Observations

When we do not know, we do not feel safe. The ontological issue (the study of “being”) has hounded humankind since day one. We feel comfortable when we know, when we understand who and what we are. What makes us tick.

We are not at ease when we talk about the future, about the non-being, about what is there when we go beyond ourselves. Religion has filled this gap to make us feel more comfortable. Since day one, the keepers of our spiritual security assured us that there were one or many gods. They gave these gods non-human powers, without knowledge or experience of these powers and how they could manifest themselves.

Why am I saying all this? Because I am utterly amazed by the nonsense I read about the current and future chairman of the Fed. We need a god of finance, so we invented one: the chairman of the Fed. He knows. He performs special rites (like talking to Congress and announcing the Fed’s decisions to “raise” interest rates) to protect us and to show us the way to everlasting financial and economic security.

In my presentations I show the growth of the money supply since 1950, a measure that is closely correlated to changes in economic growth. The Fed, supposedly, has the power to control money. But then, how come the graph of the growth in money supply goes all over the map, anticipating with uncanny reliability periods of poor and strong growth (more details after page 5).

If the Fed were so powerful, why would they not make money grow at a steady 7%, thus giving us steady growth in GDP, earnings per share, income, stocks, …?

Do they “raise” interest rates? But why do copper, crude oil, gold, burlap, earnings per share, … closely mirror the trend of short-term interest rates? Do they also control all these other aspects of the economy? The Fed can only temporarily keep interest rates below inflation. They do it in critical times. But eventually the markets win, as they did in the 1970s. They always do.

(This Observations appeared in the 11-7-2005 issue of The Peter Dag Portfolio ).

George Dagnino, PhD Editor,
The Peter Dag Portfolio.
Since 1977
2009 Market Timer of the Year by Timer Digest
Portfolio manager

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