Saturday, March 29, 2008


TANSTAAFL. A wonderfully descriptive and useful acronym. For the uninitiated, it means:

"There Ain't No Such Thing As A Free Lunch"

The Fed is taking a relatively new attitude towards asset price bubbles. The below (truncated) article represents a shift from the parochial inflation fighting guardian to something more interconnected with the global economy.

The increased regulatory authority has some interesting ramifications. Foreign countries (who have been witnessing the weaponization of the dollar for some time now) must deal with a United States Federal Reserve that reacts in an incredibly aggressive fashion to financial and real asset price declines.

Foreign owners of U.S. debt and holders of U.S. dollar denominated assets had better pay attention to what this means. There is no more "free lunch" (TANSTAAFL) by exporting goods to the United States and purchasing Treasuries and other U.S. financial assets via Sovereign Wealth Funds with the expectation that the greedy Americans will never retaliate in kind by activating the free lunch of inflation...when every cent of our foreign liabilities is denominated in U.S. DOLLARS.

So our free lunch has arrived. Foreign countries will be forced to deal with inflation while we continue to reap the benefits of low interest rates. A massive show of power by the United States.

In the Brave New World of the Bretton Woods III (or whatever you choose to call it) THE FED IS THE NEW GREAT WHITE FLEET.

(Part of) the article outlining broad regulatory powers to the Fed:

Bush Administration Proposes Most Sweeping Overhaul of Financial Regulation Since Depression

WASHINGTON (AP) -- The Bush administration is trying to confront the credit crisis that has rattled nerves from Wall Street to Main Street by proposing wholesale changes in how Washington oversees the financial system.

A plan set for release Monday would give new powers to the Federal Reserve so that the central bank serves as the system's overarching protector of stability.

The proposal would abolish agencies such as the Office of Thrift Supervision and the Commodity Futures Trading Commission, shifting their responsibilities to other federal institutions.

When Treasury Secretary Henry Paulson outlines the ideas in a speech, the changes will represent the most sweeping overhaul of financial regulation since the Great Depression of the 1930s.

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