The Bulldog Reports: Bernanke's Beard Points to Gold - source PicksThatMove.com

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Federal Reserve Chairman Ben Bernanke is a wise man. Unlike his predecessor, he doesn’t ramble on cryptically or delude himself with fantasies about female libertarian ideologues. Mr. Bernanke is pragmatist and gets things done, or at least he tries. Speaking before the House Budget Committee yesterday morning he made it clear that while the US economy will continue to grow and that slipping into a double dip recession is unlikely, economic recovery will not be enough to fix the job market or cut the government’s bloated deficit. In short, the Chairman of the Federal Reserve is calling for policy action (which is out of his mandated hands) and pointed to the situation in Europe’s Club Med as reason enough for Senators, Congressmen and the White House to reign in the debt.

Senators have listened to sober warnings from Mr. Bernanke all year, as he’s dragged his well trimmed beard to committee after committee, warning again and again that current budget deficits aren’t sustainable and that spending must be curtailed. Comrade Obama doesn’t appear to be listening though, nor his cronies in the Legislative House. His proposed 2011 budget deficit rings to the tune of $1.6 trillion, or 10.6% of GDP, the highest since World War II.

Many economists (and who doesn’t trust an economist these days) claim that US debt levels put the world’s largest economy in a position worse than the doom swaddled Europeans. How can that be? How can anyone with Greece on its lot have a better balance sheet than the US?
First of all, when discussing debt, sheer numbers are about as useless as Charlie Sheen at a parent-teacher interview. For example, someone worth $10 million with $500,000 in debt is in very different financial standing than someone worth $200,000 with $75,000 in the hole. As such, debt is best viewed proportional to earnings, or in the case of countries, a percentage of GDP.

When you amalgamate Greece’s debt (which by itself represents 122% of its GDP) with that of its negligent parent body, the Euro Zone, the resulting debt level represents 93% of the continent’s total GDP. By contrast, despite all the media’s squawking about Greece, the American Government’s debt is expected to reach 100% of national GDP by 2011. At those levels, we’d only be beat by the Japanese with their fat bellied sumo debt pushing 200% of their GDP. Ominous indeed.

So how can you make money off the US Government’s reckless spending and seeming inability to payback what it owes? First of all my guess is Washington won’t listen to Mr. Bernanke anytime soon and politicians will continue to borrow in hopes of stimulating the economy. America’s debt will climb higher and interest rate will become almost insurmountable. Once the chicken coop in Europe calms down, attention will turn back to US debt and the Greenback will face increasing scrutiny. Let’s not forget, investors aren’t buying up the dollar because it’s looking prime, they’re buying it because the Euro looks like a lit stick of dynamite. The safest thing in the world is still gold, and will be for awhile. It’s going to go up, up, up, and traders shouldn’t even think about getting out until it hits $2000 an ounce. Thanks Mr. Bernanke, at least you tried.

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