With “The Twist”, the only single ever topping the Billboard Hot 100 in separate runs, as reported on September 19, 1958 (one week) and again in January 1962 (two weeks), Chubby Checker spawned a bizarre dance “craze” that reached all the way into Jackie Kennedy‘s White House, according to press releases at the time anyway. To those of us who were there, however, the dancing frenzy, if any, seemed confined to Manhattan’s Peppermint Lounge, a mirror-lined, mob-operated hole-in-the-wall on West 45th, and a few Hollywood films, though the song itself did make it to our own college haunts along North Side Chicago’s fabled Howard Street. For years some folks, probably Chubby mostly, championed this remarkable claim that those three weeks, owing to the more than three year interval separating that first week from the last two, somehow made “The Twist” the greatest rock ‘n’ roll song of all time, efforts from the likes of Buddy Holly, Jerry Lee Lewis, and The King himself, Elvis Presley, notwithstanding.
The other day, Ben Bernanke, Charlatan of the Fed, announced the nation’s latest monetary craze, also dubbed The Twist, "exchanging" $400 billion of short term U.S. Government paper which the Fed currently holds for the same amount in longer term maturities. Though we haven’t heard from Chubby yet, pundits have stepped in for him to herald the Charlatan’s initiative with Twist twists that are no closer to target this time.
As MacDougal Post readers know, when one arm of Government buys the paper of another arm, that debt is effectively extinguished in overall Government books. CPAs cannot account for the transaction in any other way. In what became known as QE1 and 2, the Bernanke Bunch printed money to retire obligations bought then. Since, in reality, the $400 billion paper we’re talking about here no longer exists, with The Twist, Government is now reissuing bonds of the same amount and similar maturities, offering them to actual third party investors, and retiring different securities farther out on the yield curve.
Remember, daddy outfits are supposed to wipe out all transactions between offspring outfits before reporting daddy’s transactions to us. In not doing that, the Charlatan is pulling off an accounting hoax, trying to avoid acknowledging the part about printing money to otherwise informed voters who don‘t understand this stuff too well. Republicans could win every race in 2012 by reminding this part of the electorate about the 70’s - what happened to our savings after Democrats got done financing both their “Great Society” and the Vietnam War with printed money.
All dough left in bank accounts, CDs, or other fixed income investments over that decade lost two-thirds of its purchasing power. Fixed-income retirees who could afford to eat three cans of cat food a week under Lyndon Johnson were down to one by the time "Great Communicator" Reagan showed up.
So why The Twist at this point in the Post-Financial Apocalyptic era?
Well, at the time this new monetary craze started sweeping the nation, short term rates were approaching zero while 30 year maturities cost the Government close to 3%, and 10 year maturities around 2%. Why not save money by retiring more costly obligations? With The Twist, Washington will pay investors next to nothing on the $400 billion reissued bills and notes and stop making large interest payments to outside parties on those $400 billion longer term bonds getting retired.
The twist is simply a cheaper way to finance the runaway deficit. Problem is, it’s grossly inflationary.
Today, consumer price hikes are being deferred by weak economic conditions. With the next recovery, we’ll see how quickly that turns around along with business activity - and how badly this ill-conceived monetary walkabout has hurt us.
Whatever the ultimate impact, you don’t want to be holding bonds when the fur starts flying. Go research the 70’s if you’re not getting more than a little scared about now. As we just pointed out, fixed income investors not switching into equities were crippled over those years.
That’s the message the Chubby Checker of this latest money-printing craze should be championing right now, but isn‘t. The man is covering up Umama's mess. Inherited, to be sure, but now all Umama's.
What Government has to do, is call our military back home. Tomorrow, for goodness sakes. America can't afford to send a single trooper off base for pizza any more, let alone armies and navies and corps and forces of them overseas blowing our tax dollars on munitions, trans-world logistical support, and long term health care for busted-up military victims.
For investors, there's no other way out.
