Tuesday, July 15, 2014

What Part of 'Inflation is Here!' Doesn't the Fed Understand?

The Federal Reserve has been playing games with our money for years now, using the bogus,  speculator -appeasing device of quantitative easing (QE I and II). Their motive has been explained as trying to "stimulate" the economy and sadly even liberal economists (like Paul Krugman) have bought into this jabberwocky. The fact is that the only economy the Fed's QE tactic is stimulating is the one for speculators - the "asset rich" economy based in Wall Street.

According to the article The Asset Rich, Income Poor Economy' (WSJ, June 20, p. A13):

 "Asset wealth is sustainable only when it comes from earned success, not fiat. Wealth comes from strong, sustainable growth that turns a proper mix of labor, capital and know how into productivity..."

Here, "asset rich" means bountiful in terms of stock or mutual fund ownership, including dividends and capital gains arising therefrom. It also includes real estate, for example owned and then flipped, or owned for later profit at re-sale.  "Income" means basically what it implies, any and all income - say from labor (where wages have stagnated since 1973) or from bank savings interest. Since the Fed has kept interest rates near zero, the latter group has had to not only suck salt but sand as well.  Thus, "income poor".

Meanwhile, the stock owners are doing well, thanks to the Fed - including under Janet Yellin now - continuing the misplaced quantitative easing program. According to the article cited above:

"The Fed assures us that long term rates need not move higher - even with improving inflation dynamics, credit markets priced for perfection and stock prices at record levels."

Indeed, the stock market (DOW, specifically) is in serious bubble territory and having surpassed  17,000, it is just a matter of time before that bubble pops  - and blood is all over the 'Street'.

Sadly, the Fed from the epoch of Greenspan and Bernanke believes it is doing "God's service" keeping the interest rates at zero. Even Paul Krugman has taken umbrage at "inflation truthers" who he believes are trying to mislead the hoi polloi, but in this case Paul is wrong and he needs to take a few trips to the super market.

Pork chops now $4.95 a pound? The cheapest ground beef at $5.50/ lb.?  Chicken shooting up past $4 a pound owing to a problem with roosters! Even orange and apple prices going up through the roof! According to 'The Aggregator' (Denver Post, WSJ 2, Sunday, July 13):

"The consumer price of ground beef in May rose 10.4% from a year earlier while pork chop prices climbed 12.7% . The price of fresh fruit rose 7.3% and oranges rose 17.1%."

The piece goes on to observe that the above have created much increased pressure on the Fed to "separate food inflation signals from noise" (i.e. emanating from broad inflation measures.)

But do the nosebleed Elites and their academic pretenders who do selective  'system analysis' have any care? Not  bloody likely!  These outliers -  inhabiting such a rarefied financial ozone that such things as exploding food prices have no meaning other than "made up numbers" and "statistics" - see no problem. As long as the DOW is rising, never mind Main Street, everything is cool.

 From the time of Greenspan and Bernanke all such costs as food, housing - even exploding rent, as well as meds - referred to as "shelter costs" -  are  "essentially made up numbers" to quote Mr. Bernanke from a 2012 remark. Well, here's an easy question: if all those shelter costs including groceries are "made up" numbers, how about we pay the costs of them in "made up money"? Maybe I will just present an ideational, invisible "made up" $50 bill next time I go to the check out counter. "Here, Mr. Clerk, see this fifty ....no, no you CAN see it if you try! It's not just in my head! But see, I am using this made up entity to purchase goods which have prices that - according to our Federal Reserve Chairman, constitute "made up numbers"!

The fact the Fed refuses to see the inflation ramping up doesn't mean it doesn't exist, only that it doesn't exist in their Elite world of financial illusion. To the average man (or woman) on the street it's abundantly evident.  But see, the average person is asset poor, unlike the Wall Street lot who are in a feeding frenzy thanks to the Fed.

Originally, I was foursquare for Janet Yellen's ascension to Fed Chairman, but sadly it appears she's merely continued Bernanke's blinkered QE strategy,  under the delusion that feeding Wall Street cheap money 'crack' helps the whole economy. NO it does not, it only aids and abets Wall Street and the speculator economy. Main Street, meanwhile, is on life support and the massive decline continues with mostly stagnant wages.

George P. Brockway, author of  The End of Economic Man’‘ has written that any given Bull market's purpose is to suck the savings and nest eggs from the ordinary investor and transfer it into the hands of the richest speculators who know the small fry will never be able to resist rapidly rising share prices.  The longer the Fed feeds the stock market to the exclusion of helping income-based people the closer we come to yet another re-enactment of the collapsing Bull.  The collapse will be even worse next time around because of the extent to which income inequality has increased since 2008.  And those whose 401ks are savaged will have even less time to recover, say from a 50% meltdown, and likely have to work past 80.

This is not merely blowing smoke or spouting scare stories. We have past history to refer to by which an alarm ought to be sounded - certainly enough for the Fed to back off.  A critical tipping point has already been identified by none other than stats guru Nate Silver.   In his book, The Signal and the Noise- Why So Many Predictions Fail But Some Don’t , he writes (p. 347):

"Of the eight times in which the S&P 500 has increased at a rate much faster than its historical average over a 5-year period , five cases were followed by a severe and notorious crash, such as the Great Depression and the Black Monday crash of 1987”.

Already we are well into this treacherous territory yet Yellen and the Fed keep feeding the maw of Maul Street. The clear danger of feeding already bloated  asset wealth ($26 trillion added last year alone)  to the exclusion of income is that the speculative economy then makes the whole economy unstable.

Sadly, when the next financial meltdown occurs it likely won't trigger another "Great Recession" but a full blown Depression that'll make the one in the 1930s look like a walk in the park.

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