too much of the time."

[Source: James Thurber, Fables for Our Time and Famous Poems Illustrated (New York, 1940), pp. 35-36.]

Last week, Bernanke spoke about the possibility of ending quantitative easing (QE) earlier than originally anticipated if warranted by a growing economy. The stock market reacted negatively, bonds sold off and yields spiked up. In Don't Fear the Taper, we surmised Bernanke may talk the taper, but ultimately cannot risk soaring interest rates and a falling stock market.

Lee Adler of the Wall Street Examiner pointed out that the Fed is lousy at predicting how the economy will do, anyway. "Bernanke said today that the taper will depend on the economy sticking around the Fed's forecasts. The problem is that the Fed has never been able to forecast the economy correctly. It hasn't even been able to forecast present conditions correctly.

"This is true not just of the aggregate FOMC forecast, but of each individual member surveyed. The Washington Post covered this issue today. I wrote a report on this in 2010 covering the period of 2007 to 2010. I think the market woke up today to just how clueless, delusional, manipulative, and incompetent Ben Bernanke really is." (Fed Will Taper If Economy Goes As Forecast--Uh Oh! Fed Sucks At Forecasting.)

James Howard Kunstler commented on the Fed's dilemma, "If the Fed were to reduce its purchases of this debt paper, nobody else would buy it. The reason the Fed buys the quantity it does in the first place ($85 billion-a-month) is that nobody else would touch it at the offered zero interest rates. The US Treasury and the mortgage bundlers could only sell the stuff if they paid higher interest rates. But the US government would choke to death on higher interest rates because its aggregate debt is so huge and the scheduled interest payments so gigantic that a one percent increase would destroy even the fantasy of economic equilibrium." (James Howard Kunstler's Mid Year Digest)

Read the full newsletter: Market Shadows Newsletter, The Banker Who Was God (6-23-13)