Thomas Molitor
It may just my warped perception – a fever dream perhaps – but I see prices going up, up, up on everything in New Mexico.
Maybe inflation has risen only in the places in which I shop. Let’s see, Sunflower Market, Costco, Whole Foods, the movies, Ross for Less (rarely do I admit to anyone I shop there – but hey – you really can pick up some brand name stuff for a fraction of their original price tag).
According to the Bureau of Labor Statistics, the current price index, which is published monthly, shows the United States on track for a 1.1 percent annual inflation rate for 2010. No problem then right? Inflation is under control. But do you feel like you are paying just 1.1 percent more for things than you did last year?
So what’s going on? The canary in the coal mine for inflation is normally the price of gold. Gold recently hit an all-time high of $1, 346 per troy ounce – and the orthodox belief on gold as an asset class is to buy it as a hedge against inflation. A hedge against 1.1 percent? I don’t think so. Something else is going on here.
The Dow is at 11,000, even though there is nothing but bad economic news relentlessly assaulting our senses from the Murdoch media. Yet, the market continues to rise because the “economic experts” on Wall Street are still clinging to the idea that no matter what the news of the day is – it’s bullish for the stock market.
If we get good economic news, well, it’s bullish for the stock market. If we get bad economic news, well, it too is good for the stock market because that means the Federal Reserve Bank is going to come to the rescue with quantitative easing. Look here for a great short video that explains quantitative easing using fourth-grade language (the level that works for me), and then come back.
OK, now you know how Bernanke floods the markets with counterfeit currency (economists call it “liquidity”) to ease the pain of our financial markets. Elizabeth Kubler-Ross – if she had been an economist instead of a famous psychiatrist – would have more accurately called it “denial” – the first stage of economic death.
Quantitative easing will not fix the economy
QE does not create jobs or create economic prosperity; rather, it destroys the value of the dollar. The dollar index (a measure of the U.S. dollar against a basket of six major currencies) is at an all-time low. Which is the same thing as price inflation. (More on which below.)
Going back to gold for just second, the other day I was driving down Alameda trying to avoid the Balloonist RV backup traffic, when a fund manager came on the radio and said he was putting his clients into gold not as a hedge against inflation (“obviously, there’s very little inflation,” he said), but “as a hedge against the weakening dollar.” I couldn’t believe the guy said that. That’s a distinction without a difference.
What does he think inflation is? It’s the dollar losing value; it’s two sides of the same coin. The reason that prices rise is because the dollar has less value. And when the dollar loses value, you need more dollars to buy the same things you bought last month with less dollars. Which means there is a lot more inflation in the households of New Mexico than 1.1 percent.
The scary part is, the worse the economy gets the more the Fed is going to use quantitative easing to “fix the economy.” Which is going to further debase the dollar, causing more diminished-dollar inflation in New Mexican households.
The next governor of New Mexico can’t do a darn thing about Mr. Bernanke. But our two U.S. senators and three members of the U.S. House can sure as heck work harder at understanding the harmful effects of the Fed manipulating the money markets, and how those effects lower the standard of living for New Mexicans.
Molitor is a weekly columnist for this site. You can reach him at tgmolitor@comcast.net.
Molitor bio │ Archives │ Feed