A Diaperful From the Fed

04/28/2011 11:18 am ET | Updated Jun 27, 2011

On April 27, Ben Bernanke gave his first ever press conference to the American people. His goal was two-fold. First, he wanted to reach out to us by "increasing transparency" for the historically secretive Central Bank. Second, he wanted to do no harm. That is, he did not want to significantly rattle the markets. In both, he succeeded.

But for those of us who wanted more -- like reassuring the American people about the future of our economy -- he notably failed.

Americans are rattled not only by a slow job market, but also by the eye-popping prices at their supermarkets and gas pumps. This week, diaper giant Kimberley Clark will increase the prices of its Huggies diapers by 7 percent and wipes by 3 percent, and the same is expected of Procter and Gamble's Pampers line. According to The Wall Street Journal, retailers were told to expect price hikes in May on items like Scott tissue (up 7 percent), Charmin tissue (up 5 percent), and Glad trash bags (up 9.5 percent).

In similar fashion, Coca-Cola prices are up at home and abroad (in some countries more than 20 percent) as are the prices of the delicious Big Mac (up to $4.34 in New York).

These are real increases in the cost of living that real Americans face -- not some archaic measure of inflation that doesn't even take into account rising prices of food or energy.

People are angry and worried. If you want to see how angry, just Google "diaper" and "angry" and observe a long list of irate mothers blogging about diaper prices, including one in which a mother indexes her purchases for the year.

Retail prices are up because commodity prices are up. Commodity prices are up because demand is up, because the Middle East and North Africa are exploding, and because inflation is up all around the world. As a result, corporate profits are down. Big multi-nationals (like Coke and P&G and Kimberley Clark) say they had already cut expenses to the bone during the recession, so there's nowhere left to go but to the consumer.

Despite the way Main Street is feeling, Wall Street seems to be surviving just fine. Stocks have been picking up gains in the last few weeks, largely due to record earnings from -- you guessed it -- increased world-wide demand, reduction in corporate expenses (laying off workers) and higher revenues (from higher prices charged to consumers).

Another reason that the stock market is buoyant is that the Fed is artificially keeping interest rates low (low rates of borrowing for business) and money supply plentiful. Bernanke told the press today that given the choice between spurring the economy and inflation, he chooses spurring the economy. Inflation, he said, is a "transitory "problem -- not a pervasive one.

The problem is that the benefits of Bernanke's low interest rates and QE isn't filtering down to regular folks. As Alan Greenspan said recently of QE: "I don't think it's had very much of an effect on the economy. I think it's bloated the balance sheet of the Federal Reserve and bloated the balance sheets of commercial banks, who hold deposits at the Federal Reserve. But there is no real evidence yet that those monies are going out and circulating in the economy and being a driving force there."

There you have it from the ultimate horse's mouth. Most of those printed dollars from the Fed sat on the books of banks, improving their asset value and stock price rather than going out to make loans to the small businesses and homeowners who needed it.

Currency markets -- on the other hand -- had a different reaction to Bernanke's words. Gold and silver are still reaching all time highs and the dollar is as flaccid as ever. That reflects, at least in part, a lack of faith in the American economy as well as a real fear of rising inflation.

A falling dollar, rising prices and slow job growth. Main Street doesn't seem to be able to catch a break -- either with our politicians who are bankrupting us or the Fed who is still unwilling to acknowledge price inflation.