Will faith in the dollar wane due to mistrust of The Fed?
*Barron's, by Gene Epstein, October 5, 2009:
"The Sins of The Fed.
SINNING IS ONE THING, COVERING UP THOSE sins quite another. If former
Federal Reserve chairman Alan Greenspan and his accomplice, current Fed
Chairman Ben S. Bernanke, would acknowledge their sins, the rest of us
would have a better chance of changing the system that made those
transgressions possible.
Yom Kippur came and went last week with no coverage in this space of
acts to be atoned for, a sin of omission that will be remedied here.
Start with forecasting sins, which are hard to cover up. Not all
returns are in, of course, but 2009 will almost definitely be a down
year for real gross domestic product. Yet the consensus of about 50
forecasters, tracked monthly by Blue Chip Economic Indicators, didn't
forecast a negative for real 2009 GDP until November of last year --
just a month before the Business Cycle Dating Committee officially
recognized the economy was in recession.
In my own case, even as late as mid-December of last year, I thought a
'deep recession' would be avoided. With the panic in the investment
sector through the fourth and first quarters, a deep recession is
exactly what we got. I also thought the second quarter would eke out
small gains in real GDP, while the consensus expected small losses. The
consensus was right. According to the third estimate for the second
quarter released last week, real GDP fell at an annualized 0.7%.
My forecasting errors look bad enough against the consensus, which
itself wasn't so hot. The errors would look even worse if there were a
consensus forecast recorded for those who subscribe to Austrian
business cycle theory (ABCT), of whom I am one. The 'Austrians' -- who
almost never come from Austria, but whose chief mentors, Ludwig von
Mises and F. A. Hayek, did -- tend to let their anger run away with
them when they forecast. As an Austrian myself, I share their anger,
but have often found it makes them prefer a dour outlook.
In this case, they were quite right, and I was quite wrong.
Speaking of anger, you don't even have to know ABCT to understand how
Greenspan and Bernanke (who served as Fed governor during the crucial
years 2002-2005) played crucial roles in causing the housing bubble
that helped bring down the economy, despite their disgusting attempts
at cover-up. Remember the adjustable-rate mortgages that drove the
housing boom? Well, ARMs were so low for so long because they were tied
to the federal-funds rate, which Greenspan and Bernanke kept so low for
so long. Just to make sure we didn't miss his direct involvement,
Greenspan himself publicly promoted ARMs at a February 2004 speech
before the national association serving credit unions.
On the other hand, if you do know ABCT, then you will understand why
Greenspan and Bernanke's greatest sin is to defend an institution that
is part of the problem rather than the solution."
*This information is solely a highlight of the opinion of a third-party publication and is incomplete. Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.
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