The item below appeared in John Crudele's New York Post column. FEDERAL Reserve Governor Ben Bernanke may have gotten himself into some hot water by saying the one thing that no one in his position should say: we'll just print more money if the economy doesn't respond to traditional remedies. Bernanke, who (may) have another two years left in his term, made the outrageous comment in a speech to a group of economists last week in Washington.
The governor was trying to explain what would happen if the U.S. gets hit by deflation - falling prices and declining asset values. But the comment could just as easily have panicked investors who know that such an action could render the U.S. currency worthless.
Here's exactly what the economist - who went to Harvard and M.I.T., where they apparently don't teach the lesson of between-the-wars Germany - had to say when the issue of the ineffectiveness of the Fed's 12 interest rate cuts came up.
"The U.S. government has a technology, called a printing press - or today, its electronic equivalent - that allows it to produce as many U.S. dollars as it wishes at essentially no cost," Bernanke is quoted as saying. The investment and policy implications of recent comments by Fed governor Bernanke are momentous. The American central bank is making clear the degree to which it is willing to bet the integrity of the financial system in its determination to keep the game going. The long-term investment implications of this have to be dollar bearish and gold bullish, and there are also obvious longer-term issues for holders of government bonds. But in the short term the Fed's reassuring message has, naturally, given added confidence to speculators long on the reflationary trades. The further the Fed goes down this road the more likely the ultimate demise of the dollar standard that has been in place since 1971. All this has huge implications for Asia, financial and geopolitical, given the region's massive foreign exchange reserves and its concentration in US dollars. Indonesia's reprofiling of Rp171tr of bank recapitalisation bonds held by four state banks has just been approved. The result has been to extend by several years the maturity of this debt issued to recapitalise the banking system. This has made a previously extremely onerous debt burden more manageable.
The piece below is by my old friend, Chris Wood of the "Greed & fear" advisory.
The investment and policy implications of recent comments by Fed governor Bernanke are momentous. The American central bank is making clear the degree to which it is willing to bet the integrity of the financial system in its determination to keep the game going. The long-term investment implications of this have to be dollar bearish and gold bullish, and there are also obvious longer-term issues for holders of government bonds. But in the short term the Fed's reassuring message has, naturally, given added confidence to speculators long on the reflationary trades. The further the Fed goes down this road the more likely the ultimate demise of the dollar standard that has been in place since 1971. All this has huge implications for Asia, financial and geopolitical, given the region's massive foreign exchange reserves and its concentration in US dollars. Indonesia's reprofiling of Rp171tr of bank recapitalisation bonds held by four state banks has just been approved. The result has been to extend by several years the maturity of this debt issued to recapitalise the banking system. This has made a previously extremely onerous debt burden more manageable.
11/25/02 #61 Horrible News for Mutual-Fund Investors
If you still love mutual funds, you'll hate this piece of news. According to The Lipper Organization, high-tax-bracket investors in taxable stock-mutual funds have lost one-third of their gross returns over the past decade to expenses, loads and federal taxes.
Lipper said taxable diversified U.S. equity funds returned 12.7% a year for the past decade (less than the Dow and the S&P 500), and expenses and loads reduced that to 11.2%. Taxes further dropped the annual return to just 8.6%.
And in the case of load-taxable bond funds, up to 86% of returns have evaporated. 86%!!!!!
That's horrible, any way you slice it!
Source: Journal of Financial Planning, November 2002
