Friday, April 11, 2008

Fed Easing is No Free Lunch - US Dollar, Oil and Commodities

We've spent a lot of time (see here, here, here, and here for some samples) talking about the Credit Bubble and the efforts by the Fed to keep the financial system and economy afloat. A couple of reminders came through that serve to remind that there is no free lunch. Recently via Business Week;

Bernanke is going further than Greenspan ever did in responding to a popping bubble. He has pulled out all the stops, inventing new ways to pump money into a resistant financial system. ...One measure of the size of monetary stimulus is the expansion of M3, a broad measure of the money supply that includes institutional money funds. Capital Economics calculates that M3 is up 15% from a year ago, the biggest increase in 37 years.

This one Friday morning via the New York Times;

...a government report on import prices showed that the cost of foreign goods rose 2.8 percent in March. In the last 12 months, import prices are up nearly 15 percent, the highest year-over-year increase since records began in 1983, the Labor Department said on Friday.

So, unfortunately, whether or not there are further bailouts, the result of such furious easing is that all of us are already being heavily taxed, whether we participated or not, for excesses committed in the credit bubble. For some visual proof, take a look at the charts below of the U.S. Dollar, Crude Oil, and the CRB Index (an index of 22 basic commodities). The vertical line represents the point at which the Fed started their monetary easing via interest rate cuts and the various other means discussed in the linked posts above. Note: Click on the charts to enlarge


Edward Charles Ponzi Jr. said...

Not commenting on this particular post -- just discovered this blog and find it to be impressive and well reasoned. I am looking forward to making the time to visit and participate.


Edward Charles Ponzi Jr
Hooverville Falls VT

Dan -- said...

Hey Mark -

I've been looking through your blog and found some really interesting stuff. Suggestion -- you should consider including stock charts to show your readers exactly what you are talking about.

You can “Embed” any stock chart at in your blog as easily as you would embed a YouTube video. This is a lot simpler than hitting print-screen on google finance, cropping down the image in a photo editor, uploading it to your blog, and putting it in your post.

And, an embedded Wikinvest chart is better for your readers because it’s interactive - your readers can click, drag, pan, zoom, and play with the chart on your site without a page refresh.

Here’s a good example of an embedded stock chart in action:

Could you try it out in one of your posts and let me know what you think / how we could improve the charts? - you can create your own chart at


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