Benny in Atlanta
Chairman Ben S.
SHALOM
Bernanke
At the 2011 International Monetary Conference, Atlanta, Georgia
The U.S. Economic Outlook
I would like to thank the organizers for inviting me to participate once again in the International Monetary Conference. I will begin with a brief update on the outlook for the U.S. economy,
THERE IS NO SUCH THING AS “ECONOMY”: THERE IS ONLY A PLANNED OR UNPLANNED PRODUCTION-DISTRIBUTION SYSTEM (PROD-DISTR), AND USRAELTAR HAS CHOSEN NOT TO PLAN IT, WITH THE PRESENT VISIBLE DISASTROUS CONSEQUENCES
then discuss recent developments in global commodity markets
THERE ARE NO SUCH THINGS AS “MARKETS”, AS ANY FUNCTIONING MARKET WOULD REQUIRE FULL INFORMATION AND FULL TRANSPARENCY, WHICH IS NOT THE CASE IN USRAELTAR
that are significantly affecting both the U.S. and world economies, and conclude with some thoughts on the prospects for monetary policy.
The Outlook for Growth
U.S. economic growth
PURSUING GROWTH BEFORE ACHIEVING STABILIZATION IS RAW FOLLY
so far this year looks to have been somewhat slower than expected.
“SOMEWHAT SLOWER THAN EXPECTED” COMBINES TWO VAGUE STATEMENTS, “SOMEWHAT” AND “EXPECTED”
Aggregate output increased at only 1.8 percent at an annual rate in the first quarter, and supply chain
BERNANKE IS STILL PUSHING THE FASCISTIC SUPPLY-SIDE MIS-CONCEPT INSTEAD OF READYING WHAT CONSUMERS REALLY NEED
disruptions associated with the earthquake and tsunami in Japan
IRRELEVANT FOR THE USRAELTAR PROD-DISTR SYSTEM
are hampering economic activity
“ECONOMIC ACTIVITY” IS A MEANINGLESS EXPRESSION: TRADING? PROD-DISTR? INACTIVITY?
this quarter. A number of indicators
“A NUMBER OF INDICATORS”, UNSPECIFIED DELUSIONAL MEASURES LIKE “CONSUMER CONFIDENCE” OR “COMFORT” OR “SENTIMENTS” OR “EXPECTATIONS” … ALL VERMINOUS BEER-NANKE EXPECTORATIONS
also suggest some loss of momentum
“MOMENTUM” THAT WAS NEVER THERE: UNEMPLOYMENT BENEFITS STILL GO TO 10% OF THE WORKFORCE, WHICH OF COURSE DOES NOT MEASURE UNEMPLOYMENT AND UNDEREMPLOYMENT, PRESENTLY AT SOME 50% IN USRAELTAR AND ITS 52 STATES
in the labor market in recent weeks. We are, of course, monitoring
THE FACT THAT HE EVEN MENTIONS “MONITORING” MEANS HE DOES NOT MONITOR
these developments. That said, with the effects of the Japanese disaster on manufacturing output
WHICH EFFECTS OF JAPANESE DISASTER? REACTORS 1-2-3 ARE STILL IN MELT-DOWN MODE, AND REACTOR 5 IS ALSO DAMAGED
likely to dissipate in coming months,
“LIKELY”? WHY LIKELY?
and with some moderation in gasoline prices in prospect,
WHY MODERATION IN GASOLINE PRICES? WHY SHOULD THE ROCKEFELLER-EXXON MONOPOLIY HOLD BACK ON RAISING PRICES …? UNLESS DEMAND FOR GASOLINE CONTRACTS DUE TO CONSUMER EXHAUSTION …
growth seems likely to pick up somewhat in the second half of the year.
WHY SHOULD THAT HAPPEN? UNILATERAL WISHFUL DELUSIONAL IDEALISTIC VOLUNTARISM STATEMENT
Overall, the economic recovery
THERE HAS SO FAR NOT BEEN ANY “RECOVERY”
appears to be continuing at a moderate pace, albeit at a rate that is both uneven across sectors and frustratingly slow from the perspective of millions of unemployed and underemployed workers.
ACTUALLY, 50% OF USRAELTAR WORKFORCE
As is often the case, the ability and willingness of households
WHY PUT THE BURDEN ON HOUSEHOLDS TO SPEND, AS IF TO PUNISH THEM IF THEY DO NOT SPEND MONEY THAT THEY DO NOT HAVE ON CREDIT THAT THEY CANNOT OBTAIN
to spend will be an important determinant of the pace at which the economy expands in coming quarters. A range of positive and negative forces is currently influencing both household finances and attitudes.
THIS IS SUCH A VAGUE STATEMENT. PLAN THE FORCES, INSTEAD OF SUBJECTING YOURSELF TO THEM
On the positive side, household incomes have been boosted by the net improvement in job market conditions
UNEMPLOYMENT HAS ACTUALLY INCREASED, SO THIS IS A FALSE ASSERTION
since earlier this year as well as from the reduction in payroll taxes that the Congress passed in December. Increases in household wealth–
WEALTH? WHICH WEALTH? NEGATIVE WEALTH? NEGATIVE EQUITIES?
largely reflecting gains in equity values—
EQUITY VALUES HAVE FALLEN AND KEEP FALLING
and lower debt burdens
“LOWER”? CREDIT CARD DEBT IS AT AN INSURMOUNTABLE MAXIMUM FOR THE NATION
have also increased consumers’ willingness to spend.
“SPEND”? WILLINGNESS, POSSIBLE, BUT NO MONEY THERE …
On the negative side, households are facing some significant headwinds, including increases in food and energy prices,
INCREASES DICTATED BY WHOM? BY BEARD-NANKE AND COMPANY? WHAT ABOUT CONTROLLING THESE OIL AND FOOD OLIGOPOLIES THAT ARE FIXING PRICES?
declining home values, continued tightness in some credit markets,
THERE IS NO “TIGHTNESS”, THE RISK IS JUST TOO BIG FOR ALL LENDERS
and still-high unemployment,
INCONSISTENT STATEMENT, HOWEVER CORRECT THIS TIME AROUND
all of which have taken a toll on consumer confidence.
THE MAGIC WORD, “CONSUMER CONFIDENCE”
Developments in the labor market will be of particular importance
BIG STATEMENT, OF “PARTICULAR IMPORTANCE” …
in setting the course for household spending.
WHO SETS THE COURSE?
As you know, the jobs situation remains far from normal.
WHY SHOULD THIS SITUATION NOT BE THE NEW “NORMAL”
For example, aggregate hours of production workers–a comprehensive measure of labor input that reflects the extent of part-time employment and opportunities for overtime as well as the number of people employed–fell, remarkably,
WHY “REMARKABLY”? TO REMARK WHAT?
by nearly 10 percent from the beginning of the recent recession
YOU ASSUME WE ARE OUT OF THE “RECENT RECESSION”
through October 2009. Although hours of work have increased during the expansion, this measure still remains about 6-1/2 percent below its pre-recession level. For comparison, the maximum decline in aggregate hours worked in the deep 1981-82 recession
SO IS THIS NOT A “DEEP” RECESSION?
was less than 6 percent. Other indicators, such as total payroll employment, the ratio of employment to population, and the unemployment rate, paint a similar picture. Particularly concerning is the very high level of long-term unemployment–nearly half of the unemployed have been jobless for more than six months.
OF COURSE THEY ARE UNEMPLOYED, THERE ARE NO JOBS AS PROD-DISTR IS FLAT, AND PEOLE LIVE ON THE MINIMUM, WITHOUT BUYING WHAT THEY DO NOT NEED AND WITHOUT SPENDING WHAT THEY DO NOT HAVE
People without work for long periods can find it increasingly difficult to obtain a job comparable to their previous one, as their skills tend to deteriorate over time and as employers are often reluctant to hire the long-term unemployed.
OH SO BRILLIANT, BAD-NANKE, PATHETIC …
Although the jobs market remains quite weak and progress has been uneven, overall we have seen signs of gradual improvement.
SWEETEN THE PILL, WITH WHAT?
For example, private-sector payrolls increased at an average rate of about 180,000 per month over the first five months of this year, compared with less than 140,000 during the last four months of 2010 and less than 80,000 per month in the four months prior to that.
HE COMPARES A DISASTER-YEAR WITH A WORSE DISASTER YEAR: IT IS STILL A DISASTER …
As I noted, however, recent indicators suggest some loss of momentum, with last Friday’s jobs market report showing an increase in private payrolls of just 83,000 in May. I expect
WHO ARE YOU TO “EXPECT” …
hiring to pick up from last month’s pace as growth strengthens in the second half of the year, but, again, the recent data highlight the need to continue monitoring
WELL … WHY SHOULD YOU NOT BE MONITORING THE SITUATION?
the jobs situation carefully.
The business sector generally presents a more upbeat picture.
THERE IS NO SEPARATE “BUSINESS SECTOR”: ALL PROD-DISTR IS LINKED. WHY WOULD THERE BE A BUSINESS SECTOR IF NOT TO FEED PRODUCTS AND SERVICES TO THE CONSUMERS
Capital spending on equipment and software has continued to expand, reflecting an improving sales outlook
IF CONSUMERS DO NOT BUY BECAUSE THEY CANNOT FIND JOBS THERE CANNOT BE AN “IMPROVING SALES OUTLOOK”
and the need to replace aging capital.
“AGING CAPITAL” CAN STAY THERE AS LONG AS BANKS DO NOT GRANT CREDIT FOR NEW MACHINERY, AND THEY WILL NOT GRANT CREDIT IF THERE ARE NO SALES FOR THE PRODUCTS OF THOSE MACHINES
Many U.S. firms, notably in manufacturing but also in services, have benefited from the strong growth of demand in foreign markets.
USRAELTAR HAS A MONTHLY NEGATIVE BALANCE OF TRADE OF $50 BILLION, IMPORTING $150 BILLION AND EXPORTING ONLY $100 BILLION WORTH OF GOODS AND SERVICES, AT AN ACCUMULATED INTERNATIONAL DEFICIT OF SOME $8 TRILLION.
Going forward, investment and hiring in the private sector should be facilitated by the ongoing improvement in credit conditions.
NO CREDIT WILL BE GIVEN IF HOUSEHOLDS DO NOT QUALIFY FOR CREDIT, AND WITH MORTGAGES UPSIDE-DOWN THERE ARE NO ASSETS TO COLLATERALIZE
Larger businesses remain able to finance themselves at historically low interest rates,
THIS IS STUPID … NO INTEREST IS OWED IF YOU FINANCE YOURSELF
and corporate balance sheets are strong.
STRONG BALANCE SHEETS AND WEAK INCOME STATEMENTS MAKES FOR A CONSTIPATED PROD-DISTR SYSTEM
Smaller businesses still face difficulties in obtaining credit,
CREDIT IS RELATED TO RISK, TOO MUCH RISK = NO CREDIT, NO SALES = NO CREDIT
but surveys of both banks and borrowers indicate that conditions are slowly improving
WHICH SURVEYS? WHICH IMPROVEMENTS?
for those firms as well.
In contrast, virtually all segments of the construction industry remain troubled.
YES, WE KNOW, YOU DO NOT NEED TO GO TO ATLANTA TO SAY THIS
In the residential sector, low home prices and mortgage rates imply that housing is quite affordable by historical standards;
AFFORDABLE BECAUSE NOBODY IS BUYING
yet, with underwriting standards for home mortgages having tightened considerably,
TIGHTENED BECAUSE EQUITIES ARE NEGATIVE AND PRICES OF HOUSES ARE FALLING
many potential homebuyers are unable to qualify for loans.
SO THEY ARE NOT “POTENTIAL HOMEBUYERS”
THE COMING FEW PARAGRAPHS ARE PURE TRADITIONAL BORE-NANKE NONSENSE, IN TRUE GREED-SPAM STYLE
Uncertainties about job prospects and the future course of house prices have also deterred potential buyers. Given these constraints on the demand for housing, and with a large inventory of vacant and foreclosed properties overhanging the market, construction of new single-family homes has remained at very low levels, and house prices have continued to fall. The housing sector typically plays an important role in economic recoveries; the depressed state of housing in the United States is a big reason that the current recovery is less vigorous than we would like.
Developments in the public sector also help determine the pace of recovery. Here, too, the picture is one of relative weakness. Fiscally constrained state and local governments continue to cut spending and employment. Moreover, the impetus provided to the growth of final demand by federal fiscal policies continues to wane.
The prospect of increasing fiscal drag on the recovery highlights one of the many difficult tradeoffs faced by fiscal policymakers: If the nation is to have a healthy economic future, policymakers urgently need to put the federal government’s finances on a sustainable trajectory. But, on the other hand, a sharp fiscal consolidation focused on the very near term could be self-defeating if it were to undercut the still-fragile recovery. The solution to this dilemma, I believe, lies in recognizing that our nation’s fiscal problems are inherently long-term in nature. Consequently, the appropriate response is to move quickly to enact a credible, long-term plan for fiscal consolidation. By taking decisions today that lead to fiscal consolidation over a longer horizon, policymakers can avoid a sudden fiscal contraction that could put the recovery at risk. At the same time, establishing a credible plan for reducing future deficits now would not only enhance economic performance in the long run, but could also yield near-term benefits by leading to lower long-term interest rates and increased consumer and business confidence.
The Outlook for Inflation
Let me turn to the outlook for inflation. As you all know, over the past year, prices for many commodities have risen sharply, resulting in significantly higher consumer prices for gasoline and other energy products and, to a somewhat lesser extent, for food. Overall inflation measures reflect these price increases: For example, over the six months through April, the price index for personal consumption expenditures has risen at an annual rate of about 3-1/2 percent, compared with an average of less than 1 percent over the preceding two years.
Although the recent increase in inflation is a concern, the appropriate diagnosis and policy response depend on whether the rise in inflation is likely to persist. So far at least, there is not much evidence that inflation is becoming broad-based or ingrained in our economy; indeed, increases in the price of a single product–gasoline–account for the bulk of the recent increase in consumer price inflation.1 Of course, gasoline prices are exceptionally important for both family finances and the broader economy; but the fact that gasoline price increases alone account for so much of the overall increase in inflation suggests that developments in the global market for crude oil and related products, as well as in other commodities markets, are the principal factors behind the recent movements in inflation, rather than factors specific to the U.S. economy. An important implication is that if the prices of energy and other commodities stabilize in ranges near current levels, as futures markets and many forecasters predict, the upward impetus to overall price inflation will wane and the recent increase in inflation will prove transitory. Indeed, the declines in many commodity prices seen over the past few weeks may be an indication that such moderation is occurring. I will discuss commodity prices further momentarily.
Besides the prospect of more-stable commodity prices, two other factors suggest that inflation is likely to return to more subdued levels in the medium term. First, the still-substantial slack in U.S. labor and product markets should continue to have a moderating effect on inflationary pressures. Notably, because of the weak demand for labor, wage increases have not kept pace with productivity gains. Thus the level of unit labor costs in the business sector is lower than it was before the recession. Given the large share of labor costs in the production costs of most firms (typically, a share far larger than that of raw materials costs), subdued unit labor costs should remain a restraining influence on inflation. To be clear, I am not arguing that healthy increases in real wages are inconsistent with low inflation; the two are perfectly consistent so long as productivity growth is reasonably strong.
The second additional factor restraining inflation is the stability of longer-term inflation expectations. Despite the recent pickup in overall inflation, measures of households’ longer-term inflation expectations from the Michigan survey, the 10-year inflation projections of professional economists, the 5-year-forward measure of inflation compensation derived from yields on inflation-protected securities, and other measures of longer-term inflation expectations have all remained reasonably stable. As long as longer-term inflation expectations are stable, increases in global commodity prices are unlikely to be built into domestic wage- and price-setting processes, and they should therefore have only transitory effects on the rate of inflation. That said, the stability of inflation expectations is ensured only as long as the commitment of the central bank to low and stable inflation remains credible. Thus, the Federal Reserve will continue to closely monitor
AGAIN, WHY WOULD YOU NOT “CLOSELY MONITOR”, IT IS AS IF YOU ARE OFFERING SOMETHING NEW, CLOSELY MONITORING IS THE MINIMUM YOU CAN DO
the evolution of inflation and inflation expectations and will take whatever actions are necessary
WHAT WOULD THAT BE?
to keep inflation well controlled.
“WELL CONTROLLED”, UNTIL IT IS OUT OF CONTROL
Commodity Prices
As I noted earlier, the rise in commodity prices has directly increased the rate of inflation
WHY WOULD NOT BE THE RATE OF INFLATION THAT HAS RAISED COMMODITY PRICES? CAUSE AND EFFECT OR EFFECT AND CAUSE? ALCOHOLIC BEER-NANKE?
while also adversely affecting consumer confidence
WE DO NOT NEED TO WAIT FOR “CONSUMER CONFIDENCE”, WE NEED TO START PRODUCING CLOTHING AND FOOD AND CONSUMABLES, WITHOUT KEEPING IMPORTING THEM FROM CHINA …
and consumer spending. Let’s look at these price increases in closer detail.
The basic facts are familiar. Oil prices have risen significantly, with the spot price of West Texas Intermediate crude oil near $100 per barrel as of the end of last week, up nearly 40 percent from a year ago.
THESE PRICES HAVE RISEN BECAUSE THE VALUE OF THE DOLLAR IS ERODING DUE TO QUANTITATIVE EASING
Proportionally, prices of corn and wheat have risen even more, roughly doubling over the past year.
ALL MONOPOLIES AND OLIGOPOLIES CREATE ARTIFICIAL SHORTAGES CORNERING THE MARKETS TO RAISE PRICES.
And prices of industrial metals have increased notably as well, with aluminum and copper prices up about one-third over the past 12 months. When the price of any product moves sharply, the economist’s
CON-ARTIST AND CON-OMIST
first instinct is to look for changes in the supply of or demand for that product. And indeed, the recent increase in commodity prices appears largely to be the result of the same factors that drove commodity prices higher throughout much of the past decade: strong gains in global demand
THE GAIN IN GLOBAL DEMAND DID NOT GO THIS FAST, IT DID NOT INCREASE BY 40% FROM A YEAR AGO, BUT YOU SAID THAT PRICES OF OIL BARRELS DID … BAD-NANKE …
that have not been met with commensurate increases in supply.
From 2002 to 2008, a period of sustained increases in commodity prices, world economic activity registered its fastest pace of expansion in decades, rising at an average rate of about 4-1/2 percent per year.
INFLATION PLAYS A LARGE ROLE IN THAT INCREASE
This impressive performance was led by the emerging and developing economies, where real activity expanded at a remarkable 7 percent per annum.
“REAL ACTIVITY” DOES NOT MEAN ANYTHING. WHAT DO YOU MEAN WITH “REAL ACTIVITY”? TRADING IN USRAELTAR STOCKS?
The emerging market economies have likewise led the way in the recovery from the global financial crisis:
“RECOVERY FROM THE GLOBAL FINANCIAL CRISIS” … WHICH “RECOVERY”? AND WHAT DO YOU MEAN WITH “FINANCIAL CRISIS”? THE FACT THAT THAT USRAELTAR’S PROD-DISTR SYSTEM IS BANKRUPT?
From 2008 to 2010, real gross domestic product (GDP) rose cumulatively by about 10 percent in the emerging market economies even as GDP was essentially unchanged, on net, in the advanced economies.
TO SAY WHAT? SO WHAT? MASS-DISTRACTIONS
Naturally, increased economic activity in emerging market economies has increased global demand for raw materials.
USRAELTAR IS NOT PART OF THAT DEVELOPMENT AS IT BARELY HAS ANY RAW-MATERIALS TO EXPORT
Moreover, the heavy emphasis on industrial development in many emerging market economies has led their growth to be particularly intensive in the use of commodities,
THEY USE MORE COMMODITIES AND SO THEY ALSO PRODUCE MORE COMMODITIES
even as the consumption of commodities in advanced economies has stabilized or declined. For example, world oil consumption rose by 14 percent from 2000 to 2010; underlying this overall trend, however, was a 40 percent increase in oil use in emerging market economies and an outright decline of 4-1/2 percent in the advanced economies.
“ADVANCED” PROD-DISTR SYSTEMS ARE NOT ADVANCED, AND AS A MATTER OF FACT THEY ARE STAGNANT AND CONSTIPATED
In particular, U.S. oil consumption was about 2-1/2 percent lower in 2010 than in 2000,
THE DEEP-RECESSION-DEPRESSION THT BEGAN IN 2007 WAS VERY PREDICTABLE AND INDEED PREDICTED
with net imports of oil down nearly 10 percent, even though U.S. real GDP rose by nearly 20 percent over that period.
NOBODY IS GRANTING ANY MORE CREDIT TO USRAELTAR’S KAPUTTALISM
This dramatic shift
WHY DRAMATIC? NO DRAMA, UNLESS YOU YOURSELF ARE AN INCESTUOUS PEDOPHILE …
in the sources of demand for commodities is not unique to oil. If anything, the pattern is even more striking for industrial metals, where double-digit percentage rates
USING PERCENTAGES OF PERCENTAGES WAS THE TECHNIQUE OF THE DYING SOVIET EMPIRE
of decline in consumption by the advanced economies over the past decade have been overwhelmed by triple-digit percentage
MORE PERCENTAGES OF PERCENTAGES OF PERCENTAGES
increases in consumption by the emerging market economies. Likewise, improving diets
SAID WHO, “IMPROVING DIETS”
in the emerging market economies have significantly increased their demand for agricultural commodities.
THEY PRODUCE THEIR OWN
Importantly, in noting these facts, I intend no criticism of emerging markets;
YOU ARE A FASCIST AND YOU DO INDEED OBVIOUSLY BLAME THEM FOR YOUR FAILURE, YOU “PROTEST TOO MUCH” BY SAYING YOU DON’T
growth in those economies has conferred substantial economic benefits both within those countries and globally, and in any case, the consumption of raw materials relative to population in emerging-market countries remains substantially lower than in the United States and other advanced economies.
USRAELTAR IS NO LONGER AN ADVANCED PROD-DISTR, AS PROD-DISTR IN USRAELTAR IS INDEED DEAD
Nevertheless, it is undeniable that the tremendous growth in emerging market economies has considerably increased global demand for commodities in recent years.
AND THEY HAVE ALSO INCREASED THEIR PRODUCTION, WHICH YOU AND GREED-SPAM HAVE NOT LED USRAELTAR TO DO. THEIR GROWTH WAS PREDICTABLE AND KNOWN SINCE DENG-XIAO-PING IN 1979
Against this backdrop of extremely robust
YOU TOO, CHEAP CHAP, SEEM TO LIKE THE PHALLIC/LINGAM WORDS “ROBUST” AND “ERECT” …
growth in demand, the supply of many commodities has lagged behind. For example, world oil production has increased less than 1 percent per year since 2004,
WHO ARE YOU TRING TO BLAME NOW? USRAELTAR I HOPE …
compared with nearly 2 percent per year in the prior decade.
1%, 2%, YOU MUST BE JOKING IF YOU THINK THAT THOSE FIGURES ARE RELEVANT. YOU ARE MISLED AND MISGUIDED. IF YOU EVEN ARE IN GOOD FAITH
In part, the slower increase in the supply of oil reflected disappointing rates of production
THEY DECIDE PRODUCTION BASED ON CONSUMPTION AND THE MAXIMUM PRICES THAT CONSUMERS CAN TAKE, IT IS A SIMPLE FORMULA OF MONOPOLY-PRICING 101
in countries that are not part of the Organization of the Petroleum Exporting Countries (OPEC). However, OPEC has not shown much willingness to ramp up production, either.
WHY SHOULD THEY, IF THEY CAN GET MORE EARNINGS BY PUMPING LESS OIL: IT IS A SEE-SAW, PRICES UP, CONSUMPTION DOWN, CONSUMPTION DOWN, PRICES DOWN, PRICES DOWN, CONSUMPTION UP, CONSUMPTION UP, PRICES UP, AND EVERY TIME THEY CAN RAISE THE PRICES IN EXCESS OF WHAT CONSUMER COUNTRIES ARE WILLING TO PAY BEFORE THEY CUT IMPORTS, THAT IS EXTRA MONEY FOR THE OLIGOPOLISTS
Most recently, OPEC production fell 1.3 million barrels per day
IT DID NOT FALL, IT WAS CUT
from January to April of this year, reflecting the disruption to Libyan supplies
THE USRAELTAR PRIVATEERS, NAMELY THE PIRATES FROM QATAR DID PUT LIBYAN OIL ONTO THE MARKET, SO THERE WAS NO DISRUPTION
and the lack of any significant offset from other OPEC producers. Indeed, OPEC’s production of oil today remains about 3 million barrels per day below the peak level of mid-2008. With the demand for oil rising rapidly and the supply of crude stagnant, increases in oil prices are hardly a puzzle.
OPEC CONTROLS, DO YOU WANT TO BLAME THEM FOR BEING BETTER THEN YOU IN APPLYING YOUR PREDATORY PRINCIPLES?
Production shortfalls have plagued many other commodities as well. Agricultural output has been hard hit by a spate of bad weather around the globe.
YES, OLD MANTRA, BLAME THE LEGENDARY FROST IN BRAZIL FOR HIGHER COFFEEE PRICES …
For example, last summer’s drought in Russia severely reduced that country’s wheat crop.
OHHH … TERRIBLE …
In the United States, high temperatures significantly impaired the U.S. corn crop last fall,
OOOHHHH … HIGH TEMPERATURES … AND THE BIRDS FLY FROM LEFT TO RIGHT … YU AUGUR …
and dry conditions are currently hurting the wheat crop in Kansas.
OOOOOHHHHH … HURTING … HURTING … YOUR BLOODY HEMORRHOIDS PERHAPS
Over the past year, droughts have also afflicted Argentina, China, and France. Fortunately, the lag between planting and harvesting for many crops is relatively short; thus, if more-typical weather patterns resume, supplies of agricultural commodities should rebound, thereby reducing the pressure on prices.
TRADERS DETERMINE PRICES BY CREATING ARTIFICIAL SHORTAGES … WHY DO YOU PLAY STUPID …
Not all commodity prices have increased, illustrating the point that supply and demand
“SUPPLY AND DEMAND”, GIVE ME A REAL BREAK … YOU ARE JUST BREAKING AIR …
conditions can vary across markets. For example, prices for both lumber and natural gas
YOUR “NATURAL GAS” COMING OUT OF YOUR UGLY MOUTH, AND BEHIND …
are currently near their levels of the early 2000s. The demand for lumber has been curtailed by weakness in the U.S. construction sector,
KEEPS PRICES DOWN
while the supply of natural gas in the United States has been increased by significant innovations in extraction techniques.
… TO SAY WHAT? …
Among agricultural commodities, rice prices have remained relatively subdued, reflecting favorable growing conditions.
TO SAY WHAT, AGAIN …
In all, these cases reinforce the view that the fundamentals of global supply and demand have been playing a central role in recent swings in commodity prices.
YOU ARE MISLEADING THE READER, AS IF SUPPLY AND DEMAND CONTROL THE SPECULATIVE MARKETS OF FUTURES AND OF DERIVATIVES. YOU ARE A FOOL, OR YOU ARE INDEED TRYING AGAIN TO FOOL SOMEBODY
That said, there is usually significant uncertainty
I THOUGHT YOU LOVE ‘UNCERTAINTY”, ENSURING THAT YOU GET YOUR SPECULATIVE PROFITS
about current and prospective supply and demand. Accordingly, commodity prices,
SUBJECT TO SPECULATIVE FORCES AND PRICE CARTELS
like the prices of financial assets,
SUBJECT TO SPECULATIVE FORCES AND PRICE CARTELS
can be volatile as market participants react to incoming news.
“INCOMING NEWS”? FANTASY. INSIDE TRADING! ROTARY. GRAND LODGE. JEWPARTHEID. BAPHOMET. GYPSY POWER.
Recently, commodity prices seem to have been particularly responsive to news bearing on the prospects for global economic growth as well as geopolitical developments.
WHAT DO YOU MEAN? VISIBLY, NOTHING!
As the rapid growth of emerging market economies seems likely to continue, should we therefore expect continued rapid increases in the prices of globally-traded commodities?
THEY ARE GROWING BUT THEIR PRODUCTION IS ALSO GROWING, OTHERWISE THEY WOULD NOT BE GROWING. YOU CANNOT GROW ON INVESTMENTS ALONE AND ON PRICE-INCREASES ALONE, AND YOU SEEM TO THINK IT TO BE POSSIBLE …
While it is certainly possible that we will see further increases, there are good reasons to believe that commodity prices will not continue to rise
BIPOLAR DUALISM, FIRST YOU SAY IT IS POSSIBLE, THEN YOU SAY THAT IT WILL NOT
at the rapid rates we have seen recently. In the short run, unexpected shortfalls in the supplies of key commodities result in sharp price increases, as usage patterns and available supplies are difficult to change quickly.
WHY SHOULD PRICES CHANGE QUICKLY, IF “USAGE PATTERNS” DO NOT CHANGE QUICKLY. SHALOMIC SCHIZOPHRECONOMICS.
Over longer periods, however, high levels of commodity prices curtail demand
THERE WOULD NOT BE HIGH PRICES IF DEMAND IS CURTAILED, YOU JUST SAID THAT DEMAND DETERMINES PRICES
as households and firms adjust their spending and production patterns. Indeed, as I noted earlier, we have already seen significant reductions in commodity use in the advanced economies.
REDUCED USE BECAUSE REDUCED PROD-DISTR BECAUSE REDUCED DEMAND BECAUSE REDUCED CONSUMPTION BECAUSE REDUCED NEED FOR REDUNDANT PRODUCTS. WE DO NOT NEED 24 BRANDS OF SHAMPOO, WE NEED HEALTHCARE, EDUCATION, BASIC HOUSING FOR ALL … WAKE UP FROM YOUR OBSOLETE FASCISM
Likewise, over time, high prices should elicit meaningful increases in supply,
HIGH PRICES WOULD NOT “ELICIT” INCREASE IN DEMAND, SO NO INCREASE IN SUPPLY EITHER
both as temporary factors, such as adverse weather, abate and as investments in productive capacity come to fruition. Finally, because expectations of higher prices lead financial market participants
WHO ARE THESE FICTITIOUS “PARTICIPANTS” THAT YOU KEEP TALKING ABOUT? YOUR SISTERS?
to bid up the spot prices of commodities, predictable future developments bearing on the demands for and supplies of commodities tend already to be reflected in current prices.
IF THEY CAN PREDICT PROD-DISTR, WHY CANNOT YOU TOO? PLAN PLAN PLAN, AND IF YOU CANNOT PLAN, GET OUT!
For these reasons, although unexpected developments could certainly
SO BRILLIANT … “COULD CERTAINLY” … SO BRIGHT…YOU ARE SO THOUGHTFUL …
lead to continued volatility in global commodity prices, it is reasonable to expect the effects of commodity prices on overall inflation to be relatively moderate
‘RELATIVELY MODERATE”, DOUBLE VAGUENESS IN JUST TWO WORDS, “RELATIVELY” AND “MODERATE”
in the medium term.
While supply and demand fundamentals surely account for most of the recent movements in commodity prices, some observers have attributed a significant portion of the run-up in prices to Federal Reserve policies,
IRRELEVANT, USRAELTAR POLICIES ARE IRRELEVANT
over and above the effects of those policies on U.S. economic growth. For example, some have argued that accommodative U.S. monetary policy has driven down the foreign exchange value of the dollar, thereby boosting the dollar price of commodities.
THE DOLLAR HAS BECOME IRRELEVANT
Indeed, since February 2009, the trade-weighted dollar has fallen by about 15 percent. However, since February 2009, oil prices have risen 160 percent
INCREASE OF 160% IS NOT BECAUSE OF INCREASE IN DEMAND
and nonfuel commodity prices are up by about 80 percent, implying that the dollar’s decline can explain, at most, only a small part of the rise in oil and other commodity prices; indeed, commodity prices have risen dramatically when measured in terms of any of the world’s major currencies, not just the dollar.
DO NOT FEEL GUILTY, BENNY, YOU TOO ARE INDEED IRRELEVANT, AND THIS SPEECH IS IRRELEVANT, ONLY FOR LOCAL ATLANTA CONSUMPTION … IT IS BECOMING EVIDENT THAT YOU ARE NOT EVEN TRYING TO SAY ANYTHING OF ANY RELEVANCE
But even this calculation overstates the role of monetary policy,
KEEP PRINTING DOLLARS, IT IS OK, YOU ARE BANKRUPT ANYWAY, WITH $15 TRILLION IN PUBLIC DEBT AND $12 TRILLION IN NEGATIVE BALANCE OF TRADE
as many factors other than monetary policy affect the value of the dollar. For example, the decline in the dollar since February 2009 that I just noted followed a comparable increase in the dollar, which largely reflected flight-to-safety flows triggered by the financial crisis
WHY ARE YOU BLAMING ANY “FINANCIAL CRISIS”, THE FALL OF THE STOCK MARKET? STOCKS THAT ARE WORTH NOTHING? THAT IS NOT A CRISIS, THAT IS NORMAL
in the latter half of 2008; the dollar’s decline since then in substantial part reflects the reversal of those flows as the crisis eased. Slow growth in the United States
“SLOW GROWTH”? … NEGATIVE GROWTH! … ST.BERNARDKE, YOU HAVE RUN OUT OF RUM THIS TIME
and a persistent trade deficit
ACCUMULATED $8 TRILLION, WHAT ARE YOU GOING TO DO ABOUT THAT? STOP IMPORTS! SIMPLE!
are additional, more fundamental sources of recent declines in the dollar’s value; in particular, as the United States is a major oil importer,
“MAJOR OIL IMPORTER” … DID YOUR GODS SET IT UP THAT WAY?
any geopolitical or other shock that increases the global price of oil will worsen our trade balance
USRAELTAR TRADE BALANCE HAS BEEN NEGATIVE FOR THE LAST 20 YEARS, DO NOT BLAME THE OIL PRICES
and economic outlook, which tends to depress the dollar.
THE DOLLAR IS IRRELEVANT BECAUSE YOU PAID FOR FOREIGN IMPORTED GOODS WITH FRESHLY PRINTED DOLLARS
In this case, the direction of causality
YOU DO NOT HAVE THE CONCEPT OF CUSALITY VERY CLEAR IN YOUR BEARD, MAN …
runs from commodity prices to the dollar rather than the other way around. The best way for the Federal Reserve to support the fundamental value of the dollar in the medium term is to pursue our dual mandate of maximum employment
ARE YOU HIRING PEOPLE?
and price stability,
ARE YOU SETTING IN PRICE-CONTROLS?
and we will certainly do that.
YOU WILL?
Another argument that has been made is that low interest rates
YOU KEEP INTEREST RATES LOW BECAUSE YOU WANT 401K PEOPLE TO PUT THEIR MEAGER SAVINGS IN YOUR CORPORATIONS, CITIBANK, ALLY-BANK, AND AIG …
have pushed up commodity prices by reducing the cost of holding inventories, thus boosting commodity demand, or by encouraging speculators to push commodity futures prices above their fundamental levels.
THEY HAVE CHEAP EXTRA MONEY, SO THEY HAVE TO PUT IT SOMEWHERE, WHY NOT INTO COMMODITIES
In either case, if such forces were driving commodity prices materially and persistently higher, we should see corresponding increases in commodity inventories, as higher prices curtailed consumption and boosted production relative to their fundamental levels. In fact, inventories of most commodities have not shown sizable increases over the past year as prices rose;
PRICES HAVE, AND YOU KNOW VERY WELL THAT ONE AND THE SAME OUNCE OF GOLD CAN BE SOLD AT THE SAME TIME TO 100 DIFFERENT INVESTORS
indeed, increases in prices have often been associated with lower rather than higher levels of inventories,
GOLD SHARES EXCEED GOLD INVENTORIES BY ONE-HUNDRED TO ONE, SO YOUR ARGUMENT SHOWS BLATANT BAD-FAITH AND BAD-BREATH
likely reflecting strong demand or weak supply that tends to put pressure on available stocks.
Finally, some have suggested that very low interest rates in the United States and other advanced
economies have created risks of economic overheating
THEY DID IN THE IRRATIONAL-EXUBERANCE OF THE HOUSING-BUBBLE
in emerging market economies and have thus indirectly put upward pressures on commodity prices. In fact, most of the recent rapid economic growth in emerging market economies appears to reflect a bounceback [sic] from the previous recession
RIGHT, BOUNCE BACK, REBOUND, RECOVERY, WHAT MORE … AIN’T FOOLING NOBODY ANYMORE, MAN …
and continuing increases in productive capacity, as their technologies and capital stocks
“CAPITAL STOCKS”? WHAT LINGO IS THAT? YOUR MONEY? YOUR STOCKS?
catch up with those in advanced economies, rather than being primarily the result of monetary conditions in those countries. More fundamentally, however, whatever the source of the recent growth in the emerging markets, the authorities in those economies clearly have a range of fiscal, monetary, exchange rate, and other tools that can be used to address any overheating that may occur.
AS YOU DO NOT, WHY DO YOU THINK THEY DO?
As in all countries, the primary objective of monetary policy in the United States should be to promote economic growth
“GROWTH”? STABILITY!
and price stability
YOU ARE A FASCIST, WHY “PRICE STABILITY”, WHO ARE YOU SERVING? NOTHING WRONG WITH FALLING PRICES, MAKES THINGS MORE AFFORDABLE
at home, which in turn supports a stable global economic and financial environment.
USRAELTAR IS IRRELEVANT
Monetary Policy
Let me conclude with a few words about the current stance of monetary policy. As I have discussed today, the economic recovery
RECOVERY? BOUNCEBACK? REBOUND? BALONEY!
in the United States appears to be proceeding at a moderate pace and–notwithstanding unevenness in the rate of progress and some recent signs of reduced momentum–the labor market has been gradually improving.
NOT TRUE … FALSE … DECEIVING …
At the same time, the jobs situation remains far from normal, with unemployment remaining elevated. Inflation has risen lately but should moderate, assuming that commodity prices stabilize
BLAME COMMODITY PRICES, BLAME THE GODS, BLAME JAPAN, BLAME HUGO-CHAVEZ, BLAME OSAMA
and that, as I expect,
WHO ARE YOU TO “EXPECT” ANYTHING … YOU EVEN ADMIT THAT YOU KNOW NOTHING
longer-term inflation expectations remain stable.
Against this backdrop, the Federal Open Market Committee (FOMC) has maintained a highly accommodative
“ACCOMMODATIVE” … FOR WHOM?
monetary policy, keeping its target for the federal funds rate close to zero
DISCOURAGING RISK-FREE SAVINGS OF RETIREES … IS THAT A GOOD POLICY?
and further easing monetary conditions through large-scale asset purchases.
HYPERNATIONALISTIC-PSEUDOSOCIALISTIC INTERVENTION, SOUNDS LIKE NATIONALSOCIALISTIC IDEALISM
The FOMC has indicated that it will complete its purchases of $600 billion of Treasury securities by the end of this month
NOTHING NEW THERE, THE PROGRAM HAS ENDED! WHY ARE YOU SAYING THAT? “COMPLETE”? IT IS ENDED …
while maintaining its existing policy of reinvesting principal payments from its securities holdings.
WHAT ABOUT THE $15 TRILLION DEBT AND INTEREST PAYMENT MORATORIUM?
The Committee also continues to anticipate that economic conditions are likely to warrant
WARRANT SEEMS TO BE AN UNDISPUTABLE COMMAND FROM YOUR GODS
exceptionally low levels for the federal funds rate for an extended period.
The U.S. economy is recovering
IS IT?
from both the worst financial crisis and the most severe housing bust since the Great Depression,
THIS IS WORSE THAN THAT ONE, INASMUCH AS WE ARE TWICE AS MANY INHABITANTS
and it faces additional headwinds
YOU HAVE ALREADY USED THIS TRITE CLICHÉ
ranging from the effects of the Japanese disaster
REPEATING YOURSELF
to global pressures in commodity markets. In this context, monetary policy cannot be a panacea.
WHAT ABOUT PLANNING PROD-DISTR BASED ON WHAT WE NEED AND WHAT WE HAVE, ALLOCATING RESOURCES, PRIORITIZING PRODUCTION, AND MEETING PEOPLE’S BASIC NEED FOR HOUSING, HEALTHCARE, EDUCATION, AND PUBLIC-SAFETY
Still, the Federal Reserve’s actions in recent years have doubtless helped stabilize the financial system,
SAYS YOU, YES …
ease credit and financial conditions, guard against deflation, and promote economic recovery.
WHICH RECOVERY?
All of this has been accomplished, I should note, at no net cost to the federal budget or to the U.S. taxpayer.
50% OF USRAELTAR IS OUT OF WORK, AND 80% OF USRAELI FAMILIES CANNOT MAKE A DIGNIFIED LIVING
Although it is moving in the right direction,
“RIGHT”, YES, RIGHT-WING FASCIST BIG-BIZ DIRECTION
the economy is still producing
“PRODUCING” NOTHING, USRAELTAR IS IMPORTING EVERYTHING
at levels well below its potential; consequently, accommodative
“ACCOMMODATIVE”?
monetary policies are still needed. Until we see a sustained period of stronger job creation,
“SEE” … COMING FROM WHERE? MOSES? AARON? DAVID?
we cannot consider the recovery
“RECOVERY”?
to be truly established.
NOBODY EXCEPT FOR LADY-GA-GEITHNER THOUGHT IT HAD EVEN BEGUN …
At the same time, the longer-run health of the economy requires that the Federal Reserve be vigilant
“VIGILANT” … “MONITOR” … WELL, YES … AND WHAT ABOUT “PLANNING”, “DEVISING” …
in preserving its hard-won credibility
“CREDIBILITY”? YOU MUST BE A COMEDIAN, A TRAGIC ONE INDEED!
for maintaining price stability. As I have explained, most FOMC participants currently see the recent increase in inflation as transitory
ALL INFLATION IS TRANSITORY BY DEFINITION SO TO SAY IT IS TRANSITORY IS LIKE SAYING MILK TASTES LIKE MILK, NOT VERY BRILLIANT FOR A PHD
and expect inflation to remain subdued
“SUBDUED” … ARE YOU SUBDUING? OR JUST SUB-DOING
in the medium term.
YOU KEEP SAYING “MEDIUM TERM”, VAGUELY VAGUE VAGUENESS …
Should that forecast prove wrong,
“WRONG” … WELL, NOT MUCH FOR YOUR CREDIBILITY, BUT ALL YOUR LISTENERS HAVE BY NOW STOPPED LISTENING …
however, and particularly if signs were to emerge that inflation was becoming more broadly based or that longer-term inflation expectations were becoming less well anchored,
“LESS WELL ANCHORED” “EXPECTATIONS”. HOPE THERE ARE NO EXPECTATIONS OF “LONGER-TERM INFLATION” … YOU ARE NOW BABBLING INANELY AND INSANELY
the Committee would respond as necessary.
“AS NECESSARY” AS IF YOU HAVE SOLUTIONS TO PROBLEMS YOU DO NOT EVEN KNOW
Under all circumstances, our policy actions will be guided by the objectives of supporting the recovery in output
PLANNING PROD-DISTR?
and employment
PLANNING EMPLOYMENT?
while helping ensure that inflation, over time, is at levels consistent with the Federal Reserve’s mandate.
TARGETED INFLATION? AT WHAT SET RATE? ANY RATE THAT HAPPENS TO HAPPEN? … SEND IN THE CLOWNS … THEY ARE ALREADY THERE … AND CREEPUBLICAN BENNY-SHALOM IS THE BIGGEST OF THEM ALL …
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