Ben Bernanke Gives Honest Speech on World’s Economic ‘Boom’

Ben Bernanke is a smart man…and an idiot. Yesterday, the smart man spoke to a crowd in Berlin and delivered such a clear-headed, honest appraisal of the world financial situation, we’re surprised it was not followed by a stock market crash.

Bernanke pointed out that the great boom has been largely a result of saving done by oil producers and Asian exporters. He did not explain it, but this money freed Americans from the need to save any money themselves. Instead, they just borrowed from overseas savers – while their own money was used for consumption. Nor did he describe the real, long-term consequences of this division of financial labour: Foreigners become rich producers and savers; Americans (along with many of their Anglo-Saxon cousins in Britain and Australia) become poor consumers and debtors.

What he did explain was that this easy money is probably going to dry up “over the next few decades” as oil exporting countries and Asian manufacturing countries begin to consume more of their own output. China, for example, is almost certain to save less and spend more in the years ahead. Inevitably this will mean pressure on Americans to save more themselves…and consume less. It will also mean higher real interest rates in the United States, a lower-value dollar, and lower US asset prices.

Two years ago the idiot Bernanke spoke and noticed the same phenomenon. But then, he referred to it as a “global savings glut” and encouraged the fantasy that Americans were doing the savers a big favour by taking their money. He made it seem like such a benign and salutary exchange. They do the saving…we’ll do the spending. They do the producing…we’ll do the consuming. “They sweat,” said one financial pundit; “we think.”

The conceit of it had about the same effect upon American investors and consumers as finding an over-turned liquor truck in the street. Soon, they were helping themselves to armloads of bottles – and the party was on!

“We are so clever, we no longer have to do the hard work,” they told themselves. “We are such geniuses; we no longer have to save. We are so ‘inventive’…we are so ‘creative’…we have the most ‘dynamic economy’ and the most ‘flexible’ markets. Hey, let’s face it – we’re just smarter than everyone else.”

But now, the cops are on the scene and people are throwing up in the bushes. “The party is over,” says the Financial Times . And the Fed is said to be considering a cut in its benchmark rate at its meeting next week – just as we predicted. American subprime borrowers (and lenders) no longer look like geniuses. Instead, they look like the yahoos they always were. Suddenly, many of the biggest players on Wall Street and in Greenwich don’t look so smart. And the Europeans pat themselves on the back – “See…Americans are morons,” they tell each other. “Just like we thought.”

Bill Bonner
Markets and Money

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.
Bill Bonner

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Terrific analogy, there. I just wonder if the Europeans should be so smug themselves. They may not have been seriously addicted to credit like the U.S, but they still have the E.C.B pumping out Euros and an unbacked fiat currency.

Sure the US Dollar has taken a beating, but the quantity of Euros circulating is hardly fixed.

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