Why Paul Krugman is 100% wrong and Nouriel Roubini is absolutely correct. Fed policy is lowering future GDP growth and will cause a deep recession

The large banks currently have $1.7tn of "excess" reserves.

A large part of the current $1.7tn of excess bank reserves is currently being used for short term speculation by the speculative banks.
Principally in the stock and bond markets.
But a significant part of this is being used to buy up commodities pushing up prices, principally oil and food. See 1

The oil price is rising against a backdrop of a lowering of future global GDP forecasts.

Rising inflation for basic necessities will make the coming economic slowdown much worse.
Particularly in developing countries like China, but also for most of the populations of America and Europe - they are going to have less disposable income with higher gas and food prices.

Inflation in the developing world and the Brics will eventually follow through in increased prices of their exports, compounding the inflation issue in the developed world.

Meanwhile the Fed continues to pump out new money to the big banks at the rate of $1tn a year.
Adding to the money the banks have available for speculation and thus increasing inflation.
The Fed balance sheet has just gone past $3tn.
It will be $4tn by the end of 2013.

Current Fed policy LOWERS future global GDP growth.
Proportionally more money is spent on basic commodities, there is less money available to buy manufactured goods and manufactured goods will increase in price.

This is basically the inflation tax, when the Fed prints too much money.
It hurts the poor and the middle class hardest.

It will particularly hit people on low wages and fixed incomes, e.g. seniors.
The current method of calculating CPI (Consumer Price Index) drastically understates the contribution to inflation by gas & food.
The inflation adjustment made to pensions every year is well below the inflation rate experienced by pensioners.
The same applies to those on benefits.

Those in lower paid employment will also suffer.
Basic wages are largely set by reference to CPI.
Official CPI numbers are well below the inflation rate actually experienced by those with lower incomes.


There will not be raging inflation.
Basic wages are being held down by the large global oversupply of labor and high unemployment in the West.
The effects of the Feds money supply inflation will not be reported in any news headlines.
It's effects will largely be hidden from official statistics, but it will be insidious nonetheless.
It WILL be a further acceleration of the steady erosion of the living standards of the poor and the middle class that has happened over the last decade in the West.
It WILL make poor people, around the entire world, poorer.


Current Fed policy and Goldman Sachs speculation will cause a deeper recession in America in 2013.
It will also cause higher unemployment.
Adding the Feds extremely poor monetary policy to the current extremely poor economic policies of just about every government, will probably be enough to tip the entire global economy over the edge into global recession.

The big banks and the big oil companies don't care though - they are making lots of money out of other people's suffering.  


Update 01/24
Money printing and QE3 amounts to theft from our children

Speaking at the World Economic Forum in Davos, Davide Serra, founder of leading hedge fund Algebris, and Nouriel Roubini, the head of Roubini Economics known as Dr Doom for predicting the financial crisis, set out the case against those who think quantitative easing (QE) and low rates are benign policy tools.

“When governments borrow, they are taking money from our children. QE is the same – we are lowering returns for future generations. QE creates an inter-generational dilemma,” Mr Serra said.

Mr Roubini warned that central bankers need to think about turning off the cheap money tap or risk creating another, possibly even worse, bubble.

He argued that policymakers have encouraged markets and individuals to take on crippling levels of debt by leaving asset bubbles unchecked in a boom and coming to borrowers’ rescue in a crisis.

"Ten years ago we had the Greenspan put, now we have the Bernanke put. What are the long term economic consequences?" he asked.

He said loose monetary policy is creating a system biased to creating bubbles, "that's why we've been moving to more unconventional territories" in policy responses - from low rates to QE to credit easing.

"Central bankers have affected the behaviour of the private sector. They have to think about that," he said. "As you do a slow exit out of QE you may create another bubble and make another crisis.

“At some point, the consequence of postponing deleveraging is that you end up with zombie banks, zombie companies, zombie households, and zombie governments.”

Read more at :
http://www.telegraph.co.uk/finance/financetopics/davos/9822372/Money-printing-amounts-to-theft-from-our-children.html

Goldman Sachs just announced that they made $400m in 2012 betting up food prices. 

A pertinent example of what I have said above.
Another example where Paul Krugman is absolutely 100% wrong.

http://ian56.blogspot.co.uk/2013/01/how-goldman-sachs-made-millions-betting.html

Update 02/01

Gas prices have never been higher in the first week of February

Appendices

1. How Goldman Sacs made millions betting on the starvation of others
http://ian56.blogspot.co.uk/2013/01/how-goldman-sachs-made-millions-betting.html

2. A Bizarre Goldman Sachs Aluminum Moving Scheme Has Allegedly Cost US Consumers $5 Billion In The Past 3 Years
http://www.businessinsider.com/goldmans-alleged-aluminum-scam-2013-7
All sorts of things you can do when borrowing money is essentially free courtesy of the Federal Reserve.
And just about everything the big banks are doing is directly against the interests of consumers around the world.