AOL Money & Finance

Bernanke says the world is flush with cash

More

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.

Reader Comments (Page 1 of 1)

Symbol Lookup
IndexesChangePrice
DJIA-154.4810,309.92
NASDAQ-37.612,138.44
S&P 500-23.411,087.22

Last updated: November 27, 2009: 04:33 PM

BloggingStocks Exclusives

Hot Stocks

DailyFinance Headlines

Latest from BloggingBuyouts

TheFlyOnTheWall.com Headlines

BioHealth Investor Headlines

WalletPop Headlines

My Portfolios

Track your stocks here!

Find out why more people track their portfolios on AOL Money & Finance then anywhere else.

BloggingStocks Partners

More from AOL Money & Finance

WalletPop Headlines