Thursday, September 13, 2012

Bernanke Just Killed the Consumer

I realize that the goal of QE3 is actually to help the consumer but judging by the failure of the $600 billion QE2 and the detrimental impacts we saw with that program (food and energy inflation), my guess is that the opposite will occur.  Consumers will feel no beneficial impact from QE3 as interest rates and mortgage rates are already at all time lows (there was actually quite a bit of pushback at Jackson Hole over Bernanke's belief in the efficacy of these measures), but they will feel the pinch from higher prices due to a weaker dollar.  What this means is that they will actually have less disposable income after they have fed their family and made sure they can get to work.  How is that a recipe for economic health?  Between that and the 3.5% of GDP strong fiscal cliff, that's just a recipe for stagflation. 

It's just amazing how incompetent the people in charge are.

Update: Here are some charts backing up the thesis that all QE2 did was increase food and energy prices and actually had a detrimental impact on real GDP.  Note that there are lags to monetary policy so inflation doesn't pick up immediately nor does it end as soon as the spigot is closed.  Anyway, let's start with food:

As you can see, at the beginning of QE2 in November of 2010, food inflation was running at around 1.5%.  By the time the effects of QE2 had run their course, food inflation tripled to almost 5%!  Now let's look at energy:

As you can see, energy inflation was running at around 5% at the start of QE2 and then quadrupled to 20% at the end of QE2!  What about the impact on GDP?  Did it at least increase GDP like it was supposed to?  Nope, in fact real GDP went down as there was more net inflation than actual growth coming from the program:

So tell me why we are doing this again?  This time on an open-ended basis?  This will not end well.

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