Is “Big Ben” Bernanke popping the Government Bubble?
When Ben Bernanke first came onto scene back in 2006, I did not think too much of him. Today all the political junkies debate over who left who the bigger mess: Bush to Obama or Clinton to Bush.Nobody ever really talks about mess that Alan Greenspan left Ben Bernanke.Now that's a mess!
Initially I didn't think too much of Bernanke because I didn't think he recognized the crisis that was ahead of him.But I think he gets it now.
Historians are great and Bernanke is one of the best historians of the Great Depression.Until yesterday, I always feared that he may be too much of a historian, the type that failed to be able to have an accurate perspective of the future.
It was refreshing to see someone finally calling for fiscal discipline.This is no longer a Democrat or Republican thing as both parties have gone completely off the fiscal deep end!
Many people on Main Street are starting to think the crisis is over, but really a new one has just begun!You know the initial stage of this crisis is over when the popular consensus is becoming that we may be spending way too much money!
As economic leaders in the world, the only thing that we have taught the rest of the world is to over borrow and over spend!Our economic leaders need to get truly committed to a strong dollar policy, because that will probably be the only thing that keeps it from going over a cliff!
Here are the three main things that "Big Ben" and the Fed need to be really careful of:
Under-estimating inflation. If you don't think the possibility of hyper-inflation is very real, let's just go back in time 5 years.What if I had told you in June of 2004 that over the next five years Real Estate is going to take a historical dive, storied brokerage firms would be dropping like flies, banks would need historical bailouts, Chrysler, California, and GM would all be bankrupt and we will have elected the first African American President.
Do I even need to ask if you would think that I was crazy? The historical real estate dive was fairly predictable back then, in addition to the effects it would have on banks. There were people that saw that coming, and today there are people that are seeing serious hyper-inflation in our future.Once you start printing money and monetizing debt, it can easily become a treadmill you can't get off of!
Over-estimating the effect of raising interest rates.Back in 2004, when the Fed (under Greenspan) started raising rates it had no effect, and the result was the Real Estate Bubble going on for two more years.We could easily have another "Interest Rate Conundrum" when the Fed has to start rising rates again.
Under-estimating the drops in the Dollar.This is where things can really get away, and out of hand.Like Sean said in his article yesterday, China has every right to complain when we start printing money and show no real signs of stopping.This is why they are taking a bigger position in Commodities and although they will probably not start dumping US dollars tomorrow, the US debt will continue to be seen as a less and less attractive investment.
I think everyone would love to see a Green Economy in which everyone gets the best health care at the snap of a finger, but just because you are well intended does not assure the fact that the money is going to show up!Making homeownership accessible to everyone was very well intended too, but just look where that got us!