Posted on 06/23/2011 5:11:51 AM PDT by 2ndDivisionVet
On June 15, the Bureau of Labor Statistics released the inflation data for May. If you didn't hear about the new data, you are not alone -- the mainstream media buried the story. Why? Inflation hit 3.6% in May, even though gasoline prices actually fell that month. Inflation has been rising since November, as shown in the graph below:
(CHART AT LINK)
These rising prices were largely caused by Federal Reserve Chairman Ben Bernanke's rapid expansion of the U.S. money supply, known as QE2 (Quantitative Easing 2). But inflation wasn't supposed to get this high. Back in November, Bernanke told his fellow central bankers that the Federal Reserve's Open Market Committee (FOMC) was aiming for an inflation rate no higher than 2%. Specifically, he said:
This policy tool will be used in a manner that is measured and responsive to economic conditions. In particular, the Committee stated that it would review its asset-purchase program regularly in light of incoming information and would adjust the program as needed to meet its objectives. Importantly, the Committee remains unwaveringly committed to price stability and does not seek inflation above the level of 2 percent or a bit less that most FOMC participants see as consistent with the Federal Reserve's mandate.
Bernanke is like a driver who steps on the brakes, then floors the gas pedal, then steps on the brakes again, then floors the gas pedal again. His tenure at the Federal Reserve has been marked by the erratic swings in the U.S. money supply, shown in the graph below:
(GRAPH AT LINK)
From May 2010 to May 2011, Bernanke had his pedal to the metal. He grew M1 (the amount of money in cash and in checking accounts) at a 13.4% rate. Due to lag time, this didn't get inflation climbing rapidly until February. Now that inflation has gotten started, it may be hard to stop because it can get a momentum of its own.
Back in November, Governor Palin took on QE2 and President Obama's defense of it. Her predictions have turned out to be correct. When making her case against QE2, she argued that it could cause inflation, but would not much help U.S. net exports and business investment, the two factors needed to grow the U.S. economy.
Indeed, worsening net exports (exports minus imports) have been keeping the United States stuck in its current economic stagnation. When imports go up relative to exports, Americans get more debt and lose jobs, whereas when exports go up, relative to imports, Americans get more income and gain jobs. The decline in net exports may be slowing or preventing the U.S. economic recovery.
Bernanke hoped that QE2 would weaken the dollar which would turn U.S. net exports around. But Palin predicted that any positive effects would be temporary. In November she wrote:
Will driving the dollar down in this way do anything to boost U.S. exports? The short answer is not really. A weaker dollar will temporarily boost exports by making our goods cheaper to sell; but inevitably other countries will respond in kind, triggering the kind of currency wars economists are warning us about.
Indeed, so far Palin has been correct. QE2's effect upon net exports appears to have been temporary. Although U.S. net exports worsened more slowly in November and December, they resumed their economy-sapping slide in February, as shown in the graph below.
(GRAPH AT LINK)
Business investment is another key to economic growth, it combines the money spent by businesses on new tools and structures, such as when businesses develop new energy resources or build new factories. When businesses spend money on tools and structures, they put Americans to work making the tools and building the structures. Later, the improved tools and structures give American workers more productive work, resulting in higher wages. Bernanke had hoped that QE2 would stimulate business investment. But, in November, Palin predicted that QE2 would have little effect upon business investment. She wrote:
Will QE2 then at least boost domestic investment? No, again. As I explained in my speech in Phoenix, the reason banks aren't lending and businesses aren't investing isn't because of insufficient access to credit. There's plenty of money around, it's just that no one's willing to spend it. Big businesses especially have been hoarding cash. They're not expanding or adding to their workforce because there's just too much uncertainty created by a lot of big government experiments that aren't working. It's the President's own policies that are creating this uncertainty.
Indeed, as the graph below shows, the rate of growth in real fixed investment slowed in the fourth quarter of 2010 and the first quarter of 2011, despite QE2:
(GRAPH AT LINK)
Palin argued that QE2 was a dangerous experiment that risked inflation. She urged Obama to instead balance budgets, cut taxes and reduce burdensome business regulation. In November, she concluded:
If the President was serious about getting the economy moving again, he'd stop supporting the Fed's dangerous experiments with our currency and focus instead on what actually works: reducing government spending and boosting business investment through good old fashioned supply side reforms (cutting taxes and reducing overly burdensome regulations). Simply running the printing presses in order to avoid paying off your debts is no way for a great nation to behave.
In May, she added balanced trade to her recipe for economic recovery. After meeting with Donald Trump, she said:
"What do we have in common? Our love for this country, a desire to see our economy put back on the right track," Palin told reporters. "To have a balanced trade arrangement with other countries across this world so Americans can have our jobs, our industries, our manufacturing again. And exploiting responsibly our natural resources. We can do that again if we make good decisions."
The bulk of the U.S. trade deficit (i.e., of our negative net exports) is with China. When Trump was testing the waters for a possible presidential run, he made President Obama's incompetent negotiations with China a cornerstone of his campaign. With Chinese aggregate demand growing rapidly and U.S. aggregate demand stagnant, economists would normally expect the Chinese trade surplus with the United States to be shrinking. But President Obama has let the Chinese government reduce U.S. net exports to China month after month, as shown by the new 12-month lows reached in recent months in the graph below:
(GRAPH AT LINK)
Obama negotiates with China from a position of weakness. He goes into each meeting ruling out the possibility of the U.S. putting tariffs upon Chinese products, even though the Chinese government has already placed high tariff and other barriers upon U.S. products. The U.S. need not negotiate from a position of weakness. Under world trade rules, it is entitled to impose trade balancing tariffs whenever it is running chronic trade deficits. Our proposal for scaled tariffs would let the United States (and any other country harmed by large chronic trade deficits) achieve higher net exports with or without the cooperation of its trading partners.
The mainstream media pretend that Palin is stupid. But she is actually blessed with a very rare commodity these days - economic common sense. She is the only potential presidential candidate currently advocating the three basic principles that would restore economic stability and long-term growth to the American economy: (1) balanced monetary growth, (2) balanced budgets, and (3) balanced trade.
Ruh-roh, Riggy!
So was Peter Schiff, Jim Rogers and Marc Faber all who predicted this in early 2009 in writing and videos(posted here at FR BTW) long before Palin talked about it.
Yawn. Those rates are tame.
http://www.usinflationcalculator.com/inflation/historical-inflation-rates/
I forget, Glenn Beck was on this too but mostly later in 2009.
How much of that is apples and oranges? Somewhere in that history the government took commodity prices like food and fuel out of the calculations.
So were most FReepers.
You ain’t seen nuthin’ yet!
LLS
Are any of those mentioned viable candidates for the Republican nomination for president? Gov. Palin is. Did President Reagan come up with all his own ideas or did he have advisors? Having worked with him, I know the answer.
Thoughts?
Sure, at what point do we pronounce Globalism’s demise?
Why would a banker loan money to a business this administration might put out of business in a few years??
None of whom were pols from our side we’d be looking to for political leadership—or considering electing president in 2012.
-——Now that inflation has gotten started, it may be hard to stop ——
That sentence indicates the author has no clue. He doesn’t understand at all what is unfolding before his eyes.
There is no intention or desire or policy to stop inflation. Inflation is the desired goal. The intent of the various players is to manage inflation, not to stop it.
The combination of compounded inflation and resulting compounded marginal revenue increase will over time eliminate the debt. The process is actually the only way the debt can be eliminated. The whole world knows it too, and the process is pretty much universal.
To stabilize the debt, the deficits must be reduced to 0. The Republicans are attempting to do that now.
IIRC, food and fuel ARE including in core inflation figures, but not in CPI.
radioone wrote:
"They're not expanding or adding to their workforce because there's just too much uncertainty created by a lot of big government experiments that aren't working."
Why would a banker loan money to a business this administration might put out of business in a few years??
Further, why would anyone contemplating expanding a potentially "favored" business borrow from a banker today, pay interest and be obligated to pay it back later, when they might be able to collect a government give-away next month or next year. Even for businesses that might be able to expand, there's the question of timing. Better to do it on the taxpayer dime, if you're willing to wait for that gravy train to get to your station.
“How much of that is apples and oranges? Somewhere in that history the government took commodity prices like food and fuel out of the calculations.”
http://www.economicpolicyjournal.com/2011/06/shadow-stats-price-inflation-at-112.html
Viable? You mean with a write-in vote? Things seem much more quiet on that front compared to a few weeks ago.
I notice Rick Perry's name seems to be popping up in these Palin posts since the bus headed back to Alaska. Not sure what to make of that so far.
Are you able to read? Her bus tour is in hiatus so she can perform jury duty! How did you miss that story?!
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.