A guest post by ND’s hubby:
QE2 or the second round of the Fed’s quantitative easing is coming to an end this week. What did this euphemistic printing press accomplish for the economy and is there a QE3 in the works? This Fed monetary policy effectively purchased 600 billion dollars of debt from banks with money it created electronically. No need for the press in this day and age to expand the money supply. It is considered by some the ultimate Ponzi scheme. The illusion created is attractive treasury notes and low inflation leading to consumer confidence and speculation (spending). Deflation, as in The Great Depression, is avoided and mortgage rates are kept low.
Look at some of the key results….
The following is a June 3rd report from the U.S. Bureau of Labor Statistics on the unemployment picture. We all know this because we hear about it every week.
“Nonfarm payroll employment changed little (+54,000) in May, and the unemployment rate was essentially unchanged at 9.1 percent, the U.S. Bureau of Labor Statistics
reported today. Job gains continued in professional and business services, health care, and mining. Employment levels in other major private-sector industries were
little changed, and local government employment continued to decline.”
Unemployment is staying at 9% while some government agencies have started to pare their workforce for lack of revenue,
How about trying to keep the inflation in check? Here is inflation data annualized by month as reported by InflationData.com. Inflation is on the move up.
Has anyone noticed the rise in commodity prices at the grocery store?
Here is a six month price index chart for food and beverage from indexmundi.com
Most food and other ag commodities are directly affected by fuel prices for production and transportation. The lag time of the affect is difficult to pinpoint on the whole industry but it is safe to say that the 2011 crops for human and animal consumptions are going to put tremendous upward price pressure delivered goods. Other non food markets to get hit are cotton, corn ( for Ethanol ), and soybeans used for byproducts. Contributing factors the reduce in this year’s supply from drought in the South and record flooding in the Midwest. If it is a commodity that is planted and harvested it is going to see a big price jump soon. We can call that inflation, too.
The rates for mortgages are great. Problem is there is no demand..
A report from RealtyTrac.com:
“Second, while the inventory of properties in the foreclosure process has declined steadily over the past six months — thanks in large part to 16 consecutive months of year-over-year declines in new default notices — the inventory of unsold bank-owned REOs increased in April and May even as new REO activity slowed in both of those months,” Saccacio continued. “That points to continued weak demand from buyers, making it tough for lenders to unload their REO inventory. Even at a significantly lower level than a year ago, the new supply of REOs exceeds the amount being sold each month.
Consumers are not buying cars, houses or durable goods as the FED hoped. Payroll counts are at record lows and unemployment is high while inflation is making a move. When the QE2 medicine wears off speculators are sure to drive prices up when the volatility ensues.
So what can hold that in check? QE3 – maybe and for a while. Sooner or later the debt and underlying disease will have to be dealt with. We will have to “cut our way to prosperity”. Buying up your own debt to repay others didn’t work for Charles Ponzi and it won’t work for the FED.