Alice Rivlin: Audit the Budget Process, Not the Fed

by the Curmudgeon with Victor Sperandeo

Introduction & Overview (Curmudgeon):

In a little publicized speech this past Tuesday to The Economic Club of New York, former CBO director Alice Rivlin said that we should not worry about the Fed or monetary policy, but that U.S. budget policy was a disaster. Here are some amazing quotes from Rivlin's speech (note parenthetical comments):

“I know many of you spend a lot of time worrying about when the Fed will raise interest rates and what the ECB is up to, which is not surprising because monetary policy affects your bottom lines immediately and directly. But from a broader economic policy perspective monetary policy should be far down our list of worries.” (This is so off base, it's beyond preposterous. We've repeatedly noted the huge economic distortions and misallocation of capital caused by ZIRP and QE.)

“I don’t think we should worry much about monetary policy. It is in competent hands at the Fed, the ECB, the Bank of England and other central banks, and they seem to be getting it just about right. Unfortunately, monetary policy, without complementary fiscal policy, has never been a very effective tool for generating robust growth. Financial regulation is much more of a work in progress, but moving slowly in the right direction." (Really? The jury is still out on this. The Curmudgeon is very much in favor of the Volker rule, but strongly against Dodd-Frank.)

"Budget policy, however, is a total disaster in danger of getting worse. Budget policy is a disaster because it is the province of our deeply broken legislative system. The ability to compromise and solve problems across party lines is essential to making a budget and this ability has failed us just when we need it most. In a persistently slow growth economy where monetary policy is likely to be relatively ineffective, pro- growth monetary policy could actually help." (Not if it has failed miserably to actually stimulate the economy, increase jobs or wages.)

"Moreover, much of the budget austerity was mindless across-the-board cuts in so-called discretionary spending.” (So reducing big budget deficits is "mindless"?)

"To the extent that there has been anything that could be described as budget policy in Washington for the last three or four years, it has been counterproductive." (Curmudgeon firmly agrees with that!)

Victor's Comments:

The Brookings Institute is a far left anti-Constitutional biased "think tank." Alice Rivlin is a very bright woman and really had to talk this inane talk to appease her audience. She is better than this.

Too much to laugh over but to say the U.S. has had "fiscal austerity” really has to be an inside joke! The debt has doubled, Fed Balance Sheet has increased by over 500% in six years with QE and zero rates.

Rivlin claims "deficits plummeted and fiscal policy turned restrictive." Indeed, the Debt to GDP ratio has decreased, but that's in the context of total debt projected to be $27 trillion in 10 years by the CBO with no recessions assumed (which always increase budget deficits and hence, the national debt).

Aristotle said "A is A". Also about 150 years before that, Chinese sage Confucius put it this way: "rectification of names," which means to designate things as to what they are, should be a top priority.

Why? Social disorder is based on a failure to clearly see reality. If reality is ignored or disregarded the result is a disruption of an established order. The inevitable cause of failure if labels are "not in accordance with the truth of things," Confucius said.

Today, Politicians always try to obfuscate the truth, or they would not pass laws. I believe that Alice Rivlin knows the truth, but chooses to use the most absurd propaganda to anyone that didn't graduate from college as to what is really being done.... Effectively changing the policies and laws of the U.S. in order to arrive at the EU way of life. And that is the truth!

Acknowledgement and Quote: Thanks to Brent Berarducci of Blacklion Capital Management for notifying the CURMUDGEON of Rivlin's speech this week. Brent wrote in an email:

"Ms. Rivlin extends the myth that it is the purview of the federal government to "compromise and solve problems across party lines…” In all cases (from both Democrat and Republican parties) this entails expanding the size, reach, scope, and debt of the federal government. Yet in reality, the exact opposite is the most efficient prescription."

Till next time...

The Curmudgeon
ajwdct@sbumail.com

Follow the Curmudgeon on Twitter @ajwdct247

Curmudgeon is a retired investment professional. He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996. He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.

Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever changing and arcane world of markets, economies and government policies. Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.

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