Pentonomics – Bernanke and the IMF

February 18, 2011 at 11:53 AM

Fed head Bernanke defended U.S. dollar debasement in France today ahead of this weekend’s G20 meeting. He said, “Emerging market economies have a strong interest in a continued economic recovery in the advanced countries, which accommodative monetary policies in the advanced economies are designed to promote.” There you have Ben’s entire motive and strategy in one sentence. He believes that creating money out of the blue will engender U.S. growth, while bailing out emerging markets because it will wreck the value of the dollar. That’s sort of like a cardiologist telling a heart attack patient to eat more bacon fat.

Not to be outdone the IMF came out with this gem in its report before the G20 meeting entitled Global Economic Prospects and Policy Challenges: “Some further real effective depreciation of the U.S. dollar would help ensure a sustained decline of the US current account deficit toward a level more consistent with medium term fundamentals, helping to support more balanced growth.” I have a question for the IMF; what the hell does “real effective depreciation of the dollar” mean? The dollar has lost 35% of its value against a basket of its largest trading partners in the past decade. But that fact hasn’t done anything to place our trade deficit into balance.

So Bernanke is over in Paris once again bashing the Chinese for manipulating their currency. Even though in his mind, his love affair with counterfeiting isn’t really manipulation. Since a weaker dollar and higher asset prices is the panacea for this Fed, I would find it unreasonable not to invest accordingly.