Not So Dynamic Duo
Jun 2, 2006
In today's style over substance economy, the job of Treasury
Secretary has devolved into a pitch man for the government's
economic disinformation campaign. To qualify, an aspiring Secretary
must have the credibility and rhetorical skill to simultaneously
instill enough confidence in America's creditors for them to
keep lending, and in American consumers, to encourage them to
keep borrowing and spending. It should be obvious to all that
the very idea that the U.S. economy needs a spokesman indicates
just how weak it really is. If our economy really were sound,
it would speak for itself. It would not need a professional promoter
to talk it up.
Nonetheless, with his nomination of Goldman Sachs CEO Henry Paulson,
it appears that President Bush hopes to recreate the Greenspan/Rubin
mystique. The idea is that by combining another Wall Street heavyweight
with a well respected Fed Chairman, enough misplaced confidence
can be instilled to maintain the illusion of American prosperity
until after the next election. Since Wall Street specializes
in the art of applying lipstick to all manner of financial pigs,
Paulson may be uniquely qualified to tart up the biggest pig
of them all.
However, while the strategy worked for Rubin/Greenspan, Paulson/Bernanke
are in a much tighter spot. In the first place, while years of
credibility earned Greenspan the nickname "The Maestro"
in the 1990's, Bernanke is still untested and thus remains an
unknown quantity. And while Rubin succeeded the widely respected
Lloyd Bentsen, Paulson replaces a highly controversial John Snow.
Furthermore, Rubin had spent two years working alongside Bentsen
in the Clinton administration prior to his appointment as Treasury
Secretary. For these reasons, the creditability baton may not
pass as seamlessly from Snow to Paulson as it did from Bentsen
In the second place, circumstances have changed dramatically.
The pig is a lot fatter, smellier, and snorts much louder, making
its true character that much harder to make-over. When Rubin
was in office, the new era mentality was firmly entrenched, and
the world could not get enough of U.S. financial assets. Back
then, there was no war on terror, and the U.S. was not nation-building
in Iraq. In addition, we had the whole world bamboozled with
the delusion that the U.S. was actually in the process of paying
off the national debt, with projected budget surpluses as far
as the eye could see. Finally, the "strong dollar policy,"
in reality no more tangible than the Loch Ness Monster, was repeatedly
sighted and widely accepted.
Even if Paulson tried to resurrect the mythical strong dollar
policy, would anyone buy it? If a pot-smoking, class ditching,
party hardy college student claimed to have a "straight
A policy" would he automatically make the dean's list? Straight
A's, like a strong currency, is an admirable goal, but it can
not be achieved without hard work and sacrifice. In the case
of a student, it means studying and not partying. For a nation,
a strong currency requires savings and production, not debt and
consumption. It also requires a central bank willing to limit
currency and credit creation. We may have been able to con the
world that such was the case in the roaring 1990's but there
is little chance of us pulling that con off again today.
In a discussion aired on CNBC concerning Paulson's nomination,
the commentators lamented the fact that the President's poll
numbers on the economy were very low despite the seemingly glowing
economic statistics. They concluded that this resulted from the
ineffective communication skills of John Snow, and pondered whether
Paulson would be more persuasive. Of course it never dawned on
the commentators that the problem was not with the messenger
but the message, and that it was not the voters but the statistics
that were mistaken. As government numbers underestimate the true
rate of inflation, they are rendered meaningless as inflation
merely disguises a weakening economy with the trappings of growth.
Paulson had better have some state-of-the-art gadgets in his
utility belt if he hopes to scale this public relations wall-of-worry.
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C.E.O. and Chief Global Strategist
Euro Pacific Capital, Inc.
Mr. Schiff is one of
the few non-biased investment advisors (not committed solely to
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In addition, his views are frequently quoted locally in the Orange
Mr. Schiff began his investment career as a financial consultant
with Shearson Lehman Brothers, after having earned a degree in
finance and accounting from U.C. Berkley in 1987. A financial
professional for seventeen years he joined Euro Pacific
in 1996 and has served as its President since January 2000. An
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he is a highly recommended broker by many of the nation's financial
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