Although QE2 has helped some segments of the economy and jump-started the stock market, it has had important negative implications as well. Since that time commodity prices have soared while long-term interest rates have climbed and the dollar has weakened. The rise in food and energy prices has caused top-line inflation to increase faster than wages, resulting in declining real income. In addition it has resulted in higher inflation in developing nations as well as the EU, causing them to raise interest rates at the risk of slowing down global growth. Some nations have also instituted capital controls to prevent too many dollars from entering. It is also likely that rapidly rising food and energy prices played an important role in engendering unrest in the Mid-East.
The coming end to QE2 is potentially negative for both the market and the economy. By the time it ends on June 30th the Fed will have bought an average of $3.8 billion of Treasury bonds every working day of the week. That amounts to about 70% of all the Treasury bond issuance since Mid-November. The proceeds, which went to the banks that sold them, were then used to buy up assets, mainly stocks and commodities.
McDonald's is warning of inflation in food prices:
McDonald's Corp forecast higher prices for beef, dairy and other items and said it would cautiously raise prices to keep attracting diners, who are grappling with higher grocery and gas bills.Inflation is "going to be serious," Wal-Mart U.S. CEO Bill Simon said during a meeting with USA TODAY's editorial board. "We're seeing cost increases starting to come through at a pretty rapid rate."
CNBC reported yesterday:
The combination of rising gasoline prices and the steepest increase in the cost of food in a generation is threatening to push the US economy into a recession, according to Craig Johnson, president of Customer Growth Partners
Interesting. Comstock Hedge Fund warns of a recession if Bernanke stops printing money and monetizing US debt. Craig Johnson from Customer Growth Partners warns that if Bernanke keeps printing and monetizing debt, inflation will push the US into a recession. What if they're both right?