In a truly shocking interview with Steve Liesman on CNBC last week, Federal Reserve Chairman Ben Bernanke shrugged off food riots in Tunisia, Jordan, Morocco and Yemen, the threat of mass starvation among Third World populations globally, and ominous price increases in food and energy everywhere with the observation that US broad stock market prices were up 20% off their 2008 lows. Gee thanks, Ben. When the price of gasoline in the U.S. once again rockets over four dollars per gallon and the number of Americans receiving food stamps - the present-day equivalent of the bread lines of the Great Depression- doubles from the current 43 million, both of which are likely in 2011, one wonders if Mr. Bernanke will remain so sanguine. Perhaps Americans need to bring food riots to Mr. Bernanke's front stoop.
Why is this happening, when the laws of supply and demand would dictate the opposite? It is happening because all commodities are priced in U.S. dollars and we have a Federal Reserve hell-bent on crashing the purchasing power of the U.S. dollar. It has been argued that Mr. Bernanke intends to force China to revalue its currency. But China, close to becoming the wealthiest nation on earth, (in sum if not per capita) has, as a matter of pride and practicality, remained aloof and immune to U.S. pressure. China's response has been to cease purchasing U.S. treasury bonds and divest itself of excess dollars by investing in hard assets and European bonds. The 20% rise in food and energy costs over the last seven months is attributed by the CNBC cheerleaders to "increased consumption by the new middle class of emerging market countries". Excuse me? Could anybody argue that Chinese or Malaysian workers have seen their incomes rise 20% over the last seven months? Not by a long shot, as layoffs have spread to even those economies. Moreover the US has exported not only inflation, but also the income inequality that has seen only the top 1% increase their wealth in any measure, even in China.
Here is the evidence on the domestic front. The February 2011 edition of Consumer Reports magazine shows the reality of inflation in the U.S. and how manufacturers are coping with it. Rather than raising prices, they are giving you "less" -" as much as 20% less -" in each package. The shrinking contents: Tropicana orange juice -7.8%, Ivory Dish detergent- 20%, Kraft Cheese slices-8.3%, KirkLand (Costco) Paper Towels-11.6%, Haagen-Dazs ice cream-12.5%, Scott Toilet Tissue-9%, Lanacane First aid spray-12.4%, Chicken of the Sea Salmon-13.3%, Classico Pesto-19%, Hebrew National franks-8.3%, Folgers Classic Roast and French Roast-8.8%. Kraft Macaroni and Cheese-24%. The Companies told Consumer Reports that shoppers prefer to receive less product than a price increase, but the reality is that they are successfully hiding price increases from unwary consumers
Ellen Brown, author of Web
of Debt recently pointed out that the
Fed has no money at all to loan to states and cities so bankrupt they are
forced to fire their policemen and firefighters, and yet it has 600 billions
dollars plus with which to jack up stock prices. ). As Chris
Martenson observed this week, "Where states are struggling with extremely
painful budget deficits measured in the single billions (in most cases), the
Fed has been busy printing up and handing out some $75 billion per month to its
coziest clients." -" those being the Wall Street bankers. In November, as it became apparent the Fed's
stated goal of lowering interest rates had failed, Bernanke simply revised his
argument for printing money and stuffing it into stocks " higher
stock prices will boost consumer wealth and help increase
confidence, which can also spur spending ." But who owns those stocks?
Almost nobody, but for a few hedge funds who hold the wealth of
multi-millionaires -" the wealthiest 5% (see chart
above). Who is still cashing out? The
middle class, who need the funds to live on and pay for ever-rising grocery
bills. In fact in the first week of this month, U.S.
stocks saw their largest net redemption since October - $4.2 billion dollars
worth . Tyler Durden, Editor of ZeroHedge put it this way, "" Saving middle class assets" turns out
to benefit only the top slice of households , while
the dwindling middle class is left with food and energy inflation and the
ginned-up perception of "rising wealth" gained by staring at the
ever-rising Dow Jones Industrials"
Ms. Brown has, according to Gary North, reversed her position and championed the new round of Fed money counterfeiting, for that is what the infamous "QE2" amounts to. Mr.North argues that in this case Ms. Brown has missed the boat, as she is not an economist. Neither am I for that matter, but I have been trading the markets since 1990 and write from a participant's perspective. From a trader's viewpoint, the Fed is not just short-sighted and consistently, always wrong - it is crooked. For Mr. Bernanke to argue, with a straight face, that the rise of small cap stock prices indicates health in the small business sector, when that price rise is solely the result of the Fed buying those stocks and running their valuations to absurd levels is not just a lie, it is a criminal lie. (For an explanation of how the Fed manipulates the stock market on a day to day basis see my earlier article, The US Stock Market Is Rigged.
If the majority of Americans read the market website, Zerohedge.com on a daily basis, there would be no need of my reporting here. Technical analysts and market veterans like the Swiss investor Mark Faber note that the relentless upward moves of the current US market, which has seen no pullback, much less a genuine correction since last August - have never before occurred in the history of the stock market. But never before in the history of the stock market has the Federal government via the Fed wasted billions of desperately needed funds by purchasing stocks; at least not in a way that would be obvious to a five-year-old. It seems apparent to traders that Bernanke will not quit until the Dow and the S&P indexes regain their all time highs of 2007. At that point even an investor foolhardy enough to have bought at the top of the market will not lose a dime.
Mr. Bernanke has given up even trying to support home prices - the place where the middle class has and continues to store what wealth it has left. Instead he has poured all of his newly printed billions into overvalued stocks. All of this has been exacerbated by the recent windfall of tax cuts to the wealthiest 5% of Americans, The S.C.O.T.U.S Citizens United decision which magnified corporate power over Congress, and the election of a Republican House of Representatives so far uninterested in the plight of ordinary Americans struggling to get by and find jobs. How we survive this I cannot say. It would be naive of me to presume that once informed of the facts of Fed policy and its real ramifications, Americans would show some outrage and demand that it end. The acquiescence - indeed the lethargy - of Americans in the face of such horrific economic abuse and injustice is just mind-boggling.