Barnanke

[New-born baby]

Bernard

Correct..this is what is causing the CPI to creep up, in effect reducing the spending power of consumers, which will slow down the economy anyway.

So why does the Fed want to increase rates? Stupid if you ask me.

He is increasing rates because he MUST attract foreign money to invest in the USA. In other words, he is trying to stop the selling of the USD on foreign exchange markets. Should the USD fall further out of favor, and foreigners cease holding all that fiat money that the govt has printed for a century, then inflation will cease creeping upwards, and start running upwards. Why? Because a falling dollar means foreign goods would be very expensive, and remember here we shipped all the factories to China and aborted a lot of the workers, so we would have a hard time producing what we want.

Congress has got to stop spending. But those guys are not patriots; they are politicians who get paid and hold power by greasing palms. Therefore I don't think that it is likely that they will stop printing money to spend. And if they did stop spending & printing money, it would be the first time in history. Republics all fail the same way: a bankrupt treasury. Then what follows is a dictator.

[Rob]

Good post, New-born.

[Rob]

Gov't Spending

New-born Baby, I want to take back something I said. You had posted that federal deficit spending is contributing to inflation, and I said I didn't think that was the case. (I thought it was in this thread, but I can't find it.) Anyway, I was prompted to do some more studying on the subject, and what I read made me understand that you are in fact correct. Federal deficit spending does contribute to inflation.

The good news this morning is that the PPI (generally understood to be a leading indicator of the CPI) was 0.02% vs. the expected 0.04%. The bad news is that the ex-food and energy number was 0.03%. This is no doubt due, at least in part, to the higher energy costs in previous weeks, as they are baking themeselves into all goods and services.

Deficit spending is hurting the economy right now, though, and there is certainly no disagreement there. It would appear that one party's controlling the executive and legislative branches of government is a recipe for high deficits, no matter which party it is.

[New-born baby]

New-born Baby, I want to take back something I said. You had posted that federal deficit spending is contributing to inflation, and I said I didn't think that was the case. (I thought it was in this thread, but I can't find it.) Anyway, I was prompted to do some more studying on the subject, and what I read made me understand that you are in fact correct. Federal deficit spending does contribute to inflation.

The good news this morning is that the PPI (generally understood to be a leading indicator of the CPI) was 0.02% vs. the expected 0.04%. The bad news is that the ex-food and energy number was 0.03%. This is no doubt due, at least in part, to the higher energy costs in previous weeks, as they are baking themeselves into all goods and services.

Deficit spending is hurting the economy right now, though, and there is certainly no disagreement there. It would appear that one party's controlling the executive and legislative branches of government is a recipe for high deficits, no matter which party it is.

Rob,
I think we need true FICAL conservatives running the show in Congress and the executive branch. Don't have it right now.

These high energy costs will probably cause a global recession. No doubt you are correct about the PPI.

The fact is that there is such a thing as a business cycle, and the late expansion has always been energy, and the early contraction starts because of energy. Now we need to look at consumer staples to start rising.

[DSteckler]

The fact is that there is such a thing as a business cycle, and the late expansion has always been energy, and the early contraction starts because of energy. Now we need to look at consumer staples to start rising.

Energy stocks do best early in the expansion phase of the business cycle, not late. Utilities do best late in the contraction phase, not Energy. Consumer cyclicals also outperform early in the expansion phase of the business cycle, a phase which we are not in right now.

For reference please google Martin Pring or Paul and Carole Huebotter. There are other economists who also discuss this topic.

[jiesen]

Well, it's official: 0.25% hike today.

http://biz.yahoo.com/ap/060629/fed_interest_rates.html?.v=9

Fed Raises Key Rate by a Quarter Point
Thursday June 29, 2:20 pm ET
By Martin Crutsinger, AP Economics Writer Fed Raises Key Rate by a Quarter Point, Suggests More Hikes May Be Needed

WASHINGTON (AP) -- The Federal Reserve on Thursday raised a key interest rate for the 17th consecutive time and signaled that further rate hikes may still be needed to fight inflation. The central bank boosted the federal funds rate, the interest that banks charge each other, by a quarter-point to 5.25 percent, the highest level in more than five years. When the Fed started its credit tightening campaign two years ago, the funds rate stood at a 46-year low of 1 percent.

In the statement explaining the decision, Fed Chairman Ben Bernanke and his colleagues said that "some further policy firming may yet be needed to address inflation risks."
The committee said that "some inflation risks remain" even though it was likely that a moderation in economic grwoth "should help to limit inflation pressures over time."
The Fed's rate hikes have raised the borrowing costs for millions of Americans on everything from home mortgages to auto loans.
Commercial banks were expected to quickly follow the Fed announcement by raisng their benchmark prime rate by a quarter-point to a five-year high of 8.25 percent. The latest rate hike had been widely expected given comments Bernanke made on June 5 in which he called a rise in the rate of inflation an "unwelcome" development, a comment that contributed to a one-day 199-point drop in the Dow Jones industrial average.