Was QE2 a Sin?
The Fed may be trying to save the economy with the printing of more money but the poor battered US consumers are so far bearing the brunt of this economic policy and let's face it, it is a SIN. At the last Fed meeting the Fed famously said that it was, "prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time". What they didn't want to tell you was that time was now. It was President Gerald Ford that wore famous "Win" button which stood for "Whip Inflation Now". The Fed now should wear a "SIN" button which stands for "Start Inflation Now" and the way the commodities markets have responded, it's probably time that the Fed start doing penance and a few Hail Mary's.
Because let's face it, this QE2 is basically a Hail Mary pass. You see, if the Fed policy does not shock and awe the economy out of its stupor, then we may have printed $2.1 trillion for nothing and the only thing that we may have to show for it is higher prices of commodities. With an economy that is still struggling, those higher prices may kill the consumer.
You see, it seems that not only is gold and silver rising but those esoteric inflation items that like to be swept under the rug and ignored by some economists are rising as well, like food and energy. Not to mention the proverbial and actual shirt off your back. Have you checked out cotton prices lately? Cotton prices are up 100% this year, gold up 29%, soybeans up 27%. QE2 hopes to create economic activity but the consumers may have to pull back as their wallets get squeezed.
Take a look for example at the stats on gasoline. Gas prices soared, rising from a national average $2.694 the week of the Fed meeting when they signaled QE2 to a staggering $2.865 which is an increase of $.17 a gallon. That already seems to have impacted demand as the MasterCard SpendingPulse reported that gasoline demand hit a 6 week low and has fallen for 4 weeks in a row. MasterCard said that gas demand has fallen to an average of 8.99 million barrels a day.
John Gamel, director of economic analysis for SpendingPulse told Bloomberg News that most of the demand decline is occurring on the weekend and early in the week, which would indicate they're trying to limit their discretionary driving and not filling up until the next Friday. Obviously if consumers are limiting their discretionary driving they are probably going to limit spending on other discretionary items.
The other factor of cause is the rest of the world's reaction as we head into the G-20. Now it looks like the United States is going to be chided for its money printing ways by the likes of China. Can you imagine? But it isn't just China. It's Russia, Germany and even Brazil. German Chancellor Angela Merkel went so far as saying in a Financial Times article that the greatest danger facing the global economy is a return to protectionism. That is how many in the world see QE2. QE1 was not a problem because it was done to stabilize the global economy. This second round is being viewed by many countries as the US trying to fix our economy at the expense of others.
In the short run, oil, as compared to other commodities, is still acting rather weak. The API numbers were bullish and today's EIA now has a bullish number to look up.
Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at firstname.lastname@example.org.