So I was on the way into the office this morning, and somewhere between my sprinting down the escalator at Porter Sq. and shuffling in between the suits on the subway, a Keller Williams cover of “Legalize It” began to play on my ipod. So far nothing out of the ordinary, yet as I stared at the front page of one of my fellow commuter’s Boston Herald, I read the headline “Credit Crunch Continues Market Woes,” and I began to think that maybe Keller is on to something here. Maybe the answer doesn’t lie in endless rate cuts, a presidential “stimulus” plan, and midnight congressional promises. Maybe Jeff Spicoli had the answer all along and we just haven’t been listening.
You really have to hand it to the Fed. Drastic times call for drastic measures, and they certainly have attempted to come up with some innovative solutions in the short term. The problem that weekend at Bernanke’s faces now is not a shortage of cheap money in the market, but convincing investors that cheap money actually exists. Not only that, but they have the daunting task of compelling markets to believe that there are no future rate cuts on the horizon. Otherwise what incentive is there to not delay lending even longer with the likelihood of a lower funds rate right around the corner? You can lead a horse to the water but you can’t make him drink. That overused idiom certainly rings true in this case. The Fed’s primary role in economic policy is to regulate the supply of money, and while cheaper money helps to stimulate the economy it also fuels the fires of inflation as supply grows. In short they’re in a tighter spot than Lefty’s caddy on the 72nd hole at Winged Foot.
Bernanke undoubtedly recognizes the threat of inflation, however he has stated explicitly that Fed is now more focused on economic growth. That’s all well and good but at what point is enough really enough? We saw another rate cut yesterday down 75 bips to leave the fed funds rate (the interest that banks charge each other on overnight loans) at 2.25%. Just to put things into perspective a year ago today it was 5.25%. All the signs are there. Gold, the ultimate historical indicator of inflation hit all time high’s last week upwards of $1000 / oz. Oil, another critical gauge of inflation for the consumer, rose to unprecedented levels of $110 per barrel. Basically monetary policy alone will not fix our current credit anguish, we need Uncle Sam to step in with some solid fiscal strategery. Unfortunately the current occupants of the Whitehouse have never felt that discretion is the better part of valor when it came to government spending and have thus created the largest budget deficits in US history. With little room left for an increase in deficit spending Keynes undoubtedly rolls over in his grave.
So how are an album by Peter Tosh and the stoner from Fast Times at Ridgemont High going to solve our current financial crisis? Simple. Legalize it, regulate it, and tax the hell out of it.
WASHINGTON (Reuters) - U.S. growers produce nearly $35 billion (18 billion pounds) worth of marijuana annually, making the illegal drug the country’s largest cash crop, bigger than corn ($23.3 billion) and wheat ($7.5 billion) combined.
Why are we ignoring the potential revenue streams from our would-be largest cash crop? Why are we, through current legislation, guaranteeing that 100% of the proceeds from marijuana sales go to iniquitous syndicates rather than legitimate businesses? A 2005 analysis by Harvard visiting professor Jeffrey Miron estimates that if the United States legalized marijuana, the country would save $7.7 billion in law enforcement costs as well. The fact that cannabis remains America’s #1 cash crop after 3 decades of government prohibition clearly indicates not only the squandering of manpower but a blatant disregard for the potential profits from this untapped resource. What we should do is take the proceeds from the legalized cannabis sales and provide banks access to more treasury paper while accepting mortgage backed securities as collateral. This way we can boost lending confidence by making highly liquid Treasuries available in exchange for the increasingly unpopular mortgage bonds. Just a thought. And for all those with moral objections, Genesis 1:12 - I have given you all the seed bearing plants and herbs to use.
