Sunday, September 30, 2012

Inflation: "Main Street" pain belies Bernanke rhetoric!

Talking heads live in a simple world where their perception becomes their reality!

For the foot soldiers of society, however, our reality is that while the politicians and financial gurus use an ends that justifies the means strategy of economic chemistry and financial engineering, inflation is killing us.

The "experts" tell us that inflation has been kept under control, and while technically that may be true this truth only exists in an ex-food and ex-energy CPI and PPI world. For the foot soldiers such a world does not actually exist, and as these two charts will show inflation has been, and continues to be, financially debilitating!

First let's consider the approximate 52% rise in the Commodity Food Price Index since right around the time of Barack Obama's inauguration. This move has taken us beyond the price level reached during the time prior to the housing bubble bursting.

The difference of course is that unemployment and the loss of wealth have made these current price levels unsustainable for many Americans as evidenced by the record enrollment in the federal food stamps program!

Commodity Food Price Index
There has been a similar rise in prices at the gas pump which next to food, housing and some other utilities represents an extremely large weekly expenditure for Americans?

In New York prices at the gas pump between the time of Barack Obama's inauguration and today have risen over 100% while the economic well-being for those of us carrying this load have not improved and in many cases have gotten far worse.

Long Island, New York cash price September 29, 2012
Such is the true state of inflation in a QE3 world regardless of what the Fed Chairman or CNBC guests try to tell you.

So while somehow the Obama administration and the mainstream media will likely try to lay blame for this rise on the Bush years, the facts are the facts.  

Inflationary Conclusion!

The Bernanke-led Federal Reserve has pumped trillions of dollars into the U.S. money supply in an attempt to jump-start economic and jobs growth while risking the many "unintended consequences" that this type of action can effect. These include but are not limited to:
  • A weak dollar that makes our goods cheaper overseas but increases the cost of U.S. imports such as crude oil (inflationary);
  • Less confidence in the safety of U.S. debt that would result in a crippling rise in interest rates;
  • Interest rates that are destroying the ability of savers, pension funds and retirees to earn necessary returns to meet targets or to simply survive;
  • The risk for runaway inflation as a result of this policy;
  • A run-up in commodity prices and the stock market based on the old adage of to many dollars chasing too few goods;
  • The risk that savers and investors who have up to this point stayed away from this stock market rally that has been based more in necessity than on company fundamentals will jump in at the top of the move and be crushed again;
  • The risk that QE3 fails in the same way QE1 and QE2 did leaving the Fed with few additional moves that they can make and little credibility to do them; and
  • The potential spike in interest rates when the Fed eventually has to suck capital out of the system and what this would mean to the federal deficit and to the investors who have sought out the "safety" of bond funds that will decline in value as interest rates rise.
So far for all of this potential negative impact to society the results from this Fed "experiment" have been negligible to say the least!

Cartoon source

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