FED MAY RAISE INTEREST RATES

"The president of the Minneapolis Federal Reserve Bank said Thursday the Fed may need to increase short-term interest rates by year's end if underlying inflation rises as he anticipates.

In a interview, Narayana Kocherlakota said he expected "a big upward movement" in core inflation—inflation excluding volatile food and energy prices—from about 0.8% late last year to about 1.3% by year-end.

As a result, he said, it's "certainly possible" the Fed's target for short-term interest rates, now near zero, would be lifted by more than half a percentage point late this year."
Wall Street Journal

Does anybody remember the Carter years? We're about to go back to them again, but this time around it'll feel like steroids have been shot into the monster.

The Fed seems to have two possible reactions to most any economic problem. The first is to create money out of thin air, lend it into the system, profit from the transaction and in the process devalue the dollar, causing more dollars to chase fewer goods and creating inflation.

They respond to this by invoking action number two. They raise interest rates to pull excess money back out of the system which, of course, allows them to profit once again.

Now, if the inflation we are just beginning to experience, and which is going to get much, much worse before it gets better, were caused by expansion in the economy due to the injection of capital then perhaps the Fed would be justified in raising rates and could do it without causing too much pain. But our inflation is only partially caused by the increase in the money supply this time. You see, most of the money created by the Fed has never been put out into the economy. It's been held by banks to make their balance sheets look good and to cover the defaults and other problems brought on by a nearly historic high in unemployment and underemployment. It's been used to play games in the stock market, keeping stock values artificially inflated, most likely to cover the true ugliness of our economy. Most people I talk to use the market values as a reason to believe that everything's just fine, even though they're working less and spending more for basics. The inflated market is the crutch they can lean on to support their financial fantasy world.

So, just like the Carter years, we've got people making less money and the cost of goods, mostly energy and food, going through the roof. And now interest rates will begin to rise, squeezing everyone even tighter. And as the cost of borrowing rises businesses that rely on loans to function will begin to cut back even more, increasing employment woes across the land.

One really big difference between the Carter years and today is the number of people that have mortgages tied to the current rate of interest and not a fixed interest rate. As rates rise and their mortgages become increasingly difficult to meet more and more will just simply walk away from their homes. And the number of empty houses. already numbering in the millions, will continue to grow.

Speaking of loans that are tied to interest rates, what about our Treasury Bonds? America can't meet her obligations with interest rates at near zero. And the world is slowly beginning to abandon our bonds because they're considered way to risky for the little potential upside. So we'll have to raise interest paid on them to try to make them more attractive to investors, which of course most will realize we'll never pay back anyway, so the rates will have to continue to climb and with every increase our ability to pay will fade further over the horizon.

I wonder if this is the real reason the Fed is talking about raising rates? Are they trying to lure investors back in? Maybe they're using inflation as an excuse because they don't want to admit publicly what most of us already know, that America is on it's last leg and falling quickly and that higher interest rates are essentially a Hail Mary pass attempt, one last shot at bringing us back that stands little or no chance of success.

Whatever the reason, it appears higher interest is on the horizon and times will get tougher for the average American. Buy food and other essentials now, while you can still afford it because this year has the potential to be a year unlike anything most of us have ever experienced.

Get ready and pray.

BERNANKE CALLS FOR INFLATION - BUT JUST ENOUGH, GOLDILOCKS

The Fed is calling for an increase in inflation to a mandated two percent. But why? How do the pointy heads at the Fed think that inflation will benefit the economy?

Let's step into the way back machine, to the last great depression:



Doesn't that sound just like "trickle down economics" in reverse. If the progressives constantly scream that the conservative version of this same thing, only using private monies instead of public monies, doesn't work then how come they're so convinced it'll work this time?

So, here's the thing. The last Quantitative Easing (money printing for those of us that like clear speech) that the Fed did had no real impact on the economy as a whole. Most of the billions and billions (thanks, Dr. Sagan) that the taxpayers so graciously borrowed went into the coffers of the banks or was used to buy back stock by the giant corporations that had access to it. Very little of it filtered its way out into the private sector unless you count the obscene salaries the bankers paid themselves for destroying the country. I guess they probably used some of that to hire illegals to keep their lawns tidy, but then most of that was sent back to Mexico.

Bernanke is walking a tightrope with this. If the inflation rate gets much over the two percent mark the country won't be able to service the debt and it'll default. However, if we were to go into deflation people will not spend money as quickly because they know prices will be cheaper down the road.

The main question I have is this; do any of these guys ever go to the grocery store or buy gas? My cost of living is accelerating at much faster than two percent and I'm thinking that everybody else is probably seeing the same thing. So what's the deal? Why does the government constantly act as though inflation is non-existent?

Just acting as the devils advocate here I have to wonder; could it be because all those social programs that the left are so wild about are tied to inflation? And could that be the reason Social Security recipients aren't getting a raise? How does artificially depressing the real rate of inflation affect other areas of the federal budget?

That's why the plan to "increase" inflation to two percent won't work and could possibly cause more damage than good. If the Fed creates more money the value of the dollar will collapse even further. It's already in a free fall. So all of us here in America that are already having trouble making ends meet will find it increasingly difficult to spend money on anything but the essentials. That will not cause any sort of trickle up effect as the fed is hoping for.

Worse, as the dollar continues to decline and and investors run from it we'll find it increasingly hard to raise the money to pay the debt and keep the government afloat. I know that inflation, by cheapening the dollar also lightens the debt load but two percent isn't anywhere near enough to do it.

This is an end game, Hail Mary pass scenario. The Fed has shot just about all their bullets now. The markets will go up with this plan because the Wall Street guys are looking for another bailout which is exactly what more quantitative easing will give them. Bond prices continue to fall as the thirty year auction barely sold anything. The world sees us as a bad risk and is refusing to buy any long term debt and very little short term. So what the market does or doesn't do, in the bigger picture, is somewhat meaningless.

So buckle up boys and girls, the last part of the ride is about to begin. And this is the scariest part of all, the one where we go over the cliff.