[NYTr] Crashing Economy: Believe your pocketbook, not the Fed

[All the News That Doesn't Fit]

Workers World - Dec 27, 2007 issue
http://www.workers.org/2007/us/inflation-1227

Inflation: believe your pocketbook, not the Fed

By G. Dunkel

The working class is being hit with two economic punches. One is the
housing crisis and foreclosures tied to failing subprime loans. The
other is rising inflation.

The Federal Reserve Bank—the Fed—is often presented as the economic
“superman” that always shows up to save everyone from economic
disaster. In reality, the Fed is the bankers’ bank and is concerned
only with the interests of the bankers.

As the central bank, it controls the money supply. The big commercial
banks get loans from the Fed’s central bank at a rate much lower than
any regular person could ever get. In the subprime crisis, the Fed is
now trying to bail out the banks and Wall Street by lowering the
interest rates it charges on the loans it gives to the big banks that
are in trouble.

Lowering interest and making money easily available to the big banks
can definitely be inflationary.

In the second week of December, the Labor Department reported the most
serious rise in inflation in decades with a 14.1 percent rise in energy
costs, a whopping 34.8 percent jump in food costs, and the biggest
monthly increase in wholesale prices since 1973.  

In response, the Fed suggested that inflation isn’t really bad. To do
this, the Fed cited the Core Inflation Rate, which disregards the
dramatic food price hikes and the steadily rising transportation and
energy costs, closely tied to the volatile rise in oil prices.

Relying on this falsely low figure, the central bankers said, “Readings
on core inflation have improved modestly this year” and that this type
of inflation is “mild” and not a grave concern.

For workers, any kind of inflation can be very serious because it cuts
into the value of their wages, their savings and their pensions.
Inflation can rightly be called a pay cut for workers.

But how can any economic index be justified that ignores food, energy
and heat? Everyone must eat, get to work and warm their homes.

Inflation shows no signs of slowing down. According to the Bureau of
Labor Statistics, “The Consumer Price Index for Urban Wage Earners and
Clerical Workers increased 0.8 percent in November,” which is just shy
of 10 percent on an annual basis.

Besides the flood of money that the Fed is pumping into the U.S.
economy—that is, more dollars chasing the same amount of goods, the
classical definition of inflation—there are two other inflationary
pressures at work.

Prices are rising in China, because even though millions of workers are
joining the urban working class, labor is still in short supply in its
booming economy and wages are increasing. Since the U.S. imports huge
amounts from China, this spike in prices is going to have a major
impact on inflation in the U.S.

The falling dollar has probably reached a tipping point. Foreign
countries now want a premium to take dollars for their goods, whereas
in the past, the dollar was propped up by its use as a reserve
currency. This year the dollar has fallen more than 10 percent against
a basket of foreign currencies. The economists are still arguing, not
about whether the fall of the dollar will affect the rise of prices,
but about how much.

So when you go to the store and you have to spend more to bring back
less, believe your pocketbook, not what the papers and the media say.

Articles copyright 1995-2007 Workers World. Verbatim copying and
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