Federal Reserve Chairman Ben Bernanke Tuesday told an audience of teachers in Washington that both individuals and the larger economy could benefit from more and better financial education. I never agreed more than when I learned that hedge fund leader Louis Bacon announced he’d return $2 billion to investors in Moore Capital, an $8 billion fund, because the financial markets are unpredictable and “a nightmare.” If the markets are too tumultuous for hedge fund investors, the cowboys in finance, what does that mean for the rest of us, whose IRA’s are in the market. Bernanke is right. We’re all in the dark.
Unless you keep your savings under the mattress, you’re vulnerable to the uncertainty of European markets, the whims of Angela Merkel, the weakness of reforms in Greece and elsewhere, and the ongoing disputes in the Eurozone about how to resolve the crisis.
What’s worse, this nation seems to be heading again for what has been described as a “fiscal cliff,” the inability of Republicans and Democrats to agree on a deficit-cutting budget and avoid automatic Draconian cuts under automatic sequestration. If that weren’t enough to keep you up at night, there are cyber threats and continuing problems in the housing market. The disagreement doesn’t end there. Even estimable Boston Fed chief Eric Rosengren is at odds with his colleagues on the Fed about what should be done to stimulate the sluggish economy.
Whoever is elected President on November 6 is going to have his hands full. There’s a whole school of thought that the period between 1991 and 2008 was an historic anomaly, and that a whole generation of investors is wrong to see the ever-expanding values as any kind of norm. According to that analysis, based on normal economic cycles and typical global politics, some kind of financial crisis is always around the corner. Markets and politics always interact unpredictably. This time is no different. So isn’t it naive for a big hedge fund manager to belive otherwise?
For the rest of us, we must come to grips with the fact that our fate no longer resides primarily in the dysfunctional hands of our own President and members of Congress, but in the hands of others, especially now Germany’s Angela Merkel, who is trying to save the eurozone and hold together the European market (to be able to buy Germany’s exports). She’s up for reelection in another year.
Most of us give lip service to appreciating the impact of the global economy. But Ben Bernanke is right. Too many of us are inadequately educated about the globalized financial world in which we live. As it swirls around us in ever-expanding orbits, it can be terrifying.