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QE2 is a Waste of Time

Written By Brian Hicks

Posted October 13, 2010

While every one is all excited about the QE2 hope rally… it may not last.

First, we could see a sell on the news event on actual announcement… and two, it will kill the dollar. While that’s a good thing for energy and commodity traders… agflation, for one, could tear us apart.

And we’re not the only ones that think QE2 could hurt us.

Morgan Stanley’s Stephen Roach, for one, says that QE is one big waste of time. He, too, understands that global imbalances can’t be resolved with kick the can policies.  Here’s more on what he said to say..




And, as I said in today’s Energy and Capital…

If you thought your $200 weekly food bill was bad… just wait.

It’s about to rocket another 20%… even 30% next month.

And that’s because the Fed is about to screw us… weakening the dollar even more, and sending more Americans to the poor house.

All in a pursuit of economic recovery…

And the Fed doesn’t care who it hurts in the process…

Heck, it just threatened China and the G20 with another round quantitative easing if they don’t play by our rules…

And the last thing they need is an economy flooded with excess liquidity.

It’d kill them…

But it’ll kill us in the process… again.

Apparently, we’re not paying enough for food, energy, or clothing…

It doesn’t matter that 20% of the U.S. is unemployed or under-employed.

It doesn’t matter that since the Fed last spoke, gold and other commodities have spiked… or that we could see a repeat of the 2007 and 2008 food price spike.

In 2008, the worst case of food inflation in 20 years nailed Americans… forcing them to give up on going out to eat. They bought fewer luxury food items. They saw record high energy, corn and wheat prices, and startling sticker shock.

Bread, for instance, rocketed to an average $1.32 – a 32% rise since January 2005. Eggs rocketed about 50% in less than a year. And overall food prices were up about 5%. And, in 2008, the average family food bill per month rose to $904, an $80 increase in a year.

But fast forward to today… and we’re seeing it again.

This year alone, crude oil has soared some 27%. Wheat is up 84%. Sugar is up 55%. Soybeans are up some 24%…. And corn just rocketed another 15% in two days – the biggest moves in recent history that prompted some to warn of another food crisis.

The meat industry just warned of a “game changer” in pricing and profitability because of the cost and contraction of corn supplies… warning that higher prices for beef, pork and poultry will be passed on to the consumer.

Excess cash is showing up in food prices. You gotta eat, right?

The U.N. has reported that global meat prices are at a twenty-year high. Pork bellies (think bacon) are at a record $1.50 a pound; Australian lamb prices are at $5.50 a kilo — the highest price since 1973.

In August, a JPMorgan analyst who tracks food prices reported that a standard basket of Wal-Mart food in Virginia increased 5.8% over last year. In India, food prices were up 14.05% in the second quarter.

This is a big deal.

Sure, you can always blame bad crops, weather and global disasters for the stellar rise, but if it weren’t for our loose monetary policy, these commodities would not have rocketed as fast.

Fact is – all the Fed has to do is initiate another round of QE and those prices move even higher… and the effects will be disastrous. We’re talking food crisis and riots. We’re talking about higher retail prices, which would hit consumer income.

We’re talking about global chaos…

And for what? To save a fragile U.S. economy that’s on the brink of collapse any way?

When the Fed eased in 2007, oil and food prices exploded , killing the global economy with sky high unemployment. Heck, two years after 2008’s easing, and we still haven’t seen the promised improvement in unemployment, left only with a wrecked economy needing another injection.

What will be different if the Fed initiates QE2 in November?

Besides rampant moves in energy and food inflation and a depressed economy… Nothing.

Blame whomever you want for this mess… but truth is the world is awash in dollars and the waves are getting higher. Greenspan and Bernanke are to blame for coming hyper-inflation in food and energy.