Frederick Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, 2009) and "The Coming Collapse of the Municipal Bond Market"(Aucontrarian.com, 2009)
"Ben Bernanke: The Chauncey Gardiner of Central Banking" examined the Federal Reserve's November 3, 2010, decision to save the economy by inflating the asset markets. Chairman Bernanke shared his unpardonable rationale for QE2 in the Washington Post, on November 4, 2010. His deadly cruise missiles, QE1 and QE2, were described in "Chauncey Gardiner."
The subject of CG2 - Chauncey Gardiner, Part 2 - is Bernanke's ignorance of the United States' unavoidable association with the rest of the world. The consequence of Federal Reserve money expansion is not only disrupting foreign economies; the backwash from dollars piling up overseas is raising food prices in the U.S.
In his Washington Post commentary, Bernanke never mentioned the dollar, the currency that is being aggressively depreciated by the Federal Reserve. In the Post, Bernanke resorted to "price stability," a deceptive phrase invented to justify inflating prices, in the present instance, by 2% a year. No Federal Reserve chairman before Bernanke claimed he needed to inflate prices to prevent them from deflating. Congress has not addressed this new coin-clipping mandate of the Fed, nor will it. Bernanke could declare tomorrow that a 5% annual currency debasement is necessary for price stability. This, too, would be met by silence. What is the point of paying the House of Representatives since it does not represent?
Depreciation of the dollar at home is handcuffed to depreciation of the dollar against other currencies. (This is a "competitive devaluation" in which most countries are participating, but the U.S. is the most assertive aggressor.) Even before the Fed's announcement of QE2 on November 3, denouncements from overseas warned Bernanke he was about to rouse a new round of anti-Americanism.
On October 13, 2010, the China Securities Journal (an affiliate of the Chinese government's official news agency Xinhua News) warned: "The U.S. expansionary monetary policy could hijack the global economy, and emerging markets are the most likely to suffer the consequences." After this and many other declarations from the Chinese, the Congressmen and Senators who demand China cooperate in currency adjustment said and did nothing about the Fed's QE2 operation. The politicians either want to launch a trade war (goading nationalism could help beleaguered office-holders) or are unable to rub two thoughts together at the same time.
Speaking of the untutored, the (London) Daily Telegraph targeted Bernanke on October 16 when it warned: "America's attempt to print itself out of trouble...is far from proven [and] could actually make things worse. QE on this scale now being proposed has never been tried. It is beyond the realms even of economic theory." (In the aftermath of QE2, Germany's Finance Minister Wolfgang Schaeuble seconded this opinion: "However you look at it, my impression is the U.S. is in a state of desperation.")
The broadsides did not stop: On October 23, 2010, German Economic Minister Rainer Bruederle addressed both the European Central Bank's balance sheet and the well advertised intention of the Federal Reserve to commence its attack on the world economy: "An excessive, permanent increase in money [supply] is, in my view, an indirect manipulation of the (foreign exchange) market." China Commerce Secretary Chen Deming warned on October 26: "Because the United States issuance of [dollars] is out of control and international commodity prices are continuing to rise, China is being attacked by imported inflation. The uncertainties of this are causing... problems."
The flow of Federal Reserve Notes overseas is indeed causing problems. Commodity prices are at all-time or generational highs when quoted in the most overabundant currency on the world, U.S. dollars: natural rubber, synthetic rubber, corn, soy, wheat, cotton, iron ore, steel, and cattle. It is always the case when prices become distorted that shortages develop. Today there are scarcities of palm oil, vegetable oil, soybeans, diesel fuel, engineers, welders, pipe fitters, electricians, and coal. Federal Reserve officials, operating as they do in a theoretical world, certainly did not consider before this latest act the food riots that spread across at least 20 countries in 2006 through 2008, as commodity prices (food, in particular) were doubling and tripling.
Chairman Bernanke is an ignorant man, evident whenever he speaks, but wondrously displayed in comments after his November 3 launch. Bloomberg news described a talk by Simple Ben in Jacksonville, Florida on November 5: "Federal Reserve Chairman Ben S. Bernanke said the central bank must focus on the U.S. rather than overseas economies when trying to spur the recovery by purchasing an additional $600 billion in Treasuries."
Ben is deaf to anger that has been directed against the U.S. since his latest dollar dump. The gathering trend towards rising trade barriers, capital controls and protectionism shifted into a higher gear after the Fed's announcement. This is not good for the United States. These tendencies did not work out well for the U.S. in the 1930s and that was a time when the world admired America. The insistence of his fellow, establishment economists to still call Bernanke "an expert on the Great Depression" shows this so-called profession is gurgling its death rattle.
After his Jacksonville address, Bernanke was asked how his duplicitous description of inflation (it is too low) could be true given "skyrocketing" commodities prices. The disoriented cosmonaut replied that rising commodity prices are "the one exception" to a broad reduction in inflationary pressure. He went on to say the "excess slack in the economy" will make it "difficult for producers to push through higher prices to consumers."
It will be difficult for producers to stay in business if they don't. Over the past year, the price of wheat has increased 74%; corn: 14%; oats: 68%; heating oil: 29%; gasoline: 25%; pork: 60%; coffee: 27%; beef: 18%; sugar: 44%; copper: 37%; and cotton: 66%.
Some companies have been unable to pass on costs. Kimberley Clark, Wendy's/Arby's Group, and CKE restaurants (among many others) announced third quarter 2010 profits fell even though total sales rose. Squeezing profits out of companies contracts the job market; it does not "spur" it. Some companies, including General Mills, McDonalds, and many supermarket chains have raised their prices, in defiance of Bernanke's contention that it will be "difficult for producers to push through higher prices to consumers."
It is the consumers who can least afford who suffer the most from rising commodity prices, especially since personal income in the U.S. continues to fall, as it did once again in September, 2010. According to the Bureau of Labor and Statistics, the 20% of Americans with the lowest wages spend nearly 60% of their after-tax income on food and energy. The highest 20% of earners spend about 10% of their after-tax income on these necessities.
Only a celebrity economist could think rising commodity prices will be "contained." (A reminder of Federal Reserve Chairman Ben Bernanke's consistent record of being wrong: "At this juncture . . . the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained." - March 28th, 2007). UPS just announced it is increasing shipping rates by 4.9%. College tuitions for 2010-2011 rose 7.0% at 4-year public colleges. Holiday airfares in 2010 are expected to be 18% higher than a year ago (FareCompare.com).
Like coin-clippers of yesteryear, Bernanke denies any wrong doing. In the Post, he claimed inflation is so low it is "unhealthy." But this is one of the gravest crimes one can commit against the People. (Coin-clipping was the practice of clipping small amounts of gold or silver from each coin and then selling the shavings.) We have become so refined, the crime goes unmentioned. It was not always so.
In 1278, King Edward I raised the penalty for coin clipping to execution. There were 298 offenders who were hung for offenses against "our Lord the King's Coin." Under Queen Elizabeth I in 1576, "a goldsmith named Thomas Green was drawn from Newgate to Tyburn, and was there hanged, beheaded, and quartered for the clipping of gold and silver coins." On June 21, 1776, Phoebe Harris was burned at the stake, at Tyburn, for High Treason. The specific crime was coin clipping. A crowd of 20,000 gathered to watch. The odor from her body smoke left some spectators gasping.
The People - from Bakersfield to Burma - should settle for the disestablishment of the Federal Reserve and send Ben and his silly friends back to college campuses where they can teach students who are silly enough to believe their disgraceful professors whose empty-headed curriculum they will someday teach.