Establishment figure wanders into lion's den
What happens when a thorougly establishment figure like former Bush economic adviser Lawrence Lindsey wanders into the New Orleans Investment Conference?
You get a defiant statement that he belongs to the establishment, and then some surprisingly straight talk, says Ed Steer:
The first thing Lindsey said was that he was a card-carrying member of "the Brotherhood of International Central Bankers," and once a member, always a member … all for one, and one for all.
He commented that the Fed had turned the humble American home from a place to live into a financial asset that had become a cash cow for homeowners who were using it like an ATM machine. Now we've all heard that before, but coming from him, it was candor I wasn't expecting. He went on to say that once the Fed people noticed how bad the quality of loans was becoming, they were reluctant "to tinker with a boom," so they sat on their hands…
His comments on interest rates were to the effect that by mid-2008, the Fed Funds rate would be 3.5 percent.
There was much more to the speech than this, but it was all along the same lines of "yep, we created this economic, financial, and monetary monster, here's the road map of how we did it, and the results. Now it's up to the citizens of the United States and the rest of the world's financial community to live with the consequences."
His comments were eerily similar to those made back in the early 1970s by then-Treasury Secretary John Connolly when he said (to European central bankers, I believe), "It may be our currency but it's your problem."
Now… Politically-inclined readers might recall Lindsey was the guy who got bounced out of the Bush administration for having the temerity to suggest the cost of the Iraq war might reach $200 billion. Where does he stand on that now?
Lindsey shoved right past the question and said that it was a war that the United States must win because the security of the country and the world depended on it. He pointed out that Franklin Roosevelt had spent 150 percent of U.S. GDP on World War II. I jumped in rather bravely and asked, "Does that mean that the U.S. is prepared to spend $15 trillion on this war?" Lindsey thought about it for two seconds and said that 150 percent of GDP was more like $22 trillion, and if that was what was required, so be it.
At that moment I felt like Alice in Wonderland shortly after she had taken the red pill. I was incredulous.
Steer shouldn't have been. A quick Google search reveals Lindsey is an adviser to Fred Thompson's presidential campaign.
Nor should any of us be surprised by his remarks on gold and the dollar:
I asked him how long he thought the Fed and the Treasury Department were going to hold the gold price down. He answered along the line of "Neither the U.S. Treasury or the Fed is doing anything to influence the gold price. It's all coming from the European central banks." He volunteered that he was, in fact, a "gold bull" because of all that was happening in the world. He repeated that he was a "gold bull."
By then a crowd had gathered around us, and others were asking questions. The first question was about a dollar devaluation, either planned (Plaza Accord-style) or unplanned, and how that would affect the United States. Lindsey's answer was that it was foreign holders of dollar assets who would be hurt the most, not the United States. When pressed on this particular point, Lindsey said that, "no, a 20-30 percent drop in the value of the dollar would have minimal impact within the U.S."
There you have it. The establishment consensus (as if there were any doubt anyway) is that trashing the dollar will have little impact on the U.S. economy, and might even be beneficial. God help us all. And stock up on gold.