"Liquidity Now!"

m* finally got around to Chris Giles' FT puff piece on Mervyn King, who is, as m* readers are well aware, the indomitable head of the BOE, a Villa fan, and a man for our times, monetarily speaking. It was timely because King and the BOE are standing pretty much alone with the view that there really is not much to be done for the problems in the credit markets (a view m* shared back here).

With the ECB across the channel shoveling as fast as it can (another $100bn this week), and the Fed across the pond kowtowing left and right, to mere Congressmen even, the dependency bred of the mommy(daddy?) state is threatening to turn ugly. It is taken on faith that the Fed can be counted on to handle any and all economic and financial problems the rest of us may collectively create (even with just the one or two blunt instruments they possess).

This is fairly depressing, psychologically and monetarily, as the dollar continues to sink against the major competitors (and gold continues to rise) just as certain skeptics and farsighted analysts predicted in 2003, while shorting 10's (at 3.5%) and the dollar against all comers. Fortunately for the moralists and those who travel with them, there is King, taking the heat, speaking truth to power (ok, maybe a bit much,) and holding firm for the reality based squad. It is getting tough though as the critics are starting to threaten him with history already, a la W.

For a view of what he is up against, look no further than today's WSJ Op-Ed piece by Martin Feldstein. The prominent economist's demand for "Liquidity Now" though it admittedly "cannot solve the credit market problems" would, in his opinion "help the economy: by stimulating demand for housing, autos, durables; by encouraging a more competitive dollar to stimulate increased net exports; by raising share prices to increase both business investment and consumer spending; and by freeing up spendable cash for homeowners with adjustable rate mortgages."

While that sounds just dandy, a textbook platform for election, with apparently no more consequences than another ratchet up in inflation that can always! be dealt with at a later and more convenient time, one has to wonder which planet Mr. Feldstein has spent the early part of the 21st century on? Why not dispense with all the transmission friction and just print money?

Is there yet more unsatisfied demand for autos and trucks and houses and washing machines than m* understands? Perhaps, if at some point in time the monthly financing of those items were to approach what Prof. Feldstein might argue a more reasonable level (free ?).

Prof. Feldstein seems to believe in a kind of perpetual economic motion machine, where a bit sand gets in the gears and the Fed can oil our way out from time to time. He seems to think that consumption fueled by debt is not the spending of future income today, that it can go on at the same pace, this most recent torrid pace, for ever. And whatever unfortunate circumstances bring about a slowdown in that pace, a recession in other words, is something to be avoided certainly, but that also always can be avoided, completely apart from the conditions that might have caused it to arise in the first place.

m* takes strong umbrage with this view. The Fed is not stepping on a gas pedal or pulling up on a brake on an economic car following a linear road of progress, as is often commonly imagined and former Chairman Greenspan's metaphor described. It is instead adjusting the size of the drag-chute on a one way natural proclivity to spend tomorrow's income today.

As Gerard Minack at Morgan Stanley highlighted today, the "Japanese problem" so feared at policy levels is often portrayed as one of (exogenous?) deflation depressing animal spirits. The real issue is deleveraging. Then, as now, the natural proclivity to borrow from the future ran until it exhausted the ability of current income to sustain it.

But "Liquidity Now!" is an argument against gravity, one more contribution to the literature of faith based reality. And Prof. Feldstein has no compunction about wishing to continue borrowing from the future, rewarding spenders over savers, and tearing asunder the heavily tattered fabric of civilized society's foundation on delayed gratification and rewards for work. Why?