Bernanke says the world is flush with cash

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.