The Sky Is Falling?

Dan Denning of The Daily Reckoning Australia asks, "Isn't Bernanke vowing to fight inflation a little like an arsonist standing in the middle of a burning building and vowing to fight fire?"

PICTURE the FIRE CHIEF, Ben Bernanke, standing in a house. Picture him setting the house on fire. Picture the house burning to the ground around him. Now listen to him as he tells you he's committed to fighting fires wherever he finds them.

"Fire? What fire? Oh, I fight fires! And I light them too!

"Light and fight...Almost the same word really! Who's listening anyway?"



G-8 ministers say US housing, financial strains 'may adversely affect' world
OSAKA, Japan (Thomson Financial) - G-8 finance ministers meeting in Japan today warned that ongoing housing and financial market strains in the US could have a broader impact on the global economy, as could food and energy price hikes that are occurring around the world.

'Further declines in housing prices in the United States and greater strains in the financial markets may adversely affect the global outlook,' ministers said in a statement released after their meeting in Osaka.

'Elevated commodity prices, especially oil and food, pose a serious challenge to stable growth worldwide, have serious implications for the most vulnerable, and may increase global inflationary pressure,' the statement added. 'These conditions make our policy choices more complicated.'
http://www.forbes.com/afxnewslimited/feeds/afx/2008/06/14/afx5116508.html

The Masters Of The Obvious have spoken. What genius they have imparted to the rabble down below. Did the "ministers" just crawl out from under a rock? It is comical to think of the fools that bought the Dollar and sold their Gold and Silver ahead of this "fountain of wisdom" meeting over the weekend. More hot air contributing to global warming. Their statement sounds more like an indictment of the US Federal Reserve than commentary on the global financial blight sweeping the planet. They offered NO concrete solutions to these problems that "may adversely affect the world".


Consumer prices increase; sentiment deteriorates
Bloomberg) - U.S. consumer prices rose more than forecast in May as record oil prices reduced American confidence to the lowest level since Jimmy Carter was in the White House.

The consumer price index increased 0.6 percent, the most since November, after a 0.2-percent gain the prior month, the Labor Department said today in Washington, D.C. The Reuters/University of Michigan preliminary index of consumer sentiment fell to 56.7 in June, a reading unseen since 1980, from 59.8 in May.

So-called core prices, which exclude food and energy, increased 0.2 percent in May from April.
http://www.fwdailynews.com/articles/2008/06/13/greater_fort_wayne/news/today/6-13story5.txt


US Import Prices Soar; Signaling Rising Inflation Pressures
WASHINGTON -(Dow Jones)- U.S. import prices jumped for a third-straight month in May while prices from China hit a fresh record, a government report showed, suggesting rising oil prices and a weak dollar are fanning inflationary pressures. The data will be unwelcome news at the Federal Reserve, especially in light of recent comments by Fed Chairman Ben Bernanke suggesting officials are increasingly worried about the weak U.S. dollar's effect on inflation.

Import prices are the main channel through which the dollar affects domestic prices. Import prices soared 2.3% on a monthly basis in May, the Labor Department said Thursday, compared to April's 2.4% increase, which was revised up. Wall Street economists expected a 2.6% rise last month.

Import prices swelled 17.8% from May 2007, the largest annual rise since the data were first published in September 1982.
http://www.fxstreet.com/news/forex-news/article.aspx?StoryId=a180701c-4358-4ee8-ab9f-5c366d62194a


Bumbling Ben is right about one thing, prices are rising. Unfortunately for Ben, he is powerless to stop it. Funny thing about the Fed. For years they were able to get away with flooding the world with Dollars by taking advantage of rising productivity here in the US and lower production costs overseas, aka "outsourcing". Both kept wage inflation here in the US in check, and masked the Fed's insidious inflationary inhibitions. The fed exported inflation in the past, and now that inflation is finding it's way back home.

The Fed is literally shocked by the rising costs of commodities around the globe. Particularly in light of an economic slowdown. This is not supposed to happen. I'm certain Dr Frankenstein felt the same way after he created his monster. Ben can threaten to raise short money rates, and even actually raise the rates, but it will do little to put this inflation genie back into it's bottle. Ben has been inflating the Dollar supply at an annualized rate of up to 17%. Price inflation, which is a "symptom" of monetary inflation has yet to catch up to the rate of growth in the money supply. It is safe to say that inflation has ONLY just begun...and has very much farther to run. The Fed created this inflation monster, and calling after it is not going to stop it in it's tracks. Wealth destruction is a certainty now. And Gold and Silver are your best protection against this evil.


US April Consumer Borrowing Grows Beyond Expectations
WASHINGTON (Dow Jones)--Consumer borrowing slowed in April but it still grew as Americans try keeping up living standards while the economy falters and oil prices rise, a Federal Reserve report showed Friday.

Consumer credit outstanding rose $8.9 billion to $2.565 trillion, according to the Fed data. That followed a $13.1 billion advance in March, a downward revision from the previously estimated $15.3 billion increase.

The 4.2% April increase exceeded expectations. People are resorting to credit as oil and food prices mount and home equity values recede.
http://www.fxstreet.com/news/forex-news/article.aspx?StoryId=7324221f-67e8-4e48-9ed6-6a892fb65418


US foreclosure filling surged 48% in May, and the number of U.S. workers filing new claims for unemployment benefits jumped by an unexpectedly large amount last week, suggesting pressure on labor markets is growing, which could complicate a Fed rate hike. I wonder if the Fed has given ANY thought to the effect rate hikes will have on consumer debt addicts ability to pay down their debt? Rising interest rates only makes debt more expensive. Has the Fed even considered the effect of rising interest rates on the cost of US government debt? US Government debt is the mother of all adjustable rate loans.

US Government debt today stands in excess of $9 TRILLION. Imagine the cost of carrying that debt if interest rates rise. Imagine the effect rising interest rates will have on US Government deficits. It's beginning to look like those rising interest rates will do little to defend Hanky Panky Paulson's "strong Dollar" policy. In the end, rising interest rates could sink the Dollar for good by bankrupting an already bankrupt nation. Double Secret Bankruptcy. Sounds delicious for Precious Metals investors.


Don't expect intervention to support dollar
The goal of such intervention would ostensibly be to prick the bubble in commodities.

The risk of this happening is minimal.

...the link between commodity prices and the dollar is far from clear. If the goal is, for example, to lower the price of oil, then intervening in the foreign-exchange market seems too indirect and does not have high odds of success.

Look at the euro, which is where the interventionists are suggesting that the operation take place. It has been trading broadly sideways between $1.53 and $1.60, about a 4.5% range, since mid-March. In the past couple of days, the euro has fallen by 2.5%.

And oil? Using the July futures contract as our proxy, the price of crude has risen nearly 40% while the euro has been range-bound.

What about the grains? The price of foodstuffs has skyrocketed. Surely a strong dollar would reverse this, right?

That seems to be largely wishful thinking. As we have argued previously, while there are many factors influencing the price of grains, the decline in the dollar seems marginal.

Look at corn. It has rallied for six consecutive sessions. We all know about ethanol, but that has not changed. The big change is the weather. In the corn-growing region in the Midwest, there has been roughly four times more rain that normal over the past 60 days. This is leading to low rate of crop emergence (74% vs. 92% a year ago and a five-year average of 89%).

Moreover, the U.S. Department of Agriculture cut its estimate of this year's crop by 3.1% from its estimate last month. The crop may be 10% smaller than last year's.

Only 23% of the soybean crop has emerged vs. 64% a year ago. That said, Brazil is reporting that its soybean harvest will be about 2.5% larger than last year's. Brazil's corn crop also looks about 13% larger. The bottom line is that a stronger dollar does not necessarily mean lower energy or food prices.

If policy makers cannot be confident that intervention would achieve the desired impact on commodity prices, should they be concerned about the potential risks of intervention?
http://gata.org/node/6369

The global currency markets trade in excess of $3 TRILLION each and every DAY. The global Forex market is the largest market in the world. The likelihood of any attempt at currency intervention would be futile as any small increase in the value of the Dollar would be used by those wishing to dump and diversify their Dollars to do so at a better price. Currency intervention would be an unparalleled act of desperation. The Fed is POWERLESS to control commodity prices.


Don't look for relief from high prices any time soon
For those struggling to deal with record gasoline and soaring food prices, there's bad news and more bad news.

Economists think inflation is here to stay. And it's likely to get worse.

A weak dollar and growing economies in emerging markets have conspired to send commodity prices higher. Those factors are unlikely to change anytime soon.

"We're more open to influences from the rest of the world than we were before," said Jay Bryson, international economist with Wachovia. "That does make it more challenging to keep inflation under control."

What's more, the Federal Reserve is relatively powerless to deal with many of these pressures.

"The Fed can't control prices of commodities determined in a global market," said Rich Yamarone, director of economic research at Argus Research. "If it could, it would have done so already."
http://biz.yahoo.com/cnnm/080613/061208_inflation_outlook.html



Despite hawkish talk, Fed rate hikes not done deal
WASHINGTON (Reuters) - U.S. Federal Reserve interest rate increases are not a foregone conclusion this year despite tough talk on inflation, with a looming election and still-fragile economy that could well keep policy on hold.

Hawkish remarks by Fed Chairman Ben Bernanke last week helped to increase odds of an August rate rise to better than 50/50. His comments reinforced other stern assurances from the U.S. central bank that it would not tolerate inflation.

Fed watchers think Bernanke is making a calculated effort to acknowledge that recent economic data has not been wholly discouraging and assure markets that he will keep inflation at bay. They also think he is keen to put a floor under the dollar by suggesting that rates will not be lowered further.
http://www.reuters.com/article/reutersEdge/idUSN1126903720080615


It should be clear to everyone that Bumbling Ben really cannot raise interest rates. There are far to many overwhelming negatives to such action. Yes, someday the Fed is going to have to raise interest rates. It is highly unlikely that day will come in 2008. And Bumbling Ben for all his shortcomings probably knows all to well that he can't raise rates. Then why does he threaten to? Has he? Has Ben actually come out and said interest rate increases are close on the horizon? No he hasn't. He's suggested that inflation is becoming problematic for the Fed, that the Fed may have played a bigger role in the growth of inflation than Ben will admit, and most important of all, Ben wants to make it perfectly clear that he has no intention of further lowering interest rates. Ben's basically telling us that he didn't think the fire he started would get this big and do so much damage. So in deference to those affected by the fire, he will now cease to pour more gasoline on the fire. He has no idea how to put the fire out, but he'll do his best not to let it get any bigger. ...good luck.


Regarding speculators effect on the commodity markets we'll give the floor to Bob Chapman, The International Forecaster:

...an orgy of Wall Street fraud has brought us an economy-killing credit-crunch. That credit-crunch has forced the Fed to initiate a maniacal expansion of money and credit to keep Illuminist insider financial institutions from imploding. Much of the money and credit from that maniacal expansion is not being re-loaned because all confidence in the system has been lost due to rampant, rampaging fraud, much of which was committed by Illuminist insiders against other Illuminist insiders, proving once again that there is no honor among thieves. So where is this huge portion of all that money and credit going if it is not being re-loaned? A very large portion is being used to make substantial, speculative profits from a whole bevy of commodities, especially from crude oil and agricultural products, by virtue of a loophole provided by the depraved group of village idiots who run our country (Congress), a loophole that allows big banks to operate in the commodities markets without position limits, allowing them to run amok in those markets with privileges that are not extended to other, non-elitist players. Our government regulators always provide us with such a level playing field, don't they? What an absolute disgrace.

Bob also has some thoughts on inflation that should be shared, recognized, and respected by Precious Metals investors as they are spot on...and Gold and Silver are your best protection against the ravages of inflation:

The acceleration of inflation is baked into the economic cake for, at minimum, the next 12 to 18 months worldwide. Fed jawboning won't change that. Phony PPT dollar rallies won't change that. Fed rate hikes won't change that. The reduction of money and credit won't change that. Falling oil prices won't change that. Lies about economic statistics, and especially about inflation data, won't change that. So, why can't the rate of inflation be changed for the next 12 to 18 months, you might ask? The reason is because inflation is not determined by smoke and mirrors, or by gimmicks and false data. It is determined by the rate at which the total supply of money and credit is being expanded or contracted (what economists call M3), which is measured by determining how much money and credit is being fed into, or subtracted from, each nation's financial system by its central bank over the course of a given month, as compared with the amount determined for the previous month. That figure is then annualized. Basically, the annualized rate of M3 that is determined for any nation becomes that nation's rate of inflation (expansion) or deflation (contraction), with a delay that usually runs about 6 to 18 months.
http://news.goldseek.com/InternationalForecaster/1213545600.php


Today's last word goes to Mr. Dan Norcini at JSMinset:

Folks - I know I have said this many times before but I honestly believe that this generation of investors in the US is absolutely the most ignorant group of unthinking clods that God's green earth has ever managed to produce. To think that there are enough people who actually believe the government's worthless CPI numbers and act on that belief by bidding stocks higher on the notion that such tame readings take the urgency off of the Fed to hike rates makes me tremble for the future of my nation. What do we have - the Fed ramping up M3 by something like 14% or even higher on an annual basis and these bozos are stupid enough to think that rising prices are not going to follow as surely as the sun rises in the East? Are these mind-numbed zombies incapable of seeing what is going on around them? I am beginning to wonder if some of these folks ever go out into the real world and leave their quote screens. They might learn something if they did!
http://www.jsmineset.com/home.asp