Lots of things, of course – but our current problems (higher food and energy prices, insolvent banks continuing to exist and drag down the whole financial system, etc) really go back to one thing. Nick Sorrentino gets it in just one sentence:
…because the Fed is seeking to force inflation into the system (by weakening the dollar deliberately) to save a tenuous economic system built to benefit those who have first access to the newly printed money (the large banks), life for most people is likely to get more difficult in the short term…
Why force inflation? Because Keynesian theory says that if you have inflation you’ll get economic growth – how anyone ever thought that taking money from one person (by devaluing his money) and giving it to another leads to net growth is beyond me. I can’t think like that – I’m either not that smart, or not that stupid. But it is what Bernanke is trying to do – and it is what the rest of the central banks around the world have tried to do (China managed to do it “successfully” in the sense that they got “growth” in 2010…but inflation is galloping ahead and China’s problem now is how to stop inflation from throwing them in to recession without the inflation cure crashing them in to recession; lotsa luck on that, China).
We’re in a bad way and we’re going to have to spend more and more of our already reduced incomes on the basics – food and energy. Meanwhile, our housing prices continue to drop and while our 401ks look better, it is all paper profits created by Fed-induced asset inflation…which can be wiped out in a week if people start to see a new recession coming in (and monetary outflows from equity markets in 2010 indicate that a lot of people see a new recession coming). I don’t see a way out of this – that is, I don’t see any way out which doesn’t involve words like “pain” and “sacrifice”.
Hopefully the new GOP Congress will be able to reign in Bernanke before he destroys everything. But the bad news is that reigning in Bernanke will also be painful because that will cause a resumption in the financial crash of 2008 – allowing it to complete itself, to be sure, and thus set us on a path to genuine recovery, but it means at least a year of really bad economics as things are sorted out. Trouble is that reigning in Bernanke will probably take cooperation from Obama, who seems perfectly ok with rising prices for energy and food because that makes Americans poorer, and thus more likely to “go green” and become more government dependent.
Just one heck of a lousy situation, set upon us by idiots. But there is good news – this, too, will pass. It’ll just suck a bit getting through it.
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