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Wednesday, November 24, 2010

Ben Bernanke is wrong at every turn

The Federal Reserve Bank, a private institution, is lead by the Federal Reserve Board of Governors. The leader of the board is Ben Bernanke.

He follows in the footsteps of his predecessor, Allan Greenspan.

Mr. Bernanke's opinion and approach to finances was well documented by himself, in a college thesis paper. In that paper he described how the Federal Reserve could have minimized the Great Depression through additional actions they failed to take.

What we have been witsnessing since 2002 is Mr. Bernanke following his own playbook he started when he was in college. The problem I have with this approach is, he somehow knows better than the rest of the world, and has a "Secret sauce" to save the world economy.

Mish has a post that is exceptional reading (click). Mish starts with looking at Mr. Bernanke's own words issued in 2002 on how he would minimize the deflationary forces.

I do take one noteable issue with Mish's generalist view he presents of deflation will win over inflation. The US is tied to China like it or not. China's economy, although full of asset bubbles, is generally acknowledged to be growing. And assuming China will continue to grow over the next decade, it will surpass the US as the economic powerhouse.

What is perplexing is Mish acknowledges this as a possible outcome, in this post here. So I am at a loss on how he presents a world where deflation across the board "wins". So while I agree with Mish about Greenspan, and deflationary forces, I am in disagreement that his typical post view does not illustrate the resource calamity we all face from China's growth.

What it will be is USD devaluation, and should not be confused with economic inflation, with respect to natural resources and Asian currencies. American's (and all western countries) will face is a lowering of standard of living even more, as most wages remain depressed, but costs increase.

I hope Mish is right and I am wrong, but I am hedging my bets.

Mish has a great post explaining all the differing sources of information and opinions he either draws from, or disagrees with titled Straight Talk" with Economic Bloggers. I encourage people to read it and seek other perspectives.

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