Last Updated: 31 January 2023
According to the instigator of Russia’s 1917 October revolution, “the surest way to destroy a nation is to debauch its currency”.
(In fact, this widely-cited quote was a 1930s paraphrase by Keynes – Lenin’s actual words, in an interview from 1919, were: “the simplest way to exterminate the very spirit of capitalism is … to ﬂood the country with notes of a high face-value without ﬁnancial guarantees of any sort”)
The astonishing leap in commodities prices that started in September last year coincided with the announcement of a second quantitative easing programme by the US Federal Reserve.
A chart of cotton futures shows that the price of the raw material began to take off almost to the day that the Fed’s chairman stated in Jackson Hole that his institution was ready to take “unconventional measures” to stimulate the economy.
Dramatic price rises have been seen in many other important commodities since August 31 2010 – wheat has more than doubled, for example, while rice, the staple food in a large part of the world, has trebled in price in a year.
Bernanke seems almost alone in denying the effect of US monetary policy on global inflation, despite the prima facie evidence against the Fed, such as the cotton price chart above.
It has to be remembered that pumping up the equity market, which was presumably the original intention of QE2, is almost a matter of national security for US policymakers. Alan Greenspan, Bernanke’s predecessor, admitted as much in a moment of candour last year. QE2 has certainly inflated equity indices somewhat, but its primary effect has been on the prices of raw materials.
Powerless to recognize equity and property market bubbles once they’ve inflated and denying responsibility for causing them, the Fed certainly knows how to start blowing them up, it seems.
But with riots and regime changes now sweeping across the world’s geopolitical hotpoint, the Middle East, and soaring food prices being widely quoted as the root cause of the current discontent, QE2 as a policy has spun wildly out of control.
History students are taught that a failed harvest and a jump in wheat prices triggered the French revolution of 1789, while in Russia’s 1917 revolution the most popular slogan of Lenin’s Bolsheviks promised “bread, peace and land”: note that food for the hungry was first in the list.
The US, it seems, is putting national economic priorities first while also wanting a primary role in international affairs and in the Middle East in particular. But until the Fed starts accepting responsibility for the worldwide after-effects of its quantitative easing policies, political unrest is likely to spread and worsen. And Ben Bernanke risks going down in history as a Leninist.