Ben Bernanke’s policies are inflicting nearly as much harm on the economy as the looming mandatory cutbacks due to start tomorrow.
Under the so-called sequestration, $85 billion in costs will be trimmed from the federal budget — unless, of course, the White House and Congress come up with a last-minute alternative.
Don’t hold your breath. They don’t work together well, and there isn’t any alternative they’d consider.
Bernanke clearly doesn’t want the sequester cuts to occur and — in his own way — warned Congress of the consequences on Tuesday.
Prodded by Democrats, Bernanke told members of the Senate Banking Committee that the sequester cuts alone could trim growth in the nation’s gross domestic product this year by 0.6 percent.
Other recent actions, including the rise in Social Security payments and higher taxes on the rich, could bring that reduction in growth to 1.5 percent, Bernanke said.
Since the economy probably isn’t even growing at a 1.5 percent clip now, the sequester and tax hikes could plunge us back into a recession.
Worse, the reduction in economic growth caused by sequester will lower tax revenues. In the end, the federal deficit will be cut by less than $85 billion because of this reduced income to Washington. Bernanke made that last point as well during his testimony.
He also said the economy was being hurt by higher gas prices. What he didn’t say, however, is that he is as much to blame as the White House and Congress for higher costs at the pump.
Since the beginning of this year, gas prices have risen an average of 45 cents a gallon. Americans use 354.4 million gallons of gas a day, so do the math. That means drivers today are paying nearly $160 million more a day to fuel up their cars than they were just last Dec. 31.
So, over the past two months, Americans have taken $9.4 billion out of other parts of the economy and put it into their gas tanks. Over the full year, that works out to $58.2 billion in extra gas costs. And it’ll be worse if gas prices keep rising.
Eighty-five billion is obviously larger than $58.2 billion — but that last number is just gasoline. It doesn’t include home heating oil. And it doesn’t take into account the incalculable, like how much these extra fuel costs are adding to other products, such as food.
Bernanke prides himself in keeping down costs even as he maniacally prints money. But this guy must live in some other universe — and get his car filled at the government trough — since inflation is all around us.
So why blame Bernanke for the rise in gasoline prices?
There’s no sign that demand for fuel is rising by very much — certainly there isn’t enough of an increase in demand to account for 45 cents-higher gas prices in just two months.
Figures from the US Energy Information Administration attest to that. In late December — when gasoline was 45 cents a gallon cheaper — there were 225.67 million barrels of gas in the US inventory. The latest figures show that gas inventory has swelled to 230.4 million barrels.
To be fair, that 230.4 million figure is comparable to inventory levels in January 2012, when we had 230.15 million barrels stockpiled. But back then, gas was $3.30 a gallon. Today, the price averages $3.78.
Clearly, the supply/demand equation is out of whack. With economies around the world slowing, gasoline prices (as well as the price of crude oil) should be dropping.
So why isn’t it?
Because of Wall Street speculation, that’s why. But there is a special kind of speculation going.
I’ve written about this before, but it deserves another look. And I think Washington should put a stop to it.
There is really no way to gauge the level of speculation, since nontraditionalists are taking part in increasing numbers.
On Wall Street, there is a relatively small number of people who — if there were such name tags — would have the word “speculator” on their shirt. And then there are people who, because interest rates are so low, have been forced into speculative situations they wouldn’t ordinarily be involved in.
These new speculators might be pension funds or insurance companies or college-endowment funds. Because Bernanke has kept interest rates so low for so long, these starched-shirt investors have had to roll up their sleeves, hold their noses and gamble on whether the price of oil will go up or down.
And when you have an overabundance of speculators in a market, chances are the prevailing bet will be for prices to rise. That’s what has been driving all physical investments — whether it’s oil, real estate, art or farmland — higher.
You won’t hear this explanation if you follow the oil markets on a daily basis. The reports blame price gains on, say, a refinery taken out of service for maintenance, or maybe a broken pipeline somewhere, or tension in the Middle East.
Those aren’t inaccurate explanations, because those things could affect energy prices in the future. And that’s exactly what speculators do: bet on the future. Too many speculators results in unreasonable price movements based on anticipated future problems.
It took me a while, but I’m at my final point: $85 billion in sequester cuts plus the added gasoline costs caused by Bernanke’s policies are going to make this a difficult year.