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Ben Bernanke issued a peculiar warning today. Federal Reserve Chairman Ben Bernanke is urging Congress and the Obama administration to start plotting a strategy to curb record-high U.S. budget deficits. Failing to do so could eventually erode investor confidence and endanger the economy's prospects for long-term health, he said. Bernanke's comments, before the House Budget Committee on Wednesday, come as concerns grow at home and overseas about the United States' mounting red ink.

Recently, I have spent a great deal of time analyzing quantitative easing. This is a process that is disintegrating in front of us as the U.S. Treasury bond along with mortgage bonds have been tanking despite the fact that quantitative easing is supposed to do the exact opposite. Quantitative easing tries to accomplish two things: 1)keep interest rates low so that borrowing costs remain low and 2) pump money into the economy so that it filters through the economy and stimulates economic growth.

A couple days back, I wrote this provocative piece about a term called quantitative easing. Quantitative easing is the process by which any central bank, like the Federal Reserve, buys major financial instruments in an attempt to keep interest rates low and to pump money into the economy. I predicted that the Federal Reserve would have to engage in some serious quantitative easing because the Treasury Bonds were tanking and this would shoot up all interest rates. While most of the piece was well done, I failed miserably in one portion. That is this. So, it appears that the Federal...

Since last I left off talking about the 10 year treasury, it has gone up another 35 basis points including 15 just today. Ever since the rumor last week that the U.S. debt might be downgraded, the bottom has fallen out of the Treasury. We have seen it go up from 3.15% last week to just over 3.7% today. Furthermore, over the next couple weeks we are going to several multi billion dollar new auctions as the government continues to borrow. Essentiall, over the last couple days, the market has come to realize that the federal government is going to...

This article from the London Telegraph, written by Nobel laureate in economics Michael Spence, argues that we have reached the turning point in the financial crisis. Before I examine some of Dr. Spence’s points, let me give you the short answer to my title question: It’s still too soon to say.

The tools are in place to get us out of the recession, and could already have been used to good effect. Ideal and Actual Anti-Recession Policy As macro-economies falter and the aggregate demand for labor falls, monetary authorities should automatically expand the money supply so as to quickly restore the original demand for labor and corresponding wage level. Failing to do so invites many workers to erroneously maintain their previous wage demands in the face of a falling aggregate demand for labor and thereby lose their jobs, creating inefficiently low aggregate employment levels. In most cases, achieving the optimal, employment-maintaining,...

A couple days ago, I began reading a piece from the Nation and was totally startled. I was startled because I appeared to be in total agreement with the piece. (given my conservative leanings and the far left leanings of the magazine, that's why I was startled) The piece correctly identified that the Fed has become a serious problem to financial stability. It even correctly pointed out that the Fed's pschzonphrenic interest rate policy has lead directly to economic instability. (over the last ten years no less than four times did the Fed raise or lower rates only to have...

Before I begin my analysis, I want to put the reader into the shoes of Alan Greenspan at the time in question. We have heard ad nauseum that this current economic crisis is the worst since the Great Depression. We have heard it so often that we forget just how dire things were at the beginning of the mlllenia. We entered the millenia with the bubble bursting on the internet revolution. Throughout the nineties, it looked as though our economy would be revolutionized all through the internet, and then all of that was put to an end when the bubble...

Let's go back to the gold standard. If the very idea seems at odds with what is currently happening in our country -- with Congress preparing to pass a massive economic stimulus bill that will push the fiscal deficit to triple the size of last year's record budget gap -- it's because a gold standard stands in the way of runaway government spending. CorbisUnder a gold standard, if people think the paper money printed by government is losing value, they have the right to switch to gold. Fiat money -- i.e., currency with no intrinsic worth that government has decreed...

Just how creditworthy is the United States of America? Right now, in the eyes of the official arbiters of credit grades -- Standard & Poor's and Moody's Investors Service -- Uncle Sam still deserves the highest rating of AAA. But as the government's costs to bail out the economy and the financial system mount, S&P and Moody's in the last month have had to address the unthinkable: whether America might warrant a debt downgrade.

When an economy falls into a depression, governments can try four things to return employment to its normal level and production to its 'potential' level. Call them fiscal policy, credit policy, monetary policy and inflation. Inflation is the most straightforward to explain: The government prints lots of banknotes and spends them. The extra cash in the economy raises prices. As prices rise, people don't want to hold cash in their pockets or their bank accounts - its value is melting away every day - so they step up the pace at which they spend, trying to get their wealth out...

In its extraordinary actions over the past few months, the American government is trying to do the opposite of what it did the last time an economy-wide financial crisis rocked the country. During the Great Depression, policymakers chose to stand by and watch as banks failed and as spooked savers hoarded dollars, gutting spending and investment. The government, instead of expanding money and credit, allowed it—indeed, encouraged it—to vanish from the economy. Scholars, most notably the late Milton Friedman, long ago convinced mainstream economic thinkers that this monetary policy blunder pushed the nation and then the world into a long-term...

Even before President-elect Obama takes office, critics are circling his yet-to-be-released stimulus plan. There is skepticism from both the left and right, but the most emphatic objections come from conservatives, who question the utility of deploying old-fashioned fiscal stimulus—tax rebates/cuts/reductions or government spending—to boost demand and right the economy.

The bank rate has been reduced by 0.5 percentage points to 1.5pc after recent economic data suggested that the UK is in store for a deep recession this year as the house price slide, unemployment rises and spending slows. Economists believe that because the UK is experiencing a significant downturn, with banks unwilling to lend and pass on interest rates cuts in full, the Bank will reduce rates close to zero to try and ease the impact. "The 50 basis point cut at this juncture was appropriate. However, with survey data continuing to languish at record lows - manufacturing and...

The Baby Boom Generation will never be mistaken for the Greatest Generation that survived the Great Depression and defeated evil in a World War that killed 72 million people. I hate to tell you Boomers, but putting a yellow ribbon on the back of your $50,000 SUV is not sacrifice. Our claim to fame is living way beyond our means for the last three decades, to the point where we have virtually bankrupted our capitalist system. Baby Boomers have been occupying the White House for the last sixteen years. The majority of Congress is Baby Boomers. The CEOs and top...

U.S. Rep. Ron Paul, who has been an opponent of the government's bailout plan, spoke Friday with CNN's Kiran Chetry on "American Morning." The Texas Republican says the bailout's infusion of government money will lead to inflation, that our current monetary system is coming to end, and the market, not politicians, can best solve the economic crisis.Kiran Chetry: The last time you were with us you explained why you were against the government's bailout plan, why you were voting against it, and you didn't believe focusing on buying these troubled assets was the smart thing to do. Since then, they've...

Given last week's dramatic events — the bankruptcy of Lehman Brothers, the end of Merrill Lynch's independence, and an $85 billion US-government bailout of insurer AIG — most financial institutions are likely to become more sensitive to the state of their net worth. For instance, all it takes for a financial institution that has a net worth of $30 billion and assets of $600 billion to go under is for the value of assets to fall by 5%. In the current financial climate, it can easily happen; hence, most financial institutions are not immune from the potential threat of going...

Has the Federal Reserve run out of bullets? that implication could be drawn from the recently released minutes of the Fed's last Open Market Committee meeting, during which the federal funds rate was cut from 2.25% to 2%. The Fed hinted that no more rate cuts are in store and that the economic horizon is becoming cloudier. (The reason our central bank can't reduce interest rates further is that the inflation picture is getting uglier.) Stocks tanked on this news. However, the Fed has yet to use its most effective artillery: strengthening the value of the U.S. dollar.

The financial turmoil is like an elephant in a dark room By Martin WolfPublished: January 22 2008 20:02 | Last updated: January 22 2008 20:02 “I was gradually coming to believe that the US economy’s greatest strength was its resiliency – its ability to absorb disruptions and recover, often in ways and at a pace you’d never be able to predict, much less dictate.” Alan Greenspan, ‘The Age of Turbulence’. EDITOR’S CHOICE Economists’ forum - Nov-16 Every week, 50 of the world’s most influential economists discuss Martin Wolf’s articles on FT.com  We all hope that Mr Greenspan proves right...

Our own view is that Mr. Paul's prescience on the dollar is one of the reasons he's showing what the pundits are calling surprising strength on the hustings. [snip] We have a lot of differences with Mr. Paul, but on monetary matters, we've been covering him since his days, in the early 1980s, as a member of the United States Gold Commission, when he coauthored, with New York's own Lewis Lehrman, a minority report favoring a return to a version of the gold standard. What can be said about Mr. Paul is that he's not only ahead of Mr. Bernanke...