Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21
Covid and Democrat Blue Wave Beats Gold - 15th Jan 21
On Regime Change, Reputations, the Markets, and Gold and Silver - 15th Jan 21
US Coronavirus Pandemic Final Catastrophe 2021 - 15th Jan 21
The World’s Next Great Onshore Oil Discovery Could Be Here - 15th Jan 21
UK Coronavirus Final Pandemic Catastrophe 2021 - 14th Jan 21
Here's Why Blind Contrarianism Investing Failed in 2020 - 14th Jan 21
US Yield Curve Relentlessly Steepens, Whilst Gold Price Builds a Handle - 14th Jan 21
NEW UK MOT Extensions or has my Car Plate Been Cloned? - 14th Jan 21
How to Save Money While Decorating Your First House - 14th Jan 21
Car Number Plate Cloned Detective Work - PY16 JXV - 14th Jan 21
Big Oil Missed This, Now It Could Be Worth Billions - 14th Jan 21
Are you a Forex trader who needs a bank account? We have the solution! - 14th Jan 21
Finetero Review – Accurate and Efficient Stock Trading Services? - 14th Jan 21
Gold Price Big Picture Trend Forecast 2021 - 13th Jan 21
Are Covid Lockdowns Bullish or Bearish for Stocks? FTSE 100 in Focus - 13th Jan 21
CONgress "Insurrection" Is Just the Latest False Flag Event from the Globalists - 13th Jan 21
Reflation Trade Heating Up - 13th Jan 21
The Most Important Oil Find Of The Next Decade Could Be Here - 13th Jan 21
Work From Home £10,000 Office Tour – Workspace + Desk Setup 2021 Top Tips - 12th Jan 21
Collect a Bitcoin Dividend Without Owning the King of Cryptos - 12th Jan 21
The BAN Hotlist trade setups show incredible success at the start of 2021, learn how you can too! - 12th Jan 21
Stocks, Bitcoin, Gold – How Much Are They Worth? - 12th Jan 21
SPX Short-term Top Imminent - 12th Jan 21
Is This The Most Exciting Oil Play Of 2021? - 12th Jan 21
Why 2021 Will Be the Year Self-Driving Cars Go Mainstream - 11th Jan 21
Gold Began 2021 With a Bang, Only to Plunge - 11th Jan 21
How to Test Your GPU Temperatures - Running Too Hot - GTX 1650 - Overclockers UK - 11th Jan 21
Life Lesson - The Early Bird Catches the Worm - 11th Jan 21
Precious Metals rally early in 2021 - 11th Jan 21
The Most Exciting Oil Stock For 2021 - 11th Jan 21
Financial Market Forecasts 2021: Navigation in Uncharted Waters - 10th Jan 21
An Urgent Message to All Conservatives, Right-Wingers and Patriots - 10th Jan 21
Despite Signs to the Contrary, Gold Price at or Near Top - 10th Jan 21 -
Ultimate Guide On The 6 Basic Types Of Index Funds - 10th Jan 21
Getting Vaccinated at TESCO - Covid-19 Vaccinations at UK Supermarket Pharmacies and Chemists - 10th Jan 21
Cheers for the 2021 Stock Market and These "Great Expectations" - 9th Jan 21
How to Plan Your Child With Better Education - 9th Jan 21
How To Find The Best Casino - 9th Jan 21
Gold Is Still a Bargain Buy - 8th Jan 20
Gold Price Set to Soar as Hyperinflation Looms - 8th Jan 21
Have Big Dreams? Here's How to Pay for Them - 8th Jan 21
Will the Fed Support Gold Prices in 2021? - 8th Jan 21
Stocks trading strategies for beginners - 8th Jan 21
Who is Buying and Selling Stocks in 2021 - 8th Jan 21
Clap for NHS Heroes 2021 as Incompetent Government Loses Control of Virus Again! - 8th Jan 21
Ultimate Gaming and Home Working PC System Build 2021 - 5950X, RTX 3080, Asus MB - Scan Computers UK - 7th Jan 21
Inflation the bug-bear looking forward through 2021 - 7th Jan 21
ESG ETF Investing Flows Drive Clean Energy to Fresh Highs - 7th Jan 21
5 Financial Market Surprises in 2021 - 7th Jan 21
Time to ‘Reset’ Your Investment Portfolio in 2021? - 7th Jan 21
Bitcoin Price Collapses almost 20% at the start 2021 - 7th Jan 21
Fed Taper Nervous Breakdown - 6th Jan 21
What Will the U.S. Dollar Ring in for 2021? - 6th Jan 21
Stock market frenzy- Ride the bandwagon but be sure to take along some gold coins - 6th Jan 21
Overclockers UK Custom Build Gaming System Review Heat Test and Final Conclusion - 6th Jan 21
Precious Metals Resuming Bull Market, Gold, Silver, GDX Trend Forecasts 2021 - 5th Jan 21
Trump’s Iran-COVID-Gate Anniversary  - 5th Jan 21
2021 May Be A Good Year For The Cannabis / Marijuana Sector - 5th Jan 21
Stock Market Approaching an Important Target - 5th Jan 21
Consumer Prices Are Not Reflecting Higher Inflation; Neither Is The CRB - 5th Jan 21
NEW UK Coronavirus PANIC FULL Lockdown Imminent, All Schools to Close! GCSE Exams Cancelled! - 4th Jan 21
The Year the World Fell Down the Rabbit Hole - 4th Jan 21
A Year Like No Other for Precious Metals… and Everything Else - 4th Jan 21
The Stocks Bull Market is Only Half Completed - 4th Jan 21
An In- Depth Look At Gold Price Trend - 4th Jan 21
Building America Back After a Dark Covid Winter - 4th Jan 21
America's Dark Covid Winter Ahead - 4th Jan 21
Buy a Landrover Discovery Sport in 2021? 3 Year Driving Review - 3rd Jan 21
Stock Market Major Peak in Early April 2021 - 3rd Jan 21
Travel and Holidays 2021 - Flight Knight Cabin Bag Review - 3rd Jan 21
�� Happy New Year 2021 Fireworks and Drone Light Show from London and Sheffied - BBC�� - 2nd Jan 2
The Next IMMINENT Global Catastrophe After Coronavirus - 1st Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

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