Monday, July 27, 2009

Bernanke on the Economy

"The silver lining in this whole thing is that people are starting to save more, since they saw what happened with 401(k) investments," Bernanke said. "People are adopting good habits, so not only will we will be back on track, but the economy will be stronger than it had been before this started."

The Fed chairman also noted that government regulators are working to ensure that such a crisis can never happen again by addressing the issue of too big to fail and lobbying Congress to pass a regulatory reform bill.

"I don't think we'll ever completely eliminate financial crises, but there are ways to make sure one this severe never happens again," Bernanke said. "We need to have a council or group of regulators that look at the financial system as a whole and look for gaps. And 'too big to fail' has to go."...

Bernanke said the economy is beginning to show signs of improvement, but recovery will be gradual. He said gross domestic product will likely rise by the end of the year into 2010, but job growth will lag. He conceded, "economic forecasts make weather forecasts look like physics," but said unemployment will top out above 10% before falling back in the second half of next year...

"But I was not going to be the Federal Reserve chairman who presided over the second Great Depression."

read the CNN article

My thoughts: The increased savings is good. The reason many people started investing in 401(k)s is directly as a result of the Fed's inflationary monetary policy. Sticking your money your the mattress or in a simple savings account will not properly prepare you for retirement. The value of your savings is constantly eroded by inflation. The Fed claims to promote price stability, but 2-3% inflation (their targeted goal) is not stability.

People should realize that 401(k)s are not guaranteed investments. The key to a solid 401(k) is diversity and low costs. Since many people have matching funds by their employer, the amount or "real" loses is small and almost trivial to the amount of money they would have from "investing" in a bank savings account.

People should also realize that retirement investing is along term project. Those who were close to retirement age should have shifted most of their 401(k) portfolio into less risky bonds. There are some funds that do this automatically now. This is a great product for the passive investor.

The Fed has a history of failure. After every failure, they demand more power and control. They fail again and the process repeats itself.

It is time to end the Fed and return to a free market monetary system.

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