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 market operations?
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, are at.
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).