Will Bernanke save the dollar?

[donsu]

http://www.atimes.com/atimes/Global_Economy/HF22Dj01.html


Recent hawkish comments by US Federal Reserve Bank chairman Ben Bernanke caused jitters in US and global equity markets; as is the typical first reaction when there is a sense of panic in the market, US investors liquidated some of their more speculative foreign investments and repatriated the money. As a result, the US dollar enjoyed an overdue rally after it had been sliding for weeks versus major currencies.

This raises several important questions. Has Bernanke rung in a new era at the Fed? Will he be able to help contain inflationary pressures? And will the dollar regain its strength?

-snip-

Bernanke spooked the markets by daring to say what has been ignored for too long: inflation is heading America's way. Americans already experience inflation on anything they cannot import from Asia - from the cost of health care and education to the cost of local services. Low interest and tax rates in the US, combined with Asia's growth policies, have created an oversupply of consumer goods, leading to low prices for such goods and high commodity prices.

-snip-

Bernanke has a problem, a big problem: inflation is creeping up just as the US economy is slowing down. Some have pointed out that it is quite common for inflation to continue to climb for a couple of months as the economy is slowing down; as a result, we should not be concerned about this. These are the same "experts" who only saw the Internet bubble out of the rearview mirror, and still do not acknowledge there is a housing bubble. What many underestimate are the extreme pressures the US economy now faces:
-snip-
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gotta remember, the neo cons want to ruin the US pocketbook

[BigYawn]

1. Yes, Bernanke will try to save the Dollar because..

if the dollar tanks, the foreigners and Americans who are
financing our deficits will stop buying dollar denominated
treasury issues. The Fed is responsible to provide funding
for the US treasury to meet budget obligations. Which is why
the Fed keeps increasing interest rates so that people all over
the world keep buying treasury bills, notes and bonds.

[hiley]

2. no

Bernanke will not

[welshTerrier2]

3. Robert Reich says we're facing "deflation", not "inflation"

he says Bernanke is following the wrong strategy ... his arguments raise some interesting points ...

source: http://www.commondreams.org/views06/0620-31.htm

Bernanke fears that today’s economy resembles the one that began to overheat the 1970s. But he’s wrong. Labor unions today don’t have nearly the power they did then to get wage increases. Big companies don’t have nearly the power they did then to raise prices. Global wage competition is keeping a lid on American wages, just as global price competition is pushing down on American prices. Meanwhile, fancy computer software is allowing rivals all over the map to erode almost anyone’s market share. Who’s going to raise prices in this environment?

What’s more, there’s no reason to raise prices. Productivity has been soaring over the last five years while the median wage has been stuck in the mud. Wages, remember, constitute about 70 percent of the cost of doing business. So how can price pressures be building? Bernanke and company worry the U.S. labor market is heating up. They’re wrong here, too. Despite what look like rosy employment numbers, a smaller proportion of the American labor force is employed today than it was in 2000. Millions of people don’t show up on the unemployment rolls because they’re too discouraged even to look for work. <skip>

If anything, there’s too much capacity relative to demand. This is a recipe for deflation. Prices can begin to drop because buyers hold off, expecting further price decreases. It happened in Japan in the 1990s. It’s already starting to happen in certain housing markets in the United States that had been red-hot but are now cooling so fast home prices are dropping. Deflation is often accompanied by stagnant or falling wages, which make it harder for consumers to afford to buy. Look what’s been happening to American wages.

The Fed and other central bankers around the world are raising interest rates because they’re fighting the last war. But they already won that war. Inflation is no longer our biggest threat. They ought to be worried about the war before the last one, and the specter of deflation. They’re in danger of losing that war even before they know they're in it.

[PsycheCC]

4. Pretty interesting article. Robert Reich usually gets it right, I think.

I'm no expert on the economy, but I do read about it, and I have definitely noticed an apparent decrease in demand in Southern California. Restaurants aren't busy, stores not so crowded, just things you notice in daily life. Housing is slowing here, and with negative savings rates and home equity having supported most of recent consumer spending (given dropping real wages in the last five years), one has to wonder where the money will come from to support continued demand.

I have no idea whether Bernanke will be good for the economy, but it's hard to see how he could do worse than the mystical Greedspan, again just in my non-expert opinion. I did enjoy Batra's book, Greenspan's Fraud, though.

[Capn Sunshine]

5. No, the neocons WANT inflation

It destroys the middle class, leaving them less time to be politically active.

It allows them to pay back the huge debt they ran up with cheaper dollars, a two or three to one discount, which they will gladly take.

[AX10]

6. kick

[unlawflcombatnt]

7. Interesting Article

Bernanke's previous history of concerns over "deflation" and his being a student of the Great Depression (which he believes was worsened by a strong dollar) makes it unlikely he will "save" the dollar if it increases the chances of us going into a recession.

In previous articles he's stressed how much harder he thinks it is to get us out of deflationary spiral than it is to control inflation.

It's unlikely Bernanke will raise interest rates enough to control inflation, unless the government finds more ways to even further lower their (mis-)calculated inflation estimates.

There was an interesting Wage Chart at a link next to this article from the AFL-CIO. The chart showed a decrease in inflation-adjusted median family income of 3.6% from 2000-2004.

The site where this information can be found is at the link below. (this is not a direct link, however. Readers need to go to "facts and statistics," and then look under "wage and income" in the boxes.)

http://www.aflcio.org/issues/factsstats/factsstats.cfm

unlawflcombatnt

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