Friday, March 18, 2011

Ron Paul, the cost of diapers, and Ben Bernanke's toilet paper

Kimberly-Clark is about to raise the prices of diapers and toilet paper. 

DALLAS, March 17, 2011-Kimberly-Clark Corporation (NYSE: KMB) today announced that its baby and child care and consumer tissue businesses are notifying customers of plans to raise prices in North America during the second and third quarters of 2011. The company said the increases are necessary to offset inflationary pressure from higher raw material and energy costs.

Net selling prices in the U.S. and Canada for Huggies baby wipes and diapers, Pull-Ups training pants and GoodNites youth pants will increase on average between 3 and 7 percent, with implementation timing ranging from June 19, 2011 to August 17, 2011. In addition, net selling prices in the U.S. for Cottonelle and Scott 1000 bathroom tissue will increase approximately 7 percent, effective June 19, 2011. The price changes vary by brand and pack size. Kimberly-Clark's net sales in North America for these consumer products exceeded $4 billion in 2010.

Here's who the price increase is hitting the hardest, from a piece by Monika Diaz of WFAA:

DALLAS — A Dallas non-profit is keeping a close eye on the disposable diaper price hike soon to hit stores, and it worries it will hurt their budget.
"We can't afford to be hit," said Jeanne Reyer, executive director of Captain Hope's Kids.
Every week, the charity distributes 9,000 diapers to agencies that help homeless babies and toddlers across North Texas.
"We are spending nearly $7,000 in diapers a month," Reyer said.
Irving-based Kimberly-Clark Corporation announced it is going to increase its prices in North America for products including diapers, tissue paper and toilet paper.
For example, the cost of Cottonelle toilet paper will go up 7 percent; the price for Huggies diapers, baby wipes and and training pants will jump between three and seven percent.
Kimberly-Clark claims the hike is needed because of the rising costs for raw materials to make its products.
Other companies, including Procter & Gamble and Colgate-Palmolive, are also looking at rolling out price increases.

And here's the reaon for all of this misery, as explained by Dr. Ron Paul.  Ron Paul's political opponents paint him as naive, out-of-the-mainstream, an extremist, and overly pessimistic. 
They call him Dr. No. 
But he's almost always right. 
This is an excerpt from his book The Revolution: A Manifesto:

When the Fed intervenes like this, increasing the money supply with money and credit it creates out of thin air, it causes all kinds of economic problems.  It decreases the value of the dollar, thereby making people poorer.  and in the long run even the apparent stimulus to the economy that comes from all the additional borrowing and spending turns out to be harmful as well, for this phony prosperity actually sows the seeds for hard times and recession down the road. 

First, consider the effects of inflation, by which we mean the Fed's increase in the supply of money, on the value of the dollar.  By increasing the supply of money, the Federal Reserve lowers the value of every dollar that exists. 

(That's why the government is trying to get you out of dollars, and into purchases of things they want you to buy.  Like purchasing all the houses that they're stuck with from their Community Reinvestment Act/Fannie/Freddie real estate debacle, or purchasing cars and trucks from those new auto companies they acquired.  They are honest to God trying to get you to spend money by announcing that your money will soon be worth less.  Good God in heaven.)

If the supply of Mickey Mantle baseball cards were suddenly to increase a millionfold, each individual card would become almost valueless.  The same principle applies to money: the more the Fed creates, the less value each individual monetary unit possesses.  When the money supply is increased, prices rise -  with each dollar now worth less than before, it can purchase fewer goods than it could in the past.  Or imagine an art auction in which bidders are each given an additional million dollars.  Would we not expect bids to go up?  The market works the same way, except in a free market there are numerous sellers instead of the one seller in an auction. 

All right, some may say, prices may indeed rise, but so do wages and salaries, and therefore inflation causes no real problems on net. 

This misconception overlooks one of the most insidious and immoral effects of inflation: its redistribution of wealth from the poor and middle class to the politically well connected.  The price increases that take place as a result of inflation do not occur all at once and to the same degree.  Those who receive the new money first receive it before prices have yet risen.  They enjoy a windfall.  Meanwhile, as they spend the new money, and the next wave of recipients spend it, and so on, prices begin to rise throughout the economy - well before the new money has trickled down to most people. 
The average person is now paying higher prices while still earning his old income, which has not yet been adjusted to account for the higher money supply.  By the time the new money has made its way throughout the economy, average people have all this time been paying higher prices, and only now can begin to break even.  The enrichment of the politically well connected - in other words, those who get the newly created money first: government contractors, big banks, and the like - comes at the direct expense of everyone else.

These are known as the distribution effects, or Cantillon effects, of inflation, after economist Richard Cantillon.  The average person is silently robbed through this invisible means and usually doesn't understand what exactly is happening to him. 
And almost no one in the political establishment has an incentive to tell him. 

And that, ladies and gentlemen, is why the price of diapers and toilet paper is going up.  There isn't a long-term shortage of wood pulp, paper, or anything else.  There's an increase in the money supply.   Ben Bernanke is printing it. 
If you caught someone in your home stealing 3-7% of your savings, I hope that you would shoot him, or at least knock him in the head, "civility" be damned. 
Nobody voted for this, nobody is debating it.  The Fed is paying off Washington's debts by printing more money.  It doesn't hurt the rich that much, since they typically get to spend the funny money first, and it's a horrible burden on the poor.

If current trends continue, we won't have to worry about the high cost of Kimberly Clark's toilet paper.  Ben Bernanke's will be a lot less valuable. 

Pics came from here and here and here

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