The Fed is Changing - 5/20/11

The recent FOMC minutes were an awareness wake-up call. The early months of 2011 were a period that Bernanke flat out denied inflation existed. The denial turned to an admission of inflation but it was transitory, Bernanke's favorite word. The minutes had a totally different tone as there was considerable print about inflation and the worries that it was spreading. The monumental change in verbiage was the specific phrasing that a few on the committee thought that accommodative policy may need to be ended sooner rather than later. This is a derision from following the steadfast credo that inflation was transitory. I detect a fracturing in Bernanke's committee that may result in muting the June's meeting.

Let's examine some historical facts. Bernanke has always publicly declared that he is an economic historian. I find it interesting that he is a selective historian. If a fact conflicts with his views it is ignored.

Fact #1: High energy prices are eventually disseminated into other consumer products approximately 6 months later. Transportation cost have climbed two fold in 2 years, it will be passed to consumers. Therefore, the timeline is late summer to early fall whereby his transitory inflation will become entrenched inflation in consumer products.

Fact #2: The exuberance of food prices is here to stay. Do you realize there is approximately 230,000 more mouths to feed each day in the world? Bernanke and the Federal Reserve is completely out of touch with agriculture. The decreasing supply is being gobbled by ravenous consumption demand. Where does that put prices? Is Bernanke going to call this fact transitory?

My opinion is that Bernanke is a person that has a serious character flaw. That flaw is languishing in denial versus acknowledgement of a problem. This results in the Fed always being behind the curve never to catch up. The stimulus program has been an avalanche of liquidity to flood our economy with the needed cash to stave off despondency in the world middle class. Instead, the stimulus program punished savers and conservative families and business people.

Why doesn't Bernanke come out of denial with his favorite word to describe the situation. The stimulus program is transitory!

Look out stock market!