The Real Victims of Fed Monetary Policy

03/31/11 Los Angeles, California – The Dow went up more than 70 points yesterday. The higher it goes, the more dangerous it becomes.

What’s the matter with this downturn? Shouldn’t it lower stock prices? Shouldn’t it empty tables at fancy restaurants? Shouldn’t it close down some of these luxury shops and make it easy to upgrade to business class?

Nah… The Great Correction is a failure. At least so far. It’s correcting only the people at the bottom.

Last week, we went shopping for a birthday present. We went around Bethesda, to Bloomingdales…to Saks…even to Tiffany’s. In one shoe store there were five middle-aged clerks, ready to help us. How could there be enough profit in a pair of shoes to support so many clerks? Then we found out…when Elizabeth bought a pair. Leaving the store, she picked up the wrong bag… The clerk called her. He offered to meet her to exchange bags. “Just look for me. I’ll be in my black Mercedes,” he said.

What? How can shoe clerks afford Mercedes?

Then, we went to Tiffany’s, where there were so many Asian customers, the clerks barely gave us the time of day.

Everywhere we went we found shockingly high prices – and people paying them.

Here in LA too…the numbers show typical families are poorer – thanks largely to falling house prices. But there are still many people at the top…with expensive cars…expensive habits…and the money to keep at it. And despite all the talk of downsizing chic – we don’t see much evidence of it.

At the upper income levels, there doesn’t seem to be much correction happening. And why should there be? The feds give them money.

Stocks have recovered most of their losses. Bonds – which should be worthless by now – still trade hands at par. Corporate profits are at record levels.

Where’s all this money coming from? You guessed it, the feds.

But pity the poor lumps at the bottom. The official unemployment rate has gone down…but most of the improvement in the numbers comes from dropping people off the list of those who are looking for work.

So, what happened to those who didn’t find jobs? They’re getting food-stamps (42 million of them at last count). Or, they’re living hand to mouth.

Many of them have now been out of work for so long they’ll probably never work seriously again.

In this case, the leftists are right. The feds have re-flated the rich folks’ bubble…largely at the expense of the poor. Even Fed governor Thomas Hoenig says so. From Bloomberg:

The Federal Reserve’s “highly accommodative” monetary policy is partly to blame for rapidly increasing global commodity prices, said Kansas City Fed President Thomas Hoenig, who called on colleagues to raise the benchmark interest rate toward 1 percent soon.

“Once again, there are signs that the world is building new economic imbalances and inflationary impulses,” Hoenig, the central bank’s longest-serving policy maker and lone dissenter at meetings last year, said in a speech today in London. “The longer policy remains as it is, the greater the likelihood these pressures will build and ultimately undermine world growth.”

Those “inflationary impulses” are making it hard for the middle classes to make ends meet.

Hershey’s is raising prices 10%. At least it’s being honest about it. A New York Times article tells us that many consumer brands are passing along “stealth inflation” by reducing sizes or lowering quality.

You go to the grocery story. You’re given opportunities to buy new “healthy” items – smaller, and more expensive. Or they are “green” – which makes you think that maybe they are better for the environment in some way. What they are for sure is more expensive.

Not that we blame the companies. They’re caught in a squeeze too. The Fed has driven up prices for their raw materials. Sugar, wheat, cotton, oil – almost all their costs are higher.

The big exception is labor. The cost of employing people has barely budged. Too bad. Because customers are also employees. If they don’t earn more in wages, how can they keep up with the inflationary cost increases?

Bill Bonner
for The Daily Reckoning

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning . 

View articles by Bill Bonner

The articles and commentary featured on the Daily Reckoning are presented by Agora Financial.

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The Real Victims of Fed Monetary Policy

03/31/11 Los Angeles, California – The Dow went up more than 70 points yesterday. The higher it goes, the more dangerous it becomes.

What’s the matter with this downturn? Shouldn’t it lower stock prices? Shouldn’t it empty tables at fancy restaurants? Shouldn’t it close down some of these luxury shops and make it easy to upgrade to business class?

Nah… The Great Correction is a failure. At least so far. It’s correcting only the people at the bottom.

Last week, we went shopping for a birthday present. We went around Bethesda, to Bloomingdales…to Saks…even to Tiffany’s. In one shoe store there were five middle-aged clerks, ready to help us. How could there be enough profit in a pair of shoes to support so many clerks? Then we found out…when Elizabeth bought a pair. Leaving the store, she picked up the wrong bag… The clerk called her. He offered to meet her to exchange bags. “Just look for me. I’ll be in my black Mercedes,” he said.

What? How can shoe clerks afford Mercedes?

Then, we went to Tiffany’s, where there were so many Asian customers, the clerks barely gave us the time of day.

Everywhere we went we found shockingly high prices – and people paying them.

Here in LA too…the numbers show typical families are poorer – thanks largely to falling house prices. But there are still many people at the top…with expensive cars…expensive habits…and the money to keep at it. And despite all the talk of downsizing chic – we don’t see much evidence of it.

At the upper income levels, there doesn’t seem to be much correction happening. And why should there be? The feds give them money.

Stocks have recovered most of their losses. Bonds – which should be worthless by now – still trade hands at par. Corporate profits are at record levels.

Where’s all this money coming from? You guessed it, the feds.

But pity the poor lumps at the bottom. The official unemployment rate has gone down…but most of the improvement in the numbers comes from dropping people off the list of those who are looking for work.

So, what happened to those who didn’t find jobs? They’re getting food-stamps (42 million of them at last count). Or, they’re living hand to mouth.

Many of them have now been out of work for so long they’ll probably never work seriously again.

In this case, the leftists are right. The feds have re-flated the rich folks’ bubble…largely at the expense of the poor. Even Fed governor Thomas Hoenig says so. From Bloomberg:

The Federal Reserve’s “highly accommodative” monetary policy is partly to blame for rapidly increasing global commodity prices, said Kansas City Fed President Thomas Hoenig, who called on colleagues to raise the benchmark interest rate toward 1 percent soon.

“Once again, there are signs that the world is building new economic imbalances and inflationary impulses,” Hoenig, the central bank’s longest-serving policy maker and lone dissenter at meetings last year, said in a speech today in London. “The longer policy remains as it is, the greater the likelihood these pressures will build and ultimately undermine world growth.”

Those “inflationary impulses” are making it hard for the middle classes to make ends meet.

Hershey’s is raising prices 10%. At least it’s being honest about it. A New York Times article tells us that many consumer brands are passing along “stealth inflation” by reducing sizes or lowering quality.

You go to the grocery story. You’re given opportunities to buy new “healthy” items – smaller, and more expensive. Or they are “green” – which makes you think that maybe they are better for the environment in some way. What they are for sure is more expensive.

Not that we blame the companies. They’re caught in a squeeze too. The Fed has driven up prices for their raw materials. Sugar, wheat, cotton, oil – almost all their costs are higher.

The big exception is labor. The cost of employing people has barely budged. Too bad. Because customers are also employees. If they don’t earn more in wages, how can they keep up with the inflationary cost increases?

Bill Bonner
for The Daily Reckoning

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning . 

View articles by Bill Bonner

The articles and commentary featured on the Daily Reckoning are presented by Agora Financial.

Sign Up for The Daily Reckoning e-letter and receive a copy of our newest report How to Survive the Fall of Social Security… at NO CHARGE.

We Will Not Share Your Email.
We Value Your Privacy.

View the original article here

The Real Victims of Fed Monetary Policy

03/31/11 Los Angeles, California – The Dow went up more than 70 points yesterday. The higher it goes, the more dangerous it becomes.

What’s the matter with this downturn? Shouldn’t it lower stock prices? Shouldn’t it empty tables at fancy restaurants? Shouldn’t it close down some of these luxury shops and make it easy to upgrade to business class?

Nah… The Great Correction is a failure. At least so far. It’s correcting only the people at the bottom.

Last week, we went shopping for a birthday present. We went around Bethesda, to Bloomingdales…to Saks…even to Tiffany’s. In one shoe store there were five middle-aged clerks, ready to help us. How could there be enough profit in a pair of shoes to support so many clerks? Then we found out…when Elizabeth bought a pair. Leaving the store, she picked up the wrong bag… The clerk called her. He offered to meet her to exchange bags. “Just look for me. I’ll be in my black Mercedes,” he said.

What? How can shoe clerks afford Mercedes?

Then, we went to Tiffany’s, where there were so many Asian customers, the clerks barely gave us the time of day.

Everywhere we went we found shockingly high prices – and people paying them.

Here in LA too…the numbers show typical families are poorer – thanks largely to falling house prices. But there are still many people at the top…with expensive cars…expensive habits…and the money to keep at it. And despite all the talk of downsizing chic – we don’t see much evidence of it.

At the upper income levels, there doesn’t seem to be much correction happening. And why should there be? The feds give them money.

Stocks have recovered most of their losses. Bonds – which should be worthless by now – still trade hands at par. Corporate profits are at record levels.

Where’s all this money coming from? You guessed it, the feds.

But pity the poor lumps at the bottom. The official unemployment rate has gone down…but most of the improvement in the numbers comes from dropping people off the list of those who are looking for work.

So, what happened to those who didn’t find jobs? They’re getting food-stamps (42 million of them at last count). Or, they’re living hand to mouth.

Many of them have now been out of work for so long they’ll probably never work seriously again.

In this case, the leftists are right. The feds have re-flated the rich folks’ bubble…largely at the expense of the poor. Even Fed governor Thomas Hoenig says so. From Bloomberg:

The Federal Reserve’s “highly accommodative” monetary policy is partly to blame for rapidly increasing global commodity prices, said Kansas City Fed President Thomas Hoenig, who called on colleagues to raise the benchmark interest rate toward 1 percent soon.

“Once again, there are signs that the world is building new economic imbalances and inflationary impulses,” Hoenig, the central bank’s longest-serving policy maker and lone dissenter at meetings last year, said in a speech today in London. “The longer policy remains as it is, the greater the likelihood these pressures will build and ultimately undermine world growth.”

Those “inflationary impulses” are making it hard for the middle classes to make ends meet.

Hershey’s is raising prices 10%. At least it’s being honest about it. A New York Times article tells us that many consumer brands are passing along “stealth inflation” by reducing sizes or lowering quality.

You go to the grocery story. You’re given opportunities to buy new “healthy” items – smaller, and more expensive. Or they are “green” – which makes you think that maybe they are better for the environment in some way. What they are for sure is more expensive.

Not that we blame the companies. They’re caught in a squeeze too. The Fed has driven up prices for their raw materials. Sugar, wheat, cotton, oil – almost all their costs are higher.

The big exception is labor. The cost of employing people has barely budged. Too bad. Because customers are also employees. If they don’t earn more in wages, how can they keep up with the inflationary cost increases?

Bill Bonner
for The Daily Reckoning

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning . 

View articles by Bill Bonner

The articles and commentary featured on the Daily Reckoning are presented by Agora Financial.

Sign Up for The Daily Reckoning e-letter and receive a copy of our newest report How to Survive the Fall of Social Security… at NO CHARGE.

We Will Not Share Your Email.
We Value Your Privacy.

View the original article here

A Monetary Policy that Encourages Malinvestment

03/17/11 Tampa, Florida – Thorsten Polleit, of the Frankfurt School of Finance & Management, penned an article in The Free Market newsletter of the Ludwig von Mises Institute titled “The Many Names for Money Creation.”

It starts off almost humorous, reading more like an interesting, mood-lightening sidebar to a banner article titled “We’re Freaking Doomed (WFD)!” as he notes that the dire economic conditions are such that “euphemisms have risen to great prominence. This holds true in particular for monetary policy experts, who are at great pains to advertise a variety of policy measures as being in the interest of the greater good, because they are supposed to ‘fight’ the credit crisis.”

He then illustrates how the term “unconventional monetary policy” is meant to convey the happy virtues of “courageous and innovative”, as opposed to the bad old “conventional” monetary policy, which is now “outdated.”

In a similar vein, he notes that “Aggressive monetary policy” is meant to signify “bold and daring action for the greater good,” and “quantitative easing” is just a confusing term used to make it difficult for people to see “what such a monetary policy really is – namely, a policy of increasing the money supply (out of thin air), which, in turn, is equal to a monetary policy of inflation.”

A policy of inflation! Yikes! What was in that article “We’re Freaking Doomed (WFD)!”?

From the perspective of the Austrian school of economics (the only true economic theory!), this is not going to be the ordinary kind of inflation, either, but the really nasty, evil kind, where “monetary policy pushes the market rate of interest below the natural rate of interest (the societal time-preference rate), thereby necessarily causing malinvestment rather than ushering in an economic recovery.”

In other words, the Fed and the government are making it worse.

And if you want to know about malinvestment, then ask my boss, who never tires of telling me that I am the only employee, alone, apparently in the whole freaking history of employees, that has a consistent negative value to the company, meaning that the bottom-line of the company would be immediately improved if I was, to coin a rhyme, removed.

So I asked her, “What’s with that ‘improved if I was removed’ stuff?” to which she asked, “What are you talking about? You are the one that said that in the previous paragraph, you moron!” to which I asked, “What?” and then she asked, “What?” and then we just looked at each other, confused as hell.

There was an awkward silence, as I struggled as if I was in some weird parallel universe, since her point was that she is, only now, realizing that I am, as an employee, a huge mal-investment, but I can’t be fired since I am too old and too savvy not to sue the hell out of all of them for my termination, even though their case is air-tight and I should have been fired long ago.

And, as I never cease saying, some other, much worse mal-investments, such as the stock market bubbles, and the bond market bubbles, and the derivatives bubbles, and the debt bubbles, and the housing bubbles, and the bubbles in the sheer, staggering size of governments, were NOT my fault, but are all the fault of the Federal Reserve creating the money that made it all possible

Now, as if playing right into my hands, Mr. Polleit writes, “Sooner or later the dependence of the people on government handouts reaches, and then surpasses, a critical level,” which I assume we have reached.

The worse news is that he figures that “People will then view a monetary policy of ever-greater increases in the money supply as being more favorable than government defaulting on its debt, which would wipe out any hope of receiving benefits from government in the future.”

The terrifying point of all of this is when he writes, ominously, “In other words, a policy of inflation, even hyperinflation, will be seen as the policy of lesser evil.” Hyperinflation! Gaaahhh!

Hyperinflation! Immediately, I go into We’re Freaking Doomed (WFD) mode, which usually involves a lot of hyperventilating and a feeling of panic until I realize that all I have to do is buy gold and silver to keep what is going to happen to everyone else from happening to me, and make a lot of dollars in the process, which always makes me feel better, leading to euphoria, as in, “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

Richard Daughty (Mogambo Guru) is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the writer/publisher of the Mogambo Guru economic newsletter, an avocational exercise to better heap disrespect on those who desperately deserve it. The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning , and other fine publications.

View articles by The Mogambo Guru

The articles and commentary featured on the Daily Reckoning are presented by Agora Financial.

Sign Up for The Daily Reckoning e-letter and receive a copy of our newest report How to Survive the Fall of Social Security… at NO CHARGE.

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We Value Your Privacy.

View the original article here