May 24, 2011 Reading Time: 2 minutes

“The Fed is blaming the earthquake in Japan for disrupting first quarter global growth, plus droughts and other natural disasters which didn’t help. The problem for Bernanke and his allies on the Fed is that hardly anyone is buying this argument. Most financial analysts, economists, and CEOs are blaming inflation for the global slowdown, and specifically, the high price of food and energy. This is the same set of circumstances that undermined the economic recovery in 2008 and brought about the financial crisis.

Bernanke has been touting the slow growth in “core inflation”, a Fed construct that removes food and energy from the price and deflator indexes. Bernanke also lauds the nearly 100% increase in the stock markets since March 2009, something he says was a deliberate outcome of Quantitative Easing. Wall Street has certainly benefited from this engineered stock market rally, as have fine art auctions, luxury auto sales, and mergers and acquisitions. Unfortunately, most everyone else in the global economy is suffering. Wal-Mart’s CEO has said that his customers are “broke” at the end of every month, leading to eight consecutive monthly declines in store sales. The high price of food and energy is eating away at Wal-Mart’s margins, and margin compression has now spread throughout the retail sector and is beginning to affect many other consumer sectors.

The explosion in commodity prices can be traced directly to the announcement in July last year of the QE2 program – to the day, in fact. The financial and commodity markets from the outset did not trust this program to perform as promised, since the first one didn’t keep interest rates down as was the intention. Many traders feared the inflationary if not hyper-inflationary consequences of so much monetary easing, and whether they brought about the inflation by buying up commodities as protection against future price increases doesn’t really matter. Inflation was the result.” Read more.

“Ben Bernanke Loses Control of the Fed”
The Economic Populist, May 23, 2011.

Image by Juan Gnecco /

Tom Duncan

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