The Richmans: Inflation climbs to 3.6% in May. Palin was right!

She's the only potential presidential candidate advocating what's needed to stabilize & grow the economy
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Howard Richman & Raymond Richman, two of the three generations of the Richman family of economists, give due credit to Sarah Palin who accurately predicted that Quantitative Easing would drive up inflation, but it would not have its intended effect of incresing American exports and business investment:

On June 15, the Bureau of Labor Statistics released the inflation data for May. If you didn't hear about the new data, you are not alone -- the mainstream media buried the story. Why? Inflation hit 3.6% in May, even though gasoline prices actually fell that month. Inflation has been rising since November...

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Back in November, Governor Palin took on QE2 and President Obama's defense of it. Her predictions have turned out to be correct. When making her case against QE2, she argued that it could cause inflation, but would not much help U.S. net exports and business investment, the two factors needed to grow the U.S. economy.

Indeed, worsening net exports (exports minus imports) have been keeping the United States stuck in its current economic stagnation.

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Bernanke hoped that QE2 would weaken the dollar which would turn U.S. net exports around. But Palin predicted that any positive effects would be temporary. In November she wrote:

Will driving the dollar down in this way do anything to boost U.S. exports? The short answer is not really. A weaker dollar will temporarily boost exports by making our goods cheaper to sell; but inevitably other countries will respond in kind, triggering the kind of currency wars economists are warning us about.

Indeed, so far Palin has been correct. QE2's effect upon net exports appears to have been temporary.

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Bernanke had hoped that QE2 would stimulate business investment. But, in November, Palin predicted that QE2 would have little effect upon business investment. She wrote:

Will QE2 then at least boost domestic investment? No, again. As I explained in my speech in Phoenix, the reason banks aren't lending and businesses aren't investing isn't because of insufficient access to credit. There's plenty of money around, it's just that no one's willing to spend it. Big businesses especially have been hoarding cash. They're not expanding or adding to their workforce because there's just too much uncertainty created by a lot of big government experiments that aren't working. It's the President's own policies that are creating this uncertainty.

Indeed... the rate of growth in real fixed investment slowed in the fourth quarter of 2010 and the first quarter of 2011, despite QE2.

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Palin argued that QE2 was a dangerous experiment that risked inflation. She urged Obama to instead balance budgets, cut taxes and reduce burdensome business regulation. In November, she concluded:

If the President was serious about getting the economy moving again, he'd stop supporting the Fed's dangerous experiments with our currency and focus instead on what actually works: reducing government spending and boosting business investment through good old fashioned supply side reforms (cutting taxes and reducing overly burdensome regulations). Simply running the printing presses in order to avoid paying off your debts is no way for a great nation to behave.

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The mainstream media pretend that Palin is stupid. But she is actually blessed with a very rare commodity these days - economic common sense. She is the only potential presidential candidate currently advocating the three basic principles that would restore economic stability and long-term growth to the American economy: (1) balanced monetary growth, (2) balanced budgets, and (3) balanced trade.

Obviously, Gov. Palin has being doing her homework, not only on foreign policy, but economic policy as well. The corrupt media and her other political enemies would prefer that you did not know this.

h.t: Henry D'Andrea

- JP

Gov. Palin was right about the fed, the dollar and inflation

Those inflation yard birds are coming home to roost
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In her keynote address at a trade-association convention in Phoenix last November, Sarah Palin criticized the Fed's misguided monetary policy and warned that the U.S. “shouldn’t be playing around with inflation.” Gov. Palin's warnings were quickly dismissed at the time by her political opponents, but inflation seems to be coming home to roost.

Charles Kadlec, a former Seligman & Co. managing director and investment strategist, who also served as economic advisor to Jack Kemp, effectively vindicates Gov. Plain in a forbes op-ed titled, "Higher Inflation Is On The Way":

Reported inflation is headed higher — much higher.

The stakes have seldom been higher. With the unemployment rate still above 9%, and federal debt at record levels, this latest error by the monetary authorities is likely to be the most costly since the Great Inflation of the 1970s. Monetary instability will slow employment growth and further erode confidence in government at the same time that higher interest rates will add billions of dollars to the interest cost on the national debt. Yet, failure to act in a timely basis will lead to an even greater crisis.

When it arrives, the Federal Reserve and its defenders will call it “cost-push” inflation and blame it on economic growth, the weather, Arab sheiks, China, and perhaps greedy companies and labor unions.

The actual cause of the looming crisis is the same as the cause of the Great Inflation of the 1970’s: a too easy monetary policy that has devalued the dollar by 40% against gold during the past two years.

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The price of crude materials in the Producer Price Index (PPI) increased by 3.3% in January alone and now stands 21% above where it was just six months ago. Moreover, during the three months ending January, the rate of advance in the producer price indices for intermediate products, and finished goods have all accelerated into double digit annual rates of advance.

This upward adjustment of prices to the cheaper dollar is beginning to flow through to the consumer. For the past 3 months, the seasonally adjusted annualized rate of advance in the CPI is up to 3.9%, with food and energy prices – the items that have the greatest short-term impact on a family’s budget – accelerating to 3.1% and 27% over the same 3 months. Given the relative magnitudes of the dollar’s devaluation against gold, it is reasonable to expect consumer prices to be rising at a 5% plus annualized rate in the months ahead.

Fed Chairman Ben Bernanke’s assurance during last December’s interview on 60 Minutes that he was “100% certain” the Fed could control an outbreak of inflation above 2% was hubris...

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- JP

Brett Arends: Is Sarah Palin Right About Inflation?

It's on its way
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Brett Arends, who writes the Wall Street Journal's ROI (for Return on Investment) column, admits that when it comes to inflation, Gov. Palin may be about to look quite perceptive:

The more interesting question is about Ms. Palin's broader point: whether inflation is on its way.

If the commodity markets are right, it sure looks like it.

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Wheat prices are now surging... They've risen 36% over the past 12 months.

And there are similar patterns across other agricultural and related commodities.

Coffee has risen more than 60% in the past year. Sugar's up by more than a half. Corn: 43%. Lumber's risen by a third. Cattle: 17%. Oats: 37%. Pork bellies are up by a fourth.

"Prices across the board are surging to their highest levels since the 2008 price spike," says Alex Bos, commodities analyst at Macquarie Securities. "We have an extremely bullish cotton market, and extremely bullish corn market and an increasingly bullish soybean market."

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Don Carson, analyst at Susquehanna Financial, notes that the U.S. may actually be running low on wheat. Inventories, in relation to consumption, are near record lows, he says. And Alan Knuckman, market analyst at Agora Financial, says it's ominous that prices are hitting highs around harvest time, when supplies should be at their greatest. "That's very unusual," he says.

Meanwhile -- as Ms. Palin said -- the U.S. policy of debasing the dollar is driving up commodity prices in dollar terms, as it is driving up prices for other "real" assets, including precious metals.

There is a long-running debate among economists about what really causes inflation: higher costs (so-called "cost push") or just too much money. But right now you don't really have to choose: We have both.

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Which is precisely the more important point the first woman to become both Alaska's governor and the Republican Party's vice presidential candidate was trying to make: the Obama Administration cannot just continue to print paper money and borrow from China to cover its backside, while driving the dollar down. The end result of such recklessness is inflation - the wrecking ball that crushes economic recovery.

- JP