It’s the smells we like the most.
The odours of early autumn on the Paris streets — the first leaves melt on the sidewalks, staining the cement yellow and brown…the chestnuts, too, opening up and pushing out their fruits like fledglings from a nest…the crisp morning air, encouraging pedestrians to pick up their pace and driving idle souls into the warm cafés — how they bring back memories!
More on that in a moment (after all…we are here to talk about money, not the sights and sounds of Paris).
Congress gets a reprieve
Yesterday, the pope and the Fed chief fought for centre stage. God and Mammon — or their earthly representatives — took the headlines.
Pope Francis spoke to Congress. ‘Render unto Caesar,’ he did not recite.
Nor did he even suggest that mammon might have gotten too big for its britches in the US establishment. Apparently — according to Vatican sources — he forgot to mention it. MSN News has the report:
‘Pope Francis omitted a short but powerful section of his speech to Congress – in which he warned politicians not to be a “slave” to the economy or finance – because he lost his place and accidentally skipped part of his script, the Vatican has said.
‘The remarks could have made the assembled crowd of lawmakers a little uncomfortable, given the widely held perception that members of Congress from both parties are too beholden to special interests.
‘Lawmakers raise tens of millions of dollars from companies and other interests – especially banks – to help fund their campaigns. Companies also pay lobbyists tens of millions of dollars every year to help sway, mold, and kill proposed legislation to suit their needs.’
Instead of warning the world to stay away from politics, Francis urged US legislators to make common cause with the church in order to render the world a better place.
‘It is important that today, as in the past, the voice of faith continues to be heard, for it is a voice of fraternity and love, which tries to bring out the best in each person and in each society. Such cooperation is a powerful resource in the battle to eliminate new global forms of slavery, born of grave injustices which can be overcome only through new policies and new forms of social consensus.’
How the people’s representatives can actually make the world a better place — except by backing off — has never been revealed, neither in scripture nor in history.
But the members of Congress are nothing if not eager. Bring peace to the Mideast…eliminate poverty… defeat cancer… stop illegal drug use… there is no job too big or too small…no problem too immense or too insignificant… and no lobbyist so craven and sullied that his money will be refused!
A rate increase this year
Meanwhile, the Dow fell again — down 75 points. It is headed for the 16,000 level.
Once through that barrier, we are likely to see some bigger moves to the downside. Somehow, sometime… the stock market has to sell off. Always does. Always will.
It should be no business of the Fed how much investors pay for US assets. But 81 months of activist management — in which it held the price of Fed credit far below the ‘natural’ rate — broke the system.
Now, the Fed owns it. The Fed — with knowledge aforethought — intentionally shifted trillions of dollars in paper wealth toward America’s asset owners. Now, it has to try to keep those ill-gotten gains where it put them.
The pressure of it must be getting to Janet Yellen.
Onstage yesterday, she was visibly staggered by it. She hesitated…she coughed…she hinted at rate hikes…and the whole world’s capital structure shivered.
Then, the high priestess of Mammon, drawing strength from some unseen source, seemed to recover. And when it was over, we were left with the impression that the Fed aims to raise rates before the end of the year. Ms. Yellen:
‘Most FOMC [Federal Open Market Committee] participants, including myself, currently anticipate that achieving these conditions will likely entail an initial increase in the federal funds rate later this year, followed by a gradual pace of tightening thereafter. But if the economy surprises us, our judgments about appropriate monetary policy will change.’
Our guess is that the economy will surprise the Fed chief.
It is always a shock to the manipulators when an economy or a society refuses to obey its commands. Janet Louise Yellen (the Fed chief) can no more improve the world than can the political hacks listening to Jorge Mario Bergoglio (Pope Francis).
Both are only human. And, like all humans, they are sometimes good, sometimes bad…and always subject to influence.
Paris still smells the same
Now, back to our reminiscences…
We first came to Paris as a student… almost half a century ago. So much has happened since then.
Back then, we lived on $5 a day. And because French universities were free, we found we could spend a semester abroad more cheaply than at home. Can you believe it?
But now, the dollar has become a purely paper (fiat) money. A niece, backpacking around Europe, says she tries to stay on a budget of $50 a day.
And the French franc has disappeared entirely!
The French are still the French, but the economy has been completely transformed. It used to be open and competitive — with auto, aircraft, film, wine, fashion industries that were the envy of the world.
It used to have intellectuals, too, whom the rest of the world tried — in vain! — to understand. And a young man used to be able to come out of his high school and get a job almost anywhere.
All that has changed. The intellectuals betrayed it. The crony capitalists took advantage of it. And the politicians failed it. Just like the US, in other words.
But, in late September, Paris still smells the same.
And the crowd at Le Poussin, a neighbourhood café where we are writing, looks the same, too.
It is 9:30am The working men have already had their coffee and left for their jobs. Now, the crowd is older…and more feminine.
Retired people reading their papers.
Women have taken their children to school; now they sit, drinking coffee, and talk about how the schools are failing and how little Jean or Frederic will have to have after-school tutoring in order to keep up with his math.
At the bar, a toothless old man has a café au lait. Two very blond, stocky Russians laugh and talk. And a meticulously dressed Japanese woman is chatting with the woman behind the counter. Her coat is a bright yellow. She carefully sweeps the stool with her hand before sitting down.
‘Encore!’ we say to the waiter. ‘Another café crème, s’il vous plait!’
For The Daily Reckoning, Australia