Last week, there was some big news.
First, the Fed didn’t ‘pivot’ away from its tightening program. The BBC: ‘US makes major rate rise to tame soaring prices’.
That news was widely anticipated. It leaves the Fed’s key rate about 7.5% BELOW the consumer price inflation level. So the Fed may be properly described only as making the noose…it’s still a long way from putting it around his elite friends’ necks.
Investors bid up stocks on the news, probably guessing that the Fed chief might change his mind before he actually hangs anyone.
Which brings us to our second big headline: ‘Senate Passes Bill to Pork Up Semiconductor Industry’.
Don’t bother to look it up. As far as we know, no reputable media outlet wrote an honest headline on the subject. It fell to us to clarify what was really going on.
The US$280 billion pig
Here’s The Hill with more details:
‘The $52 billion subsidy bill is just a pig dressed up in high-tech clothes. There is nothing special about the semiconductor industry that justifies subsidies. This is just wasteful pork-barrel politics as usual. Unfortunately, wasteful pork-barrel spending is the one thing that seems capable of getting bipartisan support in Washington these days.’
Only…by the time the story made its way to The Wall Street Journal, the cost of the program had exploded, the way Washington’s boondoggles tend to do: ‘The Senate approved a $280 billion bill aimed at boosting the semiconductor industry crucial to modern technology’…
The idea is to set up 20 regional manufacturing ‘hubs’. And they’re supposed to be in areas where people are relatively poor and disadvantaged.
In other words…one of the most vital products of sophisticated machinery is to be made in areas with no substantial manufacturing base…by people who weren’t very good at making anything else! Of course, this kind of central planning never works…but maybe this time it will be different.
As with all government boondoggles, the costs fall on the many. The benefits, if there are any at all, go to the few. And the few who will score big from this one are those who promise to improve the US’s national security, by manufacturing little silicon wafers.
Can they actually make the chips in the US to a competitive standard in cost and quality? Probably not. If we could, we would be doing it already. And if government really could ‘invest’ profitably…we might have US$30 trillion worth of dividend producing assets, rather than US$30 trillion worth of dead-weight debt.
But empires need enemies. China is a good one. It’s big. It’s powerful. And it’s a plausible candidate to replace the US as the world’s number one hegemon.
The whole military/industrial/media/academic/think tank/surveillance complex is all aflutter over the possibilities — hundreds of billions’ worth of new weapons…research and analysis reports up the kazoo…and, of course, the aforementioned boondoggles for high tech industries.
And don’t forget the spooks. Already, FBI agents are looking under the beds for Chinese agents. The Wall Street Journal was on the case last week: ‘China tried to build a network of informants inside the Federal Reserve System’…
Oh those wily, inscrutable, clever Chinese. They’re going to steal the Fed’s secrets…and infiltrate its policymaking…steering it to dumber and dumber policies.
Excuse us…but we need to take a break to laugh…and catch our breath.
The idea that the Chinese may learn Fed secrets, or pervert Fed policy, is like suggesting that it might be trying to steal Bernie Madoff’s business plan. How it worked was obvious; its failure was inevitable.
Besides, why bother? Want to know something about the US economy? Just go on the internet. There are reams of data…tomes of theories…endless research. Almost all of it free.
All they want
The Chinese can have all they want — all the scientific-sounding formulas, the large numbers, the Greek symbols, and the crackpot theories. The public gets the wrong idea from all this folderol; apparently, the Chinese do too. People think the Fed team are like nuclear engineers…or maybe surgeons. They believe the Fed must have expertise…some tricks…some gnostic awareness — above and beyond normal humans — that enables them to pull the right lever at exactly the right time. That’s why the mainstream press refers to Powell’s ‘skill’ as a central banker that will be needed to avoid a recession.
But Mr Powell has no known skill. And he has only one thing to work with — liquidity, both cash and credit. He adds it. Or subtracts it. Everything else is detail. And if he had any idea of what he was doing he wouldn’t have been adding liquidity when the economy was entering an inflationary cycle…and wouldn’t now be 750 basis points ‘behind the curve’. He’d be ahead of it…inflation would be under control…and he could lower rates when the economy goes into recession.
But here’s Senator Rob Portman, missing the point completely:
‘I am concerned by the threat to the Fed…the broad threat from China to our monetary policy. The risk is clear.’
Risk? If the feds were really afraid of Chinese competition, they’d give them keys to the Fed’s inner sanctum…and hope they would learn all they could.
For The Daily Reckoning Australia