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Bernanke: There Is No Inflation (and If There Were, We Could Stop It)

Fin - Breakout - US
AP Photo/Dennis Cook

If you want to drive a rational economic-type of person crazy, simply mimic Fed Chairman Ben Bernanke's willful refusal to acknowledge seemingly obvious inflationary trends.

You can start by quoting Dr. Bernanke's observations on the ramp in commodity prices, made Monday night:

"I think the increase will be transitory, that it will pass, and we will go back to a level of inflation that is consistent with our price stability mandate."

Let's run through a quick list of objections one could make to this seemingly benign comment.

-- A price stability mandate is bogus on two fronts. First, it assumes a central government has direct control over prices. This implies, for instance, if an enormous housing bubble were to take place the Fed would be able to either control the price increase or subsequent crash of housing prices. For gold, oil, rubber, candy, copper, etc., the Fed chair doesn't just feel he and his minions can control the price, he believes they have a mandate to do so. Which brings us to the second obvious problem with the idea of a "price stability mandate" -- if the Fed has one, where have they been for the last five years?

-- "I think the increase will be transitory" acknowledges an increase in inflationary pressure. This from an agency blessing consumer price inflation numbers, which don't include food or energy (read: greater than 50% of what actual consumers pay real prices for).

-- There is little question what Dr. Bernanke "thinks" is going to happen, he just doesn't offer supporting evidence. The Fed has been intentionally flooding the market with dollars. This isn't a conspiracy theory or hypothetical; it's the point of QE1, QE2 and any QE's of the future. "Here's some money, America, go buy something." Consumer purchases make up roughly 70% of GDP. Consumers have slowed their pace of buying discretionary items, at least in part due to the unacknowledged increases in food and energy costs.

Demand is slowing, dollars are cheap and commodity prices are ramping in a manner hard to ignore. Of all the possible economic outcomes, "stability" is the least probable. Certainly Dr. Bernanke, in his heart of hearts, knows this to be the case. It's time for the investing public to "mandate" something resembling intellectual honesty from our officials.

Just something to chew on while you read Fed notes that will be released later today. Fortunately food for thought remains immune to inflationary pressure.

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