Erin Burnett Makes False Claims About Federal Reserve (VIDEO)

Erin Burnett made false claims about the Federal Reserve on her CNN show "OutFront" on Friday.

The Federal Reserve has made food and gas more expensive, one television news show host said Friday, but evidence shows that's not really the case.

"Easy money has also sent commodity prices higher. This is the rub," Erin Burnett said Friday on her CNN show "OutFront." "Gas prices, as you can see, about double. Regular unleaded was $1.89 in November of 2008. It's now $3.82 a gallon. And food prices are up 54 percent over that same time frame. So easy money isn't so easy."

But there has been no correlation between the Federal Reserve's quantitative easing and commodity prices. The Federal Reserve started its first round of quantitative easing, or asset purchases aimed at stimulating the economy, in November 2008 and its second round in November 2010; there was no resulting, lasting spike in commodity prices. Commodity prices actually peaked in the summer of 2008 before quantitative easing began.

Economists note that food and oil prices rise largely because of global problems, not central banks such as the Federal Reserve.

"This is nonsense," Dean Baker, co-director of the Center for Economic and Policy Research, wrote in an e-mail. "These prices have been moving largely in response to real conditions of supply and demand (e.g. the Libyan civil war raised oil prices by taking supply off line, the summer drought in the U.S. has raised corn prices) often amplified by speculation."

Two-thirds of the price of gas consists of the price of oil, according to the government. Government data shows gas cost more than $4 per gallon in the summer of 2008, before quantitative easing began. Now gas costs less than that.

Nobel Prize-winning economist Paul Krugman also has repeatedly debunked the claim that the Federal Reserve's asset purchases have caused commodity prices to rise. Instead, he writes, food and oil prices have risen because more people around the world need more food and gas, but the supply of oil remains limited and more extreme weather has hurt food production.

"What the commodity markets are telling us is that we're living in a finite world," Krugman wrote in the New York Times in December 2010. "As more and more people in formerly poor nations are entering the global middle class, they're beginning to drive cars and eat meat, placing growing pressure on world oil and food supplies. And those supplies aren't keeping pace."

Burnett also made misleading claims about the Federal Reserve on her show Aug. 31, when she compared the Federal Reserve's asset purchases to government spending. But the Federal Reserve actually has created new money to buy bonds.

Burnett, CNN's chief business and economics correspondent, has previously worked at CNBC, Bloomberg TV, Citigroup, and Goldman Sachs.

Loading Slideshow

• On The Stimulus

  The GOP platform claims that "the waste of billions in 'stimulus' funds'" had "no payoff in jobs." In fact, <a href="http://takingnote.blogs.nytimes.com/2012/06/08/c-b-o-s-take-on-the-stimulus/" target="_hplink">the 2009 stimulus saved or created more than 3 million jobs</a>, according to the nonpartisan Congressional Budget Office.

• On Federal Regulations

  The GOP platform claims that federal regulations cost $1.75 trillion per year. But researchers have <a href="http://www.sei-international.org/mediamanager/documents/Publications/Climate/Heinzerling_Ackerman_MJEAL_2012.pdf" target="_hplink"> largely discredited</a> this figure.

• On Health Care Reform

  The GOP platform claims that the Affordable Care Act is "budget-busting." However, the Obama administration's <a href="http://www.huffingtonpost.com/2012/08/20/paul-krugman-niall-ferguson-newsweek_n_1810136.html" target="_hplink">health care reform law actually reduces the deficit</a>, according to the nonpartisan Congressional Budget Office.

• On Medicare

  The GOP platform claims that without reforms, Medicare and Medicaid "are headed for bankruptcy." Though Medicare has <a href="http://www.cbpp.org/cms/index.cfm?fa=view&id=3532" target="_hplink">long-term financial problems</a>, it is not on the brink of bankruptcy, according to the Center for Budget and Policy Priorities.

• On Welfare Reform

  The GOP platform claims that Obama's decision to allow waivers for welfare reform's work requirements was "in other words, to administratively repeal the most successful anti-poverty policy in memory." But the work requirements still are in place, according to <a href="http://www.theatlantic.com/politics/archive/2012/08/what-obama-really-did-to-welfare-reform/260931/" target="_hplink">several</a> <a href="http://abcnews.go.com/blogs/politics/2012/08/fact-check-does-obama-want-to-gut-welfare-reform/" target="_hplink">media outlets</a> and Dean Baker, co-director of the Center for Economic and Policy Research. Welfare reform was not so successful either; as Baker notes, <a href="http://www.huffingtonpost.com/huff-wires/20120723/us-poverty-in-america/" target="_hplink">the poverty rate</a> is on track to reach its highest level since the mid-1960s.

• On Inflation

  The GOP platform claims that "the inflation tax is regressive." But inflation, which is at historically low levels, would help low-income and middle-income people the most by <a href="http://www.bostonglobe.com/ideas/2011/09/12/the-word/8YP9RCx7i5amoAwNCr4TcL/story.html" target="_hplink">stimulating job growth</a> and making it easier for debtors to pay off their debt, according to Dean Baker, co-director of the Center for Economic and Policy Research.

• On Corporate Tax Breaks

  The GOP's platform claims that reducing the corporate tax rate would "spur job creation here at home." Last time the U.S. <a href="http://www.huffingtonpost.com/2011/06/24/corporate-tax-holiday-jobs-investment_n_883827.html" target="_hplink">did that, in 2004</a>, corporations laid off thousands of U.S. workers, according to the Center on Budget and Policy Priorities.

• On The Housing Bubble

  The GOP platform claims that "Fannie Mae and Freddie Mac were a primary cause of the housing crisis because their implicit government guarantee allowed them to avoid market discipline and make risky investments." On the contrary, <a href="http://www.cepr.net/index.php/blogs/beat-the-press/david-brooks-discovers-that-it-was-all-fannie-maes-fault" target="_hplink">the riskiest mortgages were securitized</a> by big banks, not Fannie Mae and Freddie Mac, according to Dean Baker, co-director of the Center for Economic and Policy Research.

• On Health Care Reform

  The GOP platform claims that voucherizing Medicare is "the only way to limit costs." However, <a href="http://www.huffingtonpost.com/2012/06/27/supreme-court-health-care-decision_n_1630596.html" target="_hplink">Obamacare already reduces Medicare spending</a> without resorting to what former federal budget director <a href="http://www.huffingtonpost.com/2012/08/20/peter-orszag-paul-ryan_n_1812046.html" target="_hplink">Peter Orszag calls "the health care competition tooth fairy."</a>

• On Home Sales

  The GOP platform claims that "home sales remain weak." But existing home sales have risen more than 25 percent since the mid-1990s, as should be expected with population growth, according to Dean Baker, co-director of the Center for Economic and Policy Research. "Investment in housing is down because the building boom of the bubble years gave us a record level of housing vacancies," Baker notes.

• On Social Security

  The GOP platform claims that "younger Americans have lost all faith in the Social Security system." However, <a href="http://www.gallup.com/poll/1693/social-security.aspx" target="_hplink">only 21 percent of non-retirees</a> say they do not expect Social Security to be a source of income when they retire, according to Gallup.

• On Homeownership

  The GOP platform claims that "homeownership...helps Americans create wealth." However, <a href="https://twitter.com/AJInsight/status/235488109419196416" target="_hplink">the returns on U.S. housing investment have been nearly flat</a> over the past century when adjusted for inflation, according to Yale professor and housing expert Robert Shiller.

Comments

[Peabodies]

10:17 PM on 03/17/2013

Erin Burnett --paid shill? Nah, right?

[Landyn McCaul]

07:54 PM on 09/17/2012

Semantics aside. Does the purchasing power of the Federal Reserve Note drop due to quantitative easing? Will the bank find anyone of credit-worthyness to loan said funds to? Is there enough liquidity at the lower levels of the economy to drive the demand needed to aide in the stimulus? Answer these for yourself. The Financial Conquistadors have landed in America and they are putting us to work "mining" the interest payments on their debt dollars. If you haven't reached the capitalism pinnacle, then obviously you haven't enslaved enough people. Who do you really work for?

[Bebe36]

03:44 PM on 09/13/2012

I was verbally attacked by posters on this thread because I asked for proof that the Fed was responsible for the rise in gas and oil prices.

Erin Burnett was called out for making that erroneous claim just this week.

Credible information is easy to come by in this age of instant research.

I recommend that for those who think they know it all, and come UNGLUED when someone challenges their false assertions.

[Cheeseus Sonofdog]

04:13 PM on 09/13/2012

So this article about Erin Burnett, it is talking about 2008. That was a speculative blow off top. Going back to 2006 there were clear signs that the housing bubble was bursting. The Federal Reserve kept coming out and claiming subprime was contained. That even if it became an issue it would have no impact on the economy. Stocks didn't predict the greatest crash in the economy since the 1920's. They kept ramping.... Prices did finally crash when the markets had to trade on fundamentals and hard cash. Oil went from $150 down to $less than $30. The chart they refer to in the article wants us to forget that drop in early 2009 and the escalation back near the highs of 2008. It nearly doubled. Now, look at 2008. That is when the lie was still believed. When the government proclaimed the economy was never stronger. The fed declared there would be no recession. Unemployment was still low. Europe and the bric countries were still going gangbusters. If anything, todays prices are even more absurd than in 2008. Back then we didn't know how bad things would get. Now we know they are as bad as the great depression(The Fed today even confirmed that by their desparate actions). Prices, from commodities to stock markets should be 90% lower here. They are overpriced and a reflection of true policy stagflation.

[Bebe36]

04:16 PM on 09/13/2012

This has NOTHING to do with rising food and fuel prices.

[GaryGoddmn]

05:24 AM on 10/10/2012

continued
QE adds to Banks' Reserve Acct balances (on the Fed's computers) by purchasing USA Bonds for USA Cash. A swap.

Adding to Banks' reserve acct balances on the Fed's computers cannot "push" Banks to lend more, since Banks are not "reserve constrained" in the first place.

Banks can create INFINITE credit regardless of Reserve balances, which are new deposits (liabilities) created simultaneously with (and BY) loan agreements (new "assets") for the Bank.

Only household accts are even counted towards Fed's reserve requirement rules, Greenspan's "Sweeps" allow banks to temp shift Savings balances overnite to Reserve balances and then back, and lastly Reserves are reconciled two weeks in arrears AFTER new loan activity that could create a reserve shortage.

So QE can only boost the economy (or inflation) by "magic" ... EXCEPT when Fed buys "toxic" assets at full face value, to rescue Banks from insolvency, THAT actually does ADD some money to the private sector, but not in a way to boost the real economy (much).

[chil4356]

02:58 PM on 09/13/2012

Hey Ms. Kavoussi read any Bloomberg.com energy reports that claim the price of crude is up on the FED stimulus?
I think maybe it's time you quit your day job!!

[Farmers Market]

11:05 AM on 09/12/2012

Audit the Fed!

[Joe Harrison]

09:59 AM on 09/11/2012

False? Right on the money to me. Did anyone think the TARP, bailouts, stimulus came without a cost?

[GaryGoddmn]

05:50 AM on 10/10/2012

Don't confuse Fiscal policy vs Monetary. (Fiscal is "weak".) What the Fed & Obama is doing is following Bernanke's hero: Milton Friedman, trying to inflate-boost the economy INDIRECTLY, via bank lending. That supposedly favors the "private sector" -- private commercial banks creating the money.

TARP was not done by the Fed. TARP was FISCAL spending by Congress to rescue banks, not the Fed expanding it's balance sheet.

Direct Stimulus to the economy was not done by the Fed either, also Congress (Fiscal).

NO, there is no "cost" to the Fed Bank buying assets. ALL banks buy assets, at will.

Only 3% of Dollars are "base" created by Govt, 97% are created by Bank credit.

NO, there is no "cost" of Stimulus either.
Adding ANY cash (Fiscal) to a cash-starved economy ($12 Trillion was removed by the finance sector meltdown, Stim only replaced $1 T) must add to aggregate demand, i.e. expand SALES and PROFITS and thereby JOBS (if done right).

To say that more cash = inflation is saying Capitalism is a static dormant system that cannot expand production.

William Black (from the S&L crisis investigation) describes and discusses top econs Akerloff and Romer who described the method for looting a bank from the inside, Control Fraud.

[GaryGoddmn]

05:56 AM on 10/10/2012

Arguably, Bank Bailouts SHOULD have been done by FDIC, which was created for that purpose, to rescue "vanilla" savings accts. Insolvent banks would have been forced into (managed) bankruptcy, like any insolvent corp.

REAL problem was not with Bank "institutions" which are critical to support capitalism (should not totally "control* capitalism). It made some sense to rescue bank institutions, like if a CEO looted the local hospital, it would not be wise to shut down the hospital, throw doctors and nurses out of work, and deny patients care, due to financial corruption by executives.

When Bank CEOs created a Bubble (cheap credit created out of thin air) (with few regulatory constraints, since conservatives hate regulations) and Banks engaged in "epidemic" of financial fraud and white collar crime ---- per FBI in 2004 --- Executives grabbed record salaries, bonuses, and stock options ... UP FRONT. Bank robbers destroyed their companies with short-term fictional profits GUARANTEED to fail in longer term.

Again, William Black (from the S&L crisis investigation) describes and discusses top econs Akerloff and Romer who described the method for looting a bank from the inside, Control Fraud.

Get fraudulent property appraisals. Issue ARM mortgages with "No-Doc" loans where most have zero chance of surviving past init period up to "Balloon" payment, but book it as genuine growth. RECORD PROFITS! Party! Bonuses! Like the Underwear Gnomes on South Park. Later, RECORD LOSSES!

[jdstelecom]

09:40 AM on 09/11/2012

Burnett makes a claim that is straight out of any non-Keynesian 101 economics textbook and she’s branded as making “false claims”. She must have hit a nerve.

It is fundamental that if you double the money supply you will double prices over the LONG RUN. Over the short run there are numerous factors (e.g. supply interruptions) that can mask this i.e. it isn’t a perfect correlation. For example, no one would dispute that if war broke out in the Middle East tomorrow we would see a spike in oil prices regardless of Fed actions. Providing examples of short-term deviations or other contributing factors (as this article does) doesn’t disprove the larger point Ms. Burnett is making.

It is understandable why this hits a nerve with Baker and Krugman. Baker has long advocated that we can boost our economy by improving exports through dollar devaluation. This premise is debunked if prices rise an equal percentage to offset the dollar devaluation. I suspect Krugman knows the long-term data but as a liberal Keynesian is willing to trade inflation for lower unemployment (Krugman’s advocated a higher inflation target also).

My one point of contention is that although the Fed has engaged in massive asset purchases this doesn’t automatically increase the M1 money stock (and hence the inflationary effect). In fact, a great deal of it (about $1.6 trillion) is sitting as excess reserves and isn’t “in the system”. As a result we haven’t felt the full inflationary impact

[Blah x3]

03:59 AM on 09/12/2012

Plus everyone forgets that the price of gallon was $4.10 in June of 2008, so clearly inflation has...well.. little to do with it.

[Blah x3]

04:03 AM on 09/12/2012

Actually, just googled it, it was 4.29 per gallon and now it is 3.85 per gallon. So, Erin, your theory is a bust

[GaryGoddmn]

06:05 AM on 10/10/2012

It is fundamental that if you double the money supply you will double prices over the LONG RUN.

FALSE. If that was true, you would want to outlaw banks, since banks can double or triple or more the money supply --- that is "credit-money" --- when they are pushing an asset bubble.

You must believe that Adding Cash to an economy (at least "base" money, M0) can have no effect on aggregate demand, sales, profits, production, or jobs. In other words, Capitalism is a "Static" system. Right? CAPITALISM HAS NO MECHANISM FOR REAL GROWTH, only inflation.

When is that true? When a war or natural disaster destroys most productive CAPACITY, ergo, no capacity for growth.

So all that Schumpeter stuff about "creative destruction", throw that out. You must take the last 200 years of understanding about Capitalism and throw that all out, in favor of Pete Peterson's slash-and-burn austerity. Might be nice to see the streets outside the White House in flames from riots, like Greece and Spain.

This has gone on for decades, everywhere the IMF gets to force austerity on people, and impose "bankruptcy programs". The IMF does not control America, but we WANT to inflict that on ourselves anyhow.

[ajs887]

09:39 AM on 09/11/2012

Erin is right. The fed buying bonds and securities from primary dealers frees up money that is put to speculative use in the commodities markets. This speculation would not occur without the fed engaging in this, as the pd's would not have the money to speculate. It was evidenced especially during QE2.

What the fed was doing was weakening the dollar, thereby spiking commodities.

[GaryGoddmn]

06:11 AM on 10/10/2012

Banks do not need ANY particular Reserve Balance to create loans for any purpose they see fit (profitable).

Loans are not created by lending Reserves or Deposits. (Banks DO need a sufficient Capital base, that's another issue. Banks were allowed to leverage their capital to 30:1, 50:1, even 70:1. That's insane. But it was caused by de-regulation and "hands-off" by regulators, including the Fed.

Bernanke is Greenspan's protege, and his hero is Milton Friedman. Friedman's ideal for curing the Depression was the Fed dropping money from helicopters ... into the banking system, NOT into the real economy. Not only is this NOT inflationary, it cannot even produce (much) job growth. This was known and published in 1969, long before Friedman became an icon of "monetarism".

[sfred2]

11:26 PM on 09/10/2012

So Sad!!! Erin has lost her credibility. If and when people watch they will question whether she has her facts right.

[the964kid]

11:07 PM on 09/10/2012

She's got a bright future on FOX News right after CNN fires her, but she'll have to dye her hair platinum blonde first.

[spiralskydancer]

11:05 PM on 09/10/2012

And yet, through the whole economic disaster, until now, and likely beyond, profits have remained high. Maybe one of these quoted economists can explain why this is so.

[RealistBC]

10:36 PM on 09/10/2012

Erin Burnett needs a firm spanking. I volunteer to perform this duty.

[Janzee12000]

09:32 PM on 09/10/2012

This story is still up? I know she's said something just as stupid since last week.

[Jimtoday]

06:10 PM on 09/10/2012

Erin Burnett is a GOP shill masquerading as a newsreader...She has to go, but since NO ONE is watching CNN, I guess it doesn't matter.

[anonym0us68]

05:35 PM on 09/10/2012

I cant believe how many people here are wrong. I guess its over everyone's heads and they just trust the HP. Erin is dead right. If you double the money supply, everything doubles in price. It's inflation. A transfer of money from savers to debtors. When you reduce the money supply, everything goes the other way. Yes, there are other factors, but all asset classes have a 86% corrlelation in the last 4 years.

I'm a professional quant, and not hear to debate. I'm just interested in educating anyone interested in thinking for themself. Liquid stuff with world demand moves the fastest and sometimes even moves in anticipation of fed action. thats what happened before the fed moved. In the long term, the ratios always hold true and constant... rato of oil/gold, housingPrice/average Salary, etc... I believe dow will hit 100,000 in a few years, and at the same time you will loose your purchading power. But these ratios will still hold true...

The next crisis is going to be the crash of the dollar. It's status of the world reserve currency is the only thing slowing its fall.

Protect yourselves. And watch those ratios to remove all the 'noise' in the market.

[thewholestory]

09:30 PM on 09/10/2012

Erin, is that you?

[waltifarian]

12:57 AM on 09/11/2012

The CEO of Exxon Mobil disagrees with you. He cites speculation as a much greater factor in oil prices, which are of course a major component of oil prices.

You are a professional Quant....no wonder Wall Street is so FUBAR. If you were interested in educating anyone you wouldn't be doing so anonymously, with specious logic argumemtation by assertion.. . whats happened with CDS's on US debt this year? Me thinks other motives may be at play.

P.S. Didn't they teach you how correlation isn't causation in grad school? Or is that just one of the tricks of the trade to fleece muppets?