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Markets wait for word from Ben Bernanke

Marketplace Staff Aug 25, 2011
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Markets wait for word from Ben Bernanke

Marketplace Staff Aug 25, 2011
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Jeremy Hobson: We’ll start with Diane Swonk, chief economist with Mesirow Financial. She’s with us live from Chicago as she is every Thursday. Good morning.

Diane Swonk: Good morning.

Hobson: Diane, first explain why gold is dropping so much, so fast.

Swonk: Well, there’s certainly a lot of hope pinned on Chairman Bernanke giving a speech in Jackson Hole on Friday morning to reassure investors that willing to pull the trigger on QE3 — another round of large-scale asset purchases. And that’s something that would get people feeling more confident about at least equities, over holding, hoarding cash and gold.

Hobson: And would QE3 — Quantitative Easing 3, these big bond purchases by the Fed — would QE3 look like the one that just finished, QE2?

Swonk: All of them actually look very different, and I would expect this one to look different as well. Not only would it have to be larger than QE2 in scale, my guess is it could include more than just Treasury bond purchases going back to mortgage-backed securities as well. The Fed may not even tip its hat as to which it’s buying when. I think this is important as they’re looking at all different ways to pull new rabbits from a hat — luckily, rabbits multiply for Chairman Bernanke.

Hobson: And maybe the idea here is to get people to take more risk with their money. Do you think it can work?

Swonk: You know it actually did work to the extent that it got people buying equities instead of hoarding their cash in bonds and saved assets back in last year when they started it, and into 2011. The important rallying equity markets also enabled IPOs out there, and those IPOs were the few things that gave us a lot of jobs at the beginning of the year. Jobs is what we need. So there is a linkage here, clearly, in terms of bolstering equity prices and taking more risks — making a bet on our future and the U.S. economy.

Hobson: Diane Swonk, chief economist with Mesirow Financial, who’s headed off to Jackson Hole later today. Thanks Diane.

Swonk: Thank you.

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