Almost, but not quite correct
First of all, the liquidity has not been pumped in by governments.
The stock of the BoE may be owned by the UK, but it is independent. The Fed is privately owned.
Secondly, pumping cash into the market is not a wise thing to do, to say the least. It may bail out the speculators in the short term, but in the long term inflation get out of control. This insanity, in compination with bio-fuel nuttiness and speculative pressures from hedge funds is having a fairly bad effect on the staple foods of many countries.
For example, authorities in Chile were taken aback yesterday by the 1.1% increase in the Consumer Price Index for August, the highest spike since 1995.
Increases in the prices of basic staples are hitting consumers, especially the one million workers who earn only the minimum wage, very hard.
The general food price increase for August was 3.4%, but fruits and vegetables, as a sub-category, rose by 13.6%, while potatoes rose a whopping 48%, onions by 22%, lettuce by 17%, bread by 5.6%, and eggs and dairy by 3%. The government has taken a few steps to help ameliorate the situation for poorer sectors of the population, but they are woefully inadequate.
In neighboring Argentina, citizens have been stunned by the 20% increase in the price of chicken--a basic staple--in the space of 15 days! Price increases for bread and vegetables also hit record highs.
The cost of the monthly market basket increased by 3.1% in August, with the biggest increases showing for vegetables, which increased by 49%.
Potatoes, which are a basic staple in the Argentine diet, rose by 40% in one month, and have increased by 115% so far this year. Compared to the same period of 2006, the price increase is 500%! The government in Argentina is now threatening to import potatoes from Peru, to try to force the price down.
It won't be long before we see similar inflationary pressures in Europe. There are hints of it already. For example, the cost of Pasta in Italy.
In the UK, Hovis warned about the price of bread just a few days ago.
The whole basic global financial infrastructure is fatally flawed. We are in 1929 all over again, and it isn't going to be nice.