Friday, December 4, 2009

Bernanke Lacks Sufficient Knowledge to Lead the FED

In Remarks before Congress Bernanke has shown his ignorance of the important issues facing America , and exemplified his lack of ability to lead the FED.

Chairman Bernanke. “If somebody has their wealth in dollars and they are going to buy consumer goods in dollars who is a typical American, then the decline in the dollar, the only effect it has on their buying power is it makes imported goods more expensive”. November 8, 2007

The Facts: Inflation robs those responsible citizens who have their money in Bank CD’s or other savings accounts, as the dollar becomes worth less by inflation (more of it in circulation) it will purchase less. The very definition of inflation is too much money chasing too few goods. The price of the commodity will adjust upward to absorb the excess money. For Example in 1900 the Dollar purchased around $26.00 in goods and services, yet today it can purchase only about $0.25

Chairman Bernanke. “The mandate that Congress gave us is to look at employment and inflation as measured by domestic price growth, …, and I think you would agree we do see risks to inflation and we are taking those into account and want to make sure that prices remain as stable as possible in the United States ”. November 8, 2007

The Facts: (i) Under the Fed we have experienced inflation from which prices have doubled every 20 years, and are accelerating even faster now. Since 1913 we have seen 1929% inflation, and (ii) our Job market has decreased substantially since the 1980’s, with high paying jobs moving to other countries, and unemployment is at a real 20%.

Mr. BERNANKE. “Well, first, our national savings includes corporate savings as well as household savings. If you put those together, you get a positive number, so there is some net savings going on in the United States ”. July 18, 2007

The Facts: A Negative “Consumer” Saving Rate should be very Worrisome!

The U.S. personal saving rate’s negative turn which began to show in 2005 suggested that Americans would curtail their spending and accept a lower standard of living as they pay off rising debts. Or otherwise have no spend-able income available.

Personal saving has been negative since the second quarter of 2005. For 2005 as a whole, current data from the Bureau of Economic Analysis (BEA) show a personal saving rate of -0.4 percent—a figure that dropped to -1.1 percent in 2006. These readings are well below the 1999-2004 average of 2.2 percent, a good deal below the 1993-98 average of 4.6 percent, and considerably below the 1950-92 norms of 8.6 percent.

Negative saving would seem to point to growing indebtedness and, ultimately, a decline in living standards, which we have evidenced. Low levels of household, private, and especially national saving will as we have seen take a toll over the long run. Economists generally agree that consumer spending decisions are largely explained by the life cycle–permanent income model. According to the model, households estimate the constant-dollar, or real, resources likely to be available to them over a long planning horizon, including in these resources anticipated after-tax income current wealth, and expected movements in asset prices. Given the estimated stream of resources, households plan on maintaining steady growth in real spending over their lifetimes.

The typical summary of this model is that real consumer spending is a constant fraction of “permanent income.” Permanent income is a smoothly growing measure whose present value is equal to the present value of the real resources available to consumers. The fraction of permanent income that is spent may depend on a host of factors, such as demographics, but ones that could be of particular interest are uncertainty and the ability to borrow. It is likely that the more uncertain future income is seen to be, and the more difficult it is to borrow in an emergency, the lower spending will be relative to permanent income.

So to the point, Personal Savings are very important, much more so than Corporate Savings.

Bernanke, obviously is reality impaired, as was his predecessor, or there is a plan unfolding in which this deception is an integral part.