Why Food and Energy Prices Are Rising – The “Fed” Tax – From November 9, 2010

The Fed Tax

 The Tax Congress Never Passed and the President Never Signed – And That Continues to Rise

The prices of wheat, corn and soybeans have increased in price more than 90% over the past year. Every American who shops for groceries each week sees food prices rising. While every American is being punished with higher food prices, these dramatic increases are being levied the hardest on the poor. The number of Americans receiving food stamps is now over 42 million, or 14 percent of the population, an increase of 58.5% since August, 2007.

Energy prices have seen similar shocks to the family pocketbook. Heating oil inventories are at a 27 year high, the weather reflects that between this year and last year we should have a decline in heating energy demand – yet heating costs are rising. Gasoline inventories are higher than their five-year average. Demand for gasoline by consumers is down 2.7% between October, 2009 and October, 2010.  Energy inventories are up, consumer demand is down – yet we’ve all seen gas prices increasing at the pump almost daily.

All of us see food and energy prices rising – in apparent defiance of anything to do with the normal fundamentals of supply and demand. Why?

Americans are paying more for essential commodities due to a “phantom tax” that Congress never passed and the President never signed. These increased costs from the phantom tax are courtesy of the Federal Reserve which has pumped out trillions of dollars in an attempt to reinflate the nation’s economy. As more dollars flow out of the Fed and into the money supply, the less each dollar is worth; and as the Fed continues to drive down the value of the US dollar, everything that is sold in dollars continues to rise in price.

Since the beginning of the financial crisis in the fall of 2007, conservatively it is estimated that the Federal Reserve has either printed dollars for the money supply or held commitments in dollars backing federal bailouts that amount to in excess of $12 trillion.  This week the Fed announced it was going to further attempt to spur growth by pumping $600 billion into the economy through purchases of Treasury bonds.  Fed leaders figure the $600 billion bond-buying program will provide a modest boost to the economy over the next year, but they acknowledge that the jobless rate, now at 9.6 percent with nearly 15 million unemployed, will stay high. And it could even rise in the next few months.

It is the Fed’s second experiment with buying bonds on the open market. From December 2008 to this past March, it bought $1.7 trillion in Treasuries and mortgage-backed securities. But since then, the recovery has faltered.

Our federal government has conceived of a way to avoid borrowing money in order to finance federal budget deficits by simply having the Fed buy Treasuries and continue to print money to cover the transactions. This further erodes the value of the dollar and the world’s confidence in the US dollar as the world’s reserve currency.

The Fed may well be concerned about deflation, but for every consumer this argument means nothing when their food and energy bills are skyrocketing due to the Fed’s policy of ruining the value of the dollar.

Let’s be clear. What the Federal Reserve is doing is a federal “stimulus” by another name and the consequences of this effort is now hurting every American. Pumping increasingly worthless US dollars into the banking system so that banks have more money to lend does not spur consumer confidence. In fact, given that American’s are finding it increasingly difficult to afford food and energy, their confidence in the economy is not increasing.

Thomas Hoenig, the president of the Federal Reserve Bank of Kansas City, calls it “a pact with the devil.” He was the only dissenter in the Fed policy committee’s 10-1 vote for the Fed effort, also known as “quantitative easing.”

The Fed “stimulus” is doing nothing more than destroying the US dollar, causing every American family to pay higher food and energy bills, seeing the value of their savings erode, while further eroding confidence in currency and the economy. This is a counter-productive financial and economic shell game … and it needs to be stopped, now!

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About ctcema

President, CEMA
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