Quantitative Easing coming home to roost
The effects of Bernanke's Quantitative Easing (ie: printing money willy nilly without regard for the consequences) are being shown.
We are about six miles from the Canadian border as the crow flies. We get a lot of Canadian visitors and we take the currency at par. For the first time in about ten years, the Canadian dollar is trading higher than the US Dollar.
And the price of Diesel has hit the $4.00 mark -- it was $3.49 just a few months ago.
This price rise is not because of the middle east unrest -- we do not purchase oil from Libya.
From
here
This is the beginning of an inflationary spiral. The more gas prices rise, the more it costs to manufacture goods and provide services and those prices are going to rise as well. Because the businesses are having to spend that much more on energy and fuel costs, they will not be as inclined to give raises to their employees so the purchasing power will go down.
Because this comes at a time of high taxation for small businesses and when large (GE -- I'm talkin' to you!) businesses get political sweetheart deals (and don't contribute their fair share of tax revenue), the overall economy falls moribund.
There is a word for this -- Stagflation. Excerpted from
the WikiPedia article:
Both stagnation and inflation can result from inappropriate macroeconomic policies. For example, central banks can cause inflation by permitting excessive growth of the money supply, and the government can cause stagnation by excessive regulation of goods markets and labor markets, Either of these factors can cause stagflation. Excessive growth of the money supply taken to such an extreme that it must be reversed abruptly can clearly be a cause. Both types of explanations are offered in analyses of the global stagflation of the 1970s: it began with a huge rise in oil prices, but then continued as central banks used excessively stimulative monetary policy to counteract the resulting recession, causing a runaway wage-price spiral.
Welcome back Carter...
Posted by DaveH at March 4, 2011 12:52 PM