Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
The Three M's of Hyperinflation : Milosevic, Mugabe, And Maduro - 26th May 19
Global Multi-Market / Asset Charts Review - 26th May 19
An Oil Shock Could Be the Black Swan That Finally Drives Gold Higher - 26th May 19
Brexit Party Forces Theresa May to Resign, Boris Johnson Next Tory Prime Minister? - 26th May 19
IBM - Investing in AI Machine Intelligence Stocks - 25th May 19
Seasonal Dysfunction: Why Generations of Gold and Silver Investors Are Having Such Difficulty - 25th May 19
Employment - The Good and the Bad of Job Automation - 25th May 19
Gold Mining Mid-Tier Stocks Fundamentals - 25th May 19
Buy This Pick-and-Shovel 5G Stock Before It Takes Off - 25th May 19
China Hang Seng Stocks Index Collapses and Commodities - 24th May 19
Costco Corp. (COST): Finding Opportunity in Five Minutes or Less - 24th May 19
How Free Bets Have Impacted the Online Casino Industry - 24th May 19
This Ultimate Formula Will Help You Avoid Dividend Cutting Stocks - 24th May 19
Benefits of a Lottery Online Account - 24th May 19
Technical Analyst: Gold Price Weakness Should Be Short Term - 24th May 19
Silver Price Looking Weaker than Gold - 24th May 19
Nigel Farage's Brexit Party EU Elections Seats Results Forecast - 24th May 19
Powerful Signal from Gold GDX - 24th May 19
Eye Opening Currency Charts – Why Precious Metals Are Falling - 23rd May 19
Netflix Has 175 Days Left to Pull Off a Miracle… or It’s All Over - 23rd May 19
Capitalism Works, Ravenous Capitalism Doesn’t - 23rd May 19
The Euro Is Bidding Its Time: A Reversal at Hand? - 23rd May 19
Gold Demand Rose 7% in Q1 2019. A Launching Pad Higher for Gold? - 23rd May 19
Global Economic Tensions Translate Into Oil Price Volatility - 22nd May 19
The Coming Pension Crisis Is So Big That It’s a Problem for Everyone - 22nd May 19
Crude Oil, Hot Stocks, and Currencies – Markets III - 22nd May 19
The No.1 Energy Stock for 2019 - 22nd May 19
Brexit Party and Lib-Dems Pull Further Away from Labour and Tories in Latest Opinion Polls - 22nd May 19
The Deep State vs Donald Trump - US vs Them Part 2 - 21st May 19
Deep State & Financial Powers Worry about Alternative Currencies - 21st May 19
Gold’s Exciting Boredom - 21st May 19
Trade War Fears Again, Will Stocks Resume the Downtrend? - 21st May 19
Buffett Mistake Costs Him $4.3 Billion This Year—Here’s What Every Investor Can Learn from It - 21st May 19
Dow Stock Market Trend Forecast 2019 May Update - Video - 20th May 19
A Brief History of Financial Entropy - 20th May 19
Gold, MMT, Fiat Money Inflation In France - 20th May 19
WAR - Us versus Them Narrative - 20th May 19
US - Iran War Safe-haven Reasons to Own Gold - 20th May 19
How long does Google have to reference a website? - 20th May 19
Tory Leadership Contest - Will Michael Gove Stab Boris Johnson in the Back Again? - 19th May 19
Stock Market Counter-trend Rally - 19th May 19
Will Stock Market “Sell in May, Go Away” Lead to a Correction… or a Crash? - 19th May 19
US vs. Global Stocks Sector Rotation – What Next? Part 1 - 19th May 19
BrExit Party EarthQuake Could Win it 150 MP's at Next UK General Election! - 18th May 19
Dow Stock Market Trend Forecast 2019 May Update - 18th May 19
US Economy to Die a Traditional Death… Inflation Is Going to Move Higher - 18th May 19
Trump’s Trade War Is Good for These 3 Dividend Stocks - 18th May 19
GDX Gold Mining Stocks Fundamentals Update - 17th May 19
Stock Markets Rally Hard – Is The Volatility Move Over? - 17th May 19
The Use of Technical Analysis for Forex Traders - 17th May 19
Brexit Party Set to Storm EU Parliament Elections - Seats Forecast - 17th May 19
Is the Trade War a Catalyst for Gold? - 17th May 19
This Is a Recession Indicator No One Is Talking About—and It’s Flashing Red - 17th May 19
War! Good or Bad for Stocks? - 17th May 19
How Many Seats Will Brexit Party Win - EU Parliament Elections Forecast 2019 - 16th May 19

Market Oracle FREE Newsletter

U.S. House Prices Analysis and Trend Forecast 2019 to 2021

Stocks and and Price of Butter

Politics / Inflation Jan 28, 2011 - 02:09 AM GMT

By: Fred_Sheehan

Politics

Best Financial Markets Analysis Article"We are poised for progress. Two years after the worst recession most of us have ever known, the stock market has come roaring back. Corporate profits are up. The economy is growing again." ~ President Barack Obama, State of the Union speech, January 25, 2011

Maybe President Obama was at a loss to validate the rousing economy in his State of the Union address. Whatever the reason, this was a strange appeal to the American people. An even stranger validation of Wall Street's prowess was expressed last week by Federal Reserve Chairman Ben S. Bernanke.


On January 20, 2011, the Fed chairman was asked by Steve Liesman if his QE2 chalkboard exercise had failed, given that interest rates have risen rather than fallen. (Bernanke claimed, at the outset, that QE2 would drive interest rates down. The 10-year Treasury yield has risen from 2.62% on November 3, 2010, to 3.43% on January 26, 2011.) Not knowing anything about markets, but pretending to be an expert, Bernanke replied: "The S&P 500 is up about 20%-plus and the Russell 2000, which is about small cap stocks, is up 30%-plus. So I think a stronger economy actually helps small businesses even more than it helps larger businesses."

This is bizarre: The Fed chairman touting small-cap stocks on CNBC. And why is he on a TV talk show that makes a habit of bad advice? The only point to be made here, though, is his belief that a healthy stock market is synonymous with a strong economy. This is always a contestable claim, but particularly now. Americans, that is, retail investors, have largely abandoned the stock market. Studies show that up to 85% of trading is by institutions.

If Bernanke was implying the stock market lifts all boats, that is false. Yacht sales are booming but the withering middle class is lucky to find an abandoned house boat. Richard Fisher, President of the Federal Reserve Bank of Dallas, told the Association for Financial Professionals on November 8, 2010 (five days after Bernanke launched QE2):

"As to the proposition that higher prices of financial assets will liberate those most in need, I wondered aloud if that were indeed true. We are already seeing the beginnings of speculative activity in stocks, bonds, buyouts and commodity markets. The rich and the quick are certainly able to exploit these circumstances to get richer. I have no problem with market operators making money; I did so myself in my previous life as a funds manager (before I took the vow of financial chastity and joined the Fed!). But I take no comfort, and see considerable risk, in conducting monetary policy that has the consequence of transferring income from the poor and the worker and the saver to the rich. Senior citizens and others who saved and played by the rules are earning nothing on their savings, while big debtors and too-big-to-fail oligopoly banks benefit from their subsidy. I know of no presidential administration or Congress, Republican or Democrat, that will tolerate, let alone advocate for, that dynamic for long, and I expressed my worry that this could come back to bite us and possibly threaten our independence." [My italics - FJS]

It is rare for someone inside the central banking cabal to acknowledge how the Federal Reserve subsidizes the rich and makes them richer. Another case was in 1993 when the International Monetary Fund (IMF) published a paper. This was when Fed Chairman Alan Greenspan created the carry trade. (His claim of authorship: "We created the carry trade." See: "The 2004 Fed Transcripts: A Methodical, Diabolical Destruction of America's "Wealth"). This whirlwind of unnecessary finance, other than to bail out Greenspan's previous mistakes, was a vital stimulant to concentrating money-making into the hands of the few.

The IMF paper (World Economic Outlook, April, 1993) discussed the consequences of "a credit expansion in excess of the expansion of the real economy." "Excess" credit distorts the economy. When credit does not serve a proper function, it is borrowed to speculate. The claims of Obama and Bernanke could not be further from the truth.

The IMF observed: "Financial liberalization, innovation and other structural changes of the 1980s created an environment in which excess liquidity and credit were channeled to specific groups in the markets. These include large institutions, high-income earners and wealthy individuals, who responded to the incentives associated with the changes. These groups borrowed to accumulate assets in global markets - such as real estate, corporate equities, art and commodities such as gold and silver - where the excess credit apparently was recycled several times over." [My italics - FJS]

It is particularly irksome for leaders (the wrong word, but so be it) to root for the stock market when, by doing so, they sink the houseboats of the dispossessed. Wages and salaries in the United States have fallen from $6.6 trillion in the fourth quarter of 2008 to $6.4 trillion in the third quarter of 2010. (This is a much better measure of economic health than GDP, which may be why it is buried in the deluge of government data.) These numbers underestimate the agony since the working-age population has risen.

In addition, the Politburo (Bernanke and the Bureau of Labor Statistics) claim there is no inflation. Yesterday, January 26, 2011, the Federal Reserve released the minutes of its December, 2010, FOMC meeting, at which the Federal Reserve Open Market Committee apparently decided that "measures of underlying inflation have been trending downward." At the same time: "Among the broad budget categories, employee benefits was expected show the steepest price increase; respondents foresaw a 10.1 percent rise in the cost of benefits, up from 8.9 percent in 2010." - The Federal Reserve Bank of New York, December, 2010. One can only hope that someday the gang of swindlers will be held to account.

Most domestic prices are inflating, with the exception of income and houses: "[B]ank-owned properties (REO's) and short sales, where the home is sold for less than the value of the mortgage, made up 47 percent of all home sales in December. That's up from 44.5 percent in November." - Diana Olick, CNBC, January 24, 2011. "Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance." - Simple Ben (Bernanke), November 4, 2010. All readers are enjoined to buy anti-Bernankes: gold, silver, and premium scotch.

Instances of inflation, over the past few days: "World Moves closer to Food Price Shock" - Headline, top of front page, Financial Times, January 12, 2011. At Supervalu and Safeway [supermarkets], "profits had already been declining because of rising food prices..." - The King Report, January 18, 2011. Rising Gasoline Prices Sour American Mood" - Reuters, January 18, 2011. At the semi-annual Canton [China] Fair, prices of apparel, shoes, and luggage rose 20% between fairs held in the spring and autumn of 2010. - The King Report, January 24, 2011. "As market prices go up, Roswell-area growers report increase in pecan thefts" - The King Report, January 24, 2011. "McDonald's said...that it may have to raise prices at its restaurants this year as it braces for rising costs of commodities." - Financial Times, January 24, 2011. "The price of the BK Whopper Junior has risen from $1.00 to $1.49 over the past year or so." -Frederick J. Sheehan, upon deciding to skip lunch, January 24, 2011. "Starbucks Sees Higher 2011 Coffee Costs" - The King Report, January 27, 2011. A pound of butter rose from $1.53 a pound on December 1, 2010 to $2.10 a pound on January 25, 2011 - Chicago Mercantile Exchange.

President Lyndon Johnson waged a big war on Vietnam and on poverty (guns and butter) at the same time. Almost everyone lost. President Obama is inflating Wall Street, a strategy that is, in turn, inflating the cost of butter. This will end badly.

By Frederick Sheehan

See his blog at www.aucontrarian.com

Frederick Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, November 2009).

© 2011 Copyright Frederick Sheehan - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules