Wednesday November 20, 2013 08:24
Although the beginning of tapering is a likely event in the calendar year of 2014, Bernanke reaffirmed that the Fed would keep its benchmark interest rate at or near zero for a long time to come. It continues to suggest to me that the fear of the central banks is a deflationary issue and the goal is to be build wealth through the appreciation of 401k's, aka the stock market, and the housing sector. If the Japanese example of the early 90’s is the premise for the business case, it will likely fail. For 20 years the Japanese economy was in a state of stagflation, with their zero interest rate policy. Without structural reforms on entitlements, this policy will ensure the wealthy get wealthier and a large section of the population who have no discretionary income to invest in the stock market are unable to get loans from balance sheet rich banks. And seniors who rely on interest income will continue to see their standard of living decline. In this scenario, cash becomes king and until the polices create relevant inflation, commodities are second tier choices to those chasing yield.