It is now time for a little more irrational stomping around, because the biggest risk to the US economy right now is inflation. The marked drop in the value of the dollar coupled with the increased cash flowing through the economy does not spell good things for our future.
The scary truth is that we could well see a spurt of inflation that is not accompanied by wage growth. It would be the worst kind of inflation...the type that makes people significantly poorer. The type of inflation where the masses see a major drop in their spending power, with fewer jobs and no increase in salary to offset costs.
The problem is that there is a good nine month lag between any action taken by the Federal Reserve board cut rates and the affects appear in the markets.
Right now we have the situation where a large number of companies have failed. Companies have pushed their sales margins to the limit, the dollar has devalued in the world market -- meaning higher priced imports. The scariest thing in our economic horizon is the $6.6 Trillion deficit.
When all is said an done, it is likely that these acts will lead to higher prices. Meanwhile, the jobless recovery threatens to keep wages low. The fed missed the clues at the end of the last cycle. My guess is that they are misreading the current cycle.
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