Tuesday, March 29, 2011
"So, thanks to the feds’ pro-inflation policies, the consumer can’t buy as much stuff…so stores don’t sell as much stuff…and the economy weakens. And then, what do the feds do? They push even more inflation into the system."
by Bill Bonner
The Dow rose 50 points on Friday. Gold rose too.
As we ended the week, the Dow was over 12,000…gold was over 1,400…and oil was over $100.
And all seemed to be headed up.
But there’s trouble afoot.
Housing in the US, the foundation of most household wealth in the country, has gone into a double dip…which could drag millions more homeowners underwater.
In other words, the speculative markets are moving one way. The economy is moving the other. The markets are going up. The economy is going down.
Oh…and you can imagine what this does to the poor householder. He’s caught in the middle. The real economy pushes the value of his main asset down…while the feds push up the cost of his most important supplies – food and energy.
“Don’t worry about it,” says Bernanke, Geithner et al. The economy is recovering. But is it?
It’s going to turn out very, very badly.
As predicted here, the feds’ easy money is making things much harder for most people. It’s pushing up costs…and prices. The feds can tell American households that the inflation rate is under 2%, but the poor consumer knows better. He knows that his real cost of living is going up at a rate probably more than 5%. Maybe, as John Williams tells us, more like 9%.
So, thanks to the feds’ pro-inflation policies, the consumer can’t buy as much stuff…so stores don’t sell as much stuff…and the economy weakens. And then, what do the feds do? They push even more inflation into the system.
This is not going to end well. Inflation is increasing…while inflation expectations are still low. Sometime in the future…inflation expectations will get ahead of inflation. And then, the Fed, if it is to get control of the situation, will have to put rates up above the real rate of inflation. In other words, the Fed will have to get ahead of inflation.
Is that going to happen? Not likely. Not in an economy that is slumping...