There was plenty of lively controversy-- consternation and even angry shouting at a midtown New York restaurant last night as two hedge fund mavens, two immensely successful internet investment services, a closely-followed fixed income adviser and two journalists met to hash over the economic and market controversies of our day.
To my way of thinking, there was just about unanimous opinion that Ben Bernanke's 4 years of quantitative easing (QE) had for the most part benefited only the nation's wealthiest cohort-- without doing much practically to create more jobs for ordinary people.
At least one participant was strident about phasing out QE and letting interest rates begin to rise, arguing vociferously that QE was just the most recent terrible major policy making mistake for America. The yelling across the table rose several pitches at this moment. One closely followed blogger of sharp wit and tongue was clear that Messrs. Bernanke, Paulson and Geithner should have let the insolvent giant banks fail rather than stabilizing them with cheap money. There was more consensus about he likelihood of another financial crisis emanating from the Too Big To Fail banking giants
The controversy over QE (Quantitative Easing) brought forth this pithy bit of tartness from the quick-witted chap just opposite me, who exclaimed that "QE is supply side economics for central bankers," just like cutting taxes was the crux of the supply-side clique that ruled the economics of the Reagan administration in the 1980s. "Interest rates," quipped my neighbor, " are the traffic lights of economics today-- and there are NO traffic lights," meaning that zero interest rates are no cautionary obstacle to potential bubbles, I imagine.
What's more, QE was judged to have created a possible "bubble" in common stocks-- and had as well pushed bond prices to peak historical prices, though I didn't hear the concept of "bubble" bonds used derogatively. As to the possible inflation from QE, there was sharp divisive debate, with no clear resolution. The quick-witted investment blogger with a cool million followers across the table from me was adamant about Bernanke reversing QE now, reducing the amount of money supply by $3 billion a month, and letting the stimulus run off before it caused some terrible denouement. I didn't hear the rest of the group sign on to this radicalism.
A great deal of animal spirits were spent arguing about the need for a fiscal stimulus financed with 2% money to serve the nation's infrastructure needs without any clear resolution. Same for the debate about the extent or even existence of structural unemployment. The fixed income maven did clear up my wonder at the public's continuing hunger for low-yielding bond funds in the face of no real return; the public is moving out of zero yielding money market funds and switching into short-term bond funds yielding 1%, he told me.
As we parted to get to the championship basketball game I asked for a raising of hands for my obsessive fantasy that it just may be that the denizens of Wall Street were more or less in charge of the governing of these United States of America. I got the clear impression all participants impulsively signed on to that sentiment. Wow! Comes the revolution. Their emotional instincts strengthened my resolve to have a more concerted go at proving this supposition.
And yes, I got the feeling my cohort last night felt to varying degrees that we could well experience another meltdown in the financial markets since major banking institutions had not truly reformed themselves into stalwart institutions. Some wickedly irreverent comments were offered about the pathetic level of oversight by the guardians of financial propriety. If you have not learned the lessons of financial history, you are doomed to repeat them.
