FYI | Jan 12 2007
By Rudi Filapek-Vandyck
Investment U chairman Dr Mark Skousen recently attended the American Economic Association meetings in Chicago, where he was fortunate enough to have lunch with Fed chairman Ben Bernanke.
As Skousen writes in the Investment U newsletter this week, Bernanke spoke at the luncheon on the topic of Central Banking and Bank Supervision in the United States. As one would have expected, he wouldn’t take questions about current Fed policy or US interest rates.
Skousen reports terms such as “crisis”, “risk”, “panic”, “threats” and “stress” figured prominently in Bernanke’s speech. In fact, on Skousen’s calculations these terms were mentioned 36 times by the Fed chairman. It led him to the conclusion that the Fed sees enough reasons to worry about the future outlook.
(No prices for guessing the Fed’s main focus of concern: the US housing sector).
At the event Bernanke revealed the US Federal Reserve has set up a “crisis center” to, in Skousen’s words, handle potential global financial problems – to anticipate them, and to deal with them if they occur.
This, obviously, poses the question what kind of financial problems the Fed is thinking about.
According to Skousen’s report, there are few standout concerns that may need addressing at any given stage, such as:
– A US dollar crisis, like the one Paul Volcker suggested in the early 2000s.
– A non-US dollar currency crisis in Asia, Europe or Latin America (shades of the 1997 Asian currency crisis).
– The aforementioned US housing crash.
– A major terrorist attack on a financial center, such as New York, London or Tokyo.
– And the always present sharp rise in inflation (though the current slump in spot crude oil prices must come as a genuine relief).
In case any of these scenarios would occur the Fed could respond by buying government bonds, providing overdrafts and other short-term credits to banks, currency swaps (to boost the US dollar’s value), and "securities lending," that is, lending money to institutions to buy stocks.
Skousen suggests each investor should draw conclusions from this and have his/her own form of “financial crisis center”.
Skousen: “Invest in some gold and silver coins, commodity ETFs and mutual funds and cash. But don’t go overboard. Insurance is worth having, but too much insurance is costly and unnecessary. Currently, I’m recommending that you invest no more than 10% in natural resources.”