In Jackson Hole, Wyoming today Fed Chairman Ben Bernanke said the risk of an “undesirable rise in inflation or of significant further disinflation seems low.” Yup, can’t argue with that.
If you are operating a bank, and you had lost your depositors’ funds by making bad real estate loans, normally you would be sweating bullets by now, or among the 14.6 million pounding the pavement looking for work. But you need not worry. You got $1.3 trillion of reserves to tide you over while your bad loans continue to deteriorate.
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If Gold Were Money Again
Why not gold? Even though it made an advance to some $1,000 per ounce by mid-year 2008, shortly thereafter it plunged to less than $700 per ounce. At $800, on an inflation-adjusted basis it would only be worth a little over $300 per ounce in 1980 dollars. After fully feeling the monetary discipline of Volcker and reflecting the collapse of oil in the glut of the mid-1980s, it could not sink much below $250, a level of support it maintained for years. One could overanalyze the investment rationale of our trading partners, but for those who are not blessed with generous supplies of oil, holding reserves in gold at these levels rather than in U.S. dollars would appear to be a no-brainer.
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