Thursday, May 14, 2009

Bernanke wait time to press the brake

It is time to prepare for trouble. America will soon zahlestnet inflationary wave which threatens to decrease the value of the dollar and the deprivation of its status as world reserve currency. Or not. Many of the latest news much more optimistic reports published a few months ago. Now the interbank lending rate fell below 1%, which is much smaller than the maximum of 6%, when banks are hesitant in their ability to survive their colleagues that they refused to issue loans, even for a short period of time. The housing market is showing signs of life - in the most affected cities are beginning to slowly dismantle stockpiles of unsold homes. Consumers have become freer in the cost. In April, retail sales, led by Wal-Mart said the highest growth since August last year. Inventories of goods fell to levels that shop owners will soon have to deal with enlargement. The panic is giving way to a more confident consumer behavior. Even in the labor market appear weak signs that the worst is behind us.

While Ben Bernanke and his colleagues on the Board of Federal Reserve Bank does not believe these definitely good news. So far, they have pursued a single goal: to do what is necessary to avoid the collapse of the financial system, and put money into the economy to stimulate growth. Bernanke did what it needed, and, in the opinion of many observers, well done its job. He not only lowered the short-term interest rates virtually to zero, resulting in a decrease in other interest rates, and in the first place - for mortgages, but also one another invent solutions to sustain the economy, similar to his proposal to jettison the money out of helicopters for which he was given the nickname Benny-verotoletik.

Now, just when the economy starts to recover all these funds have raised inflation, according to the most reliable indicator - the GDP deflator, which amounted to almost 3%. "The huge budget deficits, rapid monetary growth and the threat of sustained devaluation of the currency - it portents of inflation", - said Alan Meltser, Professor of Economics at Carnegie Mellon University and author of noteworthy books A History of the Federal Reserve. And inflation is not easy, as the observers fear. Andy Xie, former chief economist of Morgan Stanley branch office in Asia, in an article in The Financial Times warns that if China and other countries using the dollar for exports, away from the currency-dollar "collapse." The recent purchase of China's gold - it is the first alarm. Now Bernanke is needed to determine whether early signs of recovery to sustainable growth, and whether his policies and presidential programs, expressed in trillions of dollars, trigger inflation.

If so, it will begin to extract cash from the system by selling some assets that have been recently added to the balance of the Fed. This is not like his political benefactor, who did not want to see something prevented the restoration of the eve of the election to Congress. Yes, the Fed does not depend on politicians. In the end, the 80's. the legendary Paul Volcker, Barack Obama invited for a joint photograph, but now retired to the background, was able to get rid of inflation in the two-valued system, by raising interest rates to 20%, even though the unemployment rate jumped to 8% of previously unseen. But Walker enjoyed the support of President Ronald Reagan. Bernanke less fortunate. On the one hand, working closely with the Ministry of Finance and the White House, he has strengthened the independence of the Fed. And on the other, he is in a strange situation. Although his term of office as a member of the board is valid until 31 January 2020, the chair, he could leave as early as January 2010, if Bernanke is too much (or too early), cool the economy, jeopardizing Democrats seats in Congress in elections this year , Larry Sammerz, chief economic adviser to Obama, are happy to take his place.

In the event that Bernanke will press on the brake and allow interest rates to rise by refusing to buy all the receipts, the Ministry of Finance sold to finance the deficits Obama, he will create one of the two impediments to economic growth. Other - is the president promised higher taxes, which will begin in 2011, It is generally accepted that such a double blow - higher interest rates and rising taxes - cut recovery during the Great Depression of 1935-36. If history will repeat itself, you can not expect that the president jumped forward, wishing to take part of the blame on himself. Much easier to blame all the Fed and Bernanke to replace Sammerzom. Even if Bernanke does not feel very human desire to preserve one of the most exciting job in the world, his life is full of troubles. If the recovery will be more powerful than the Bernanke, his legacy will be two-valued dollar, inflation, and devoid of a reserve currency. Hasty action may zarubit recovery on the vine.

Of course, there is the likelihood that inflation fears are unfounded. At best, all this - just ballyhoo surrounding the economic situation. The economy has significant reserves of production capacity: plants are not used at full capacity, and there are many workers, who can hire from the beginning of improvement. This could prevent the increase in prices and wages in terms of economic growth. When the inflationary pressures, Bernanke will take effect. He argues that the Fed "like a laser beam" focus on the problems and the recent two-day meeting devoted to the development of an exit strategy to avoid inflation. "We have a plan, and now we are working on strengthening and improving." So, left to find the point of bringing the plan into action. Anyone who tries to predict a turning point in the recession, only to be hoped that he did it better than all predecessors.


Irwin Stelmtser,
From The Times Online

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