There was a virtual imaginary football game last week between bitter Wall Street rivals — The Investment Bankers known as the "Brokers" and the Commodity Traders, competing as the "Pits."
For three quarters the Pits, led by the offensive-minded triple threat Gold Brothers, Protein (grains), Black (oil), and Bullion (metals), pummeled the Brokers but failed to deliver a decisive touchdown to put the game out of reach. The Pits' impenetrable defense, anchored by a host of hogs held the Brokers vaunted ground attack in check and their All-Pro wide-out receiver Ulysses S. (Buck) Dollar failed to catch a single pass. As the third quarter ended the increasingly desperate Titan coach summoned his quarterback, Sammy Slick to the sideline.
"We're goin' for the home run, Slick. Throw the Hail Mary, kid," the coach ordered confidently. "The time is right."
Slick took the ball for his center, eluded two hogs as his pocket collapsed and while sprinting towards the sideline, launched a 50-yard bomb to Buck. Incredibly, the resilient Dollar fought off his defenders and caught the pigskin for a T.D.! Motivated by Buck's stellar performance, the Brokers tallied again in the fourth quarter and defeated the befuddled Pits.
In the press room, a reporter asked the triumphant coach:
"Why did you wait so long to call on Dollar when Black Gold was making all those gains?"
"Son, I'm just the coach. I don't call the big plays."
"Coach? If Slick doesn't call the plays and you don't call the plays, who does?" The reporter inquired.
"Those calls are made upstairs, ya know. I don't question those decision and I don't think you should either," the coach admonished his inquisitor.
IN THE REAL WORLD:
For almost three quarters of 2008, a strategically weakened US dollar has enabled US multinational corporations to profit with cheaper exports and prevented higher unemployment but it also dramatically raised oil and commodity prices in the country. July's annualized Consumer Price Index (CPI) was at 5.6% — a 17-year high. The Producer Price Index (P.P.I.) was an unexpected 1.2% in July, a 27-year high and a 9.8% increase in one year. Unable to raise interest rates to cool inflation, a desperate Fed Chairman, Ben Bernanke, was forced to call a bold play — a Hail Mary.
In June (according to the Wall Street Journal) Bernanke "signaled" to Wall Street mavens that he did not like the popular dollar-oil play. Investors and speculators were selling the US dollar and buying oil creating a weak dollar and higher oil and commodity prices.
Bernanke called for an unprecedented play. In the week-ending August 15th, foreign central banks bought $26 billion of U.S. Treasury debt and the U.S. Treasury's Exchange Stabilization Fund sold 10 Billions euros. In addition, Bernanke's inside move called for two U.S. Banks to increase their short position in silver five-fold and their gold short position eleven times, causing a precipitous fall in precious metals prices. Black and Protein Gold took similar hits creating an illusion that the commodity boom was over and inflation's demise was at hand.
Bernanke's orchestrated and well-timed Hail Mary also succeeded in diverting investor's cash from the Pits to the Brokers, thereby securing an early season victory for a team on a year-long losing streak.
The reality is that this is an example of monetary manipulation orchestrated by the Federal Reserve which destroys the free market. Laissez-faire, if it was ever on the Fed's roster, has been relegated to the role of water boy.
-- H. L. Quist