Things have settled down a tad. The general view out there this weekend is that factors which depressed US vigor in May are temporary, perhaps one-off events. Observes point to the floods, to supply disruption tagged to the tsunami, to EU problems, and of course, to gasoline.
The floods had little to do with it; supply considerations tagged to the tsunami hit Detroit; EU problems have little impact here; gasoline, yes, a problem.
But there is one factor impacting business activity here and abroad - higher commodity prices. This is the crazed horse from a Faulkner Yoknapatawpha County short story - a spotted pony gone wild, right through Mrs. Littlejohn’s house, out the window, over the bridge and who knows were. But folks at the general store, on the front porch, chewing tobacco and spittin’ at the bugs, know it's Bernanke who owns that horse.
Bernanke has exported inflation all over the world. These higher input costs are exactly why manufacturing measures world wide tanked in May. Here is how it works:
Emerging economies from China to India keep their currencies undervalued to spark exports. That’s no good but that’s the nature of the beast. Suddenly, thanks to Bernanke, dollars appear out of everywhere (recall the flat rock) and are thus suddenly worth much less. But these countries want the dollar worth more vs their own currency so foreigners will buy more of their goods. They can’t stand the sudden shock of a free float or they’d all be socked into a depression. So what do they do? They sell - cheapen - their own currency and buy dollars. That is, they import Bernanke’s inflation.
So now with the Fed’s reckless policy come to roost, these economies pay 30 to 40% more for oil, copper, cotton, etc since they’re all priced in dollars. And these much higher input costs just tanked their manufacturing sectors.
And with higher domestic inflation (imported from Bernanke) these central banks apply the brake, stubbing world demand in the process.
That folks is what we have just witnessed.
Robert Craven
The floods had little to do with it; supply considerations tagged to the tsunami hit Detroit; EU problems have little impact here; gasoline, yes, a problem.
But there is one factor impacting business activity here and abroad - higher commodity prices. This is the crazed horse from a Faulkner Yoknapatawpha County short story - a spotted pony gone wild, right through Mrs. Littlejohn’s house, out the window, over the bridge and who knows were. But folks at the general store, on the front porch, chewing tobacco and spittin’ at the bugs, know it's Bernanke who owns that horse.
Bernanke has exported inflation all over the world. These higher input costs are exactly why manufacturing measures world wide tanked in May. Here is how it works:
Emerging economies from China to India keep their currencies undervalued to spark exports. That’s no good but that’s the nature of the beast. Suddenly, thanks to Bernanke, dollars appear out of everywhere (recall the flat rock) and are thus suddenly worth much less. But these countries want the dollar worth more vs their own currency so foreigners will buy more of their goods. They can’t stand the sudden shock of a free float or they’d all be socked into a depression. So what do they do? They sell - cheapen - their own currency and buy dollars. That is, they import Bernanke’s inflation.
So now with the Fed’s reckless policy come to roost, these economies pay 30 to 40% more for oil, copper, cotton, etc since they’re all priced in dollars. And these much higher input costs just tanked their manufacturing sectors.
And with higher domestic inflation (imported from Bernanke) these central banks apply the brake, stubbing world demand in the process.
That folks is what we have just witnessed.
Robert Craven
No comments:
Post a Comment