Friday, November 19, 2010
By: Michael Pento
In a speech given at the sixth European Central Bank conference in Frankfurt Germany, Chairman Benjamin S. Bernanke implied that China’s currency manipulation is leading to global instability. The Fed head blamed, “Large, systemically important countries with persistent current-account surpluses” [think China], for the current global imbalance. He declared, “Globally, both growth and trade are unbalanced.
He continued, “Because a strong expansion in the emerging-market economies will ultimately depend on a recovery in the more advanced economies, this pattern of two-speed growth might very well be resolved in favor of slow growth for everyone if the recovery in the advanced economies falls short.” In Bernanke’s mind, Chinese growth is totally dependent on the U.S., not the other way around.
But what Bernanke fails to understand is that the U.S. manipulates its currency first and foremost. In addition, he also doesn’t grasp the idea that further US dollar devaluation will only exacerbate the trade imbalance. And, to make matters even worse, if he were to get his druthers the U.S. would see soaring interest rates and rapidly rising domestic prices. In fact, a rapid rise in the value of the Renminbi verse the USD would most likely render the U.S. insolvent.
Bernanke also gave a strong clue as to just how long it will be before he decides to raise interest rates and protect the purchasing power of Americans. He said, “On its current economic trajectory the United States runs the risk of seeing millions of workers unemployed or underemployed for many years,” he said. “As a society, we should find that outcome unacceptable.” Therefore, we have many more years ahead to punish savers and reward debtors. And many more years to come of rising commodity prices and an eroding standard of living.
Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.