Thursday, November 04, 2010

Regarding Inflation- Contradictions & Naivete On CNBC This Morning

It's only 8:15AM, and already I've had a few laughs from Jack Welch's visit as a guest host on CNBC's morning program.

In commenting on yesterday's Fed purchase of $600B of Treasury notes, Welch was asked if such monetary easing was wise. Welch punted- big surprise- and said that he had supported Bernanke's crisis-era actions, and he wasn't about to second-guess the Fed chairman.

So much for CNBC's policy of bowing and scraping deferentially to anyone with a 'CEO' by his name, present or past, eh? I thought those guys were demi-gods, speaking received wisdom from some magical font to which they were granted access upon ascending to CEO-dom.

Then someone asked Welch if he thought this move was inflationary. In classic Neutron-Jack doublespeak, he claimed it wasn't, except that the large dollar creation will probably weaken the greenback, leading to commodity inflation, especially in oil and food.

How's that for a clear response?

After which, Carl Whathisname solemnly asked,

'And will we see those price increases coming through to us as consumers?'

Duh. Can you get much more stupid than to have to ask that question?

Then, to my horror, typically-savvy co-anchor Joe Kernen contributed to the lunacy by asking Chairman Jack, to paraphrase,

'So there's no wage inflation pressure. And cost-push is transitory, and won't really affect us, right?'

Wow. Jack's just abdicated his omniscient CEO mantle, claiming not to second guess the Fed, and Kernen asks him a nuanced question, the answer to which you couldn't get a panel of Nobel Economic Laureates to agree.

I guess this is where CNBC excels at providing entertainment, rather than solid insight and commentary.

This is only the trillion dollar question of the American condition. Last night, Glenn Beck was screaming about Wiemar-like inflation rates and George Soros speaking about the benefits of an 'orderly decline' in the value of the dollar. This morning's Wall Street Journal catalogued coming retail food price increases in the 7-13% range for staples like beef, milk and eggs.

Let's see- easy money, zero interest rates, QE2 on the horizon, and commodity prices jumping. Retail food price increases already in the pipeline.

Nope, no icebergs or inflation in sight, Captain. Full speed ahead!

It all brings to mind Rick Santelli poking fun at inflation measures which carefully exclude 'food and energy.' And, of course, Milton Friedman's quote, of which I am so enduringly fond,

"Inflation is always and everywhere a monetary phenomenon."

Money supply way up, velocity not down, and you've got inflation coming down the pike. Velocity may have fallen from 2008 until recently, but I don't think I've seen that it continues to decline. So that would mean new creation of money stock will necessarily inflate, further depreciating the dollar.

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