I wouldn’t have expected to see—in TheAmerican Spectator of all places—more dull, tiresome John Kennedy hype and hero worship. How Ira Stoll (“JFK Conservative, TAS October 2013) arrived at the conclusion that Kennedy was a conservative leaves me unconvinced. Quotes and episodes about the life of the Great Man from sycophants such as Arthur Schlesinger are scarcely more credible than fawning praise about Obama from Valerie Jarrett. Was Kennedy a conservative? Truth be told, it’s hard to tell. He was far more preoccupied with coaxing perceptions of greatness from his cheerleaders in academia and the media than in political philosophy or handling the often mundane duties of the presidency. Mulling over aid to the brave Cubans who sought Castro’s ouster, Kennedy was advised that helping the rebels could somehow jeopardize his presidency. He took that advice; the freedom fighters got no air cover, and the Bay of Pigs disaster ensued. A half century later, the Castros remain. Reagan wouldn’t have let Cuba—and America—down, as Kennedy did.
His starting the Vietnam War was not born out of any sense of patriotism or a desire to stop the spread of communism. The motive was to rehabilitate his image after the Bay of Pigs. Civil rights? Kennedy contributed little or nothing to the movement. Did he understand—as Lyndon Johnson did in 1964 just 10 months after JFK’s assassination—that bringing all Americans under the protection of federal law was a winning campaign issue? Maybe pollsters let him down on the country’s appetite for justice for black Americans. Looking back, Nixon did more for civil rights than Kennedy.
Say what you will about the detestable Teddy Kennedy, but unlike his older brother, the Chappaquiddick Kid made no bones about being liberal. He was wrong on everything, but at least he gave us consistency. Jack? Probably not a liberal, but not much more of a conservative, in my view, than Willie Clinton. Kennedy seized upon what would enhance his image, mystique, and charisma. Besides being at best a mediocre president, he was, as Peggy Noonan has said, devoid of any core values.
Yes, the left claims Kennedy as one of their own. They’re most welcome to him.
Ira Stoll replies:
If the excerpt from my book, JFK, Conservative, leaves Mr. Fisher “unconvinced,” I urge him (and the rest of the Spectator’s readers) to purchase and read it in its entirety. Mr. Fisher invokes Reagan. But Reagan, who served five years longer than Kennedy did, also left office with Castro in power. And Reagan in his presidential campaign speeches favorably cited both Kennedy’s tax cutting and his military buildup. Are we to believe that the Gipper, too, was just another “Kennedy sycophant”?
Years ago, Lew Lehrman taught me much of what I know about gold convertibility as the historic anchor for money. In “Bubbles for the Rich, Welfare for the Poor,” (TAS, November 2013) he says that “the long-term effects of fiat money are still unfolding…the tale is not fully told.” No doubt true. For the last few years the Fed has been buying government bonds, with dollars created out of thin air, to the extent of about $80 billion a month. It is called “quantitative easing.” Janet Yellen is widely admired not just for her sex, but for intimating that she will continue down the easy money path set by Fed Chairman Ben Bernanke. Short-term interest rates are kept low to encourage economic activity, such as the buying of houses. But if inflation rises, long-term interest rates will not submit to the Fed’s will. They will immediately incorporate an inflation premium, lest lenders be reimbursed in dollars that are worth less than the dollars they lent.
Lehrman adds that the gold price, $500 in March 1981, “rose to approximately $1,400 in 2013.” But despite our vast monetary expansion, there is still very little sign of inflation. The WSJ reports that the gold price has actually declined 30 percent since its peak in August 2011. So my question for Lew is this: Given our relentless monetary expansion, why has the gold price not risen along with it? Someone told me that monetary “velocity” has slowed down, but we don’t hear much about that and perhaps Lew could explain it. Clearly we are in a precarious position. Long-term interest rates reached about 20 percent in the early 1980s, when I last discussed these matters with Lew. If they rise again, as surely they must, government interest on the debt will swallow up the lion’s share of the federal budget. Currently, U.S. debt exceeds $17 trillion—higher than our GDP. Furthermore, that figure does not include unfunded liabilities, such as future Social Security payments. All over the Western world, deficit finance is the rule.
Current policy, which sees monetary expansion as the key to economic growth, resembles nothing so much as administering more and dope to junkies so that they do not experience withdrawal symptoms. It is hard to see how this can end well.
Lewis E. Lehrman replies:
Tom Bethell asks a few questions that seem to perplex some economists, investors, financial journalists—and many conservatives and libertarians. Let me hazard a few answers:
1. When quantitative easing and near-zero interest rates began in the crash of 2008, the new money issued by the Fed could not be absorbed promptly in the recessionary U.S. economy. So the new excess dollars created between 2008 and 2010 were in part absorbed worldwide. In the end, all markets for liquid assets—whether they be hard assets like gold and commodities, or financial assets like stocks and bonds—took flight on the wings of Fed quantitative easing. But the U.S. is not a closed economy and the dollar is the world reserve currency. As the Fed used newly created money to pay for Treasury bonds, mortgage securities, plus huge capital subsidies to the banking system, this new money also rushed abroad in the form of balance-of-payments deficits, signaled by the fall of the dollar and the rise in the prices (inflation) of foreign currencies. Witness the severe inflation, especially in emerging markets, of the prices for basic commodities such as food and fuel—which in fact triggered the explosive Arab Spring. In North Africa, food and fuel can make up 50 percent of the household budget. A doubling of those prices can impoverish tens of millions, creating violent social disorder.
2. Remember that, when new money and credit is issued by the Fed and businesses do not invest because of recession, the excess money is almost invariably absorbed by the assets that offer the best hedge against inflation: the most liquid, the most mobile speculative vehicles like commodities, equities, and bonds, and then further down the scale of protection, hard assets like gold and farmland. Remember, too, that speculators with bankable collateral get the new money first from the banks, and they choose liquid or hard assets to ride the inflationary boom in commodities and financial assets. Eighty percent of commodities worldwide are priced and invoiced in dollars and are thus very sensitive to Fed policy. So in fact, there has been a vast inflation, substantially confined to financial assets and hard assets, as excess dollars in the hands of speculators sought to capitalize quantitative easing. But businesses hesitate to invest when they are uncertain about future government policy.
3. Moreover, a fraction of the newly issued money was absorbed by debtors, both worldwide and in the U.S., who wanted to deleverage. Debts were repaid to the banks, extinguishing deposits (money)—compensating therefore for a part of the newly issued Fed money held at the banks. Many experts do not understand that debt repayments at the bank reduce the quantity of money in circulation by extinguishing deposit liabilities of the bank. In addition, much newly created Fed money was later immobilized by the Fed’s payment of interest subsidies to the banks. In this case, Fed purchases of Treasuries and mortgage bonds amounted to forced credit allocation to the expanding U.S. government, and to the housing market.
4. With respect to the gold price itself, it is important to remember that, as of 1971, gold is not money; it is primarily a commodity, and like most commodities its price varies with supply and demand. But gold is a scarce, hard asset to which many people flee when the Fed lowers interest rates to near zero. This was demonstrated with the rise of gold in the recent decade from $250 to $1,900 at its peak, as Tom Bethell points out. At a certain point, say $1,900, the phenomenon of relative prices takes over. Investors and speculators with access to cheap money see larger profit opportunities in the arbitrage between gold—which had risen from $250 to $1,900—and other relevant hedge assets, still relatively undervalued. So there followed a relative decline in the price of gold, and a relative rise in the price of other financial and hard assets. But gold is still up about fivefold from the bottom.
5. When quantitative easing began, the U.S. economy in 2008-2009 was operating well below capacity. The new Fed money did finance the absorption of some excess money by slowly increasing economic activity, leading to housing price increases.
6. The decline in velocity of money, as Tom points out, is nothing more than a decline in the rate of turnover of the money stock, as worried consumers worldwide decided to hoard more cash to protect against another crash.
7. In short, we have already experienced a great global asset inflation. The next big consumer price inflation will occur when the world economy is fully employed, real wages rise, and 2008 is forgotten—especially if the Fed practices quantitative easing at that time. Such a major price adjustment always takes time, especially when the cost of production is falling and labor markets are not fully employed as during the present period.
If I may summarize, contrary to government and Fed propaganda, inflation has been expressed not in the Consumer Price Index, but in financial assets and hard assets and foreign markets, always in a rotation, as in the past, as a result of relative price disparities. I agree with Tom’s final metaphor that the Fed is “administering more dope to junkies.” May I say that the kind of economic adjustment he expects, which has occurred throughout history, often takes much longer to work out than the short period between 2008 and 2013.