Good read: Gasoline Prices and Speculators: They Think You Are Stupid By Joseph Svetlic April 25, 2011 It is with great interest that I read this past week about the President's initial response to rising gas prices. What or who was to blame? According to the President...speculators. Nameless, faceless speculators. They are to blame for the rising price of crude oil up and the accompanying price at the pump! Now this interested me because I worked in the petroleum industry and I studied energy law at law school, and I have taken a strong interest in macroeconomics in recent years. (I read Market Ticker and Zero Hedge, if you are wondering.) I'm going to disregard for this note the fact that higher gas prices are not objectionable at all to our President, despite the fact that they are connected to every product we buy. He doesn't have a problem with high gas prices, only wishing that they become high on a gradual basis. I'm also going to ignore the moratorium on drilling in the Gulf and general opposition to domestic exploration and production of petroleum by this Administration. No, the main culprit here isn't the nameless, faceless "speculators" that are now the object of the President's scorn, but government policy itself, both with the Federal Reserve (monetary) and the budget deficits accrued in recent years (fiscal). What is going on is that the government is trying to deflect blame to these nameless, faceless speculators for their own disastrous fiscal and monetary policies. In other words, they think you are stupid. Let me remind you that the Federal Reserve (Fed) began "quantitative easing" (using printed money to buy assets, chiefly Treasury Bonds) in September 2008 with over $2 trillion. "QE1" continued through the end of the first quarter of 2010, the end of March 2010. Thereafter, we got QE2, which continues to this very day but is slowly wrapping up QE2 is a third the size of QE1, but it means the same: monetizing debt. On the fiscal side, our President has run up a lot of debt in the past two years, despite running in 2008 on a "net spending cut." He's up to nearly 4 trillion in debt over just a little more than two years. How are we financing this? Well, the Fed is stepping up to buy 70% of treasuries. They're doing it with printed money, "quantitative easing." What's the effect of this? You're dollar is worth less. Using printed money to buy the debt of the same country will inflate the currency. Our dollar is not backed by anything. It floats. Therefore, the money that you have has been drastically devalued since the onset of "quantitative easing." This is what I call "loose money." Why is it important to you? Because inflation is a stealth tax on every dollar you have. Whom does this hurt the most? The poor and those on fixed incomes. To any progressives reading this who really do want to help the poor reach the middle class and get off government assistance: is the way to help them through a stealth 20% tax on every dollar they have in their pocket, a unilateral tax that bypasses Congress? That stealth, regressive tax can only drive more middle class into being poor, right? Shouldn't we want every dollar they own to have maximum purchasing power, to be worth as much as possible? Does this have anything to do, you suppose, with the record number on food stamps, one in six Americans? These are the ravages of a loose monetary policy, high-deficit, spendthrift government. It is impoverishment. It is precisely the opposite of what is necessary for a true, strong recovery. A true recovery will feature fiscal responsibility and a strong dollar. The President ran in part on such a platform in 2008, promising a "net spending cut." Had he run on trillion-dollar deficits and monetizing debt, he would've never been elected. Such a strong recovery will have to wait until the President and Fed Chairman are replaced, beginning in 2013. This spendthrift, loose (and reckless) policy is also reflected in the price of gold and silver, which are historical safe harbors from inflation because (as precious metals) they store value and are never worthless. Gold as of this writing was over $1,500/oz, silver over $46/oz. Gold at the beginning of the Obama Administration was just over $850/oz, silver at under $11.50/oz. Just this month, the price of silver skyrocketed from $40/oz to $45/oz in only 12 days. The loss of confidence in the dollar has been striking. So, they are hoping that you don't pay attention to their fiscal and monetary policy. They want you to blame nameless, faceless "speculators" for the rise in the price of gas, even though everything else has risen, thanks to their loose monetary policy and spendthrift fiscal policy. They want you to ignore the rise in commodity prices and the drastic hike in gold and silver. They think you'll go after the nameless, faceless "speculators" because they think you are stupid. My question is this: Are they right about you?
The funny thing is that the governments new plan to get out of the mess they created is to decimate the dollar and cause inflation. Well guess why that wont work? The only wages which are outpacing inflation are government wages. So what we are actually doing is destroying our dollar for nothing. Private sector wages are remaing flat and will not go up, until we put a stop to outsourcing, so all we are doing is exacerbating the problem, by making the government sector get paid more and more as opposed to the private sector, people in the private sector are up shit creek and they end up paying more for everything they need. The U.S. will always be an importer of natural resources, we are lacking in the crucial resources we need in order to survive, so the best way to keep these resources(such as oil) cheap for Americans is to keep the dollar strong. We are currently doing the opposite, and trying to turn the USD into the Yuan. The problem with this belief, is that we have such a long ways to go before we devalue the dollar to the level of the Yuan, and we actually become competitive with the chinese in terms of wages. There is no way we are going to get to Chinese wage levels of 1$ per day with inflated asset prices in America. If we continue trying to inflate our way out of the mess, then before we get to a level where we can compete with the chinese by destroying the dollar, we are going to have to see an unfathomable amount of pain, and we are going to have to see most people who work in the private sector destroyed (via inflation), especially given the fact that the Fed is currently trying to keep housing/asset prices inflated. Of course the only sector who will remain in their current lifestyle is the ultra rich, and government workers whose wages outpace inflation. We need to move back to an isolationist policy, and protect one of the greatest assets we have, which is the U.S. dollar as a reserve currency. We should be taxing the shit out of everything that is bought over seas, I know this will cause trade wars, but it isnt as though any of these trade imbalances are currently in our favour. Eventually U.S. manufacturers will start creating the things we need at home again. We also need to drastically slash the size of government in order to remain solvent. Anyways thats my 2 cents, and why i agree with the author.
That pretty much sums it up. All of the evidence has suggested that public sector growth (in numbers) and wage inflation have been on a tear, not only in the past 10-20 years, but more acutely since Obama's been elected. (In the latter case, it's in the form of wage increases). So, yes, the obvious policy decision is to bankrupt the middle class while simultaneously placating the top 1% (biggest campaign donors) and the lowest classes (wards of the state) who are dependent upon government largesse to eat, sleep, drink (and use their government sponsored cell phones). In turn, they count on these two distinct voting blocks to deliver when the time arrives. It's a deliberate attempt to bankrupt the middle class and destroy the sovereign individual. Without the means to keep pace with the inflation and the dollar debasement, he/she will be forced to either borrow more (favor the banks) or live off of government assistance (cynically, a ploy to gain another Democratic voter). Of course, I'd be remiss if I didn't mention this was a big part of Bush's playbook as well, so it is a bit unclear which party this does benefit. In either event, it's a crude way to create more loan demand at some point as it forces borrowing (just like the higher education scam) where no middle class parent can afford to drop anywhere from $80k-$200k for these costs. Heck, private secondary schools are running $10-15k a year as well.
Core inflation is flat. But all prices should be rising if our problem is "printing money". Energy is clearly rising, but it's not really the American consumer bidding it up, neither is it a lack of US drilling--both are very small contributors. http://www.bnn.ca/News/2011/04/15/US-core-inflation-rises-mildly-in-March.aspx Re the devaluation of the dollar: (Ok, I blew the pic upload) http://www.research.stlouisfed.org/fred2/graph/?chart_type=line&recession_bars=Off&s[1][id]=DTWEXB And re QE2: Krugman explains it well, but if you don't like him and therefore assume his reasoning is faulty, then by all means follow the links: http://krugman.blogs.nytimes.com/2011/04/24/qe2-disappointment-wonkish/ Edit: re the "massive" growth in federal spending: <img src="http://unsettledaccount.com/wp-content/uploads/2011/04/Taylor-op-ed-WSJ-4-22-112.jpg"> Edit: "wage inflation on a tear": <img src="http://www.epi.org/page/-/old/webfeatures/snapshots/archive/2008/0618/Snapshot_chart_750.jpg"
Mentioning Krugman in any adult discussion of this failed monetary policy is an immediate non-starter. Instead, why don't you simply address the points mentioned in the original article and the additional points made by myself and Hello. Linking to all these various articles does not make a cohesive argument, instead it's your pithy little way of trying to hide behind some "big names" that are known partisan hacks and defenders of the status quo.
The fact that you are posting on this forum 24/7 leads me to believe that your "income" are a bunch of direct deposits from the Canadian government.