In his last speech prior to the September 18th Federal Reserve meeting, Federal Chairman Ben Bernanke said the world has a savings glut which should help keep interest rates low.Conversely, while the global savings rate is just fine, the U.S. trade deficit is something that we have to start worrying about, as the Fed Chairman noted that the current account deficit has jumped to 6.2% of GDP, up from just 5.5% in 2004. This has occurred while the U.S. dollar has gotten weaker, which is somewhat counter-intuitive since a lower dollar was suppose to reduce the deficit, but hasn't.
The U.S. and global economies are filled with such contradictions. As the U.S. trade deficit has expanded, the yield on 10-year inflation-indexed Treasury securities stands about 2.4%, up from 1.85% in 2004, but well below the 4% in 1999. While the bellwether economy of the world, the U.S., runs up trade and budget deficits galore, foreign investors continue to hold our currency and use it as the fundamental source for their monetary base.Bernanke said as the trade deficit increases, the risk is greater that foreigners may not want to hold our dollars. There is some truth to that, but it hasn't happened the past twenty five years since the U.S. started buying more than it sold and the global economy has exploded.
Whether you like it or not, Mr. Bernanke, the onus falls on you. The primary reason for the global savings increase has been outstanding U.S. monetary policy during the past two-and-a-half decades which drove inflation lower and increased the demand for our government debt. So when you look around at all the reasons that could possibly disrupt the global boom, it always comes back to one issue: stable U.S. monetary policy. And that Mr. Bernanke, is your responsibility.
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Reader Comments (Page 1 of 1)
9-12-2007 @ 10:24AM
Timothy Mielko said...
Yes I quite expected Bernake to back pedal on his responsibility's. Since when does the General public (You) dictate the terms of "stable US Monetary Policy" ???
Bernakle needs to be removed from Office before he SINKS US ALL!!!
9-12-2007 @ 2:56PM
Connie said...
Maybe the world is "flush with cash", but the US isn't! The reality here at home is, we're losing our jobs and homes right along with them! But uncle ben wants to go by the book.........