When Will They Ever Learn?

Leisure Suits and the Fashionable Dollar

As I marvel at our disastrous monetary policy, I keep hearing in my head Pete Seeger's haunting refrain "When will they ever learn? When will they evvvver learn?" it is from his poignant anti-war song, "Where have All the Flowers Gone?" made popular in this country by the Kingston Trio. It's their version I am hearing in my head right now. I also have a fond spot for Marlene Dietrich's rendition of the German translation ("Sag mir, wo die Blumen sind") by Max Copet.

"When will they ever learn?" That is Alan Metzler's question in his commentary in yesterday's Wall Street Journal. He wonders if we are returning to the monetary disasters that brought us the rising cycles of inflation and unemployment during the 1970s. The economic folly of that decade evidenced as much wisdom as its fashions: fads like bell bottoms, leisure suits (modeled above), and granny dresses. Professor Metzler reminds us that "An independent central bank is supposed to maintain the value of the currency and prevent inflation. In the 1970s and again now, Federal Reserve officials repeatedly promised themselves and each other that they would lower inflation. But as soon as the unemployment rate ticked up a bit, the promises were forgotten"

How well has our independent Fed done? Inflation is back up t 4.3 percent. The Euro hit $1.51, Oil is trading at $102 a barrel, and Gold is over $900 an oz. The "mighty greenback" is in about as much demand as those polyester leisure suits.

In tomorrow's Journal, the editors take Fed Chairman Ban Bernanke directly to task: "First, Fed Vice Chairman Don Kohn declared that, while inflation was worrisome, the Fed now views recession as the more urgent danger to fight. Then on Wednesday, Fed Chairman Ben Bernanke told Congress that the Fed will do whatever it takes to stop the credit squeeze from becoming a recession. That's about as close as a central banker will get to saying that he's thrown price stability to the wind. If inflation rises -- as it now surely will -- then the Fed will worry about that later, after the economy is safely past the credit crunch."

The Fed can flood the banking system with reserves, but it can not replace bankers' capital once those gray flannel mavens have lost it.

When WILL they ever learn?