What exactly Bernanke aims? and what Americans want?

[xi]

My comment: Few days ago I posted the four scenarios that US economic
authorities might aim (1) being realistic and reasonable. For recap:

Scenario 1.- Hyperinflation.
Scenario 2.- A new normal.
Scenario 3.- Double dipp.
Scenario 4.- US economy has already reached a new normal. American
version of the Japanese lost decade.

I cannot say which one is better, but I can say which one is the
worst: the fourth one. It means a ridiculous GDP growth (if any), low
interest rates to borrow at home and then to invest abroad, an economy
based on investments abroad (it makes sense only in a country such as
Japan where most householders got lots of savings).

It means to turn each American into a banker who makes life lending to
foreigners. But it makes sense only for those Americans who have huge
savings (a tiny fraction of all Americans), how will the rest
survive?

In that scenario, most Americans will not have a job, either because
they are hyperwealthy and they make their life lending others or
because they simply cannot find a job to survive. That scenario
requires a strong foreign trade account (it is not the case of US
economy) based on an economy oriented to exports and/or minimal
imports. And many other requirements that US economy does not meet and
nobody foresee that it can meet along next decades.

I can understand that US economy keep low interest rates for several
months till economy becomes robust enough and then they take exit
measures, even up to one year. It is a very reasonable bet, maybe one
year is too risky, I cannot answer now. The global economy flows and
US economy could and should take advantage of it to avoid risks. Why
to aim less than that? Even while it means to face hyperinflation as a
high potential risk.

Or, if they pursue lower risks, they can accept scenario 2, "the new
normal" (much lower standard of of life, but still a life).

What Bernanke told yesterday (2) seems to be the fourth scenario, to
copy and paste the Japanese economy (that only the hyperwealthy will
be able to afford). Today, through Federal Reserve Bank of St. Louis
President James Bullard, the Fed has repeated and clearified even more
that this is what they plan for US economy (3).

"Federal Reserve Chairman Ben S. Bernanke’s diagnosis of a weak U.S.
economy and labor market signaled that the central bank’s extended
period of low borrowing costs may get even longer." (2) .

And the usual propaganda: "central bank policy will ensure that the
“dollar is strong.”(2) How can they ensure that the US dollar is
strong while the have near zero interest rate? They announce worldwide
that anyone can get US dollars almost for free along next year? Is it
a way to ensure that that the US dollar will be strong? or rather a
way to ensure that the US dollar will be worth less? No way. This
sounds like a joke.

More Bullard says "The Fed’s “main issue” will be how to avoid
spurring inflation". You are proclaiming worldwide that you will not
use any ammunition to fight against inflation, therefore you are
inviting inflation to go to your country and to enjoy a banquet paid
by American householders.

Today we know last data about inflation in USA, 0.3% up (4). I hav to
remind here that, for example in China, CPI is - 0.5% (negative) (5)
in October. Right now, US economy already is one percentage point
worse.

Reply comes in the same article “Bernanke just locked the Fed into an
easy monetary policy, at least in the short term, so any implicit
threat of response to dollar declines simply has zero
credibility.” (2) According to Bullard this short term is longer than
one year (3)

That statements conclude the whole problem: that policy means to lock
the Fed into an easy monetary policy that will be hard or even
impossible to leave in the future because it will destroy the US
economic structure and it will base all profits on financial deals
abroad. Carrytrade is making US capital to flee and making US economy
to starve without credit because all liquidity flees. While this might
be a necesary pain in the short term (a few months) to fight against
recession and to push growth, this policy is devastating if decied as
the future American way of life.

What they implicitely project is a deep third world country where few
hyperwealthy families enjoy a high standard of life investing their
money (or the mony they borrow in USA at low interest rates) abroad
while te rest of the country falls into extreme poverty. I refuse to
believe that this is what Americans want for their own country, it
cannot be true. But I cannot conclude anything else.

Then what?

Peace and best wishes.

Xi

(1) Future potential scenarios for US economy
http://groups.google.com/group/world-thread/browse_thread/thread/8cbb372788f2d498?hl=en#

(2) Bernanke Signals ‘Extended’ Period May Become Longer
http://www.bloomberg.com/apps/news?pid=20601087&sid=a3BlApikRmTY&pos=4

(3) Fed May Not Increase Rates Until 2012, Bullard Says
http://www.bloomberg.com/apps/news?pid=20601087&sid=a6b235jJZM_g&pos=1

(4) Consumer Prices in U.S. Increased 0.3% in October
http://www.bloomberg.com/apps/news?pid=20601087&sid=aRXH1qsx1Dk4&pos=2

(5) China's CPI falls 0.5% in October, decline rate narrows
http://news.xinhuanet.com/english/2009-11/11/content_12430906.htm