There will never be a better time than the present to call a spade a spade. The central bank of the United States, the Federal Reserve, has become an enemy of the people. I went to the grocery store yesterday, and was simply astonished—and frightened—by the price rises I saw in nearly everything I bought—coffee, meat, off-the-shelf pharmaceuticals, you name it. The Wall Street Journal sent me the following missive this morning, presumably to remind me of the ever-thinner justification behind the Federal Reserve's policies.
The consumer price index last month increased by a seasonally adjusted 0.5% from February as gasoline and food costs moved higher, the Labor Department said. On an annual basis, prices were up 2.7% in March, the highest level since December 2009.
But core inflation, which excludes energy and food prices that can be volatile, rose by only 0.1% in March from February. The annual underlying inflation rate stood at 1.2% last month, within the Fed's comfort zone of just under 2.0% and giving the central bank scope to keep its easy-money policies in place.
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From Tim Iacono. "Over the last three months, inflation has been running at an annualized rate of 6.0 percent and, going back six months, the rate of inflation has been over 4 percent.
Things have gotten entirely out of hand. I saw rises in the costs of items I bought of 10%, 20% or even 33%. The divide between what I have called The Money World (part I, part II) and the rest of us has never been so obvious, even when we consider just how obvious it was during the bailouts after the financial meltdown in the fall of 2008.
Let's have David Stockman make the case. In part I of his recent Marketwatch series Crony Capitalism, subtitled The Federal Reserve juices speculators, Stockman describes how The Gambling Classes are having the time of their lives, front-running the Fed and enjoying bailouts or handsome payouts.
Someone has to stop the Federal Reserve before it crushes what remains of America’s Main Street economy.
In the last few weeks alone, it launched two more financial sector pumping operations which will harm the real economy, even as these actions juice Wall Street’s speculative humors.
First, joining the central banking cartels’ market rigging operation in support of the yen, the Fed helped bail-out carry traders from a savage short-covering squeeze. Then, green lighting the big banks for another go-round of the dividend and share-buyback scam, it handsomely rewarded options traders who had been front-running this announcement for weeks.
Indeed, this sort of action is so blatant that the Fed might as well just look for a financial vein in the vicinity of 200 West St., and proceed straight-away to mainline the trading desks located there...
You can read the rest of part I on your own. Let's turn to part II, The Federal Reserve's path of destruction.
The destructive result of the Federal Reserve’s earlier housing and consumer credit bubble became the excuse for embracing a destructive zero interest rate policy [ZIRP] which is self-evidently fueling even more destruction.
This destruction is namely, the exploitation of middle class savers; the current severe food and energy squeeze on lower income households; the illusion in Washington that Uncle Sam can comfortably manage $14 trillion in debt because the interest carry is close enough to zero for government purposes; and the next round of bursting bubbles building up among the risk asset classes.
Moreover, the Fed soldiers on with its serial bubble-making, even though it is evident that the hallowed doctrines of modern monetary theory and the inherently dubious math of Taylor rules have failed completely...
So in the present circumstances, ZIRP and QE2 amount to a monetary Hail Mary. There is no monetary tradition whatsoever that says the way back to U.S. economic health and sustainable growth is through herding Grandma into junk bonds and speculators into the Russell 2000...
Admittedly, the junk-bond financed dividends being currently extracted by the LBO kings from their debt-freighted portfolios may enable them to hire some additional household help and perhaps spur some new jobs at posh restaurants, too. Likewise, the 10% of the population which owns 80% of the financial assets may use their stock market winnings to stimulate some additional hiring at tony shopping malls.
That chairman Bernanke himself has explained in so many words this miracle of speculative GDP levitation, however, does not make it so. The fact is, if transitory wealth effects add to current consumer spending, they can just as readily subtract on the occasion of the next “risk-off” stampede to the downside. Indeed, the proof — if any is needed — that cheap money fueled asset inflations do not bring sustainable prosperity lies in the still smoldering ruins of the U.S. housing boom.
In truth, the Fed’s current money printing spree has no analytical foundation, and amounts to seat-of-the-pants pursuit of a will-o’-wisp — the idea of a perpetual bull market.
Like the Bank of Japan, the Fed has made itself hostage to the global speculative classes, and must repeatedly inject new forms of stimulus to keep the bubbles rising.
There's plenty more where that came from, so I urge you to read part II.
The central bank's pedal-to-the-metal monetary policy has fueled speculation in everything, and consistently rewarded those speculators. If there is any connection whatsoever between that policy and promoting the health of the Main Street economy, I fail to see it. However, there is a very clear connection between the Fed's monetary policy and destroying the health of the Main Street economy. Never in the long, disgraceful history of central banking have so many been so screwed by an institution whose ostensible purpose is to promote economic & financial stability.
As always, we must wrestle with the question of intent. We can see whose interests are being served by Fed policy, but is the Fed still sincere about it's dual mandate of keeping inflation reasonably low and promoting full employment? Are they irredeemably corrupt? Or are they merely incompetent in promoting a "money printing spree" that has "no analytical" basis in macroeconomic theory, or "follows the dubious math of the Taylor rules"? Or is this a case of the Fed compounding their original failures and errors by doing more of the same? As Albert Einstein said, insanity consists of doing the same thing over and over again and expecting different results.
Regardless of whether its governors are evil, incompetent or insane, the Federal Reserve has become an enemy of the vast majority of people living in the United States, not to mention those in foreign lands. I shall have more to say about this in future posts. In the meantime, you can read Matt Taibbi's The Real Housewives Of Wall Street.
Taibbi would like to know why the Federal Reserve forked over $220 million in bailout money to the wives of two Morgan Stanley bigwigs? So would I.
Have a nice weekend.
Bonus Video — Quantitative Easing Explained, Dance Version
The Real Housewives Of Wall Street.
I'm smelling a new reality show, baby! We don't have nearly enough. I'm not joking....this may come to fruition....it's just that crazy these days. Oh, that's right, I must pretend this insanity is not really happening. Where's my overhead luggage? Shit, I don't have any. Oh well, I guess I'll climb over the seats and the zombies to escape the choking fumes and burning flames and catapult myself into the belly of the abyss.
Posted by: Morocco Bama | 04/15/2011 at 10:22 AM