By Numerian

This is the battlefield on which corporations and their customers are struggling for survival. If companies can make price increases stick, the consumer is going to bear the burden of inflation, and for a lot of consumers this can be the last gasp to bankruptcy.

Image:  Anonomyous

The Federal Reserve is on the defensive over its next round of Quantitative Easing, known as QE2. Over 20 distinguished economists and market analysts placed an ad yesterday in The Wall Street Journal urging the Fed to drop its plan to purchase $600 billion in Treasury securities over the next six months. Finance ministers around the world have deplored this policy for its tendency to generate global inflation and scupper the dollar on the foreign exchange markets. Even that noted financial expert Sarah Palin has published a Facebook criticism of the Fed’s “running the printing presses.”

Some Federal Reserve governors have warned about the potential inflationary implications of QE2, even though they voted for it. Fed Chairman Ben Bernanke and NY Fed President William Dudley have been in the media during the past week, justifying their QE2 decision. If you analyze their comments carefully, you realize they haven’t been helping their cause.

By Numerian

"The Federal Reserve is doing whatever it can – and some of this is against their charter – to revive the failed system of TBTF banks, securitization, and debt binges which will inevitably lead to another massive bubble, leaving the public on the hook for future bailouts." Numerian

Joe Nocera, financial columnist for The New York Times, had an interesting conclusion to his recent article on Bank of America:

I admit it: I want to see the banks feel some pain. Most people do, I think. Banks did terrible things during the subprime bubble, and they still haven’t paid any real price. I find myself rooting for judges to rule against banks in foreclosure cases. I would love to see these big investors put the serious hurt on Bank of America, which will encourage other investors to pile on. I know this colors my thinking. I can’t help it.

Yet I also know the flip side. If the foreclosure lawyers start winning a lot of cases, if judges halt foreclosures on a widespread basis, if investors start to extract billions upon billions of dollars from the banks — and if banks become seriously weakened as a result — we’ll be right back where we were two years ago. The banks will need to be saved for the good of the economy. The taxpayers will have to come to the rescue. That’s an appalling prospect too.

Banks: We can’t live with them, and we can’t live without them. It stinks, doesn’t it?

This brief flourish of disgust for the banking industry received a lot of attention, almost all of it favorable. Millions of Americans want to see “serious hurt” put upon the banks, especially the big banks that are in the Too Big To Fail category. Why do we hate the banks so?

By Numerian

Does Ben Bernanke make any connection between the asset bubble in a commodity like corn, and the economic pressures this creates for the middle class or poor people? Given their lofty and isolated position, and the fact that Fed officials talk only to businessmen and millionaires in Congress, one of the things most lacking in Fed policy debates, public or private, is any concern for the average person in the US. It’s as if these are the people of least concern to the Fed, or if they are of concern, it is only as economic factors in econometric models. You get the impression that the Fed has, for a long long time, forgotten about the real, and often immediate personal consequences its policies have for the average person. Numerian

By Numerian

The Federal Reserve, in announcing the results of this week's meeting of the Open Market Committee, surprised the market by revealing it will begin purchasing US Treasury notes and bonds with the principal income it receives from its vast holdings of Fannie Mae and Freddie Mac mortgage securities. This practice - wherein the Fed buys up US government securities and injects cash into the public market as payment for these securities - is a form of monetizing the debt.

The last time the Fed did this on a big scale was back in the 1960s when it attempted to mop up the excess Treasury securities that were flooding the market as a result of Lyndon Johnson's efforts to finance the Vietnam War. That Fed program was viewed at the time as a failure, since the cash the Fed put back into the economy in exchange for the securities was a big reason - perhaps the major reason - why price inflation accelerated from the late 1960s until a decade later, when Paul Volcker managed to squelch inflation once and for all with forbiddingly high interest rates.

Fraught with risk

By Numerian
Chances are if you are a typical American consumer you have purchased something made by Foxconn Technology Group. This giant Taiwanese-owned company is under contract to make Sony’s Playstation, the Xbox 360, the Wii, motherboards for Intel, routers for Cisco, and Apple’s iPhone, iPod, and iPad. As profitable as Foxconn is, it is in a fundamental sense a failure of capitalism. At a time when machine tools and robotics are available to make these products at high speeds, Foxconn uses manual labor to craft tens of thousands of electronic devices each hour, 24 hours a day. (Image)

To accomplish this, Foxconn employs over 800,000 workers in mainland China alone, and 420,000 of them at a massive “campus” in Shenzen. The workers in Shenzen are required to live on campus in dormitories with bunk beds, cafeterias, a medical unit, and a few recreational facilities. The overwhelming number of them range in age from 18 to 24, have moved to Shenzen from rural villages with no job opportunities, work six days a week at the factory for 10 hours a day including overtime, and make about $130 a month.