by Jeff Snider, President and CIO of Atlantic Capital Management
Monetary adjustments, heavy as they have been in these past four years, will remain a permanent part of our economic landscape so long as central banks remain committed to their current course. Now that the annual excitation of economists and their dreams of recovery are waning, and the “unexpected” decline in the economy has returned right on schedule, the discussion needs to turn toward those monetary interventions. I have had many discussions with clients and members of the general public on the topic of the gold standard over the past few years, especially in the past several weeks as Chairman Bernanke deliberately broadcasts his specific problems with it from the perspective of a central banker tasked with “saving” the economy. Even getting past the glaze of apparent anachronism, largely that something so archaic seems utterly incompatible with our modern electronic society, the persistent, and otherwise extremely healthy, mistrust of banks prevents a further discussion of how the gold standard really works. For those that actually know the US paper dollar was primarily issued by banks prior to 1913 in the form of deposit claims on “reserve” assets, it is simply asserted that the principle of “universal currency” issued by the government, with its full faith and credit backing it, is a better fit, a more complete system befitting our digital age. This simple line of thinking confuses the needs for clearing money imbalances with money itself, more than anything, but it also misses the central transformation of the 20th century.
If the greatest trick the devil ever pulled was convincing the world he didn’t exist, the greatest trick our central bank ever pulled was convincing the world we couldn’t live without it. For most of that past twenty years, that PR campaign has been centered on the Great “Moderation”, so called because it apparently represented the full embodiment of economic management – a period of unparalleled prosperity, a Golden Age of soft economic central planning. Give the central bank enough “flexibility” and it will produce unmatched economic and financial satisfaction.
In 2012, as the illusion and luster of the Great Moderation fades into the realization of the unthinkably high cost by which it was all purchased, soft central planning is no longer unchallenged by general apathy. Into that breach the topic of “flexibility” flows, a battle that has profound implications for the future, especially the longer term. Chairman Bernanke wants at least to maintain his flexibility, preferring to expand it as much as possible. But as we face continued and mysterious economic headwinds that are fully unexpected by the sophisticated and elegant math of economic practitioners, engaged observers who otherwise were content with that central bank apathy awake to the possibility that flexibility for the Federal Reserve comes at the price of individual flexibility. More power for Chairman Bernanke necessarily means less power for you and me.