The Dow jumped 292 points yesterday. Investors took to the Fed’s announcement like children to Santa Claus. They rubbed their eyes and saw a big present under the tree: No real tapering; no time soon.
Said Ben Bernanke, “Highly accommodative monetary policy remains appropriate”.
Ireland’s leading economist, our friend David McWilliams, has prepared a video explaining what a scam the Fed’s QE is.
Yes, it is like Obamacare and the War on Terror – designed to shift wealth from the hoi polloi in the public to the insiders favoured by the feds. And yesterday, the Fed announced that the scam would continue. It took the monthly QE infusion down from $85bn to $75bn, but also told us that the cash would keep flowing for even longer than expected.
As card-carrying, colour-wearing, asset-owning, secret handshake-giving members of the 1%, we’re delighted to know that the filthy lucre will continue coming our way. But as financial philosophers we find the whole show rather shabby and tawdry.
Not only does the programme shift income from the public to the insiders, it also masks the real problems in the economy and stifles real corrections.
Yesterday’s Wall Street Journal worried that low inflation will test the world’s central banks.
Most people like falling prices. They are happy to see that they can buy more of what they want for less of what they have. But central bankers and economists take them as a problem in need of a solution. Without rising prices, how will they keep the scam going?
Central banks rely on inflation to keep the economic pot boiling, and to roast the public. Higher prices lure consumers to spend, rather than save. And rising prices reduce the value of wages and earnings. Lower real labour costs coax businesses to hire more people, improving both employment and consumer spending.
Falling prices, on the other hand, are a menace. They raise real wages, and induce households to save rather than spend. That’s why the central banks are trying so hard to get inflation levels back up. Disinflation interferes with their ‘borrow, borrow, borrow; spend, spend, spend’ fantasy.
So far, they are failing.
Bill Bonner on markets, economics & the madness of crowds
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Inflation in America has been on a downward course for 33 years. And now, prices are going up at the slowest pace since 2008, which was the lowest level in more than half a century. In November, core consumer price increases came in at just 1.2%. In Europe, the figure is even lower – below 1%. And Japan has been struggling with deflation for years. The Japanese feds have pledged to get inflation up to 2%. So far, they are only “half way there”, says Haruhiko Kuroda who runs the Bank of Japan.
Why the low inflation? Nobody knows for sure. But it is probably a combination of things; ageing populations in the developed world and low-price output in China are frequently mentioned.
Less often mentioned is the interference of the policymakers themselves. As we noted yesterday, by scamming the public and moving more wealth to the rich, the feds take money out of the hands of thirsty drinkers and give it to the tee-totallers.
Rich people don’t spend more when they get their hands on more money. They already have the houses, TVs, and automobiles they want. Taking money from the lower 90% and giving it to the upper 10% actually reduces demand, thereby holding prices down.
Also left unmentioned is the effect of low interest rates on earnings. Savers – especially retirees – spend much of the interest they earn. Shaving interest rates leaves them with less money to spend.
And the punky, sluggish economy is also a product of the Fed’s refusal to allow a genuine correction. It leaves households with fewer good jobs and lower wages.
This is where the scam really hurts.
As we reported in these pages, look at ten American households at random. Nine of them have less money to spend today than they did ten years ago. And the typical man of working age has suffered even more. According to the Brookings Institution study – reported here a few days ago – his real wages are now below the 1964 levels. We may have misreported this news when we first delivered it. Here are the important figures: in 1974, the average man earned nearly $350 a week in constant 1982 dollars. Today, the figure is close to $290.
Want to know why prices are not rising? The answer is simple: most people don’t have any money to spend.
Who’s to blame? More than anyone, the feds themselves.
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