Bubble-Trouble Grows

 |  Includes: AGG, SPY, USO
by: Avery Goodman

Oil prices dipped into the $30 per barrel range at the lows in February 2009. Total U.S. crude oil consumption in 2009 was 18,771,000 barrels/day of which imports were 9,013,000 barrels/day[i]. The average price of crude in 2009 was $53.56[ii]. In 2010, the price of oil continued to climb, and averaged $70.32. Much of the increase was the result of Fed Chairman Ben Bernanke’s money printing (aka quantitative easing) which flooded the world with dollars, causing the U.S. dollar's buying power to fall.

Absent quantitative easing, oil would probably still be selling for $30-40 per barrel, and, perhaps, far less, assuming a big increase in the value of the dollar. That, of course, didn’t happen. Instead, the Fed printed up $1.75 trillion, and followed that with continued money printing via QE-Lite and QE-2 By June, 2011, it will have printed up $2.35 trillion, in addition to $900 billion that pre-existed the various iterations of so-called "quantitative easing."

Between 2009 and 2010, there was an average increase of $16.76 per barrel, or a “QE-tax” of $115 billion per year of which $55 billion is delivered to foreign interests. This process has every likelihood of continuing into 2011. Crude oil is already hitting almost $92 per barrel, and it is forecast to increase into the triple digits before the end of 2011. Even assuming that oil prices stay in the $90-$100 range, the QE-tax on oil will more than double in 2011 to over $240 billion. However, if one considers that the price of a barrel of oil would probably be close to $30 per barrel absent quantitative easing, the tax is much higher. Once we consider the full effect of uantitative easing, therefore, Americans will actually pay a QE-tax on oil of $425 billion in 2011, and already paid a QE-tax on oil of $276 billion in 2010.

But, that's not all. Oil is just the beginning. In addition to the QE oil taxes, Bernanke’s quantitative easing has given us even heftier taxes on foods when we look at the cumulative effect on our wallets stemming from the sharp rise in the price of things like corn, wheat, rice, and virtually all other commodities. We have no choice but to to pay these prices, whatever they may be, because we need to buy such things in order to stay alive. The Federal Reserve has insured that the cost of everything, except housing, will continue to soar upward, putting millions of families, all over the world, under inflationary stress. With nearly a trillion dollars worth of extra QE-tax to pay each year, does anyone wonder why quantitative easing has failed to solve the unemployment problem?

Ben Bernanke says that the CPI, as calculated by the Department of Commerce, Bureau of Labor Statistics, proves that we are close to having deflation. Yet, everyone who shops, fills their cars with gasoline, eats food, and uses any other goods or services in the American economy knows that prices are rising sharply, not falling. Where, then, is this illusory "deflationary" demon? If he exists, why can't average Americans see him? Does he have some sort of special relationship with the Fed, so that only people on the FOMC know when he is in the room?

The main reason that official U.S. government statistics show low inflation is because they are designed to do so. They intentionally understate inflation by using statistical trickery, best explained by John Williams, who maintains a subscription website at shadowstats.com. For example, if filet mignon is a part of the basket of goods used to calculate the CPI in 2010, and doubles in price in 2011, the Department of Commerce will remove filet mignon, and substitute in hamburger meat instead. Then it will justify the fraud by claiming that, since people will naturally switch to the substitute, the only "fair" estimation of their total cost of living is to drop the thing they are no longer buying, and include the substitution.

In another fraudulent use of statistics, they tell us that if GM (NYSE:GM) produces a more comfortable Chevolet Malibu in 2010 than in 2011, statistics should show that the price has been reduced, even if the real price we pay has stayed exactly the same. Similarly, if the laptop computer produced by Hewlett Packard (NYSE:HPQ) packs more power this year, than last, but we pay the same price for it, the government claims the price has gone down. The BLS claims that we are getting more car and more computer for the same money. Therefore, they are entitled to discount the price in their statistical calcuations.

This raises the critical question. Should the fact that manufacturers are learning how to make better goods, and selling them for the same prices as before raise grave policy concerns? According to Fed Chairman Ben Bernanke, and his Federal Open Market Committee, it does.

Does the fact that people are forced to substitute expensive foods with cheaper foods justify flooding the world with trillions of dollars worth of newly printed funny-money? According to Fed Chairman Ben Bernanke, and his Federal Open Market Committee, it does.

Statistical fakery, created by the U.S. Commerce Department allows the Federal Reserve to justify giving away trillions of dollars to Wall Street and foreign banks. These happen to be the same "banks" that dominate positions on various Federal Reserve Boards, and act as the Fed's primary dealers? Many, if not most, of the key officials of the Federal Reserve pass back and forth, between the central bank and these financial institutions. Many, in fact, come directly from those institutions, while others, including Mr. Ben Bernanke, were heavily supported by those same institutions when they sought appointment.

In reality, the only prices going down involve the purchase, sale and renting of real estate. Nothing else is going down. The prices of things that we most need to buy are skyrocketing in price. Why, then, is the Federal Reserve desperately trying to “save” us from “deflation” that arises out of the production of better goods from year to year? Is it reasonable to force gasoline, food and all other commodity prices upward, simply because those rising prices have, for example, forced people to switch from eating expensive meat to eating cheaper meat?

The bubbles of recent years have been created by central bankers, all of whom have been closely associated with commercial financial interests. Central bankers, like Bernanke, are supporting their constituency by making sure that big debtors are supplied with cheap capital. Wall Street and foreign financiers constitute a small but powerful subsection of the population. Collectively, they and the hedge/“private equity” funds they control, owe trillions of dollars. They also may owe on hundreds of trillions worth of potential obligations, from derivatives they issued or backed. They are the biggest debtors in world history and they want cheap money.

Blowing big bubbles benefits these financial interests. Quantitative easing transfers assets from prudent people to the accounts of those who engage in asset speculation, because it inflates the price of targeted assets, while cheapening the buying power of the dollar. Those who control the bubble, if they are able to maintain control, of course, can end it at a time of their choosing, thereby maximizing their returns. In 2008, however, the housing bubble spiraled out of the control of the various investment banks that created it, leaving the slush fund (aka Federal Reserve) and the taxpayers of western nations to bail them out.

Right now, the printing of trillions of dollars by the Federal Reserve is creating another financial bubble. It is supported only by deficit spending, borrowing, and money-printing. Nothing else is supporting the stock or bond market. Everyone knowledgeable person knows this, but many who are benefitting from the scam choose to deny it. The intent of this bubble is, obviously, to provide cheap capital to the biggest debtors in the world, and to juice stock and bond prices. That helps those who are have obligations and assets created during the previous bubble that went out of control, because it is allowing them to escape before the system blows up, one final time. Meanwhile, many non-connected financial institutions and individual investors are being conned into buying into the bubble through the extensive Orwellian Newspeak that we hear on radio, television and in the business press.

No bubble expands forever. The balloon must eventually pop if too much air is pumped in. The same is true of a financial bubble. If the Federal Reserve keeps pumping funny-money dollars into the current bubble, it will continue to expand for a while, until it finally pops into hyperinflation. On the other hand, if the Federal Reserve stops pumping in the dollars, the balloon will deflate quickly. We may end up in a Greater Depression, but coupled with inflated prices because of what was done.

The process of bubble-blowing is self-limiting. All honest common sense people know this. For that reason, they wouldn't do it. The question then becomes "who would"? Why is the Fed creating this bubble? What is the motivations of Fed governors and members of the FOMC? Fed Policy makers at the Federal Reserve must be either incredibly stupid, or incredibly corrupt.

A lot of Fed policy makers may be "Trojan horses”, placed into office by the firms that want to benefit from the bubble-blowing? If so, how can we have a central bank free of such corrupt influences? And, if we can't, isn't it time to abolish this abomination, once and for all?

Disclosure: No positions