Fed Easing: No Free Lunch for Dollar, Oil and Commodities

We've spent a lot of time (see here, here, here, and here for some samples) talking about the Credit Bubble and the efforts by the Fed to keep the financial system and economy afloat. A couple of reminders came through that serve to remind that there is no free lunch. Recently via Business Week:

Bernanke is going further than Greenspan ever did in responding to a popping bubble. He has pulled out all the stops, inventing new ways to pump money into a resistant financial system. ...One measure of the size of monetary stimulus is the expansion of M3, a broad measure of the money supply that includes institutional money funds. Capital Economics calculates that M3 is up 15% from a year ago, the biggest increase in 37 years.

This one Friday morning via The New York Times:

[A] government report on import prices showed that the cost of foreign goods rose 2.8 percent in March. In the last 12 months, import prices are up nearly 15 percent, the highest year-over-year increase since records began in 1983, the Labor Department said on Friday.

So, unfortunately, whether or not there are further bailouts, the result of such furious easing is that all of us are already being heavily taxed, whether we participated or not, for excesses committed in the credit bubble. For some visual proof, take a look at the charts below of the U.S. Dollar, Crude Oil, and the CRB Index (an index of 22 basic commodities). The vertical line represents the point at which the Fed started their monetary easing via interest rate cuts and the various other means discussed in the linked posts above.

Note: Click on the charts to enlarge.

Comments

[Small TownIndiana]

What a surprise. The Fed or any other government type of bail out and the U.S. working class, those under $100K/yr, take a huge hit. When will we learn that government is suppose to work FOR the people? That's what it was established for! I don't care what political party you're affliated with, let's face it, all those in the "Ivory Towers" are looking out for one thing, themselves.........

[nukldrager]

The constitution was amended in 1913 with the creation of the
Federal Reserve Bank. Not wanting to alarm ordinary citizens, Congress changed the contract, but not the wording. Under the "actions speak louder than words metaphor", the constitution reads... government of the people, by the government, for the wealthiest.

[boubou]

Why is anybody surprised? here's no incentive for government to focus on conditions for working poeple.
No matter what happens, deception, war, outrageous health costs,the gross devaluation of ordinary peoples wealth, - in the end we swallow it without a gulp - no one's ever held to account - there's no come'uppance.
A few worn out platitudes fom politicians , and a compliant press and here we go again. Hope? Change? -give me a break.

[varmit]

The US needs to immediately reduce
its imported oil consumption.

The only way NOW the fuel can be rapidly replaced is by a massive effort to ramp up coal to liquid fuel production. The co2 issue is solvable using several technologies.
See TIPS + CANMET

We can not afford not to do this. If we do not
our way of life and economy will be ruined and we will not be able to afford convert to alternate energy sources .

[curious cat]

the cheaper dollar is the solution to the world's biggest problems, my friends. america is full of people who are programmed to consume until they get obese. remember, h.g. wells time machine? we are in that future and those blind mole guys underground, providing for all our needs, have been cranking stuff out for many years now.

if the dollar devalues, we consume less. that is good, not bad. most of us do not need one quarter of the stuff we have.

if the dollar devalues, we consume less, our underground friends can give back some of the jobs they took. that is good, because americans were becoming a two class system, rich and poor. we need those manufacturing jobs to have a middle class.

if the dollar devalues, we will only travel to other countries as much as they travel to our country. we need to balance out our books with the world. personally, i'm waiting for the day when someone in india calls us for help with their computer.

i want to have a world where everyone is paid at least minimum wage, where they do not have to work 14 hour days, seven days a week, or sell their sister to get a meal.

america has been supersized for long enough, my friends. if you believe in capitalism, you should know that eventually the scales must be balanced and those people willing to work the hardest, who create the best, will still enjoy an improved standard of living. but, we have had an artificial edge on the rest of the world for a half century now.

what are the odds that america contained all the people who deserved an improved standard of life? when the curtain came down and true competition began, we had to come down some too, to meet the rest of the world half way.

now, it's up to our advertising machine to convince them that they cannot live without big screen tvs, computers, three bedroom houses, etc. don't be afraid of the rebalancing act. their are huge opportunities being created.

just consider, for a moment, the alternative. they could simply have waited a few more years and sounded the air raid sirens for their next meal.

[Will Rahal]

We import 10 million barrels of oil a day. This means $1 Billion a day at $100/barrel.
When the price of oil declines net imports will decline also recursively making the US Dollar stronger.

See under "Currency"
wrahal.blogspot.com/20...

[cat & mouse]

Please do not blame the government, which is elected by the people. You get what you deserve, and this should not surprise us! In the third world countries, every election is fought out by many parties, some regional and some national. 75 to 85% of the people go to the poll, and ruling parties are toppled always, because of the dissatisfaction of the parties.
Now look at our polling percentages. Hardly 35 to 36% in non- presidential years, and about 55% in presidential years. If common man is not interested in polls, then he has to suffer, for which the blame falls on him squarely, and not on the government.
Every state in the US has peculiar local problems, different from other states. Unless there are regional parties in the states, the problems of that state will never be solved by Washington, which has its own priorities.
If the states are run by regional parties, then of course the national party at the center has to listen to regional governing parties, and then financial discipline will be observed automatically.
If people are lazy and not motivated to go to the polls, then they will suffer always, and should not regret their fate!

[flow5]

Wake up. Oil imports are c. 3/8 of the trade deficit. The real culprit is other countries sell higher quality, lower price, goods & services. And lower exchange rates (37% decline since 2/1/2002) have done nothing to correct the problem. And a lower exchange rate will just stoke stagflation.

[gordon]

M3 Money Supply is now running 17% annually, accord'g to Shadow Gov't Statistics, read the articles on financialsense.com, Bernanke is driving the dollar into the ground trying to reflate, he should resign or be in prison, with Paulson. Want the dollar up? Announce a 50% Iraq troop withdrawl within 6 months. Announce no more rate cuts. Announce no more bailout legislation without Pay-Go. Bernanke, you spineless fool, pathetic puppet.

[TraderMark]

If the dollar falls enough, than multinationals will once again build plants in America to take advantage of "low cost labor" willing to "work hard" and as a bonus "they speak English well". All the same reasons for exporting a lot of IT and customer service to India.

There is always a silver lining ;) ... one day China will be building plants here since labor there was too expensive and the cheap Americans will do the work that Chinese won't do. Give it 25 years.

[runner]

those who have media and political connections should start raising the idea of abolishing the Fed. Otherwise hyperinflation is practically guaranteed.

[John Egan]

There are many 'sayings' that are quoted over and over. One that I do not believe is: "Do not blame the government, which is elected by the people. You get what you deserve". If you truly believe that 'the people' elected the present administration, then please explain our involvement in IRAQ and Afghanistan. Explain why people that are being foreclosed upon are receiving little benefit from the present bailouts, while businesses are gaining from it. Explain why insurance companies are allowed to make obscene profits while declining coverages to the masses.... If you really consider it, clearly, government caters to big business and not to the populace.

I'll throw another old dog on the table too... "War is good for the economy"...

Thx jegan ;-)

[eric hart]

Bravo John Egan. To a certain extent you get the government you deserve...but the current government is acting above the law, above the constitution, and certainly above the wishes of the people.

[sbenard]

Devaluing the Dollar is not the ticket to prosperity. Every dollar multinationals earn over seas is fools gold. Those earnings are artificially inflated, and these corporations love it because it's easy money they don't have to work for. But every easy dollar they bring back to these shores buys less and less to their shareholders and employees. It's the illusion of prosperity, not the real thing! No nation in the history of the planet has ever achieved lasting prosperity by devaluing its currency. They ultimately end up destroying themselves instead. That's the only sure thing that occurs from destroying the currency. Just ask Robert Mugabe or the Wiemar Republic.

[sbenard]

Curious Cat,

Sounds like you think the solution to the world's problems is that we return to the dark ages where no one owns or buys anything. Serfdom, here we come!

[curious cat]

sbernard,

lasting prosperity should not be a national goal. it should be an international goal. for years, americans have spent their hard earned dollars trying to help poorer nations. we aided those who could not free themselves, who could not feed themselves and who could not protect themselves. most of the world has forgotten our efforts, but they were valid goals, because one nation under god, cannot be free, well fed and protected, while the rest of the world is not.

similarly, we have enjoyed the fruits of cheap labor from other countries for many years. it is time they enjoyed some of our goods and services at a more reasonable rate of exchange. why should our dollars be worth more when we have printed so many? the market will settle a value on the dollar that is equitable based on what we spend and have spent.

if our people have to work a little harder, it will be good for our soul. if we have to accept some charity from other nations, it might be good for theirs. they say that money always goes where it is most appreciated. when corporations invest everywhere, that is in the world's best interests. it's win-win, sbernard, not the dark ages.

let everyone work and everyone share fairly in the world's wealth according to their efforts. if we all act in moderation, instead of greedily, we can all give thanks. what is the nature of the world's discontent? they believe that we have everything and they have nothing. give them the opportunity to work and succeed. that's what everyone deserves.