Thursday, October 28, 2010

The Fed's "Tax on the Consumer"

From CNN Money. Original article contains commodities price comparison chart.

"Since Bernanke's comments in August, the dollar index has dropped 7%, while commodities -- which are priced in dollars -- have surged. Crude oil has jumped 14%, while gold has spiked 8%. Prices for cotton, corn, sugar, wheat and coffee also have all hit new highs during the past two months.

Ultimately, those lofty prices will trickle down to consumers in the form of higher prices for coffee, bread, pizza, gas, clothing and more.

"The problem I have with QE2, is it behaves like a tax on the consumer," said David Giroux, a fund manager at T. Rowe Price. "People want to believe it's a free lunch for the economy, but it's definitely not. Next year, we're going to be paying more at the gas pump and the grocery store."

Gas is rumored to go as high as $100/barrel from the current $82-83. Get ready for a return to $3/gallon gas. Whatever you did to deal with $4/gallon gas, do it again, and plan on continuing it until we get a new president.


"Lower long-term interest rates should encourage consumers and businesses to spend more. That, in turn, should lead to more jobs, better housing prices and an overall economic revival.

However, a second round of asset-purchases may not make much of a splash."


"Banks will have a lot more money to lend, and lower rates will make it easier for people to borrow," said Mike Schenk, vice president of economics and statistics for the Credit Union National Association. "But the problem is that that people are still up to their eyeballs in debt and are in the process of paying it down, so it's unclear how much more they'll be willing to borrow."


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