The BIG health care problem that could be costing you hundreds of dollars a year

From Dr. David Eifrig in Retirement Millionaire:
Medicine is big business. The hope that Obama or any group can change it magically and turn it into a quiet garden where perfect vegetables and fruits are grown and freely shared in the town square is wishful thinking.
An article in Smart Money magazine shows how costs are going up dramatically as local hospitals increase their market share of delivering health care. The story described the "acquisition spree that's in full swing," and how hospitals buying up independent physician practices around the country are leading to higher costs and headaches.
For example, a stress test done by an independent cardiologist in Milwaukee is $170 - but $240 at the local hospital, Aurora Health Care. Or a sleep study performed in Orlando, Florida: $780 versus $1,140. The list goes on.
The other problem with big business taking over is that no one is measuring the outcomes of the care delivered. And they won't because of the clear conflict of interest. For-profit hospitals are in business to make money, not worry about good care. And that's leading to exploding prices for things... and worsening care.
For example, in Springfield, Illinois, an exam for strep throat might cost $400. Yet an independent pediatrician in Chapel Hill charges only $12 for the rapid strep test - the deciding factor whether to treat or not treat with antibiotics.
This sort of pricing doesn't make sense. How much is the doctor's technique of swabbing the throat worth to society? And the power to prescribe medicine? Let's be generous and say the exam takes 10 minutes (really, it's more like two minutes).
If a doctor's practice is going to make $200,000 a year, it needs to charge $100 an hour - about $16 for the 10-minute exam. Even if we double it ($32) for 50% overhead, and add the cost of the test, the practice could justify a $50 charge. But $400?
We're letting large hospitals and corporate arms of insurers share in the fees for imaging exams, diagnostic analyses, and other pools of money that doctors once owned. Letting big government shift the money from local doctors to big corporations is a tactic that won't improve your health care. Please don't trust new government programming to make your health care any better. It won't, it's impossible when the goals are this misaligned.
Crux Note: Each issue of Dr. David Eifrig's Retirement Millionaire is loaded with ideas to help you save money, invest wisely, and live better... and it just might save your life. In his latest issue, Doc tells readers why its time to fire their doctors, and what to do instead. To learn more about Retirement Millionaire, click here.
More on healthcare:
Protect yourself from this common and deadly cancer
These could be the No. 1 "safe haven" stocks for the next few months
Move over food and energy: Another widely used product is rocketing to 10-year highs...
View the original article here

How the dollar could bring down EVERYTHING

From OfTwoMinds.com:
... [T]he risk trade is merrily bubbling away: global equities are melting higher, along with gold/silver, oil, seaweed futures, 'roo bellies, and everything else except the U.S. dollar, which is universally declared doomed.
Something about the complete correlation of all these markets and asset classes bothers me, as does the absolute consensus that the U.S. dollar has only one possible future: down.
Doesn't anyone else sense a disturbance in The Force when 'roo belly futures, coffee, quatloos, gold, Indonesian lumber, German bank stocks, bat guano, etc. all rise in lockstep together? I mean, come on, folks -- this is all one trade.
There is only one object of scorn on the other side of this global trade: the universally hated and loathed U.S. dollar...
Read full article...
More on the U.S. dollar:
This could be the day the dollar falls apart
Jim Rogers: "We're at a moment of truth for the dollar"
This chart could be the key to the dollar's next big move
View the original article here

Fifteen mining stocks set for a big rebound

From The TSI Trader:
Gold topped a couple weeks ago, on March 7 to be specific, and closed this past week just 2.1% below the all-time high reached on that day.
Silver also topped on March 7th and closed this week just 4.8% below the historic intraday high reached at 36.75 on March 7.
That gold and silver have consolidated within literally a few percentage points of their all-time highs, given the news events of the past two weeks, speaks volumes as to their relative strength and ability to withstand tremendous selling pressure.
When the selling pressures of forced liquidations, margin calls, and downright emotional panic lift in the very near future, I have no doubt that gold and silver will break out and quickly make new all-time highs.
But what about the gold and silver miners? Are they, too, within just a few percentage points of their March 7 high?
The answer is that a few are... very few, in fact. And within this fact, lies a wonderful opportunity for an investor to get positioned ahead of the crowd before gold and silver break to new highs.
The purpose of this post is simple...
Read full article...
More on mining stocks:
Doug Casey: Get ready for the junior gold mania
This silver miner could be starting a monumental rally
An incredible development is taking place in gold mining stocks
View the original article here

Analyst: The dollar crash has officially begun

From The TSI Trader:
The U.S. Dollar is falling apart fast. Really fast. Two days ago it completed a failed daily cycle when it traded below 76.12.
Now, literally within this hour, the U.S. Dollar has already failed its yearly cycle by trading below 75.63. The next downside target for the U.S. Dollar would be the three-year cycle low at 70.70.
Can you comprehend what will happen to the price of commodities when people realize that the world's reserve currency is in a precipitous freefall? Who will want to own the currency then?
Who wants to own it now, for that matter? Something like 70% of all new government debt is being purchased by our FED – not the Japanese, or Saudis, or Chinese. We Americans are buying our own debt because no one else wants it.
So what will people buy with dollars to get rid of them?
Read full article...
More on the U.S. dollar:
This could be the day the dollar falls apart
Jim Rogers: "We're at a moment of truth for the dollar"
BREAKDOWN: The U.S. dollar is plunging to new lows for the year
View the original article here

Why the majority of investors miss big market moves

From ValueWalk:

The conventional wisdom is that the market is forward-looking. What investors are trying to figure out is, where are stocks headed? They form an assessment of what they think is going to happen to the economy and that determines what prices they are willing to pay for stocks. As their assessments of future economic developments change, stock prices change with them. The stock price that applies on any particular day reflects the collective assessment of millions of investors placing their bets on where the economy is headed.
This is a plausible explanation of why stock prices change. But there is no hard evidence supporting it. It certainly has never been proven. It is a theory, that's all.
My view is that the evidence all points in a different direction...
Read full article...
More on investing:
On a day like today, don't forget your stop losses
Market guru Montier: The seven immutable laws of investing
Top trader Gartman: The investing mistake you must never, ever make
View the original article here

A new gold standard could be coming faster than anyone expects

By Andrey Dashkov for Casey Research:
Several legislative initiatives caught our attention recently. All of them are related to the monetary role of gold and range from proposals to return to the gold standard, to minting gold and silver as an alternative currency, to having all state transactions carried out in gold and silver coins, to permitting citizens to run their own mints.
Do these proposals signal a significant attitude change among politicians and mainstream economic institutions toward gold? No. They are largely regarded as fringe ideas and dismissed out of hand.
The third link above is written in a condescending tone that implies everyone knows that the gold standard is bad for an economy and it caused the Great Depression. Still, it’s quite telling that opinions that gold can be incorporated into a modern economy are becoming numerous, and actually making it onto the legislative agenda in various jurisdictions.
... Perhaps most telling of all, the world’s central banks were net buyers of gold in 2010 and in 2009, after being net sellers for the previous 20 years. As World Bank President Robert Zoellick said last November, gold has become the "yellow elephant in the room" that needs to be acknowledged by policymakers of major economies.
No one can predict exactly how this will all shake out, but Doug Casey has long said that a return to a gold standard, or some modern equivalent, is...
Read full article...
More on gold:
Gold SHOCKER: Alan Greenspan's stunning admission
Rumors swirling: The U.S. gov't is planning to confiscate gold
An incredible development is taking place in gold mining stocks
View the original article here

How you could retire in 10 years or less

From Financial Mentor:

It doesn't require hitting the lottery or inheriting a windfall from ol' Aunt Myrtle. Similarly, you don't have to become a brilliant investor or possess any unusual skill.
Also, the title claimed "anyone" can do it so the strategy has to be repeatable and predictable. We're talking science - not random luck.
In a word, the answer is...
Read full article...
More on retirement:
One of the best kept secrets of retirement investing
Retirement alert: Five luxuries you could easily afford overseas
Porter Stansberry: How I discovered the world's best money-making secret
View the original article here

Gold and Silver on the Rise!!

Gold and Silver prices continue to rise as the dollar slides downward. Precious metal prices have been soaring as stocks plunged and oil prices bounded toward $100 a barrel in response to continued unrest in the Middle East.

Is Gold the new safe haven currency of the world?
New and seasoned investors are flocking to Gold and Silver as a safe haven investment. To help illustrate the purchasing power of Gold, we’ve created this snapshot of Gold for the past month against three other major world currencies. It’s clear to see that $1.00 invested in Gold not only held its own against these currencies, but even increased in value almost 7% while the other currencies actually LOST value! The long-term outlook for Gold is optimistic with analysts predicting that the price of Gold will continue to rise over the course of the coming years.
Do you want to make your first investment or add to an existing Gold or Silver position? The APMEX precious metal experts have selected some of their favorite products for you. With just the right mixture of popularity and low premium price, this stockpile of bars and rounds should appeal to new and seasoned investors alike. Lock in your prices today!
Silver Bars and Coins

Win A 1 oz Gold Eagle:
Register at APMEX.com Today!

The Project to Restore America...How to Stop The End of America

Porter asked to share this with you.


From the S & A Digest


Here I go again… By now, almost everyone reading the Digest knows we set aside Friday's for me (Porter) to write personally. And though I've rejected the idea that people can teach anything (there is no teaching, only learning) – I can't seem to help myself. If you're tired of suffering through these lessons, you'll be happy to know my impulse to empower our subscribers by showing them a few of the more unpleasant truths about finance has cost me a lot of money.

As I knew they would, my essays about the importance of cash and the one last week about asset allocation (when you buy what) resulted in a torrent of refund demands – about $1 million worth in the last two weeks. So if you got something out of those essays, do me a favor: Buy something. Anything. Preferably something expensive.

 It is a quirk of human nature that most people don't want to learn anything new and react negatively to anyone who challenges their deeply held views (even when they're obviously wrong). You'll know I'm truly a glutton for punishment when you realize the subject of this week's Friday Digest: Our country's severe financial crisis.

Writing about this topic has led to far greater problems than cancellations. I've gotten threatening letters and angry e-mails from folks who seem to believe that pointing out these dangers is tantamount to causing them.

 More than two years ago (December 2008), I first warned in my newsletter that America would eventually lose its world reserve currency status and our debt crisis would lead to a massive inflation. I call this complex series of issues the "End of America." Not because I believe it will lead to the end of our political union (though it might), but because I believe we're heading into a crisis that will be far worse than anyone has yet realized. The crisis will result in a significant decline in our standard of living. These are deadly serious issues and I meant every word I wrote.

Even so, two years ago, lots of folks actually laughed at me – including a few in my own office. Not anymore. If you saw the Wall Street Journal headline yesterday (the "Why the Dollar's Reign is Near an End") or if you saw Sam Zell (the most successful real estate investor of all time) yesterday on CNBC, you know many of the smartest folks in our country take my warning seriously. Said Zell:

My single biggest financial concern is the loss of the dollar as the reserve currency. I can't imagine anything more disastrous to our country… you're already seeing things in the markets that are suggesting that confidence in the dollar is waning… I think you could see a 25% reduction in the standard of living in this country if the U.S. dollar was no longer the world's reserve currency. That's how valuable it is.

 So today, I want to update some key figures of my End of America report. I want you to know where we stand. This is important enough to risk the inevitable criticisms (and refunds). But I want to take one criticism out of play right now. Don't bother writing to complain about my "politics."

This has absolutely nothing to do with politics. This matter is purely about economics. The facts, as you'll see, are completely clear to anyone who bothers to learn them. We are spending way beyond our means – both publicly and privately. Worse, this spending has warped the incentives in our economy, resulting in not only debts we can't afford, but outcomes we don't seek. At the heart of this crisis, there's a knowledge problem. Most Americans don't understand even the most basic facts about our country's financial position, nor do they take the time to consider the likely outcome of poorly structured government programs.

So please, don't write to me about politics. I don't care about the Democrats, Republicans, or even the Tea Partiers. I don't care whose "fault" it is, because these debts belong to all of us. I care about the people who live in America… people who are going to be wiped out because of feckless leadership and genuine ignorance. I can't do anything about our leadership – that's up to you. I can try to do something about the ignorance.

 In our search for facts and solid financial thinking, let's start with Warren Buffett, who is neither feckless nor stupid. Buffett is the world's best investor. He got that way primarily by figuring out how to correctly value equities and allocate assets… and because he learned one of the most valuable financial secrets in modern finance: why insurance companies are so valuable. (Hint: It's the float. But that's a discussion for another day.)

Buffett has become a sort of "rich uncle" to America, giving helpful advice about financial matters. And he recently said something that struck me as profound – something I'd wager almost everyone else ignored. Buffett explained why the buyers of his mobile homes (Clayton Homes) default at rates (1.86%) much lower than the national average for homebuilders (more than 25%). That's true, even though the buyers of his mobile homes typically have low incomes, less job stability, and lower credit scores than the buyers of conventional housing. If you read nothing else in today's Digest, please pay attention to what Buffett says here:

Our borrowers get in trouble when they lose their jobs, have health problems, get divorced, etc. The recession has hit them hard. But they want to stay in their homes, and generally they borrowed sensible amounts in relation to their income. In addition, we were keeping the originated mortgages for our own account, which means we were not securitizing or otherwise reselling them. If we were stupid in our lending, we were going to pay the price. That concentrates the mind. If homebuyers throughout the country had behaved like our buyers, America would not have had the crisis that it did. Our approach was simply to get a meaningful down payment and gear fixed monthly payments to a sensible percentage of income. This policy kept Clayton solvent and also kept buyers in their homes…  … A house can be a nightmare if the buyer's eyes are bigger than his wallet and if a lender – often protected by a government guarantee – facilitates his fantasy. Our country's social goal should not be to put families into the house of their dreams, but rather to put them into a house they can afford.

Pretty simple, eh? Don't sell houses to folks who can't afford them. And make sure both the lender (who kept the note) and the borrower (who made a down payment – equity) have plenty of "skin in the game."

You don't want to create any incentive for the deal to go bad. You want both parties to have a powerful incentive to do what they've promised. After ignorance, almost all our country's core problems come back to these same issues: a lack of equity and poorly designed incentives. Remember these concepts. You'll see them again: skin in the game (equity) and properly designed incentives.

  Let me take on the toughest problem first: Medicare/Medicaid. Since the government established this program in 1965, it has amassed a $5.6 trillion deficit. This program alone accounts for 40% of our government's total debt. If you could erase these debts, our most recent two foreign wars (Iraq/Afghanistan), and the losses associated with the recent financial crisis, you could eliminate more than half our entire federal debt – a debt threatening to destroy our way of life.

Whether you'd choose to eliminate these debts by eliminating these programs is a political question. I'm not going to discuss politics here. The point I'm trying to make is, regardless of what you'd choose, we have to make a choice. We can't afford to do all of these things.

Like the subprime buyers in the housing bubble, we've bought a government we cannot afford. That's a simple fact. It should be obvious to any thinking person that when government spending makes up 45% of GDP (as it does today) and there's one government employee for every six households, something has gone terribly wrong with America.

 When my parents were born, America was still the land of the free. The incentives people faced were different. Before World War II, the federal government made up only 3% of GDP. It didn't provide health care. People had to maintain their health, as best they could. People didn't depend on Ponzi finance (Social Security) for their old age – they had to save. They had to take care of their families and help take care of the unfortunate in their communities.

We didn't spend a lot on the military, either… which gave us an incentive to mind our own business. In fact, back then, our presidents promised to keep us out of foreign wars. Both Wilson and Roosevelt came to power promising to keep us out of the war in Europe. They lied. Almost every other president since has sent our boys to die for others wherever they could. War is good for business… and good for the government.

 Lots of people reading this e-mail will say, "I don't want to live in a country like that, where the government doesn't provide a social safety net." Other readers might say, "I don't want America to be 'isolationist.' We need more troops overseas to fight terrorism." OK… So maybe 3% of GDP is not enough for the government we will choose. But 45% of GDP is much too large – again that's not a political choice; we simply cannot afford it.

So how then will we decide? My suggestion: Pay more attention to incentives. And demand much more equity from the voters.

 Here are some interesting facts:

In 1965 – when Congress created Medicare/Medicaid and greatly expanded the federal government's role in health care – about 13% of Americans were obese. Today, 32% of Americans are obese.

Before the government enacted Social Security, Americans typically saved between 15% and 20% of their incomes. Today? Almost nothing. In fact, for many years, the savings rate in America was actually negative.

Before the Great Depression, there wasn't any government unemployment insurance. Not surprisingly, there was almost zero long-term unemployment.

One more interesting fact… the U.S. didn't experience a Great Depression until the Federal Reserve was created. The main purpose of the Federal Reserve is to ensure that banks don't fail. Sounds good. But it provides a perverse incentive for banks to act recklessly, which causes bigger booms and busts – just like the one we're experiencing right now.

 I'm not arguing government spending is the primary cause of any of these problems. But I am saying you'd have to be a fool to believe incentives don't play a big role in human action. Think about why all politicians try to spend more than they collect in taxes. They have a huge incentive to promise more than they can deliver – and to make up the difference by borrowing against future taxes or printing more money.

The problems created by the perverse incentives of collectivist actions are well known. They are as old as the ideas themselves. They explain why socialism and communism always lead to failure. And yet… we seem eager to pursue these policies in an almost mindless pursuit of bankruptcy. Why? That's not hard to figure out either.

 What's the No. 1 reason people make bad decisions? They don't have to suffer the consequences. Which investors made worse decisions during the mortgage bubble? Was it the private hedge-fund managers, whose entire net worth was made up of the assets in their own funds and whose friends and families had invested alongside them? Or was it the senior managers of publicly owned banks, whose creditors were protected by the federal government and who owned little of their own company's equity?

That's easy to answer, even if you knew nothing about the financial crisis. Unless people have a stake in the outcome of an event, they are very likely to choose poorly or recklessly.

 The most difficult problem we face today is, far too few Americans have any equity in our government. Less than half of all Americans pay any federal taxes. Don't listen to the nonsense about how almost everyone pays payroll taxes. It's true, but it's irrelevant. Payroll taxes don't come close to covering the costs of the entitlement programs they support.

Cutting government spending will be easy compared to trying to increase the average citizen's equity in government. But we must. People will always demand more from the government until they realize how expensive government solutions really are. And the only way to show them is to share the burdens of government more equally.

 Now, I know what you're thinking… I'm making a political argument to reduce the progressive nature of our tax system. I'm not. I'm pointing out a simple fact: When half the voters don't pay for any of the true costs of the government, your society is going to suffer terrible governance.

A democracy that concentrates the overwhelming burden of government on a tiny minority of the population is no different than an investment bank making bad loans and then selling them to someone else. You can't separate the people making the decisions from the costs and the risks of those decisions. And yet, that's what we've done.

 We've reached a point where we can longer continue on our current path. America spends 800% more than its nearest rival on its military. We spend 200%-300% more per capita on health care than any other similarly wealthy country. Are we safer? Are we healthier? I honestly don't think so.

And even if you believe we are, can we afford it? Here are the simple numbers. Americans now owe $56 trillion in total debt, much of it held by foreign investors. We must spend $3.5 trillion each year on interest. That is already more than the federal government spends, in total. I do not exaggerate when I tell you we cannot afford these debts. We will never be able to repay these debts – already equal to roughly four times our country's GDP. The largest components of the debts we owe are government debts… and they are growing rapidly and show no signs of stopping.

 The only way to stop the debt crisis we face is to reduce the total level of government spending – immediately and permanently. We have to stop giving our citizens improper incentives. We have to increase the "skin" voters have in the game by spreading the burden of government more equally. And most important, we must take away the politicians' ability to debase our currency.

You see… politicians believe, as Dick Cheney famously said, deficits don't matter.They believe these debts can be safely printed away – which is what the Federal Reserve is doing right now.

 How can we accomplish these goals? I believe we need three simple amendments to our Constitution. First, we should have a balanced budget amendment. It's hard to imagine why anyone would object to this, regardless of his politics. Politicians ought not have the right to burden future Americans with debt. It's disgusting that we would leave a burden like this for our children and grandchildren.

 Next, we need a constitutional amendment that ensures sound money. If you tell the politicians they're not allowed to borrow, they'll inflate instead. There is no reason Americans shouldn't enjoy the stability and safety of sound money.

Every argument you'll hear against backing our currency with gold comes from bankers and swindlers who need the ability to be bailed out so they can make risky bets with enormous amounts of borrowed money. Let's put a stop to this, once and for all.

The American government is the world's largest holder of gold. Let's put it to work for us, right away, in the form of sound money.

 Finally… we need a logical way to put a stop to the narrowing of the tax base. Everyone who votes should share in the burdens of government – otherwise the incentive will always exist to vote for more government spending.

I suggest a constitutional amendment limiting tax rates and abolishing all taxes except for income tax. Tax every adult over the age of 65 20% of his income – whatever the source. Give everyone a $24,000 annual personal exemption. Above that, everyone pays. No other deductions. We could get rid of the IRS. You could do your taxes on a post card. How much did you make? Send the government 20% of it.

Why do I think 20% is the right rate? The church has always asked for 10%. Surely the government can survive on twice what God needs. And… we should word the constitutional amendment to make clear our intentions: Every U.S. citizen has the right to keep 80% of his income. Let the feds and the states fight over your tax dollars. Remember, your assets and income are part and parcel of your freedom. A man cannot have his liberty without his property and the right to his wages.

 By the way, the U.S. Constitution already decrees all citizens should be equal under the law. Making the tax code truly equal will merely be living up to the obligations our Constitution is already placing on the government. Likewise, the Constitution says Congress shall have the right to coin money. It says nothing about printing or the Federal Reserve.

And finally… the founding fathers of our country once rebelled over a 2% tax on sugar, and they expressly forbid income taxes in their Constitution. Can you imagine what they would think of marginal income tax rates in excess of 50% on people in certain states? These new amendments I'm suggesting aren't really new at all: They're simply a return, a restoration, of the real America – the greatest country in history.

 If you like these ideas… please share this Digest. I'm sure it would be difficult to get these amendments passed. But if things in America get as bad as I think they're going to, maybe people would be willing to rethink our government's structure.

Sooner or later we have to learn to live within our means. Sooner or later, a preference for sound money will appear because inflation will have destroyed our currency. And sooner or later, the idea that you can live at the expense of your neighbor (through progressive taxation) will lead to a collapse. My preference would be to learn these lessons sooner, so the pain of this transition can be minimized.

 I'm interested in organizing a conference about these ideas… maybe call it The Project to Restore America. I'd host it personally (and invest heavily in this effort). I don't know where yet… but I know when – sometime later this year. My goal will be to get as many well-known people as I can to endorse these ideas and speak about them in public at the conference. I'll try to lure my friends in the media (I have a few) to join with us… plus business leaders… plus regular folks across America.

If we want the government to listen to us… we have to start talking with one, unified and loud voice. I've got a pretty loud microphone here with my publishing company, but I can't do it alone. I need your help. Please pass this Digest around to folks who you think will be willing to read it. And if you want to get involved, please get in touch and tell me how you can help.

 If you're interested in these ideas and want to keep up with my efforts, just sign up for a dedicated e-mail list. I'll keep you up to date on what's happening with The Project. And please, get in touch with me if you want to be an active supporter. Again, please pass this e-mail around to folks who you believe would be interested in these ideas and interested in backing The Project to Restore America. Click here to have your e-mail address automatically added to the list.

(Just to be clear, I will not sell or rent your name to anyone else. And I will only use this list to promote The Project to Restore America.)

Six world-class stocks that could pay larger and larger dividends for decades

From Dividend Monk:

When building a dividend-growth portfolio, finding high-quality companies that will continue paying larger and larger dividends for decades rather than just the next few years is important. The longer you can hold onto shares of a company, the lower your trading costs and taxes will be compared to what they would be if you trade often.
But this is only a good strategy if the companies you hold onto continue growing shareholder value.
So the key is to look for companies that, among other things:
a) Have a large and sustainable competitive advantage.
b) Are in an industry that is timeless, or nearly so.
c) Are in a solid financial position.
Here are six sample companies... JNJ, LOW, MCD, WMT, MDT, CVX
Read full article...
More on dividend stocks:
These stocks are an income investor's dream
This list of top stocks for 2011 has something for everyone

Four criteria the world's greatest dividend stocks have in common
View the original article here

Inflation HORROR: "Helicopter Ben" Bernanke says more "quantitative easing" likely

Federal Reserve Chairman Ben S. Bernanke didn't rule out expanding the central bank's asset purchases aimed at stimulating the economy, saying he doesn't want to see the U.S. relapse into a recession.
Asked at a House Financial Services Committee hearing today what conditions would warrant a third round of so-called quantitative easing, Bernanke said that "what we'd like to see is a sustainable recovery. We don't want to see the economy falling back into a double dip or to a stall-out."
Bernanke's testimony today and yesterday signaled that he will keep the Fed on course to complete $600 billion of Treasury purchases through June under the second round of quantitative easing, a policy criticized by Republican lawmakers as risking an inflation surge. He's avoided saying what the central bank may do after that.
A third round of purchases "has to be a decision" of the Federal Open Market Committee, and "it depends again on our mandate" for stable prices and maximum employment, Bernanke said in response to Texas Representative Jeb Hensarling, the House panel's vice chairman and a critic of QE2.
"We're looking very closely at inflation both in terms of too low and too high," Bernanke said during the second day of semiannual testimony on monetary policy. "I want to be sure that you understand that I am very attentive to inflation and potential risks for inflation. That will certainly be a major consideration as we look to determine how to manage this policy."
Beige Book
Separately today, the Fed said in its regional Beige Book survey that the labor market improved throughout the country early this year, driven by increasing retail sales and "solid growth" in manufacturing.
Overall, the economy "continued to expand at a modest to moderate pace," the central bank said in Washington. Eleven of the Fed's 12 regional banks, including San Francisco and Philadelphia, described their regions as expanding, improving or experiencing moderate growth. Only Chicago reported growth "at a pace not quite as strong" as before.
The Standard & Poor's 500 Index rose 0.4% to 1,311.66 at 2:45 p.m. in New York after climbing 0.6% earlier.
Treasuries declined after a report earlier today showed the pace of employment growth is picking up before the Labor Department issues February jobs data March 4. The yield on the 10-year Treasury note rose to 3.46% from 3.39% yesterday.
'Extended Period'
Responding to a question from Representative Nydia Velazquez, a New York Democrat, Bernanke said the Fed's policy of keeping its benchmark rate near zero for an "extended period" helps provide support to the economy, "which in our judgment, it still needs."
"The economy's recovery is not firmly established, and we think monetary policy needs to be supportive," he said.
The second round of bond buying follows a $1.7 trillion first round of purchases of mortgage-backed debt and Treasuries.
Since August, when Bernanke signaled the Fed might buy securities to stimulate the economy, "downside risks to the recovery have receded, and the risk of deflation has become negligible," he said in testimony this week.
Many of the questions Bernanke fielded dealt with the outlook for the federal budget deficit, giving the Fed chief an opportunity to reiterate his call for Congress to come up with a long-term plan for reining in the national debt. Bernanke's statements resonated especially with House Republican lawmakers. The House passed a bill last month cutting $61 billion from 2011 government spending.
Debt, Deficit
"QE2 has given us some opportunity to act on our debt and deficit, and we have not taken advantage of that," panel Chairman Spencer Bachus, an Alabama Republican, said during today's hearing. "Any criticism directed at the chairman, you need to also sort of point that finger back at yourselves."
Bernanke got caught up in a debate over the extent to which House spending cuts would result in job losses. He told lawmakers the reductions may lead to about 200,000 fewer jobs over the next couple of years. That compares with the prediction of Mark Zandi, chief economist at Moody's Analytics, that the budget reductions would mean 700,000 fewer jobs in the U.S. by the end of 2012.
Last week, the Commerce Department reduced its estimate of fourth-quarter growth to a 2.8% annual pace. Consumer purchases rose at a 4.1% pace, the most since the same three months in 2006, compared with a 4.4% rate originally estimated.
Closely Monitor
Inflation is likely to remain low through 2013, Bernanke, 57, a former Princeton University economist, said in Senate testimony yesterday.
"We will continue to monitor these developments closely and are prepared to respond as necessary to best support the ongoing recovery in a context of price stability," he said.
At the same time, the labor market "has improved only slowly," and it may take "several years" for the unemployment rate to reach a "more normal level," he said. "The housing sector remains exceptionally weak," and "slow wage growth" is keeping labor costs in check, he said.
A report yesterday showed U.S. manufacturing accelerated in February to the fastest pace since May 2004. The Tempe, Arizona- based Institute for Supply Management's factory index increased to 61.4 from 60.8 a month earlier. Readings greater than 50 signal growth.
The Fed's preferred price gauge, which excludes food and fuel, rose 0.8% in January from a year earlier, matching December's year-over-year gain, the lowest in five decades of record-keeping. Fed officials aim for long-run overall inflation of 1.6% to 2%.
View the original article here