Is Bernanke To Blame For The Rising Global Revolutionary Wave?
A topic which we anticipated last summer, and which has come to shocking and rapid fruition ever since the beginning of the year with the self-immolation of a Tunisian protester, resulting in a tsunami of violent revolutionary uprisings across the developing world, has been the question of whether and to what degree Bernanke's monetary policies are responsible for what is becoming an indirect wave of suppressionary genocide (today alone, between Libya, Yemen and Bahrain over 500 people have been killed). And while Zero Hedge is far less ambivalent about the underlying cause of the surge in anger (in most of the affected countries, the bulk of their population has to spend well over half of its income on food and energy), and when people who already have nothing, see whatever little they have left taken away as well, they see no downside in violent revolution, there are some more moderate views.
Below we present one, courtesy of reader Chindit13.
While it is a stretch to put this squarely on Bernanke's shoulders,
it is absurd to say that he has no part at all. Yes, it is a convoluted
path that goes from QE to rising food prices that fan the flames of
already-existing anger and resentment of tyranical and oppressive
governments, but it is a path on which his footsteps are clearly
visible. The rage may have been simmering with or without higher food
prices, and food prices might have risen somewhat due solely to weather
concerns, but there is more to it.
What exactly does QE achieve on the ground? What is its stated
purpose vs. what it achieves? Does it differ from pre-crisis open
QE is carried out almost exclusively through the PD's, who also
happen to be the TBTF. That's the same as pre-crisis OMO, albeit there's
a catch. There is stated intent, as well as Fed announcements that
attempt to create a link between QE and traditional Fed mandates (price
stability and maximum employment). That is the Fed saying that, so
let's see how well they've done.
The TBTF, who should no longer exist, are being handed free money by
the QE program via sure-thing trades with Bernanke. What differs from
pre-crisis OMO is that Bernanke buys nearly entire runs, and everyone
knows beforehand what his purchases will be, thus guaranteeing he pays
too much and hands the PD's free money. Where do the increasingly
liquified banks put this cash generated by Bernanke? New Loans? The
data says no, thus, strike one for the Full Employment Fed mandate. In
fact, what possible incentive do the TBTF banks have to lend? Why
bother to try to make a cheap spread on a risky loan, when you can go
for broke on the prop desk, knowing that if you win you'll win big
(bonus time) and if you lose you'll be covered? A quick look at the
revenue sources of the TBTF banks shows where their minds, and actions,
Incidentally, even the pundits say most new employment in the US is
generated by small business, and small business has traditionally been
funded by less than TBTF banks. These TBTF banks are not playing
QE. They are being allowed to go belly up, as we see every Friday
evening in the "Georgia" Report. In addition, their demise is being
exacerbated by the combination of QE and Geithner's work, since the
marketplace now knows they are not favored institutions and must work
hard to merely survive, much less make money. In other words, they are
the handicapped capitalists, playing against the Cronyalists. For those
depositors still playing the game, doesn't it seem likely that they
would be LESS willing to hold assets in a <TBTF bank, even if
insured, since they could avoid the hassle of clearing their accounts if
their little bank went bust? Fully funding the TBTF actually makes
funding for small banks more difficult. Don't forget they are all
capped on the other side of the spread by market rates for loans.
Thus, following the money, it is clear to everyone that QE is not
only having zero effect on employment, by its very nature it is unlikely
to ever do so. Bernanke fails to ever mention this, though he
undoubtedly can see it. His theory fails, and all that is left is
gift-giving to the TBTFs, something of which he is well aware.
So what do the TBTF's do with the money if not lend (and do not hold
it as excess reserves)? Look at their quarterlies. Prop trading is the
answer. The stock market is one place where this shows up, much to the
delight of Bernanke who wants us all to be of the belief that the
market predicts the future. Commodity speculation is another. Too bad
the curtains were not fully off prop desk positions, both domestic and
those held via offshore accounts. Every indication is that the TBTF's
are smack in the middle of the commodity boom. It really doesn't matter
that "weather" concerns might have driven them to take these
positions; the fact is they are flush with cash and indirectly
discouraged by government policy from making loans. Yes, prices were
soaring in many commodities before the crash, but these commodities were
also being shipped around the world by virtue of end-user
demand. I periodically wonder if the BDI graph is telling me "stuff" is
being shipped less and stored more often. Major players in the
commodity market do seem to be buying storage facilities, whether it is
grain silos or ULCC oil tankers. Even some hedge funds now own ULCC's.
On the margin, this speculation for speculation's sake is going to
drive prices even in the absence of an end user.
So has QE helped in the Fed's other mandate of price stabilization?
Yes, but only because Bernanke creates the standard of measurement by
using a selected basket of goods that may not even represent a US
consumer's expenditure pattern. Certainly it does not represent an
Egyptian's expenditure pattern, where food absorbs at least five times
as much income as a typical US consumer.
Bernanke is not stupid. He has to see what has been happening, and
he knows full well that money, especially when it is handed directly to
people who earn almost all of their money now from speculating, is going
to drive prices higher. It is this direct funding of the Wall Street
prop desks that makes monitoring traditional monetary aggregates
meaningless. A book of matches in a normal person's hands are not
dangerous; matches in the hands of an arsonist are. Bernanke also must
know that the basket of goods consumed by an American is substantially
different than what the typical Egyptian or Indian or Pakistani or
Chinese consumes, and that higher food prices more quickly and more
harshly affect these latter peoples' lives.
Sorry for the length, but it is simply a crime to let Bernanke off
scot free. Stop QE, enforce the Volcker Rules, and break up the TBTF
banks and let's see if that doesn't take some pressure off food prices.
It certainly won't do any harm.
As for some indicative food prices in countries yet to riot, below is a screenshot of what a roasted chicken costs in Shanghai. We leave the FX math to our readers, and certainly not the Chinese BLS which just reduced the food component's portion as a percentage of total CPI (h/t Erico).
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