By DAVID MOON, Moon Capital Management, LLC
April 22, 2012
In announcing a series of executive actions and legislative proposals aimed at stopping speculators from manipulating oil prices, this past Tuesday President Obama said "we can’t afford a situation where speculators artificially manipulate markets by buying up oil, creating the perception of a shortage, and driving prices higher … we can't afford a situation where some speculators can reap millions, while millions of American families get the short end of the stick."
Now exchange the word “Fed” for “speculators.” And replace the word “oil” with “bonds.”
The largest manipulator of financial asset prices in the United States – and perhaps the world – is the US government and its agents, primarily the Federal Reserve Board. Of course, the government is easily excused from being an evil manipulator, because it is trying to help people, not steal their money.
At best, perhaps. It could, however, be pursuing political goals or worse, simply be incompetent. Regardless of the reason, people like Timothy Geithner and Ben Bernanke still create unintended consequences that hurt millions of Americans – and many of those people are injured much more by higher bond prices than by higher oil prices.
The Federal Reserve Board has used more than a trillion dollars of borrowed funds for the sole purpose of driving up bond prices – which is another way of saying driving down interest rates.
A 5-year CD that paid 5 percent four years ago currently yields about 1.5 to 1.8 percent. There are millions of people in this country who depend on interest from safe, simple investments like CDs for their income. Since the Fed began its most recent program of manipulating interest rates – and reaping $155 billion in profit in 2010 and 2011– those fixed-income retirees have seen their income drop a whopping 70 percent or more.
To quote the President, this is a situation where speculators have reaped millions (billions, actually) in profits, while causing millions of American families to get the short end of the stick.
“Obviously rising gas prices means a rough ride for a lot of families,” the President remarked on Tuesday. Well so do zero percent interest rates – unless you’re an investment bank, real estate developer or other heavy borrower.
Regardless of whether you favor less regulation (leave the energy traders alone) or more regulation (treat the Fed and Treasury like any other market participant,) there is an intellectual dishonesty to treating market speculation differently depending on whether or not you like the speculators.
It is symptomatic of a partisan nanny state run wild, on both ends of the political spectrum. Pandering politicians exhibit the ugliest form of anti-leadership with their silly proposals that claim to address big problems, when in reality these politicians are merely Titanic deck-chair arrangers wrapped in ugly moralizing blankets.
Whether it’s taxing zillionaires simply because those scoundrels can afford it or threatening to withhold a modest public subsidy from a single, working mother if she doesn’t conform to a committee chair’s personal sense of morality, our national, state and local officials are collectively too intellectually or morally deficient to either recognize or address real issues.
David Moon is president of Moon Capital Management, a
Knoxville-based investment management firm. This article
originally appeared in the News Sentinel (Knoxville, TN).