Ben Bernanke is an American economist and the current chairman of the Federal Reserve. The Federal Reserve is the central bank for the U.S. Bernanke initially became chairmen for the Federal Reserve in 2006, for a four-year term, which was again renewed for another term. Prior to becoming the chairman for the Federal Reserve, he was a member of the Board of Governors of the Federal Reserve System from 2002 to 2005. Before his career in government, Bernanke was a professor at Stanford Graduate School of Business and a tenured professor at Princeton University.
The Federal Reserve may be responsible for the biggest financial meltdown yet to come. In fact, this meltdown could be even bigger than the subprime mortgage crisis in 2008.
Let me explain. We all know the Federal Reserve has created an artificial economy that has been built on the availability of easy access to cheap money due to near-zero interest rates. There is no argument here. Via its aggressive quantitative easing programs, the Federal Reserve has produced an economy that is dependent on cheap capital.
Some would argue the Federal Reserve didn’t have a choice; if they didn’t introduce monetary policy, the housing market and banking system may have collapsed. I agree to that extent, but with the economy now in recovery, you kind of wonder why the Federal Reserve continues to allow the flow of easy money.
Recently at its January Federal Open Market Committee (FOMC) meeting, the Federal Reserve suggested that it would have to review the possible stoppage or slowing of its $85.0 billion in monthly bond purchases. The market reacted by selling stocks. Federal Reserve Chairman Ben Bernanke then came out and said that the central bank was committed to its monthly bond buying as long as the economy and employment remain fragile. So which is it? The Federal Reserve needs to really think about reining in its easy monetary policy and reducing the amount of the M2 (all money in circulation, plus savings deposits, time-related deposits, and market-money funds) money supply in the system.
Here’s the dilemma:
The climate of historically low interest rates has driven a false sense of comfort. Consumers are buying more … Read More
By the time you are reading this, either Barack Obama or Mitt Romney will have won the race to be the 45th President of the United States.
Yet I will remind the winner that there’s not much time to rejoice in the victory, as there’s plenty of work ahead, which will dictate the direction of America over the next four years in relation to debt, job creation, economic growth, and foreign policy.
Whoever has won, they need to work on job creation at a much stronger rate than the current pace. All those promises that were made during the election campaign must now be acted upon. We need to create strong job creation and sustained jobs growth, while lowering the unemployment rate. The Federal Reserve is cautious about job creation into 2013. Obama and Romney have different strategies for lowering the unemployment rate and increasing job creation. But the reality is that unless Americans are put back to work, the economic recovery will likely stall and add to a possible financial crisis.
The most immediate concern for the next president will be what to do about the pending fiscal cliff on January 1, 2013, which calls for $607.0 billion in automatic budget cuts to avert a financial crisis. The Congressional Budget Office (CBO) recently warned that the U.S. economy could contract in 2013 if the spending cuts are allowed, which would impact job creation. (Source: Congressional Budget Office, last accessed November 6, 2012.) I expect the same.
At a round table meeting of the Group of Twenty Finance Ministers and Central Bank Governors (G-20), there was talk of the U.S. … Read More
There are some in the financial media who have lauded the fact that Ben Bernanke’s view on inflation has been validated. In his testimonies, Ben Bernanke has repeated more than once that inflation would be “transitory” and thus temporary.
Commodity prices have fallen dramatically over the last few months, with consumers thrilled about the fact that oil prices have come down at the pumps.
This provides the perfect backdrop for Ben Bernanke to print money, because rapid inflation is falling by any measure.
What the financial media is not conceding is that it was Ben Bernanke who precipitated the commodity inflation we’ve experienced in the last few years.
There is too much debt in the world, which means that after the financial crisis hit, the world was naturally set to embark on a painful deflationary recession or a severe deflationary depression. Debt was being repudiated or paid down and brought to a level that is more manageable, so that growth could ensue. However, the economic pain the world was going to experience was going to be so brutal, contracting so viciously, until such time as debt returned to more manageable levels.
Instead of allowing the market forces to clear out the system, which had accumulated too much debt, Ben Bernanke instead printed money and attempted to reflate the economy. One of the consequences of this action was the rapid inflation of commodity prices.
As the U.S. dollar is the reserve currency of the world, commodities worldwide are priced in U.S. dollars. As Ben Bernanke prints money, he reduces the value of the U.S. dollar and conversely increases the price of … Read More
It is amazing how many economists out there continue to hold onto the notion that, should a financial crisis take place in Europe, the U.S. will not be affected.
Their argument is based on the fact that trade with the European Union is only 1.1% of overall U.S. output and only 1.5% of America’s gross domestic product (GDP). A total of 17.8% of U.S. exports make their way to Europe, which is very small; this means that, in their estimation, the impact of a European Union financial crisis on us is minor.
Then why is it that, in his last few testimonies, Ben Bernanke has emphasized the risk that Europe poses to the U.S. From his latest testimony last week, this quote is reflective of his sentiment regarding Europe:
“The situation in Europe poses significant risks to the U.S. financial system and economy, and must be monitored closely.”
I’d like to point out that the most fascinating part of this quote by Ben Bernanke is when he mentions Europe posing significant risks to the U.S. financial system before the economy. Why? Europe’s big banks are teetering on bankruptcy.
The big banks here in the U.S. certainly own a portion of the sovereign debt of nations in Europe. The big banks would suffer quite the loss should any of the big banks in Europe go bankrupt.
I think Ben Bernanke is alluding to forces even greater. Credit default swaps (CDSs) are instruments of destruction that should never have been allowed to exist in the first place. The reason big banks created so many exotic CDSs is that they earn such high … Read More