Has the Damage From QE3 Already Begun?
By Walter Kurtz, Sober Look
Those (including some of the dovish members of the FOMC) who still think that the policy of a new round of asset purchases is a low risk proposition should only take a look at US gasoline futures. They hit a multi-year high recently.
Some are blaming this on the Tropical Storm Isaac, others on the Amuay plant explosion in Venezuela. The reality however is that these price increases are for the most part in anticipation of QE3:
Bloomberg: - Bernanke Boosts Oil Bulls to Highest Since May: Energy Markets
By Asjylyn Loder Aug. 27 (Bloomberg) — Hedge funds raised bullish bets on oil to a three-month high on signs that Federal Reserve Chairman Ben S. Bernanke will take measures to bolster U.S. economic growth and spur a rally in commodities.
Money managers increased net-long positions, or wagers on rising prices, by 18 percent in the seven days ended Aug. 21, according to the Commodity Futures Trading Commission’s Commitments of Traders report on Aug. 24. They were at the highest level since the week ended May 1.
Let’s not pretend that central bank asset purchases and commodity prices are unrelated as some have suggested. QE3 carries with it risks of a spike in headline inflation that will end up damaging an already fragile consumer sentiment and completely negating any positive effects from additional liquidity. In fact the damage to the economy from elevated fuel prices has already started.
Nearby gasoline futures (Bloomberg)
1 Comment
Excess liquidity (after the jump) is at the highest level in 15 years. Arguably, the Fed is being inconsistent (and committing the same mistake as Greenspan) focusing on goods inflation while ignoring financial asset inflation. This dynamic is really a sign of moribund economic activity – if the money is going back into the market rather than going into productive business investments.
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J.S.