From Greenlight's letter:
Here in the United States, our fears that quantitative easing would be a net harm to economic activity appear to be playing out. The prices of things people actually pay for including food, energy and healthcare continue to go up at an accelerated pace ...
While Chairman Bernanke claims that quantitative easing has succeeded in raising stock prices, it seems that equities have gone up for the opposite reason he proposed. According to Mr. Bernanke, Federal Reserve purchases of government bonds were supposed to raise their price so that they would be less attractive than other investments, including housing and equities. Investors would note the disparity and “rebalance” their portfolio to buy more houses and stocks, which would appear cheap compared to higher bond prices. This would support the housing recovery and make the equity market rise.
Instead, it appears that in response to quantitative easing, investors now fear inflation and have sold bonds. Interest rates have risen and housing prices have declined further. The housing recovery has faltered, creating another negative wealth effect and putting additional strain on the banking system. The money that the private sector would have lent to the government, had the Federal Reserve not printed the money instead, has gone to other goods, notably commodities and stocks to the extent investors see them as a better inflation hedge than bonds. Though the Federal Reserve has produced “research” that purports to show that quantitative easing has not caused commodity prices to rise, many observers disagree. As the Bank of Japan put it in March, “[I]t is safe to say that globally accommodative monetary conditions are a key driver of the rise in commodity prices by stimulating both physical demand for commodities and investment flows into commodity markets.”
'Free Money' About to Cause Big Problem: Welch
Too much money in the wrong hands is about to create a serious problem in the US, author and former General Electric CEO Jack Welch said.
Speaking as Americans celebrate the killing of terrorist leader Osama Bin Laden, Welch said the event is cause for pride and hopes it will be used as a rallying point as the country recovers from the financial crisis.
But he warned that policies aimed at jump-starting the economy are sowing the seeds for more trouble later.
"Free money in the hands of very smart people for too long is going to create something that's not very pleasant," Welch said. "I don't know what it exactly is. But every time we get free money to lots of people who are very, very smart and know how to use it you end up with a bubble or a problem that we don't quite see in front of us."
Policy makers responded to the collapse of the global financial system in 2008 with a combination of government stimulus and monetary easing that saw the Federal Reserve balance sheet expand by about $2.4 trillion and the budget deficit swell to about $1.5 trillion.
Though the economy has struggled to regain its footing, there are now worries that all that liquidity will create an inflation problem as the dollar has slid and commodity prices soared.
Even one of my readers sent me some great information regarding inflation:
Here is the "change" promised 2 years later-----
Avg. retail price/gallon gas in U.S. $1.79---$3.59---100.6%---(1)
Crude oil, European Brent (barrel) $43.48---$99.02---127.7%---(2)
Crude oil, West TX Inter. (barrel) $38.70---$108.38---180.0%---(2)
Gold: London (per troy oz.) $853.25---$1,414.50---65.5%---(2)
Corn, No.2 yellow, Central IL $3.56---$6.33---78.1%---(2)
Soybeans, No. 1 yellow, IL $9.66---$13.75---42.3%---(2)
Sugar, cane, raw, world, lb. fob $13.37---$35.39---164.7%---(2)
Unemployment rate, non-farm, overall 7.6%---9.4%---23.7%---(3)
Unemployment rate, blacks---12.6%---15.8%---25.4%---(3)
Number of unemployed---11,616,000---14,485,000---24.7%---(3)
Number of fed. employees, ex. military (curr = 12/10 prelim) 2,779,000---2,840,000---2.2%-----(3)
Real median household income (2008 v 2009) $50,112---$49,777---0.7%---(4)
Number of food stamp recipients (curr = 10/10) 31,983,716---43,200,878---35.1%---(5)
Unemployment benefit recipients (curr = 12/10) 7,526,598---9,193,838---22.2%-----(6)
Number of long-term unemployed 2,600,000---6,400,000---146.2%---(3)
Poverty rate, individuals (2008 v 2009) 13.2%---14.3%---8.3%---(4)
People in poverty in U.S. (2008 v 2009) 39,800,000---43,600,000---9.5%---(4)
U.S. rank in Economic Freedom World Rankings 59---n/a---(10)
Present Situation Index (curr = 12/10) 29.9---23.5---21.4%---(11)
Failed banks (curr = 2010 + 2011 to date) 140---164---17.1%---(12)
U.S. dollar vs Japanese yen exchange rate (after the earthquake.) 89.76---85.03---5.6%---(2)
U.S. money supply, M1, in billions (curr = 12/10 prelim) 1,575.1---1,865.71---8.4%---(13)
U.S. money supply, M2, in billions (curr = 12/10 prelim) 8,310.9---8,871.3---6.7%---(13)
National debt, in trillions $10.627-----$14.278-----34.4%-----(14)
Just take this last item: In the last two years we have accumulated national debt at a rate more than 27 times as fast as during the rest of our entire nation's history. Over 27 times as fast!
Metaphorically, speaking, if you are driving in the right lane doing 65 MPH and a car rockets
past you in the left lane 27 times faster . . . it would be doing 1,755 MPH! This is a disaster!
Sources:
(1) U.S. Energy Information Administration; (2) Wall Street Journal; (3) Bureau of Labor Statistics; (4) Census Bureau; (5) USDA; (6) U.S. Dept. of Labor; (7) FHFA; (8) Standard & Poor's/Case-Shiller; (9) RealtyTrac; (10) Heritage Foundation and WSJ; (11) The Conference Board; (12) FDIC; (13) Federal Reserve; (14) U.S. Treasury
There you have it! Smart people see it different then Ben Bernanke. Fed policy is not a one way save all with no costs to the American public or well being!
I want to thank the reader for passing along some interesting and great data.
Hope all is well.
J.D. Rosendahl, Rosey