Has the Market Become Addicted to Cheap Money Fixes?

FOX Business Network host David Asman warns of a troubling addiction on Wall Street.

“Ben Bernanke has two mandates, and he has failed on both,” Asman told Benzinga during a recent Q&A. “[First] to maintain the value of the currency, [and second] to keep unemployment low. Like the President, he argues that the economy would be worse if he hadn't done what he did. There's no way of knowing. But he has failed to maintain the value of the dollar and keep unemployment low. So it's time for a change.”

Change, Asman says, should come in the form of a new policy. “Clearly lowering the rates has failed to move the housing markets or business loans,” he said. “But also a change of management. If a Republican is elected President in 2012, we will have a different Fed Chairman, and perhaps a change in mandate for the Fed…most likely, an attempt to remove the mandate on unemployment.”

Asman said that most Republicans believe that the unemployment mandate was a mistake from the start, “and that our central bank should be focused ONLY on maintaining the dollar's value.”

“As for what the Fed did this week,” Asman continues, “the market clearly viewed it as rearranging the deck chairs on the Titanic. By announcing that the likelihood of a recession is greater, and then doing little to address that possibility, the market freaked. But the market has become addicted to cheap money fixes, which provide more money for trades but do little to address the underlying problems in our economy. Perhaps a breaking of that addiction is a good (but painful) thing.”

What should Bernanke done instead?

David Asman: The deficit super hawks, like Peter Schiff, think that the Fed should be raising rates. But I think that would be too shocking right now. I'm more inclined toward the beliefs of Dallas Fed President Richard Fisher, who believes that the Fed should announce its unwillingness to do anything more ‘stimulative,' believing that it's up to politicians (not central bankers) to stimulate businesses by lowering the cost of doing business. This can be done by removing the onerous new regulations imposed by this administration.

And while we're at it, if we're looking for a replacement for the Fed chief, we could do worse than look to the one state that's created 37% of the new jobs in the past two years. It might be the kiss of death to suggest it, but Richard Fisher would make a fine Fed Chairman.

Do you believe this will push the economy into a double-dip recession?

David Asman: Some think we're already in the first phase of a recession. George Soros said that today. It could be that we have to go through another recession before we come out of this. But when we do, I think we're ready to boom. I am a real optimist long term.

Only once before in my life do I remember a time when companies were more lean and when entrepreneurs were more hungry. That was coming out of the ‘70s doldrums into the roaring ‘80s. Then, like now, a lid had been placed over businesses' desire to grow, expand and create. Once that lid was removed, the economy took off.

From 1983 (when the Reagan tax cuts finally kicked in) till 1990, our economy created more than 20 million new jobs. Totally innovative businesses like Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT) and FedEx (NYSE: FDX) really took off. The information age exploded. Productivity skyrocketed and new capital and capital instruments were created. We could see the same coming in a year or two, if we get serious about cutting government and make long-term commitments to reduce the cost of doing business. So keep your powder dry.

How could the Fed reduce our unemployment rate?

David Asman: The Fed cannot reduce our unemployment rate. Only businesses creating jobs can do that. And businesses can expect no more help from the Fed to make capital cheaper. The only way the Fed could do that would be by further cheapening the dollar, and that has become a zero-sum game.

What about Medicare and Medicaid – should they be cut? Should they stay is?

David Asman: If the new health care law stands as is, Medicaid will be expanded exponentially. So will states' inability to pay their share…not to mention setting up these health exchanges, which have to be created from scratch. Clearly employers would rather pay a $2,000 fine for each employee than spend $12,000 insuring their employees. After they pay that fine, states will have to find a place for the employees in the exchanges.

New York is expecting one million exchange applicants. This is a disaster. We just can't afford it. Obama's promise that his health care bill wouldn't cost any money is as flakey as his promise that the stimulus bill would keep unemployment under 8%. Like Medicare, the only way to address cost overruns in Medicaid is by making recipients more responsible for their spending. Unless there is some ‘cost' to the recipient of health care, costs will not decrease. That's why abandoning Medicare advantage and cutting flexible spending are going in just the wrong direction.

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