Bernanke Puzzled by Gold Rally

Federal Reserve Chairman Ben Bernanke says he’s a bit puzzled by surging gold prices. The 30% rally from a year ago, on top of gains in previous years, might be interpreted as a loud signal from markets that big inflation pressures are building in the U.S. Gold is seen by many investors as a hedge against inflation risk.

Bloomberg News
In this case, it might instead be a hedge against risk broadly. Mr. Bernanke notes that the inflation signal isn’t confirmed by movements in other asset classes. Yields on Treasury bonds tend to rise when investors worry about inflation, but those yields have been falling recently. Inflation expectations as measured in Treasury Inflation Protected Securities (TIPS) markets remain low. And other commodity prices are falling. Gold is breaking records, but copper prices are down 17% so far this year.
“I don’t fully understand movements in the gold price,” Mr. Bernanke admitted. But he suggested it might be another example of investors fleeing risky assets and flocking to assets that are perceived as less risky, not only Treasury bonds, but also ones like gold.
Bernanke also defended the stimulus in his cautious testimony as a temporary measure to boost the economy, but warned of continuing deficits.

Government Workers Cost More to Employ

It costs about $12 more per hour to employ a state or local government worker versus a private sector employee, the Labor Department said Wednesday.

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It costs more to employ public-sector workers such as teachers.
Employers spent $39.81 per hour worked for state and local government workers in the first quarter compared to $27.73 per hour for those with private industry jobs. The numbers are part of the Labor Department’s quarterly series on employer costs for employee compensation and they wrap in wages and salaries as well as health benefits such as health insurance and retirement packages.
The largest share of the costs comes from wages and salaries for both sets of workers: 70.6% for private employees and 65.9% for government workers. The rest of the payment comes in the form of benefits.
It costs state and local governments $3.16 per hour to pay for employees’ retirement and savings plans, compared to 96 cents for private workers.
Another $4.52 goes to health insurance for public workers, compared to $2.08 for private workers. And governments spend $3 per hour for its workers’ paid leave, compared to $1.88 for private workers.
Meanwhile, a breakout of private workers showed that it cost more to employ union workers than nonunion employees. Compensation for union workers cost $37.16 per hour compared to $26.67 for non-union workers.
Overall compensation of all civilian workers in the U.S. typically cost employers $29.71 per hour in the first quarter, compared to $29.39 per hour the same time a year ago.
Public employee compensation has come under the knife lately as strapped states and cities search for ways to cut costs and balance their budgets. In New York, for example, MayorMichael Bloomberg has said he’ll freeze teacher salaries and in Memphis the highest-paid city employees are getting pay cuts.