Inflation caused by Bernanke's "Quantitative Easing" may doom Obama's re-election 

Here's a political equation that ought to furrow the brows of everybody working to get a second term for President Obama: QE1+QT1=DEFEAT.

For those not cursed to be economists, QE1 stands for Quantitative Easing, while QT1 means "Quantitative Tightening. According to Ralph Benko, writing in Forbes, Federal Reserve Board Chairman Ben Bernanke may be about to doom the Obama re-electi effort with that equation.

The problem is Bernanke did a massive amount of QE1 last year, the most politically significant consequences of which - higher prices, or inflation - are just now beginning to percolate into the consumer economy. Think food prices, gas at the pump, and cotton for clothing.

Benko believes Bernanke won't stand by and watch the economy overheat with an inflationary spiral, so he will resort to QT1, as did his predecessors at the Fed in 2001, 1994, 1990, 1980 and 1973 (Note that recessions four of those five times):

"Now, a withdrawal of excess liquidity — if done with precision — would strengthen the dollar and be good for growth. This is laudable in theory, and not recessionary. A strong dollar is pro-growth.

"In the grim reality of the world dollar system, however, this is virtually impossible. Vivek Ranadivé, the smartest guy in Silicon Valley you’ve never heard of, astutely wrote in 2007, 'If you applied the Federal Reserve approach to ensuring a suitable temperature in your home, you would turn the heater on and off every three months, overheating or under-heating your house.'”

Benko thinks the "Goldilocks Effect"  timing of the inflation now beginning to be seen in the economy augurs a bad outcome for Obama. For more on why and what he believes Bernanke could do to avoid this eventuality, go here.



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Mark Tapscott

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