Photo: Courtesy of Fox Broadcasting Company
With brilliant calls on Green Mountain Coffee and Herbal Life, David Einhorn is on FIRE right now.And when you’re hot, people listen to what you have to say. We suppose that’s why he chose this moment to pen a column in the Huffington Post about how the Federal Reserves interest rate policy is hurting Americans (as you know, rate will likely stay at 0 until 2014).
The column is called ‘The Fed’s Jelly doughnut Policy’ and it’s chock full of Simpsons references.
Yeah, like the cartoon TV show.
There are tons of reasons why Einhorn says Bernanke is wrong, but one he goes on about at length is how this policy is really only helpful to the super wealthy because it helps them speculate on financial markets. As for the middle class, it only fools them into buying stocks and thinking they’re wealthy when they’re not.
To illustrate this point, Einhorn imagines a conversation between Mr. Burns and his loyal employee, Smithers.
Smithers: “Sir, you’re saying we need the stock market to go up?”
Burns: “Yes, that’s the fix we’re looking for.”
Smithers: “And why would that be, sir?”
Burns: “Don’t you get it? A rising stock market allows people to feel wealthy. And a seemingly wealthy person is a profligate person.”
Smithers: “Profligate, sir?”
Burns: “Profligate. It means they spend money they don’t have on things they don’t need.”
Smithers: “So instead of enabling people to actually have more disposable income, we’ll get them to spend more by simply making them feel rich?”
Burns: “Exactly! Now how can we do that?”
Smithers: “Well, we can always encourage them to sell their bonds and buy stocks.”
Burns: “Now how would we ever convince them to do something as foolish as that?”
Smithers: “Just set interest rates to zero indefinitely. Then no one can afford not to invest in the market.”
Burns: “Why, Smithers, that’s brilliant! This is exactly the kind of counter-intuitive thinking we’ve been needing around here!”
Only it’s not counter-intuitive; it is simply misguided thinking that persists among the Fed Chairman and other government ivory tower thinkers. They do not understand or relate to the prime component of capitalism and a free market: greed. And because they do not understand greed, they also do not understand fear, which presents a double whammy for making bad policy decisions.
Einhorn goes on to say economic inequality is a real problem and that raising interest rates would do more to help the middle class than even tax reform.
For the super wealthy, zero rates supported by a Bernanke put on the bond market encourage out sized income through leveraged speculation. For everyone else, zero rates reduce the standard of living because greater food and energy costs soak up income. Ironically, it is some Republicans that are beginning to question the Jelly doughnut monetary policy, while Democrats generally support it. Democrats who sincerely care about income inequality should speak out against the Fed’s policies.
He should probably tell Occupy Wall Street that too.