On Thursday, 15 September 2011, the Federal Reserve, European Central Bank, the Bank of Japan, the Bank of England and the Swiss National Bank announced that they had launched a coordinated global effort to boost dollar liquidity. What this meant was that the Fed came in and saved the day, providing liquidity to European banks who had claimed that they did not require additional liquidity. Upon delivering the news, several things occurred. First, the US Dollar Index tanked against the Euro. In less than 5 minutes, the Euro which had been trading at $1.37 against the dollar rallied to nearly $1.39. And the US Dollar, which had been rising steadily, dropped from $78.5 to nearly 76.5. And if that was not bad enough, crude oil which had been ranging in the low to mid $80’s per barrel roared to over $90. The stock market closed up 186 points. The question is, who does Bernanke work for?
Who benefits from a strong Euro and a weak Dollar? Certainly not the US taxpayer who just paid for this venture. Everytime the US dollar plummet, the price of crude oil skyrockets. There is an inverse relationship between the two. Since the price of a crude oil barrel is tied to the value of the US dollar, then a sinking dollar raises the cost of a barrel of crude. With that comes higher prices on all commodities, not just gasoline. Diesel fuel costs skyrocket, bringing with them a rise in foodstuffs and clothing, in fact all commodities, putting the US into a very dangerous stagflation. What is stagflation? Wikipedia defines stagflation as “a situation in which the inflation rate is high and the economic growth rate is low. It raises a dilemma for economic policy since actions designed to lower inflation may worsen economic growth and vice versa…because stagflation has generally proven to be difficult, in human terms as well as budget deficits, very costly to eradicate once it starts.”
In his last formal speech in Jackson Hole Wyoming, Federal Reserve Chairman Ben Bernanke said that “Temporary factors, including the effects of the run-up in commodity prices on consumer and business budgets and the effect of the Japanese disaster on global supply chains and production, were part of the reason for the weak performance of the economy in the first half of 2011.” Temporary factors. When was the last time that Ben Bernanke went grocery shopping. Tell the many households who can no longer afford a dozen eggs that these are temporary factors. And not just for US taxpayers. Soaring wheat, rice, corn and soy beans have hurt taxpayers the world over, and this is not temporary. Go to the grocery store. The price of a dozen eggs is regularly nearing $2.00. Meat — $7/$8/$9 a pound. Apples — $1.50 a pound. These are outrageous prices….and not temporary.
The idea that a weak dollar helps US companies with exports and thereby improves unemployment because more exports means companies will hire has long since been disproven. That economic theory simply does not hold water. Eggs are $2/dozen and last month, August 2011, zero, that is correct, zero more people were employed. So clearly Bernanke’s policies are not working. The Challenger, Gray & Christmas, an outplacement firm that compiles the scheduled layoffs report noted that August had 51,114 layoffs scheduled, with government layoffs, being the heaviest of any sector. And now we hear that Bank of America is laying off 30,000, the US Postal Service is closing dozens of centers and laying off upwards of 100,000, all the other banks are scheduling layoffs as well.
A weak dollar does not benefit anyone but the rich because crude oil is tied to the US dollar. If Ben Bernanke wants a weak dollar, then don’t tie crude oil to the dollar, tie it to the Euro. For the last couple of weeks the dollar has been gaining strength. As soon as this happens, the price of gasoline goes down. With Bernanke’s latest folley, the price of gas is destined to go back up…of course temporarily!
So who benefits from Ben Bernanke’s policies? Forget mainstreet. Yesterday when the announcement came out, Goldman Sachs stock when from $104 to an intra-day high of $108. In fact all the banks stocks soared.
Barbara Cohen CIO, Shadowtraders, and professional day trader, specializes in teaching students how they can be trading futures with their own trading system and trading strategies. Ms. Cohen has helped hundreds of traders achieve their goals trading. Find out if trading futures is for you by attending one of Ms. Cohen’s Free Webinars. Check out my Futures Trading Articles. For more information, send an email to firstname.lastname@example.org or call 866-617-2037 today.