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Monday, November 1, 2010

Every breath you take...

A couple of points for a post that is being written late on Hallow's Eve.

This week the US Federal Reserve is going to announce QE2.

Personally I suspect that it will be lower than what the market is expecting. The announcement of the amount, that is.

The real amount will far exceed expectations.

Bernanke is an intellectual, and a predictable one at that. He has neither said anything up to now nor will he dare process a thought that deviates from his doctoral thesis.

I personally expect that the announcement will be for moderate QE and over the weeks and months ahead additional QE will be implemented a little at a time.

And as I have said before, get ready for inflation.

The announced (and stealth) monetization that is coming is going to accelerate the inflation that already exists.

The Federal Reserve has already stated the objective is increased inflation. A recent Fed Report, released in September, even argues that such unacknowledged CPT shocks (like the surges in the price of oil we will likely experience courtesy of a fresh trillion in liquidity) are beneficial to GDP and stimulative to the interest-rate sensitive parts of the economy. "In fact, if the increase in oil prices is gradual, the persistent rise in inflation can cause a GDP expansion."

But this surge is not something we have to wait for. As I have said, inflation is already here.

The two key commodities that have been rising lately are oil and grains, specifically wheat, corn and livestock feed (see the BLS report on Producer Price Index of commodities).

Grains as a class have risen over 33% year-over-year. Refined oil products have risen just shy of 13%, and home heating oil 18% year-over-year.

That means food, gasoline and heating oil have risen by double digits since 2009.

Looming issues with the foreclosure crisis, the looming pension crisis', the looming individual US state budget crisis', all portent a massive amount of QE coming down the pike regardless of the amount announced by Bernanke this coming week.

Count on it.

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1 comment:

  1. I agree, the cost of consumer goods and real estate may well fall, however the cost of remaining alive will increase considerably.

    ReplyDelete