Dear Ben:

When the financial crisis hit in 2008, we were glad to have your expertise at the helm of the Federal Reserve because of your keen knowledge of the Great Depression.  Your courageous moves of 0% interest rates and QE1 were steps in the right direction to ensure there was enough liquidity in the system.  We believe these moves helped stave off another Great Depression and we are thankful for them.

We started to question our faith in you when you instituted QE2.  With QE3, we have lost all confidence in you.   You and your brethren at the Federal Reserve are increasing greatly the risk of inflation – we especially fear stagflation – where there exists both inflation and a stagnant economy.  Besides this concern, we are also concerned about the following:

1)  You mentioned that one of the main reasons why the Federal Reserve is buying $40 billion of mortgages a month is because you want to bring down interest rates for home buyers.  Sounds noble, but so far QE3 has only increased interest rates, not lowered them.    When you started floating QE3 as a possibility a couple of weeks ago, the yield on the 30-year treasury note was 2.68%.  Since then, the yield has increased every day to a current yield today of 3.088% (see chart below).  Why are rates going up?   Because the market sees this move as inflationary.  The bond market was telling you that BEFORE you instituted QE3.  We believe you may not be telling the American people the real reason you instituted QE3 – we believe the real reason is in our 4^th point below.

2)  You continue to mention that inflation is tame.  We have a hard time believing you when we look out our window and see $3.99 a gallon at the BP station.  In fact, on the same day you came out with QE3, the Producer Price Index rose 1.7% in the month of August.  OK, we hear all the time that you have to take food and energy out of the calculation to get a more accurate picture of inflation.   We disagree.  Why, because consumers use both food and energy every day, but don’t buy clothes every day.  We contend that your policies are inflationary and the rate of inflation has been increasing since you became Chairman of the Federal Reserve in 2006.  Below is a chart of the Big Mac Index that shows the average price of a Big Mac in the United States since you came on board in January of 2006.  The price has risen from $3.15 at the end of 2005 to $4.33 at the end of July, 2012.  This translates into an annual (inflation rate) increase of 5%.   What truly concerns us is the pace of the increase.  The rate has accelerated since QE2 with the price of a Big Mac up 9.7% last year and up 6.39% for the first 7 months of this year – even before QE3.  This is an average increase of almost 1% per month!

3)  We were glad you were there during the crisis of 2008 and 2009 to make sure we did not make the same mistakes that were made during the Great Depression.  Your knowledge of financial history helped our country through a very difficult time.   However, we suggest you revisit the economic history of the 1970’s – the last time we experienced stagflation.  The true failure of job creation is currently fiscal policy, not monetary policy.  Fiscal policy continues to bring uncertainty throughout the business community.   This decision now brings uncertainty to our monetary policy.  This only hurts our economy and our consumers.

4)  What was the real reason you implemented QE3?  We contend that the real reason was to help out Europe.  Spain is in dire straits as capital is fleeing from their country. We believe you are working with the ECB to make America look like a less attractive investment for those in southern Europe.  By doing so, you are motivating Europeans to keep their funds in Europe.   However, Europe is in a deep recession.  Can you please tell me how increasing the value of the Euro – making their exports more expensive – will help them achieve growth in their economies?    QE3 will hurt Europe in the long run because their core problems have not been addressed and the rise in the Euro will be short lived.  This policy will cause more social strife as Europe’s economies worsen.  China’s currency also is tied to the U.S. dollar and they have been trying to fight inflation over the past year.   QE3 will only cause more inflation in China at a time of severe economic slowdown.   May we suggest you read the book “Lords of Finance” that depicts the disasters that occurred during the 1920’-1940’s when world central bankers colluded on monetary policy?

We have had a number of good years together and we are sad to send this “Dear Ben” letter.   However, we don’t want to see retirees lose their savings to inflation, while at the same time receive very little interest on their savings.  We believe that the world would be better off if the US had a strong dollar policy to bring stability to world economies.   Therefore, we kindly ask for your resignation.

Sincerely,

Your THOR Team

P.S. – A bond trader sent us a brief video from your childhood.   We hope you don’t mind us sharing with others.