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April 27, 2011
As investors know, The Federal Reserve Chairman, Ben Bernanke, gave a first-of-its-kind press conference today, pulling the curtain away from the Wizard of Oz. Coinciding with the event, the Fed released discouraging updates that downgraded the estimates for first quarter GDP, increased inflation expectations for inflation, and decreased job growth expectations.
All of this is after the $600 Billion spent on “QE2”, which was the perverse purchasing by The Fed of the US treasuries. Most economists and analysts have assessed QE2 as a dismal failure. As a result of the lack of political will, The Fed officially announced that there would be no QE3.
The Fed had hoped to trigger job growth with the various forms of “printing money”. The tradeoffs to these actions are always a triggering of inflation, reduction in the spending power of the American citizen as the dollar depreciates, and rise in commodity prices that are pegged on the USD.
The most important increase in commodity prices has been oil.
Politically, the current economic scenario and series of actions by the Obama administration is starting to have an uncanny similarity to the stagflation (inflation coupled with slow economic growth and unemployment), high gas prices, and foreign policy unrest as the 1970’s and President Carter administration. True inflation, not the bogus number used by the government that back out the costs of food and gasoline, is a now a reality and will get worse.
Chairman Bernanke was asked by the Wall Street Journal what the Fed could do to lower the price of gas. He answered by attributing the rise to supply and demand, unrest in the Middle East and Africa, and to Wall Street speculators manipulating the futures markets. He made no mention of the powerful role of the Fed’s quantitative easing and low value of the dollar, when by definition, a low dollar will mean a higher price for oil.
If President Obama’s own policy actions, and those of his appointed members of the Fed, were to be implicated in directly causing inflation and the high price of gas, that would be a serious blow to his re-election chances. Therefore, one might explain Ben Bernanke’s peculiar answer leaving out the powerful role of the Fed in oil and gas prices, seen in the video below, to politics. As gas prices get higher, the Fed’s role in causing it will be Bernanke’s weak spot: his missing link of chainmail on his underbelly.
(The video can be viewed in full screen 1080i HD)
April 28, 2011
One day later, the White House was on the defensive denying the relationship between the low dollar, casued by the Fed, and the high gas prices.