Belmont Club

The Attack of the Cash Register

President Obama’s support among blacks and Hispanics has fallen to new lows according to a Gallup poll. Black support declined by 7% and among Hispanics by 11%, farther than at any point since his inauguration. Gallup says “it is not clear what is behind blacks’ and Hispanics’ less positive evaluations in March than in prior months. The major events of the month were the U.S. involvement in military action in Libya and the negotiations over the federal budget.”

But there’s another possible reason besides Libya and the deficit: inflation, starting with energy prices. The poor, including and especially blacks and Hispanics, are being hardest hit by increasing energy costs:

Lower-income households are paying nearly a quarter of their income for energy costs. … Minority households are disproportionately impacted by higher energy costs. … Senior citizens living on fixed incomes are particularly vulnerable to energy price increases. Seniors have the highest per capita residential energy consumption among all age categories.

The poor, the elderly, and minorities are being hurt, not just by energy prices, but across the board. There are concerns that inflation is back, despite very low Fed rates. Although the Bureau of Labor Statistics says “inflation is flat” after declining markedly after the economic meltdown in late 2008, it may now be on the rise again. Recently, Bill Simon, the CEO of Walmart, said that serious consumer price inflation lay just ahead:

“Every single retailer has and is paying more for the items they sell, and retailers will be passing some of these costs along. Except for fuel costs, U.S. consumers haven’t seen much in the way of inflation for almost a decade, so a broad-based increase in prices will be unprecedented in recent memory.”

Along with steep increases in raw material costs, John Long, a retail strategist at Kurt Salmon, says labor costs in China and fuel costs for transportation are weighing heavily on retailers. He predicts prices will start increasing at all retailers in June.

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Fuel and food prices have been defined out of the calculation of “core inflation” by the the Fed. Excluding food and fuel from the accounts means measuring demand in categories for which demand has shrunk because less disposable income is left over. By measuring only non-food and non-fuel prices, policymakers can make the argument that inflation is actually stable or going down.

That may convince the press, but it may not convince the public. Inflation is the one piece of news that the administration’s allies in the media cannot conceal. The daily news from the supermarket cash register speaks, and the gas station is more eloquent than anything that the New York Times can print.

What can the president do to stop the inflationary beast? Jeffrey Lacker, the president of the Federal Reserve Bank of Richmond, suggested raising interest rates by the end of the year because inflation is such a menace:

Lacker said he had not yet made up his mind on whether to cut short special stimulus measures the Fed has taken to boost the economy, often referred to as a second round of quantitative easing, or QE2.

“At some point the sequence is going to be: we obviously stop that and we begin withdrawing monetary stimulus through not reinvesting the mortgage-backed securities proceeds, and then going further and beginning to sell assets, and at some point raising interest rates,” Lacker said.

But some economic analysts say it is already too late. They argue inflation is going to keep rising because of the pressures of supply and demand. Jim Rogers of the Quantum Fund, citing commodities prices, says that when raw materials cost more, products cost more.  Since government spending does not produce real goods and services, the terrible effects of the law of declining supply and rising demand are inescapable. There is no “stash,” and those blacks and Hispanics who may have believed in it will soon discover it’s a myth.

The despotisms of the Middle East had total control over their media and yet now face widespread unrest. The driver of discontent was in nearly all cases rising consumer prices.

Goods are the one thing that cannot be conjured into existence by the dream-merchants and the ideologues. Huge rent-seeking industries and bureaucracies may have come up against the one enemy they cannot defeat: the drying-up of their own means of sustenance. They are starving themselves from their depredations; they have eaten out the landscape. And now the small mammals, nearly forgotten and trodden underfoot, are pouring out of their burrows and may eventually end the reign of the dinosaurs.

If prices start rising across the board the winter of 2011 could very well be the equivalent of Napoleon’s terrible winter of 1812, when the Grand Armee froze on its overextended advance. In President Obama’s case — with his simultaneous attempts at socialized medicine, cap and trade, and Mideast foreign policy — we may have seen the high-water market of his left-wing ideology. That may still be popular among the intellectuals, but it has been in practice disastrous for the poor. It has been especially catastrophic for blacks and Hispanics.

Just as Napoleon found he could not feed the Grand Armee in burned-out, desolate Moscow, will Barack Obama discover that he can’t sustain Hope and Change on itself? “We are the people we’ve been waiting for!” Yes. But you need the people you haven’t been waiting for to pay the bill.

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