Jim Cramer’s CNBC Rant Has a Point

Jim Cramer, a former hedge fund boss and now a commentator on CNBC, made himself famous on YouTube and elsewhere with a rant that crossed the border from childish to insane a couple of days ago. While Erin Burnett tried to have a civilized discussion about Bear Stearns' ill-advised press conference regarding its own mess, Mr. Cramer played along but eventually began to hurl invective at the Fed. Opinions can differ about Bear Stearns, but he is right about the Fed.

During his rather embarrassing loss of control, he expressed his concern that there is “Armageddon” in the fixed-income markets, that the subprime woes are going to spread, and that loads of Wall Streeters are going to lose their jobs as their companies go under. Then, he said, “They [the Fed] know nothing. The Fed is asleep. My people have been in this game for 25 years ... Cut the rate. Relieve the pressure.”

This journal has said quite literally for years that the Fed is too focused on inflation. When a terrorist attack could paralyze the nation’s economy for days or weeks, having an economy running a bit hot can actually lessen the impact. Moreover, if inflation were an undiluted evil, arranging falling prices would be a permanent cure – there was little inflation during the Great Depression. The Fed really should focus on much more than inflation.

The myth here is that there is a free market in interest rates. There isn’t. The Federal Open Market Committee sets the base interest rates, that is the price of money, for the country just as surely as the communists of the Soviet Union set the price of bread. One may hear about prime interest rates, or even a rate below prime, but no one talks about a rate below the Fed because that is a money loser. The Fed dictates the rate, and the market accommodates it.

Like most generals, the Fed is fighting the last war. This journal doesn’t much care if bond traders lose their jobs or if a few investment houses go broke. What does cause concern is the possibility that Mr. Cramer could be right about 7 million Americans losing their homes. That does things for social stability that should scare the hell out of the Fed much more than a 4% rise in the producers’ price index.

© Copyright 2007 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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