The Morning Call checks in on the Masters of the Financial Universe

ORPHANS OF INFLATION

We hate to keep picking on Mohamed El-Erian, but he’s either the only Master of the Financial Universe honest enough to face the music (or, in this case, Face the Nation), day after day, week after week, or he’s the only one arrogant enough not to realize how transparent his nonsense is and how infuriating it is to anyone who is actually paying attention.

Or – as we suspect – some combination of the two.

In any case, El-Erian was on CBS News’s “Face the Nation” yesterday, explaining inflation and blaming the Fed:

Most of the current record high inflation could have been avoided had the Federal Reserve acted earlier and shown humility after it wrongly described inflation as “transitory,” economist Mohamed El-Erian said Sunday.

El-Erian, chief economic advisor at Allianz, appeared on CBS’s “Face the Nation” to discuss what caused the current inflation and where it was likely to be heading.

“We got here because we got a combination of things happening,” El-Erian said, citing the war in Ukraine, the energy transition, and how the Fed incorrectly judged inflation and fell behind.

“All these things came together and are feeding now this everything inflation. The price of nearly everything is going up and making us feel really insecure,” he said.

El-Erian said that most of the inflation “could have been avoided if early action had been taken” by the Fed, which must now regain credibility to ease long-term inflation expectations.

Now, to be fair, El-Erian gets many things right – most things right.  Yes, the Fed is a HUGE part of the problem.  Does anyone doubt that for even a second?  And yes, the Fed’s arrogance in the face of nascent inflation was unhelpful and distortive.  And yes, of course “we got here because we got a combination of things happening.”

All of that said, however, by placing as much blame as he does on the Fed, El-Erian effectively elides over other factors and people to blame for this bout of inflation, including the Biden administration (in the person of Treasury Secretary Janet Yellen, among others); President Biden himself, whose budgetary profligacy stimulated inflationary pressure and whose haphazard withdrawal from Afghanistan encouraged Putin to wage war on Ukraine; previous Fed. Board members and chairpersons (including, again, Janet Yellen), who played a risky, politically tinged game of “free money for political growth” for more than a dozen years; and countless others.

Perhaps most notably, El-Erian glosses right over the one factor in this “everything inflation” that was entirely unnecessary, entirely voluntary, entirely driven by moral preening rather than any practical considerations.  One can make the argument – and many have – that the Fed’s absurdly easy money policy for nearly 13 years was a necessary trade-off to recalibrate economies and markets after the Great Recession.  One can make the argument that the people elected Biden because of his promise of ongoing stimulus spending.  One can make the argument that he and they felt elevated spending was necessary in response to the damage done by the COVID lockdowns.  Indeed, one can make an argument for every policy that is currently contributing to inflation.   They may be BAD arguments.  They may be economically illiterate arguments.  But at least they can be made.  ALL of the policy choices can be defended if necessary.  All but one, that is, the one El-Erian brushes off as “the energy transition.”

For starters, this is an inapt description.  There has been no “transition.”  As President Biden steadies himself in preparation to grovel at the feet of Saudi Crown Prince Mohammed bin Salman, as Germany collapses into energy deprivation and potential economic collapse, as Boris Johnson’s Tories continue their effort to sacrifice their party and their nation at the alter of Net Zero, as the Chinese and Indians continue to build coal-powered electric plants as fast as they can, and as utilities throughout the United States warn of impending “grid problems,” the idea that any “transition” has taken place is INARGUABLY daft and self-serving.  “Energy transition” is, at present, a lie.  And Mohamed El-Erian knows this damn good and well.

More to the point, the pretense and inevitability of a “transition” have always been lies as well.  There is no need to transition.  Even if one takes the most extreme current climate-change arguments as gospel truth, even if one is as dedicated to “saving the planet” as the most radical Greens on earth, even if one desperately believes that humanity’s survival rests on its ability to stop the climate from getting any warmer than it is right now, there is no reason whatsoever to believe, concomitantly, that Net Zero is possible, economically feasible, or even remotely adequate.  The whole idea is based on superstition and faith at least as much as any traditional religion.

Climate change mitigation through fossil fuel elimination is a POLITICAL premise that was unleashed upon the global markets to become a global economic phenomenon by a handful of people who believed – either for politico-religious or financial reasons – that their involvement in the process was necessary.  Some of those most prominently involved in that process were, of course, Larry Fink, Ronald O’Hanley, William McNabb, Jamie Dimon, Mark Carney, Brian Moynihan, and the guy who, last December, stated his unwavering support for Joe Biden’s ridiculously inflationary Build Back Better bill because he said that it would address “the climate” and was, therefore, “part of the solution, not a part of the problem.”

As you may have guessed, that “guy” was none other than Mohamed El-Erian.

Can you even imagine where inflation would be right now if he had gotten his way?  Can you imagine the mess we would be in if this “solution” that El-Erian supported so fervently had become the law of the land?

Can you imagine how much harder it would be for him to go on national television and lay the blame almost entirely at Jay Powell’s feet?

Don’t get us wrong.  We think that Powell screwed up – as did Yellen and Bernanke before him.  But there is an awful lot of blame to go around in this instance, and some of it falls on the shoulders of the Masters of the Financial Universe, especially those who encouraged markets to treat “the energy transition” as a real and viable investment calculation.

As JFK noted (echoing Tacitus), “success has many fathers, but failure is an orphan.”

If you watched Mohamed El-Erian on “Face the Nation” yesterday, you saw him doing his very best imitation of the Left’s iconic fountainhead, Jean-Jacques Rousseau, dumping his own child off at the orphanage. 

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