Bernanke: Far too Early to Call Victory in Recovery

Federal Reserve Chairman Ben Bernanke said on Tuesday it is too soon to declare victory in the U.S. economic recovery, warning against complacency in policy making as the outlook brightens.
"We haven't quite yet got to the point where we can be completely confident that we're on a track to full recovery," Bernanke told ABC News in a rare on-the-record interview.

The Fed chairman welcomed a decline in the unemployment rate and signs financial strains in debt-stricken Europe were easing. But he said joblessness was still at a troubling high and housing markets still weak.
"I think it's really important not to be complacent. We have a long way to go, a lot of work to do, and we're going to keep doing that."

Asked whether the Fed was considering further action to stimulate growth, Bernanke said the central bank would take no options off the table. However, he did not suggest a further round of bond buying was imminent.

The Fed has kept interest rates near zero since December 2008 and has bought $2.3 trillion of debt through two bond-purchasing programs to stimulate growth.
In a speech on Monday, Bernanke said the U.S. economy would need to grow more quickly to ensure continued progress in reducing the jobless rate. Those comments drove stock prices higher as investors bet a further round of monetary stimulus might be planned.

Stocks rose Monday on optimism Bernanke's remarks signaled the Fed will do more to lower borrowing costs. Traders pushed out bets for a first Fed rate hike to October 2013, from July 2013 just a week earlier.
The U.S. unemployment rate has dropped from 9.1 percent in August to 8.3 percent last month, a decline Fed officials see as out of step with a still-sluggish pace of growth.

Dallas Federal Reserve Bank President Richard Fisher, a monetary policy hawk, on Tuesday agreed that faster growth is needed to boost jobs, although he made clear he is opposed to a further easing of monetary policy.

Eric Rosengren, a policy dove who leads the Boston Fed, said the central bank should ease further if growth slows more than expected. Neither official has a vote this year on the Fed's policy panel.
Another official who is supportive of loose monetary policies, New York Fed President William Dudley, told a congressional panel financial strains in Europe have eased although the Fed continues to monitor the situation carefully.

After its last two meetings, the Fed said it would likely keep overnight borrowing costs near zero at least through late 2014. Bernanke said that was the central bank's best estimate, not a guarantee.

A quickened pace of job creation - the economy has created more than 200,000 jobs in each of the last three months - has fueled speculation the central bank might raise rates sooner.
In both his speech on Monday and the interview on Tuesday, Bernanke appeared to be pushing back against those expectations.

"It's far too early to declare victory," Bernanke told ABC News. "We need to be cautious and make sure this is sustainable."

One drag on growth is likely to come from gasoline prices that have drifted higher on geopolitical worries, Bernanke said.

"That will be a hit on growth," he said. "But at this level ... we don't think it's going to be anything that's going to stall the recovery."

Rising fuel costs are shaping up as one of the biggest issues in the 2012 presidential campaign, as U.S. gasoline prices have jumped about $0.30 per gallon to just over $3.90 within the past month.
Bernanke's ABC News appearance marks the third time the Fed chairman has given an extensive on-the-record, on-camera interview. It was part of a barrage of recent public exposure that has included a profile in a national magazine and a series of college lectures on the Fed and the recent financial crisis.

Bernanke's stepped-up visibility, on top of the launch of news conferences four times a year, appears aimed at counter-balancing some of the harsh criticism leveled at the Fed by Republican presidential candidates. Critics say the Fed's policies have weakened the dollar, hurt savers, and are likely to generate inflation.


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Doug Casey on Bitcoin and Currencies

We’ve had a num­ber of read­ers ask for your take on this new Bit­coin sys­tem. As a per­son who likes to see the pri­vate sec­tor com­pete in areas that gov­ern­ments try to reserve for them­selves, this seems right up your alley — what do you think?

Doug: It’s a sign of the times. Lots of peo­ple are actively look­ing for an alter­na­tive to the dol­lar. I think Bit­coin is a very good thing, in prin­ci­ple. But after the recent dis­as­trous hack, it’s prob­a­bly a dead duck, at least in ver­sion 1.0.

It’s appro­pri­ate, how­ever, that we’re talk­ing about Bit­coin — an Internet-driven phe­nom­e­non — while you are in Bishkek, Kyr­gyzs­tan and I’m in Beirut, Lebanon, and we’re speak­ing essen­tially for free over the Inter­net. Money is increas­ingly going to be Internet-related. But first we should explain what Bit­coin is.

L: Sure. There’s a Wiki entry, but the basic idea is that Bit­coin is an online (and there­fore dig­i­tal), non-government-backed cur­rency. It’s not backed by any­thing, actu­ally, but that doesn’t seem to be a prob­lem for many users. The sys­tem has been adopted by a grow­ing num­ber of peo­ple around the world in just the last two years. Peo­ple are used to cur­ren­cies not backed by any­thing, so I guess I shouldn’t be sur­prised, but I am. On the other paw, unlike gov­ern­ment cur­rency, the Bit­coin sys­tem is based on a decen­tral­ized com­puter sys­tem that no sin­gle per­son or entity — includ­ing any gov­ern­ment — has con­trol over. That’s part of a design to keep the num­ber of Bit­coins in cir­cu­la­tion (infla­tion) strictly in check. So I can see why some peo­ple would see Bit­coin as being just like gov­ern­ment cur­rency, but bet­ter, because it’s sup­pos­edly inflation-proof.

That’s the idea, any­way, but in my view, it’s still not money — no more than unbacked gov­ern­ment promises are. You can only use them among oth­ers will­ing to pio­neer this cyber-frontier, so I really was quite sur­prised to see them catch on as well as they have. I’ve seen esti­mates that the mar­ket value of Bit­coins in cir­cu­la­tion rose to about $130 mil­lion before they crashed last weekend.

Doug: Again, it’s quite encour­ag­ing to see that so many peo­ple are so dis­gusted with gov­ern­ment cur­ren­cies, and the total lack of pri­vacy in bank­ing. That’s why Bit­coin could catch on at all. But let’s go back to basics, and see if Bit­coin qual­i­fies as money. Money is a medium of exchange and a store of value. Bit­coin may work as a medium of exchange some­times, but not a very good one, because it’s prov­ing so unsta­ble. It has fluc­tu­ated so much in value over its short life that it is totally unsuit­able as a store of value. Over 2,300 years ago, Aris­to­tle iden­ti­fied the five essen­tial attrib­utes that are nec­es­sary for a good money…

L: It has to be durable, divis­i­ble, con­ve­nient, con­sis­tent, and have value in itself. But don’t for­get your own adden­dum of “can’t be cre­ated out of thin air infinitely.”

Doug: Right. Let’s see how Bit­coin stacks up. First, is it durable? As noth­ing more than ones and zeros on a com­puter net­work, it might seem that the answer is no — it’s cer­tainly not as sub­stan­tial as gold. But a Bit­coin is arguably a lot more durable than a piece of government-issued paper than can be lost, burned, or even fall apart in your jeans pocket if you for­get to take it out before doing the laun­dry. More­over, since the Inter­net was designed to be mul­ti­ply redun­dant, and even able to with­stand nuclear attack, it’s arguable the Bits won’t just disappear.

L: We should point out that the recent prob­lem with a bunch of user­names and accounts being exposed was not a fail­ure of the Bit­coin sys­tem itself, but appar­ently of the phys­i­cal secu­rity of an inter­me­di­ary busi­ness that inter­faces between the pub­lic and Bit­coin. There’s another attack put together by hack­ers, not try­ing to crack the integrity of the Bit­coins them­selves, but to get arti­fi­cially paid by the Bit­coin sys­tem for doing com­pu­ta­tional work. Some­one has also released a virus aimed at steal­ing users’ Bit­coin account information.

Doug: Yes, these are all seri­ous attacks, and there are likely to be oth­ers. But it remains to be seen if Bit­coin will sur­vive the crash in value last week­end — Bit­coins had been trad­ing as high as $30 each and dropped to $0.01 at one point. Since Bit­coins rest on noth­ing but con­fi­dence, it’s going to be hard to restore that con­fi­dence now that it’s lost. But it’s inter­est­ing that the Bit­coins them­selves have proven quite resis­tant to tam­per­ing. In short, they’ve shown sig­nif­i­cant dura­bil­ity. So they pass that criterion.

L: Okay. Divisible?

Doug: No prob­lem there; they’re elec­tronic ledger entries, so they can be divided and sub­di­vided as many times as you like.

L: What about con­ve­nience? You can’t spend Bit­coins at a gas sta­tion or a vil­lage in Africa.

Doug: Don’t be so sure. More and more peo­ple are on the Inter­net these days. We’ve both seen vil­lagers in Africa with smart phones. It won’t be long before most every­body has one. Any­one with Inter­net access can arguably deal in Bit­coins, so they could poten­tially be very con­ve­nient to use. That’s a lot more peo­ple than the num­ber who will take, say, Russ­ian rubles, Zam­bian kwacha, or Viet­namese dong.

And Bit­coins are cer­tainly con­sis­tent; each one has iden­ti­cal properties.

L: Do they have value in themselves?

Doug: There’s the rub; I don’t see that they do. Bit­coins are just an elec­tronic abstrac­tion. They can’t be used for any­thing else, nor are they made of some­thing that can be used for any­thing else. They are like one of those knots in a string that dis­ap­pear if you pull hard enough on the ends of the string. They are not backed by any­thing at all. Like gov­ern­ment fiat cur­ren­cies, they are a con game, func­tion­ing only as long as peo­ple have con­fi­dence in them, regard­less of whether that con­fi­dence is well placed or not.

I’ve always said that the dol­lar is an “I owe you noth­ing,” and that the euro is a “Who owes you noth­ing.” With Bit­coins — which no indi­vid­ual can be held account­able for and which have no value in them­selves — I’d have to say they are a “No one owes you any­thing.” It was inevitable, there­fore, that the scheme would col­lapse… at least in its present form.

Their main value seems to have been as a spec­u­la­tive medium. Worse, actu­ally, in that they are — or were — based on find­ing a “greater fool” to pass them on to, for some­thing of value. The bub­ble in Bit­coins is, how­ever, just one of many to come as peo­ple try to get out of paper cur­ren­cies in the years to come. With the bub­ble that arose in tulip bulbs in 17th cen­tury Hol­land, you might at least have wound up with a flower. This time, peo­ple just got stung. The mes­sage is clear: Get used to bub­bles, as gov­ern­ments print up more and more fiat money.

Bit­coin reminds me of the so-called “barter cur­ren­cies” peo­ple tried to start in the U.S. some time ago, sup­pos­edly trad­ing units of “barter.” Peo­ple traded chits, where a bar­ber might charge ten for a hair­cut, and a lawyer 100 for an hour of coun­sel. But they were just another paper cur­rency, based on con­fi­dence. And, when you’re deal­ing with total strangers, con­fi­dence is hard to come by…

L: Sounds like a con­tra­dic­tion; the whole con­cept of barter is trad­ing in goods and ser­vices directly, not via media of exchange.

Doug: Well, barter chits were sup­posed to encour­age trade among those who used them. And they were also a tax dodge, since no offi­cial money changed hands. That was a major incen­tive for using them. But they all dried up and blew away, and the peo­ple who wound up hold­ing them had noth­ing. Sort of like when the Argen­tine peso col­lapsed ten years ago. The provinces decided to set up their own cur­ren­cies, but they weren’t backed by any­thing either, and they all dried up and blew away as well, leav­ing those who held them hold­ing an empty bag.

So, way before the dol­lar value of Bit­coins stepped off a cliff last week­end, I was telling peo­ple who asked me that I didn’t use them and didn’t plan to use them.

Frankly, I can’t see why any­one would, when there’s already an elec­tronic dig­i­tal cur­rency like Bit­coin but backed with gold: Gold­Money. I should dis­close that I’m a small investor in the com­pany. But I have to say that I really do like Gold­Money. It does every­thing Bit­coin does — or did — but is backed by some­thing of real value: gold. That means it’s not just an abstrac­tion, but an actual store of wealth. The ulti­mate proof of that is that you can take deliv­ery of your gold if you want to. With Bit­coin, there’s noth­ing to take deliv­ery of. I don’t under­stand why any­one would use Bit­coin when they can use Gold­Money, which does all the same things but has real backing.

L: Nei­ther do I. I was quite sur­prised to see that the idea had actu­ally caught on. I loathe the gov­ern­ment cur­rency monop­oly as much as any­one, but I wasn’t even tempted to try Bit­coin out, because it wasn’t backed by any­thing. Maybe it’s sim­ply Bitcoin’s case for being inflation-proof. This gets to your adden­dum to Aristotle’s five qual­i­ties: Peo­ple clearly placed great value on Bitcoin’s promise to limit cir­cu­la­tion to a finite num­ber. The per­cep­tion among peo­ple who’ve for­got­ten what money really is — which is most peo­ple — is that money is only a medium of exchange. In this case, the meme that “it’s bet­ter than gov­ern­ment paper” cre­ated enough per­cep­tion of value to keep the things in cir­cu­la­tion — or did until last week­end. Bit­coin looks more like “Bit the Dust” now. But in spite of its prob­lems, do you still seem pleased with the whole Bit­coin experiment.

Doug: I like the fact it’s untrace­able and secret. I like the idea that it was try­ing to be an alter­na­tive to the dol­lar; it’s great to see peo­ple try­ing to get out of the U.S. dol­lar. The dol­lar is a state monop­oly of the worst kind. It’s not only the world’s reserve cur­rency for cen­tral banks, but it’s become the world’s de facto inter­na­tional cur­rency. If you’re Cana­dian or Asian or African or South Amer­i­can and travel abroad, you pretty much need U.S. dol­lars as soon as you leave the bor­ders of your coun­try. Even the euro isn’t much good out­side of the euro­zone. That some­thing like Bit­coin can gain any trac­tion at all is a real — if early — chal­lenge to the supremacy of the U.S. dol­lar. This is quite sig­nif­i­cant. That was prob­a­bly one thing on Sen­a­tor Charles Schumer’s warped lit­tle mind when he referred Bit­coin to the Jus­tice Depart­ment for inves­ti­ga­tion recently. Schumer is always on the wrong side of absolutely everything.

The U.S. dol­lar has actu­ally become a major weapon in the hands of the U.S. gov­ern­ment now. All bank trans­ac­tions go through the U.S. SWIFT sys­tem. Even the Chi­nese and Rus­sians, who have no love for the U.S. gov­ern­ment, have to use dol­lars for inter­na­tional trade. They don’t like it. Mus­lims all around the world are com­ing to feel that they are ene­mies of the United States, so they don’t want to use the dol­lar either. And the more reg­u­la­tions the U.S. puts in place about how money is trans­ferred and used — like FATCA — the harder peo­ple will look for alter­na­tives. The U.S. gov­ern­ment is treat­ing everyone’s dol­lars as its per­sonal prop­erty. They’re becom­ing des­per­ate, and des­per­ate gov­ern­ments are espe­cially dan­ger­ous. This one is start­ing to thrash around like a large, stu­pid dinosaur in its death throes — stay out of its way.

Mohamed Mohatir in Malaysia, fol­low­ing the dic­tates of the Koran, which I under­stand states that only gold and sil­ver should be used as money (the dinar and dirham), actu­ally made moves towards estab­lish­ing a new gold stan­dard. He tried to get other Islamic gov­ern­ments to buy into it, and cut the dol­lar out of their inter­na­tional trade. But most of those gov­ern­ments — then as now, although things may be chang­ing — are both U.S. stooges and klep­toc­ra­cies, so they weren’t inter­ested in hon­est money.

There’s huge and grow­ing appetite around the world for alter­na­tives to the dol­lar. Bit­coin is a beta ver­sion of what’s com­ing in the post-dollar world. Gold­Money, how­ever, is already a proven ver­sion 2.0.

L: So … Invest­ment implications?

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