There is a considerable degree of media deception about the causes of the recent run up in oil and commodities prices and decline of the dollar. The underlying cause of these phenomena is monetary expansion. Since the mid 1980s the Federal Reserve Bank has been increasing the money supply by about 8% per year. It takes a number of years for monetary expansion to affect prices. In this cycle there has been an additional factor: foreign central banks have supported the dollar in order to inflate in their own home markets. Thus, China now holds in excess of one trillion dollars as does Japan. Note that the entire US money supply is about the same amount, maybe slightly more. The Europeans and Saudis are also holding enormous amounts, as are smaller holders around the world. As a result, there is a possibility of a massive inflation, far greater than what we have seen this year. There is no mystery about it.
Nevertheless, I have not heard mention of this on television news except on the business and financial stations like Bloomberg and then in elliptical, deceptive terms. Secular increases in commodities prices across a range of commodities are not attributable to speculators, and even if there has been some speculation pushing up prices a bit, that factor will correct itself when the three-month and six-month futures contracts are settled (commodities contracts do not trade for ten years as I heard one of the media quacks say on television).
It is important to understand that there are beneficiaries from inflation. The chief beneficiaries are debtors. In the modern world, that would be large financial holding companies such as Time Warner and similar media conglomerates, as well as investment banks and commercial banks.
I
have previously blogged that both traditionally Democratic investment banks such as Morgan Stanley and traditionally Republican investment banks such as Goldman Sachs have been backing Barack Obama. Investment banks benefit from inflation because increasing the amount of dollars lowers interest rates and boosts the stock market. Commercial banks benefit because they get to lend the new dollars to mortgage borrowers as well as large corporations. These interests: borrowers, investment banks and commercial banks benefit from inflation. Those who are net savers get hurt by inflation. Those without assets, the poor, also get hurt by inflation.
People sometimes remark that large investors like Warren Buffett and George Soros are left wing, and isn't this inconsistent with the supposed arrangement of political views, that the "left favors the poor" and the "right favors the rich". Obviously, that view of politics is ill-informed. The left in America has traditionally represented feudal (the Roosevelts) and socialistic (the Roosevelts) perspectives. The New York Times, for instance, favors the inheritance tax for people in the five million dollar bracket, but the owners of the New York Times, the Ochs Sulzbergers, have inherited the newspaper for four generations running. The Ochs Sulzbergers believe that the super-rich, such as themselves (last time I heard their fortune amounted to about $800 million, all inherited) should be protected from inheritance tax via family trusts, while up and coming entrepreneurs whose businesses might develop inter-generationally should be heavily taxed to eliminate potential threats to the feudalistic order. Naturally, the likes of George Soros and Warren Buffet have similar interests, as do the investment bankers at Morgan Stanley and Goldman Sachs.
Contrairimarie just forwarded a blog from
No Quarters USA indicating that Barack Obama has chosen a lackey of MBNA, Joe Biden, to be his running mate. What a coincidence! Who was saying that the left favors the poor?
Just days ago Mr. Obama was claiming that Mr. McCain represents the rich. What concerns me most about Mr. Obama, besides the likelihood that he will perpetuate the inflationist agenda of the past quarter century, is that he is a conscienceless liar.
