Milton, Ben and QE3

Milton Friedman would have turned 100 this past July 31. He was one of the most relevant economists of the 20th century, along with, arguably, John Maynard Keynes and Friedrick von Hayek. ​Friedman's unwavering view of the macro economy - called monetarism - held that changes in an economy's money supply impacted real economic variables, like employment and price inflation. It was large increases - or drops - in the money supply that caused economic booms and busts. He was thus a persistent critic of central bankers who, Friedman believed, were culpable for not maintaining stable money-supply growth.

For example, in his 1963 " A Monetary History of the United States", Friedman argued that the long contraction in the 1930s was at least exacerbated by Federal Reserve policy errors that began as early as 1928, leading to a precipitous drop in the money supply (of about one-third between 1929 and 1933). The current Fed Chairman, Ben Bernanke ( and most economic historians today ) has agreed with this analysis:

"By allowing persistent declines in the money supply and in the price level, The Federal Reserve of the late 1920s and 1930s greatly destabilized the U.S. economy, and through the workings of the gold standard, the economies of many other nations as well." [source]

Today,​ Mr. Bernanke is facing a similar, if less severe, economic environment and policy challenge. Growth in the United States and elsewhere remains stubbornly below the trend of earlier recoveries, and employment is growing only sluggishly, The financial markets are focused (or is it obsessed? ) on when, or if, a third round of quantitative easing ( QE3 ) - the purchase of Treasury bonds by the Fed with newly created money - is likely, or desirable.

Has the Fed already done enough through QE1 and QE2, or would further monetary stimulus accelerate recovery without re-igniting inflation​? One can only imagine how much Mr. Bernanke must wish that Milton was around to advise.

The Fear Bubble

Everyday in the media, we hear about the so-called fear/uncertainty bubble, ​wherein individuals and businesses aren't consuming or investing. Whether due to weak labor markets, a political standoff in Washington despite urgent need for fiscal policy change, or the belief that the European debt and growth problems can only get much worse, retrenchment seems to be the dominant theme.

Yet, within this context, the US stock markets are exhibiting a classic trait - climbing  a proverbial wall of worry​, seemingly ignoring  fear and uncertainty. ( Here's a quick check - year-to-date, the Dow is up nearly 8%, the S&P 500 is up 11.5%, and the Nasdaq is up nearly 16%.) Perhaps these markets, which like all markets move on the basis of expectation, are recognizing that the massive fiscal and monetary stimulus prevalent everywhere in the world will sooner or later lead to a resurgence of economic growth and, with the usual lag, a strengthening in the labor markets. And perhaps they also recognize that current economic metrics, with the US 10-year bond yield at a near-historic low of 1.7%, general inflation nowhere on the horizon, and corporate liquidity at record highs, provide at least the appropriate framework for stronger economic growth. Compare these metrics with those in, for example, the early 1980's,  with mortgage rates in the high teens, small-business loans above 20%, inflation raging at well over 10% per annum, and the unemployment rate in the double digits. More than fear, the prevalent thought in those years was that no one would ever again be able to afford a home purchase!

So, just maybe, it's time to think that our current collective angst is just a bit overdone.​

Pipelines and Sustianability Coexisiting?

In today's environment, when markets can be nearly euphoric one day, then depressed the next, it is challenging, fun, and maybe even a little useful, to pick out one daily occurrence that represents significant change - for good or bad.​

So, to begin in the "good" camp, here's my focus today (more one of  perspective than a daily development). In a recent speech, Governor Romney cited oil and gas projects as his first of several priorities to re-ignite economic growth and job creation. This is, of course, an ongoing political hot point, generated in part by TransCanada Corporation's proposal to build the Keystone XL pipeline from Alberta to Nebraska. As much of the protest against this proposal is based on its possible environmental consequences, I think it's refreshing to note that pipeline companies, and corporate social responsibility (CSR)​, are not necessarily mutually exclusive. In some cases, they actually like each other!  

For example, Enbridge Inc., which operates the world's largest crude oil transportation system (and - news flash - just received regulatory approval to re-open an oil line in Wisconsin that leaked in July), and Pembina Pipeline Corporation, another major Canadian-based transporter, have for several years been included in one or both of the Jantzi Social Index and Dow Jones Sustainability Index, rankings based on economic, social and environmental benchmarks. Among many other things, this means these companies regularly undergo third-party environmental audits of their operations.

Inclusion of pipeline companies, and some other resource-based companies, in CSR indices tells me that we have come a very long way from the issue (last century) that arguably kicked off the CSR movement - the overseas "sweat shops" that once formed the basis of Nike's and other companies' supply chains.​

Hey, 99%, encouraging, don't you think?​

Day 1

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