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FRED
07-20-06, 11:25 AM
Rate rise won't help, economists warn (http://tinyurl.com/kfj87)
July 20, 2006 - Sydney Morning Herald

WHEN the Federal Reserve chairman, Ben Bernanke, testifies about the American economy to a US Senate committee overnight (Australian time), all eyes and ears will focus on his view of inflation and any hints of whether he will keep raising interest rates in order to curb it.

But some analysts think the Fed has less influence over inflation these days, making higher interest rates less effective as a tool to control it. They fear further rate increases could slow the economy and hurt consumers without reducing inflation.

Today's inflation, these economists believe, is driven substantially by rising prices of commodities and basic materials - oil, copper, aluminium, steel and others. Commodity inflation, they argue, is the result of forces largely beyond the control of US interest rates: political volatility in the Middle East, for example, and demand for materials from the rapidly growing economies of China and India."

AntiSpin: Bernanke got one thing right yesterday, the US economy is slowing. But as we learned in our interview with James Rogers (http://www.itulip.com/jamesrogers1.htm) in May, the economy is also experiencing cost-push inflation, and as this story points out, there is little the Fed can do about it. But it appears that both Bernanke and the markets still believe in the theory of a Non-Accelerating Inflation Rate of Unemployment (NAIRU (http://en.wikipedia.org/wiki/NAIRU)), that the prospect of increasing unemployment in a slowing economy will contain inflation pressures, so further rate hikes are unnecessary. When Bernanke announced yesterday that Interest Rate Hikes May Be Over (http://biz.yahoo.com/ap/060719/bernanke.html?.v=17), the news sent the DOW up 212 points. However, as we learned from Martin Mayer in our interview that we plan to publish shortly, NAIRU is a collective delusion destined for the trash heap of politically convenient economic theory, along with supply-side economics. When the markets figure this out, this rally will have turned out to be an excellent opportunity to take short positions.

blazespinnaker
07-20-06, 06:37 PM
So what are they suggesting here? Let inflation go so the economy doesn't go into recession?

Yikes! The dollar will plummet, inflation will rocket, and the dollar will plummet yet even more. Hyperinflationary spiral.

Rajiv
07-20-06, 07:18 PM
The dollar plummetting is probably the best thing that could happen to the world AND the US economy.

It will ultimately bring back productive jobs to the US. And yes, the period of adjustment will be very painful.

jk
07-21-06, 07:19 AM
what are the alternatives to dealing with the debt at the personal and governmental level?

1. debt can be written down via bankruptcy. very painful. not desirable.
2. we can "grow out of it" - not credible, although this will be the official "reality"
3. we can inflate it away - aahhhhhhh


the dollar must decline and we must have inflation - it's the only way to deal with debt.