Canaries and markets are sensitive creatures. Take a canary down a coal mine and the poor bird starts dying as soon as the toxic levels of coal dust start rising. Wait too long, and coal miners will be following their yellow feathered friend down the River Styx. The key is to monitor the canary carefully for signals that it’s time to stop digging before it’s too late.
The market is a similar beast, even though the data miners of economic trends at places like Princeton and the Federal Reserve Board choose to think otherwise.
Practitioners of microeconomics presume they have “perfect information” by which they mean knowing all the relevant data before making a decision. Thusly armed they sally forth to wage war on behalf of whatever economic model (or political interest) they claim provides the greatest good.
Such is the case with Federal Reserve Board Chairman Ben Bernanke, the Princeton economist responsible for authorizing the printing of hundreds of billions of dollars to “quantitatively ease” the lack of money flowing in the marketplace, and spur a “healthy” bit of inflation. Bernanke is doing this because he assumes he has all the relevant data to support such a move.
A new price survey of a Wal-Mart grocery basket says otherwise. The retail giant is raising prices, a market signal that inflation is already underway without government interference. Like any market leader, Wal-Mart’s actions will be quickly emulated by others in their sector, with down market effects reverberating across the economy.
The market is already sensing the need for inflation and is acting accordingly. A massive injection of “Fed Stimulus” to achieve the same goal will result in accelerating inflation beyond what’s considered healthy, devaluing the dollar and making it harder for middle class families to buy necessities. That kills an economy. If Bernanke continues to ignore the ability of the market to adjust itself, it will soon be his career lying lifeless in the shaft.
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