First some good news: "The Nasdaq Composite index hit its highest level in more than 10 years Wednesday as US stocks pushed upward after the Federal Reserve left ..."A 10-year high! I guess I am the only man in America who believes in Bernanke. I think he is deeply learned, and a dedicated public servant. If anything, I think he is a little bit too cautious, sober, circumspect. Bernanke inherited a train wreck into a sewage treatment facility. He negotiated his way though the worst of it. We will not see a Great Depression. If we are lucky, we will see a secular bull market from here, and I think we will.That ain't half-bad work, Jack.
I think that we shouldn't give too much credit to Mr. Bernacke for the decline of the US Dollar. What is dismaying foreign investors is the real results of last year's mid-term elections: 1) the December compromise in which the Democrats got more spending and the Republicans got low tax rates and 2) the shameful Budget Shutdown sham which claimed to save $38 Billion but cut this years spending by only $1 Billion. The net effect of all this "politics as usual" is to increase the projected 2011 Budget Deficit from $1.3 Trillion to $1.5 Trillion.Large global investors had confirmed to them that the US government is NOT serious about controlling its spending or lowering its massive debt. Compare the US government's actions to those taken by Great Britain, Germany and France - not to mention what Ireland, Greece, Portugal and Spain are attempting to do.Our government is "fiddling while Rome burns" so to speak. It is clear that the US government was dysfunctional for more than two decades. Here are other areas where our elected officials have been ineffectual: Medicare, Social Security, Medicaid, Immigration, Infrastructure, Energy Independence, State Budget Deficits, Government Pensions, etc.I might also mention how the US so blithely entered military mis-adventures which squandered our nation's wealth. Conclusion: large global investors are losing faith in the ability of the US to manage it's future. There is plenty of credit to go around for these errors.
Ben "Trust Me" Bernanke has to be a new coined phrase. I love it but I will take the under on his eventual success.
Scott, the scary thing about gold right now is that, yes, in 1980 it was higher (in real terms), but that was in response to REAL inflation. Gold right now is high due to the FEAR of the return of inflation. What will gold be when inflation actually returns?
William-I share your sentiments, and admire your balanced point of view.The problem is entitlements, the number of federal employees, military spending and rural subsidies. Aside from that, it is pretty easy to fix.
8;30 PM EUR-USD 1.482 This AM it was down to 1.472 from the previous day. When states obviously can't pay their debt, the adjustment occurs primarily through their currency which falls dramatically. This is the point which major investors overseas and also in the U.S. understand. Unfortunately for Greece, Ireland and Portugal, they don't have this option. The U.S. fortunately or not does.
Cabodog,Have you ever heard the term buy the rumor sell the fact?In the words of Maury Finkle, founder of Finkle Fixtures, Biggest Lighting Fixture Chain in the Southland,Do it.
"A weaker dollar risks letting the inflation genie out of the bottle, and we know it's very hard to put back in once that happens."Huh? Hard to "put back?" Volker didn't have any trouble 30 years ago. Probably the easiest thing to fix and you guys talk about it like it was an incurable disease.
Does anybody realize how close toa depression we got in 2008 plusdoes anybody realize how close toa depression we will have if Dr.Ron Paul M.D. gets real power???
Re: putting the inflation genie back in the bottle. It is indeed difficult. I note that every recession in the past 60 years has been precipitated by a tightening of monetary policy in response to rising inflation. Volcker's tightening triggered a very painful recession in the early 1980s. Interest rates had to climb well into double digit territory. Plus, it took a good 3-4 years before inflation and inflation expectations settled back down. The Fed cannot micro-manage inflation. The lags are long and unpredictable, and the impact of policy changes on the economy can be significant.
We will soon discover if Uncle Ben and the USA will be the first country to inflate it's way to prosperity.Many have tried - none have succeeded.
"I have to believe there is an easier and more direct way to achieve a strong and stable dollar, which is ultimately the only way to enjoy low and stable inflation and a strong economy."What is the easier and more direct way?
Re a better way to a strong and stable dollar: simply tell the world that a strong and stable dollar is the Fed's primary objective. (As it is today their primary objective is low inflation and low unemployment, with the hope that that will then lead to a strong and stable dollar) I believe that if the Fed's primary objective were a strong and stable dollar, then low inflation and low unemployment would naturally follow.
I don't think their stated (public) goals are tremendously important. As a private company, their goal is to make money, which requires keeping inflation low and predictable and avoiding deflation. They have been relatively good at this since the gold standard was removed, which freed them to adjust the value of the dollar more easily. There has not been a deflationary year since the 70's, and inflation has been relatively low and consistent.I believe the main problem is not that the Fed is bad at its job, per se, but that it has no (domestic) competition. If we really want a stable currency, we would do well to take Hayek's advice, described in his 1977 book "The Denationalization of Money."
Read Full Article »