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You spend, we'll save
Six months after supporting aggressive government spending, Federal Reserve Chairman Ben Bernanke said today that the US needs to significantly reduce the federal budget deficit. At the same time, he said Asian countries need to encourage their people to buy more stuff.
Admittedly, just as increasing private saving in the United States is challenging, promoting consumption in a high-saving country (like China) is not necessarily straightforward. One potentially effective strategy is to reduce households' precautionary motive for saving by strengthening pension systems and increasing government spending on health care and education. Of course, such measures are likely to improve welfare and productivity as well as to contribute to more balanced, robust and sustainable economic growth.
On the first part, yes, Mr. Bernanke, it is difficult to encourage private saving when the interest rate is zero. Wall Street has made gobs of money this year off the low rates, but my savings account has netted $3.12.
As for part two of this new "stimulus" plan, is it possible that China doesn't want to overspend and stretch itself beyond recognition, like certain other countries have?
For the record, here's what Bernanke said six months ago. From the New York Times, March 3, 2009:
"All else equal, this is a development that all of us would have preferred to avoid," Mr. Bernanke told the Senate Budget Committee, referring to record-breaking deficits expected this year and in the next two years. "But our economy and financial markets face extraordinary challenges, and a failure by policy makers to address these challenges in a timely way would likely be more costly in the end."
I'm having a hard time making out the Fed's overall strategy. As far as I can tell, here it is chronologically:
Step one: Gov't SPEND. Americans SAVE.
Step two: Gov't SAVE. Americans SPEND. No, make that Americans SAVE too.
Three: Other countries, tell your people to SPEND, while we SAVE to clean up the mess from our SPENDING.
Maybe I'm wrong. Does anyone have a different read on this?
The Fed has to talk out of both sides of it's mouth. If it says that it will raise rates anytime soon, the market will dive, but if it says that it will never raise rates then the dollar will dive. He continually flip-flops to keep people guessing.
The Feds overall strategy is increasing GDP and keeping us out of depression at any cost. It's what will get the politicians reelected and the politicians appoint the Fed.
The Fed's mission has expanded considerably since its inception in 1913. It's 4 core objectives are as follows:
(1) Conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates.
Fail.
(2) Supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers.
Fail.
(3) Maintaining the stability of the financial system and containing systemic risk that may arise in financial markets.
Purposeful fail.
(4) Providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system.
Succeed, kinda. They're charged with providing financial services to depository institutions. Now that the Fed window is open to institutions like Goldman Sachs, deposits are not required for access to these benefits, only political clout is required. Also, "financial services" here is a euphimism for free taxpayer wealth.
Anyone counting on the Fed for good advice isn't paying attention to how far it has strayed from its stated mission. It now operates only to shift wealth from the masses to the top tenth of a percent.
The US Government has no intention of paying off or even paying down it's debt obligations. In fact, we have long since passed the point at which that was even possible. The Obama administration is projecting trillion dollar deficits as far as the eye can see. So who is going to loan us that money? The Asians? LOL. They are not going to loan us 10 trillion over the next 5 years knowing full well that we CAN'T repay them. The FED will be forced to monetize, and that means hyperinflation.
Use some common sense. The collapse of the US Dollar is coming just as certain as death, and along with it poverty such as this arrogant country has never known, even during the Great Depression.
