Comment on Your Speech
Jude Wanniski
March 11, 2005


From: Jude Wanniski  <        
To:      Ben.S.Bernanke@ * * * * *.GOV                                               
Subject: Comment on your speech
X-Attachments: c:\program files\qualcomm\eudora\attach\China Data.xls;

This is from my colleague Paul Hoffmeister, re your glut of savings speech. I haven't read it yet, but saw the NYT story and thought you are closer to Greenspan in saying there is a "glut of saving" abroad, rather than their being an excess of consumption at home. And I agree it is not something to get alarmed about. China just has to be persuaded to spend more on stuff instead of paper. I've argued for decades that the communist countries had to run up domestic deficits as a means of transferring capital from the state to the private sector.

I hope you read "More Dark Clouds," our client letter, which you should have received along with all our other research.

Do you know Richard Fisher who joins the Dallas Fed in April? I've known him since his years in the Carter Treasury. A very sharp big-picture fellow who is not afraid of gold... in the tradition of McTeer.  



From: "Paul Hoffmeister" <>
To: "Jude Wanniski" <>
Subject: Bernanke
Date: Fri, 11 Mar 2005 13:15:06 -0500


Yes, it seems as though Bernanke is close to the heart of the issue.  There were a couple of things that I especially liked and disliked.

Bernanke seems to look at America as a member of the global economic community.  He understands that the United States' deficit in goods and services is balanced out by its "exports of investments", and argues that the current account deficit is caused by fundamental economic forces specific to each country.

For one, he sees that the United States at the moment is a more attractive investment haven relative to certain developing economies that are running significant surpluses.  Secondly, he argues that a large part of the current account deficit is caused by increased foreign exchange reserves being built up through forex intervention, notably by China.  I've attached a graph which shows a sharp increase in China's foreign exchange reserves once $/gold moved higher at the end of 2001.  Maybe if Bernanke becomes more comfortable with gold, he could see this relationship a little better, and ultimately the need to keep the $/gold price constant?

Furthermore, Bernanke says "the tax & financial systems in the United States and many other countries are designed to promote home ownership".  He seems to be well aware of the enormously beneficial effects of the zero cap gains tax exemption on real estate.

My biggest disappointment was in his conclusion where he casually remarked that, as developing economies grow, they would naturally move toward floating currencies.  Maybe your email "tutorials" can fix this too?