Based on his wikipedia entry: http://en.wikipedia.org/wiki/Ben_Bernanke It seems to me he is a believer in printing money to fight national debt and he doesn’t think inflation is a bad thing. I think his philosophy is as long as he thinks printing money is good for the economy, he will not hesitate to do it. That doesn’t mean he will print money for no economic benefits however. I think this explains why he cut the rate this Tuesday. What do you think? Here are some possible consequences IMHO" 1) US$ will become more and more worthless over time as long as our government spending like crazy 2) The rich will get richer and the poor will get poorer because the rich is likely to diversify their investment somewhere else while this invisible flat tax hit on everyone holding US$ 3) Asset bubbles will form under his watch and it will be very painful when it bursts. 4) Dollar will soon lose its reserve currency status to euro 5) Foreigners will own a lot of US asset under his watch. They most likely take a long term view that the next Fed chairman might be less expansive in monetary policies. What should we do as a finance “pro”? 1) Buy inflation protected securities 2) Invest in foreign companies, foreign mutual funds, etc 3) Buy a home ASAP if you don’t have one if you believe in having a home is an “American dream” 4) There will be an investment boom due to low interest rate throughout his reign. It will be a good time to be an investment pro because more people will be inclined to invest because the alternative is their $ diminishes. 5) We should all become big borrowers (to invest but not to spend) to take advantage of the low interest rate. Anyone else have other things to add?
hold gold as the fiat currency is devalued
LOL. Talk about overreaction. Dude, the world isn’t collapsing. According to the experts at the Fed and on Wall St., inflation isn’t a problem. According to people on this forum, you’d think the U.S. was in double-digit inflation rather than 2% (1.2% annualized last quarter). I agree with JoeyD on this one–if the U.S. was concerned about the “status”/value of the dollar relative to other currencies, it could easily take steps to reverse the trend–clearly, none of them are concerned. As Joey pointed out, U.S. debt relative to GDP is at one of its lowest points in a hundred years. Besides your point #2, not one of those “consequences” is nearly as dire as your wording would suggest, and I’d argue that point #2 is bogus, based on the idea that there is an inflation problem.
But Ben just got started. His first move is a surprise expansionary monetary move. So it is likely he will continue to do so. What do you mean consequence #2 being bogus? Isn’t printing money equivalent to invisible flat tax? http://en.wikipedia.org/wiki/United_States_public_debt US debt is indeed still manageable now. It is about 65% of GDP. But it is growing at a rate of 7.5% YoY since Bush started. If we are in Iraq and Afghanistan for the next 40 years and assuming our GDP grows at 3% YoY, then it would only take 10 years to reach 100% of GDP. Of course as Ben just get started, it is hard to forecast what he will do in the future. But I think it would be fun to think about what might happen if he keeps dropping money from his helicopter.
ymc, #2 is bogus because it presupposes there is a problem with inflation that is a default tax on the poor. This inflation problem that everyone at AF is complaining about simply doesn’t exist. It’s also a huge leap to think that growth trends in the economy and in debt is easily predicted. We have no idea what the stock market is going to look like on Monday at close, let alone what 10-year debt growth is going to be.
I didn’t say inflation is a problem now. I am just predicting it will be if we keeps printing money. As I said, I agree that we can’t predict the future. But it seems to me a good intellectual exercise to see what we should do when the worst case scenario comes.
#4 won’t happen. Ben has styled himself as an inflation fighter. Therefore, I would not make any long term decisions based upon this recent move. This recent move can hardly be called a surprise - many thought 50 bps would happen, although the consensus was 25. The only medium term conclusion you can make is that the Fed really believes inflation is under control and that the risks to the economy are significant enough such as to mitigate the risks of increased inflation. I reiterate that I do not see this rate cut as a bullish signal whatsoever.
The USD has gone through many cycle of weakness and strenght since gold standard was abandonded. We are in a period of cyclical weakness and there are some fundamental and phsycolgoical reasons for it. I think that it important to keep in mind that the US is expereinceing a growth slow down, not a recession as of yet albeit that the chances of a reccession are increasing.
Because we abandoned gold standard, that means we are now free to print money at will. That’s what Helicopter Ben thinks according to the wikipedia article. So it won’t surprise me to see a weak dollar as long as Helicopter Ben is at the helm.
Perhaps you should dig a bit deeper: http://www.econbrowser.com/archives/2007/09/money_creation.html
Here is an example of what will happen when real money is dropped from a real helicopter. Enjoy! http://www.usatoday.com/news/nation/2006-04-16-money-drop_x.htm Children hurt during money drop at Mich. game Posted 4/16/2006 10:16 AM ET E-mail | Save | Print | Dollar bills fall from a helicopter at a West Michigan Whitecaps game. Two children were hurt during the event. COMSTOCK PARK, Mich. (AP) — Two children were injured in a scramble to grab cash being dropped from a helicopter as part of a promotion after a minor league baseball game. About $1,000 in cash was dropped Saturday from the helicopter over Fifth Third Ballpark’s outfield as children lined the outfield fence. After the cash was dropped, the children scrambled. A 7-year-old boy was trampled and taken to a hospital, while a 7-year-old girl got a bloody lip after being pushed onto the ground. The boy, Tino Rodriquez, of Grant, suffered bruises to his chest and back, said his grandmother, Rita Rodriquez. “Doctors said he got trampled pretty good,” she said. The cash drop took place after the West Michigan Whitecaps’ 3-0 win over the Southwest Michigan Devil Rays. It was the first time the Class A affiliate of the Detroit Tigers had conducted such a promotion. “It’s for fun and games,” spokeswoman Katie Kroft said. “This is why we have everybody sign a waiver.” Copyright 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Jeremy Siegel, “Don’t Blame the Central Banks – Thank Them” http://finance.yahoo.com/expert/article/futureinvest/47033 … and 135 interesting comments
you should read this: http://www.econbrowser.com/archives/2007/09/money_creation.html
kkent Wrote: ------------------------------------------------------- > I agree with JoeyD on this one–if the U.S. was > concerned about the “status”/value of the dollar > relative to other currencies, it could easily take > steps to reverse the trend–clearly, none of them > are concerned. The Captain Esward Smith didn’t seem too concerned with all the ice warnings either and we all know how that turned out.
oops, somebody already posted the excellent Jim Hamilton link. Bernanke is known to anyone who knows anything about economics as a strong proponent of inflation targeting - he’s not likely to go wild a the printing press. Lazy media types keep the Helicopter Ben name alive, whether it fits or not. (Besides, printing money is a good solution to deflation, which is what the concern was when Bernanke made the now infamous comment.)
RAwannabeCFA Wrote: ------------------------------------------------------- > kkent Wrote: > -------------------------------------------------- > ----- > > I agree with JoeyD on this one–if the U.S. was > > concerned about the “status”/value of the > dollar > > relative to other currencies, it could easily > take > > steps to reverse the trend–clearly, none of > them > > are concerned. > > The Captain Edward Smith didn’t seem too concerned > with all the ice warnings either and we all know > how that turned out.