Wednesday, July 19, 2006

Resource Inflation

The inflation of fuel prices is being driven primarily by world wide demand for fuel.

The relatively small amount of inflation that the US is currently seeing is being driven by the world economy. The US economy is growing at a robust, but not irrational pace (especially considering the current state of world wide expansion).

What I don't understand is that the Federal Reserves has been jacking up interest rates in an effort to slow the US economy. Their aim is to spoil the US economy in a vain attempt to affect the global economy.

It seems to me that the wiser course would be to accept the inflation in the price of natural resources. The inflation that occurs because of rising world demand for oil is not something the US Federal Reserve to control. Trying to control something out of one's control can lead to bad consequences.

At this point, the struggle of the American economy is to realign itself with new global realities. Americans need to invest in conservation and there needs to be a major realignment of American investment so that our business will be better in line with new global realities.

Both of these goals are difficult because of the high interest rates.

The Fed needs to be making its rates decisions based on the state of the US economy (discounting inflation caused by the global economy). The US alone cannot control the global economy. It seems to me that stifling the US economy in a time of global expansion actually puts the US at a disadvantage.

No comments: