Thoughts from the Frontline

Finding just the right word brings great pleasure to writers like me. As I think and write about the Federal Reserve, the word “hubris” keeps coming to mind.

“Those who cannot remember the past are condemned to repeat it” is a well-known quote that’s also incomplete. You can remember the past vividly and still have to repeat it. This happens when, for instance, powerful people forget (or ignore) important lessons that affect everyone.

The economics profession has long had a vigorous academic argument over “natural” interest rates. What would rates be if we could somehow remove all the subjective actors—central banks, commercial lenders, government agencies—that conspire to set them? What would nature do if we left it alone?

One benefit of human progress is the way we gain “common knowledge” that was once anything but common. We observe basic facts—for example, water boils if placed over a flame—and then build on them. Boiling water took us to steam engines and then much more. But that path wasn’t always obvious.

“Government has three primary functions. It should provide for military defense of the nation. It should enforce contracts between individuals. It should protect citizens from crimes against themselves or their property. When government—in pursuit of good intentions—tries to rearrange the economy, legislate morality, or help special interests, the cost comes in inefficiency, lack of motivation, and loss of freedom. Government should be a referee, not an active player.” —Milton Friedman

This time last year, the great debate was whether inflation would be “transitory.” That question is now settled (Narrator: “It wasn’t transitory at all.”), we have moved on to debating what the Federal Reserve will do about it… and can do about it.

Complaining about federal debt is a time-honored American tradition. Remember Ross Perot and his hockey-stick charts? Then there was Harry Figgie’s 1992 best-selling book, Bankruptcy 1995. It was quite a sensation at the time.

“There’s no soft landing when you’re this far out of equilibrium.” —Tom Hoenig

Two weeks after SIC ended, I’m beginning to assimilate everything. Different pieces are connecting in my head. I’d like to tell you I have a vision for uninterrupted peace and prosperity. Sadly, that’s not the case. Good things are coming, but not just yet.

Atherosclerosis, or hardening of the arteries, occurs when substances like cholesterol accumulate and impede your blood flow. This keeps your body from delivering nutrients where needed. Left untreated, it usually doesn’t end well.

The Strategic Investment Conference wrapped up this week with another wave of strong, fascinating speakers and panels. I gave you some highlights in last week’s Soft Now, Hard Later letter. Today I have more to share and, as you’ll see, the plot thickened considerably.

The Strategic Investment Conference is in full swing. This is our 18th consecutive year and the third in an all-online virtual format. In 2020 we had to make that transition quickly, yet somehow the team pulled it off. Now we are getting the hang of it—though I do firmly intend to have an in-person event again when conditions permit.