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Bernanke Faces Stiff Headwinds


-- Posted 31 January, 2006 | |

BALTIMORE, MD - Tonight, the world’s media will be swept away by the president’s State of the Union address. However, the real story will be taking place a few blocks away at 20th Street and Constitution Ave.

Today marks the end of Alan Greenspan’s 18-year commission at the helm of the Federal Reserve. What’s in store for his successor, former landlubber Ben Bernanke?

“Stiff headwinds,” says Addison Wiggin, editorial director of The Daily Reckoning and co-author of the current New York Times bestseller Empire of Debt.

Following the Age of Greenspan, the U.S. faces five major economic trends. “We might call them ‘the five big E’s’,” says Wiggin. He explains them:

1. Energy is no longer cheap. Known reserves of oil and natural gas – the lifeblood of the American economy - may have already peaked.

2. The Exodus of wealth continues from West to East. The U.S. trade balance is running at a negative $60 billion per month. That money ends up paying foreign-based suppliers and foreign-based workers - notably in Asia. In America, meanwhile, the jobs that are left show little or no wage growth.

3. The U.S. Empire is peaking out, too. The Federal debt has already reached $8.2 trillion with little financial restraint being exhibited in Washington.

4. And the Grand Experiment with paper money is running its inevitable course. Bernanke’s biggest challenge is the challenge of central banking itself: You can control some things, but not everything. In the Fed’s case, it can control the quantity of money or the quality of it, but not both at the same time. Having vastly increased the quantity during the Greenspan years, Ben Bernanke is going to be plagued by quality issues. The dollar lost half its purchasing power during Greenspan’s reign.

5. The old Economic cycle. For nearly a quarter of a century credit expanded, asset prices rose, and bond yields fell. The rich got richer; the poor went further into debt, and everyone was happy. Now that interest rates are rising, the cycle will come around again.

For more from Addison Wiggin, see

Addison Wiggin is editorial director and publisher of The Daily Reckoning. He is also the co-author, along with Bill Bonner, of the recently released New York Times bestseller, Empire of Debt: The Rise of an Epic Financial Crisis. The Daily Reckoning weaves information about the financial world, investing and everyday life into an educational and entertaining format that has been engaging readers since 1999.


-- Posted 31 January, 2006 | |

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