Yesterday Aussie raised their key interest rate, which is the 1st among G20 countries. Everybody thinks US and other countries will follow. Was that a good decision? I do not think so. Shortly after the great depression, in fact markets did rally quite a bit, but then people started worrying about dollar and started tightening the money supply. In my opinion, that's actually the reason for the Great Depression not the initial reason.
We are facing the exact same problem right now. The initial problem was sub-prime / credit crisis / real estate bubble etc, but we're at the exact same place where we're asking ourselves 'too much money flowing'?
I'm a big fan of Ben Bernanke, the fed chairman. He's an expert on how we could have avoided the Great Depression. So far he's done a great job. It could have been better, but I'm sure everybody agrees we could have been a lot worse than now. I hated Alan Greenspan, the former fed chairman. I think he caused all the problems to bypass dot-com bubble.
If Bernanke is smart enough he shouldn't raise the rate so soon. We're at a record high deficit, but for example, 1 million dollar in savings now probably is 1/10 of the purchasing power in 30 years, so it may not be as bad as it sounds in terms of the deficit.
In addition, real-estate markets haven't been improved at all. People keep asking what they should do between short-sale and foreclosures, loan default, getting rid of 2nd home, credit card settlement etc. Sure stocks lead 6 month ahead of economy. If that's the case, why people still face the record high foreclosure? Why did Chase bank cut my credit card line from $30K to $1500 without any reason.
I understand why people buy gold. But what I keep my eyes on is bonds. With all the inflation worries, why bonds is around 120? I hope policy makers get clues from there.
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