Thursday, December 17, 2009

OBAMA-BERNANKE INFLATION - Simple dollar dynamics rears its ugly head

Federal Reserve Chairman Ben Bernanke has been named Time magazine's "Person of the Year" for 2009. Last year's winner was then-President-elect Barack Obama. The 2007 winner was Russian Prime Minister Vladimir Putin. Other previous winners have included Bono, President George W. Bush, and Amazon.com CEO and founder Jeff Bezos. Image Credit: urbandigs.com

OBAMA-BERNANKE INFLATION - Simple dollar dynamics rears its ugly head

'Tis the season to be jolly, a Christmas season song lyric cajoles, yet all the American public can see is a political system and an economy in complete disarray.

We are treated to an endless menu of Christmas specials on television and, of course, Oprah Winfrey has to weigh in with a fluff piece of an interview that starts off with a contrived impromptu drop by visit with the President and first lady for a chat. In the interview, Barack Obama could not resist the temptation to answer a question about the "grade" he would deserve for the performance of the first eleven months of his time as President of the United States. Most good politicians would beg off answering the question ... but not this Oscar and Nobel awarded political radical. Nope, he had to give himself a B+ ... and went on to say that if he is able to sign a bill (any bill) that addresses health care, he would figure that an A- would be the better and appropriate grade.

Today, the Federal Reserve chairman, Ben Bernanke was tapped to be on the cover of TIME Magazine as the "Person Of The Year" stating that the economy would be much, much worse if the Fed had not taken such extreme measures to stop the panic. There's a vast difference between 10% and 25% unemployment, between anemic and negative growth.

This begs the question, however, on ... what happens when the leadership of the Federal Government passes legislation (TARP, two Omnibus, and one Stimulus bill totaling about $4 Trillion plus dollars) that open up the spending of future generations of uncollected tax revenues and places this money into an economy that is not producing goods or services to back up or justify the value of these extra dollar bills in circulation?

Too many dollars chasing the once stable prices on goods and services creates a situation where it takes two dollars to match the value of something that was once valued at one dollar when a stable and consistent money supply dictated this as the cost of the good, service and a living profit. Increase the money supply and prices have to be reset to reflect this simple dynamic.

Welcome to the age of Carter's Second Term ... welcome to the age of INFLATION!

Federal Reserve Chairman Ben S. Bernanke may be running out of room to pump money into the financial markets and cut interest rates to rescue the economy. Image Credit: urbandigs.com

This excerpted and edited from the New York Post -

Economy bubbles up with wholesale inflation
By PAUL THARP, New York Post - Last Updated: 8:52 AM, December 16, 2009

So much for Federal Reserve Chairman Ben Bernanke telling the country not to worry that zero percent interest rates might spark inflation.

Economists' worst fears were realized yesterday when the Labor Department said wholesale prices climbed a surprising 1.8 percent last month -- double what economists had predicted and the second-biggest November jump in a decade, following the stunning 2.7 percent surge two years ago at the start of the housing collapse.

The government report said factories are saddled with sharply rising energy and materials costs, among other growing expenses. The higher costs could be passed on to factory customers and consumers, analysts said.

The Labor Department also said core inflation, which excludes the major consumer purchases of food and energy, posted its sharpest increase in more than a year at 0.5 percent.

The surprise jump means analysts will pay even closer attention to today's government report on consumer prices, which could help determine whether inflation has spiked enough to undermine the economy's slow recovery.
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Bernanke, meanwhile, told lawmakers the US economy is still too sluggish with lots of "slack" in factory capacity to support any lasting or serious price hikes.

"The bulk of the evidence indicates that resource slack is now substantial," Bernanke said in a written response to a lawmaker's questions. "I continue to expect slack resources, together with the stability of inflation expectations, to contribute to the maintenance of low inflation in the period ahead."
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Some economists believe the Fed will ignore the inflationary red flags.

"The 1.8 percent jump in wholesale prices is a red herring," said economist Paul Dales at Capital Economics. "The Fed is not going to see this as any indication that their actions are triggering higher inflation."
Reference Here>>

We can expect an economy that will end up worse than any experienced during the "progressive-minded" rule of Jimmy Carter.

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