Is Ben Up To The Job?

This is the question posed by Steve Forbes, Editor-In-Chief of Forbes magazine in the October 15, 2007 edition out today. Here are his comments:

It was fitting and proper for Ben Bernanke to whack interest rates and pump in additional money to prevent the financial system's seizing up. After all, when a patient has a critical heart condition, you first perform open heart surgery or put in stents and then go about getting the patient to cut back on the smoking, drinking and excess eating. First things first.

Now Bernanke must make clear to the markets that during the next 12 to 18 months the Fed will begin to soak up the excess money it created in 2004-05. Otherwise, we'll be facing a debilitating currency crisis. A government that looks as if it won't protect the integrity of its currency will generate panic -- the kind of panic we experienced in 1987. That October we suffered the worst one-day stock market crash in history. Just imagine the Dow losing more than 3,000 points in one session today.

This is why Bernanke must overcome his lifelong prejudice against gold. The yellow metal is the best indicator of money disturbances. If he could bring himself to declare that the Fed will mop up money during the next year to bring down the gold price to under $500 and keep it there -- say in the range of $440 to $460 an ounce -- he would ignite a strong market rally that would make his post-interest-rate-cut rally look very pale indeed. Unless he does, the Fed chairman risks another kind of disaster: a fearful, headlong flight from the dollar -- as well as the concomitant risk of a rout of stocks and bonds.

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