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The Fed’s plan to print $600 billion and buy U.S. treasuries from banks and investors to drive down interest rates was intended to be a “mild steroid” for our weak economy. Instead, “it’s been a powerful steroid for critics of the U.S. central bank,” said a story in The Atlantic.
Several economists in an open letter to Ben Bernanke urged him last month to discontinue the second round of so-called quantitative easing (QE2). As one of the signers, Kevin Hassett, director of economic policy at the American Enterprise Institute (AEI), said, “There’s the possibility that the Fed will have a hard time withdrawing the stimulus when inflation increases.”
“More dollar printing simply dilutes the buying power of all dollars,” as Gold News describes it. “Inflation is coming. In fact, in many ways it’s already here, just not yet widely recognized. Deflationists still hold sway in the bond market.” Yet every day evidences show the dollar is buying less.
Higher government borrowing costs have “driven mortgage rates to their highest level in six months,” The Wall Street Journal reported Dec. 10, challenging the Fed’s efforts to energize the economy. Meanwhile, some are wondering whether the price of farm land is climbing too fast. Sheila Bair, chair of the Federal Deposit Insurance Corporation posed the question in an October speech, the Associated Press reported. The value has risen 58 percent since 2000 in inflation adjusted terms, she said.
The government standard for measuring inflation is the Consumer Price Index for urban consumers. Over the past year, it has increased only 1.2 percent. But that’s the so-called “core” figure. It excludes food and energy. Also, it queries only 87 percent of the urban areas, about 4,000 households and about 25,000 retail establishments, filling stations, supermarkets, and hospitals.
But gasoline has gone up (October 2009 to October 2010) 9.5 percent, fuel oil, 14.5 percent, used cars 8.6 percent, medical care 3.6 percent. So, the CPI is really an incomplete gauge of inflation.
As Forbes Magazine publisher Rich Karlgaard wrote Dec. 2:
Bear in mind that the official scorekeeper for CPI inflation is the U.S. Department of Labor, whose head is politically appointed…At the same time, the Fed…wants higher prices…[I]t boggles the mind to think the Fed goes along with the Labor Department’s exclusion of food and energy prices in the CPI.
It does cause one to wonder — when prices already are flying up higher than the wages or salaries of most Americans. Folks are beginning to wise up and discount Washington’s political experts.
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