In the spirit of openness and transparency, Bumbling Ben Bernanke, the Federal Reserve Chairman, held the first ever press conference by a Fed Chairman. Sounds great but he only demonstrated that he is as good a politician as Obama and both are master dodge-ball champions. Bernanke continued to be obtuse and vague about what the Fed is and has been doing and offered no real insights into the future Fed actions other than more of the same.
Dollar Decline during Speech: He did say that interest rates would not be raised as unemployment is too high and inflation is still in check. This drove the dollar further into the currency market toilet. This at a time when the IMF, the World Bank, the UN, and almost every country around the world is screaming to drop the US dollar as the world currency. Interest rates are practically zero so how about maybe raising it to 2%? The banks aren’t loaning money to small businesses or consumers so who cares? The only firms benefitting from the current interest rates are the banks. Wonderful, made my day! They get cheap interest rates then loan OUR money to global concerns at high returns while ignoring the US consumers.
One analyst said that the bright side of low-interest rates and a declining dollar is that the price for crude oil, since it is expressed in dollars, would go down as the dollar goes down. Wow! Following that logic then we should make the US Dollar worthless then we could buy gasoline for nothing. How about we address the root cause of both issues:
- Why don’t we drill for oil here AT HOME, thereby changing the supply fundamentals, and let that drive the price of crude down. This is a HEDGE against unrest in the Middle East and North Africa which is the primary catalyst for increasing global crude prices.
- Then, strengthen the dollar by gradually raising interest rates back to around 4-5%, before the dollar gets dumped as the world currency and the US Consumer takes it in the shorts having to buy goods on the world market using a worthless US Dollar.
FED Strategic Functions:
Protect the Dollar: One of the two primary functions of the Federal Reserve is to PROTECT THE VALUE OF THE US CURRENCY AGAINST OTHER CURRENCIES SO ITS CITIZENS DO NOT SUFFER FROM A LOWERING OF THEIR PURCHASING POWER USING THE DOLLAR.
Here are the FACTS: The FED was established in 1913. Since the establishment of the FED, the value of the dollar has fallen 95% against other currencies. Good Job!!! Eric Frye wrote a piece posted in the DailyReckoning on 2/2/2011, (link below) that says it all. Basically he said that if two people both had $500 in 1913; one had 10 $50.00 dollar bills; the other $500 in gold; and both hid their “stash” under the floorboards of their homes; then, their heirs found both stashes in 2011; the 10 $50.00 dollar bills would be worth $500.00 but the gold would be worth $32,172! Pretty simple story to prove the point. If you had $1.00 in 1913, you buy something for 5 cents with it today. THINK THE FED HAS LIVED UP TO ONE OF THEIR TWO #1 PRIORITIES?
Inflation: The Second Priority for the FED is to hold down inflation. REALLY! Printing trillions of dollars without any economic base doesn’t create inflation. Another way of putting it is that if there are $10.00 in circulation in the US, and the FED prints a $1.00 such as they are doing with QEII, Quantitive Easing II, then the value of your dollar just went down by almost 10%. That is inflation to the holders of the original $10.00. the original $10.00 is now worth $9.09. Wal-Mart and other major retailers and food manufacturers have been warning that the inflationary pressures on prices will not be able to be contained at the cash register much longer. Wal-Mart prices saw an overall 4% rise last year alone. Manufacturers are looking to downsize products or find other ways to lower costs to maintain profit margins. The bottom line is that consumers will pay in the end for failed FED policies.
This year so far cotton prices (NYCE Near December price) have averaged $1.33 per pound while current purchases of cotton are over $2.00 per pound. As a prior cotton farmer, I can tell you that I have never sold cotton for more than $.65 per pound. In March, 2008, cotton sold for around $.80 per pound. This March, it sold for over $2.30 based on the A Index price. That means that the raw materials in your shirts, blouses, jeans etc. is costing the manufacturer of those items almost 3 times as much as it did 3 years ago! Much of the price increase has been due to the weak dollar and to our government removing 100,000’s of acres from production in the US at a time when world supply was dwindling. THINK THE FED HAS LIVED UP TO THE SECOND OF ITS TWO #1 PRIORITIES?
Everyone should take some no-dose and watch the video of Bernanke’s press conference. You will not take away much but that was the point of the press conference. Bernanke has many detractors with the Federal Reserve system who disagree with both his Quantitative Easing, low-interest rates, and his generally weak dollar policies. Only Obama can take him out but Obama needs Bernanke to insure his next election. Bernanke is the Wizard f Oz behind the curtain pulling the strings and manipulating the short and long-term US Economy. He can try to make sure that during the 3rd quarter of 2012, just prior to the election that some signs of economic improvement are forthcoming. They will be false positives as his underlying policies, coupled with the spending policies of Obama, will insure that by the end of 2012, there will be little or nothing left to the dollar or the US economy as we have known them.
ANY GUESSES HOW MUCH THE DOLLAR WILL BE WORTH ON THE 100TH ANNIVERSARY OF THE FED ON DECEMBER 23RD, 2013,
AGAINST THE VALUE OF A 1913 DOLLAR?