On Thursday, Treasury Secretary Hank Paulsen, and Federal Reserve Chairman Ben Bernanke will take their dog and pony show to China in hopes to convince the world's next dominate economic power to throw them a bone.
Since taking office in July, some strange things have occurred under Paulsen's watch. Take for example the Goldman Sachs re-weighting of gasoline in its institutionally copied commodity index from 7.3% to 2.5%. This adjustment to the index occurred a few months before the November elections.
Prior to taking a job with Goldman Sachs in 1974, Paulson served as assistant to John Ehrlichman in the Nixon administration from 1972 to 1973.
In his weekly update, Jeff Saut at Raymond James said;
"As for the “here and now,” we have deemed the recent performance by the major market indices to be somewhat “unnatural.” Markets typically go up, correct by 25%, and then re-rally if they are going to trade higher. This, ladies and gentlemen, has not been the case recently as the averages have “unnaturally” vaulted higher without so much as ANY correction.
Saut went on to list some strange, if not manipulative occurrences that have been taking place in the stock market. Here are a few of those strange occurrences that Saut observes as unnatural;
1) "The Department of Energy mysteriously said it would not add to the Strategic Petroleum Reserve (SPR) until after the winter months, even though the SPR was below prudent norms."
2) "When it looked like the equity markets were set-up to correct (read: decline) in mid-October, the NYSE petitioned the SEC, and was granted, a mysterious reduction in margin requirements for an already over-margined hedge fund community."
3) " Also mystical is why every time the equity markets look like they are set up for a downside correction, do “buyers from Mars” appear in the futures markets to prevent a decline? We have documented such occurrences in past missives where those “mysterious buyers” have shown up at 6:30 at night and “bid” the S&P 500 futures from 1375 to 1397 (or +22 points) in a mere two minutes, but that is a discussion for another time."
All of these events took place since Paulsen (Goldman Sachs) was sworn into office. Strange isn't it. In addition, Paulsen became Treasury Secretary after being CEO of Goldman Sachs, and so did Robert Rubin in the Clinton administration.
Now let's get to Mr. Bernanake.
Recently, the U.S. dollar fell to a "14-year low against the British pound, and weakened against the euro and yen." Since the M3 numbers are no longer reported, recent data has showed double digit annual increases in the M2 money supply. One of the outcomes of a falling dollar has to be the Federal Reserve, and U.S. Treasury increasing the money supply.
Many of these problems did not occur under Mr. Bernanke's watch. With a name like "Helicopter Ben", I don't think dropping dollars out of a helicopter is the answer to fixing the dollars recent woes.
Bernanke has been looking at his only two choices, and he really doesn't want to pick either one of them. They are;
1) Raise interest rates to prop up the dollar, and risk pushing the economy into a recession, or
2) Lower interest rates, and risk a dollar collapse.
So, what is he to do? How about taking a trip to China.
Mr. Bernanke has a keen interest in the causes of the Great Depression. Many believe that one of the main causes of the Depression was deflation which was the result of actions taken by the Federal Reserve. Bernanke got the name "Helicopter Ben" after a speech in 2002 when he basically said that "the government can always avoid deflation by simply issuing more money."
Today, I think Mr.Bernanke is realizing that he has a tough decision to make, and printing more money isn't one of them.
