Fed Rate Cut Could Revive Inflation

Washington Post:

The Federal Reserve Board's rate cut yesterday increased the chances that months of Fed moves could start to trickle down to homeowners in time to ease the pain when adjustable-rate mortgages reset this year. And people who borrow money to pay tuition, buy cars or cover unpaid credit card bills might eventually see some benefit.

But the Fed's action could also revive inflation, many economists fear. By reducing the interest rate financial institutions charge each other for short-term loans, the Fed makes money more readily and cheaply available. If it miscalculates, it can pump too much money into the economy, fueling excessive demand for goods, housing and capital spending -- and driving up prices.

Read the whole story: Washington Post

Comments

[dadw5boys]

THE FEDERAL RESERVE CAN STOP INFLATION BY NO CHARGING INTEREST ON THE NATIONAL DEBT.

$ 20 BILLION A MONTH IN INTEREST ALONE ON THE NATIONAL DEBT.

[jaundicedview]

The Federal reserve doesn't own the debt, China and Japan (among other foreign entities) do.

[Ramirez]

THE FED DOES NOT CHARGE INTEREST ON THE NATIONAL DEBT.

THE FED DOESN'T EVEN HANDLE THE NATIONAL DEBT.

[dadw5boys]

WHAT PLANET ARE YOU FROM????

YOU NEED TO READ UP.

OR BETTER YET WATCH THE YOU TUBE VIDEO "MONEY AS DEBT" -- THE 40 MIN VESRION

ARE YOU IN FOR A SCHOCK. LOL I can't believe you don;t know this.

Really about to fall out of my char laughing,

[dadw5boys]

http://video.google.com/videoplay?docid=-9050474362583451279&q=money&hl=en

here it the link. the video is so popular it is hard to find the full version.

[shockmagog]

Scared shitless?

You bet I am.

[civilbehavior]

I'm beyond scared.

As always I am being practical and frugal. It's been our life.

The only difference now is I am starting to pantry more food i.e. flour, pastas, peanut butters etc. I want to have at least a year's worth in store as prices continue to escalate as our income will not withstand much more of a rise.

After 35 years of watching a government function marginally this current adminstration is determined to thin the herds. Be careful what you do in the next year as they have begun to exact their pound of flesh.

[mhj555]

The only real estate that will be hot; will be in those new "shruburbs " that are popping up.
Invest in tent canvas.

[dadw5boys]

The real test comes in June, July and August.

1.9 million more Investor Owned home loans expected to go bad.

Over $ 9 Trillion in bad loans will be hard to carry.

Why are they not putting people in jail????

[AxelDC]

Bernake calls himself an expert on the Great Depression, so he will do anything he can to prevent it from recurring. He seems blissfully unaware of the 1970s Stagflation and the extraordinary efforts the Fed had to go through, including the Volcker Recession, in order to stem inflation from its double digit levels for a decade.

Each time Bernake cuts rates, the US dollar falls, which drives up oil in dollar terms. This in turn drives up gas prices and every item for which gas is an input: food, housing, transport, manufacturing, etc. The US risks large scale cost-push inflation triggered by oil price spikes, yet the price of oil remains around 65 Euros.

Maybe Bernake should study the 1970s instead of the 1930s. He might realize that excessive government spending caused the worst decade in US economic history since World War II, and it had nothing to do with a drop in demand from deflation. Like most losing generals, Bernake is fighting the wrong war.

[jacmull]

Inflation, devalued currency, increased cost for raw supplies (energy, food) is how the U.S. will pay for its debts and living beyond our means. It seems real simple to this simpleton: if you don't pay as you go, you pay with interest later via inflation. Raise taxes to pay for a war? No way, charge the war on credit. Or just print more money. Who overseas wants another devalued dollar? So imported goods cost more. Who overseas wants to buy American products? Sadly, we produce little that the world wants. Some exceptions are education, science and technology, oh, and yes, weapons. It is my guess that a significant portion of in coming foreign currency is used by outside interests to purchase U.S. assets (i.e. our companies, buildings, land) at cut rate prices; I would appreciate hearing from others who are more knowledgeable.

As noted above, inflation is already here. Rising energy costs are obvious to everyone. Been going to grocery store lately? Cost of food has been rapidly rising the past 3 o 4 years. My fear is that rampant inflation will be around a long, long time. It seems that the American standard of living is certain to fall further.

[mysstfu]

As if the Fed cares what it's actions cost.

They see the American people as cattle.

We are just cattle being herded to financial slaughter.

[mcthorogood]

I was just listening to the BBC radio, they reported that our government is only helping the rich invested class and not the general population in this financial crisis. You probably won't hear this on our MSM.

[gevan]

As if the rise in fuel costs hasn't caused the increase in price of most things. But blame the Fed by all means.

[AxelDC]

Oil prices are relatively stable. It's the devaluing of the US dollar that is driving up oil prices. In terms of Euros, oil is only about 65 Euros/barrel. If the US dollar and Euro were still at parity, oil would barely be more expensive than it was a couple of years ago.

So, yes, the Fed is causing the oil spikes by cutting rates, which devalues the dollar. Oil hasn't gone up that much, it's that the US dollar has lost 55% of its value since 2002.

[Americanabroad]

Perhaps you ought to read a few basic texts on economics. Excess money supply is a fundamental cause of inflation. If you expand money supply faster than the supply of goods and services, there is more money competing for goods and services, and prices are driven up. Perhaps you should also read up on the Weimar Republic in Germany in the 1920s and people taking wheelbarrow loads of D-marks to buy loaves of bread.

The Fed has also contributed to rising oil prices. There are other factors at play of course: increased global demand, stagnant if not dropping discovery and production, and manipulation of markets by OPEC, commodities speculators and the oil industry.

But another major reason for the increase in the price of oil is the decline of the Dollar. Since the start of the Iraq War, the Dollar has lost half its value. A dollar cost me 9.34 Danish Crowns in 2003. Yesterday the Dollar cost only 4.71, a historic low. Oil is traded in Dollars. Sellers would be foolish not to adjust the price upward to compensate for the loss of value of the Dollar.

And why has the Dollar declined? Because the Fed has been printing excess numbers of Dollars by charging rock bottom interst for new Dollars that they create out of thin air. They have been doing so since the dot.com bubble burst. Why have they been doing this? To replace a stock bubble with a housing bubble to keep consumers spending. Had we dealt with the dot.com bubble sanely, we would have dealt with its bad debts, suffered a recession, and returned the economy to a fiscally sound basis. But if this had happened, Bush might have lost Republican control of Congress in 2002, and the corporations and the rich, whose interest the Fed looks after, would have likely lost some or all of the fat tax cuts the Republicans gave them.

In the 1960s, we had a president from Texas who thought he could do it all without sacrifice: Vietnam, the Great Society, Cold War, and Space Program. This led to the collapse of Bretton Woods, the devaluation of the Dollar, and a decade of stagflation in the 1970s. Now another Texan thought he could have massive tax cuts, massive deficits, two wars, and no sacrifice in the consumer sector. At least Johnson has the advantage that the US was still the world's largest creditor, that consumers were not overly encumbered with debt, and we had a trade surplus. Now we are already the world's largest debtor, consumer's are up to their eyeballs in debt and we have a massive trade deficit. All made possible by loose Fed monetary policy. And how do we pay this debt? What do we have to sell now that we have deindustrialized and outsourced? We have do to what third world countries and banana republics have always done to get out of debt, inflate away its value.

[dadw5boys]

Everything the Federal Reserve does adds to the National Debt that we have to pay interest on.

That $600.00 tax rebate has to be paid back with interest.

The U.S. Government pays over $ 20 billion a month in Interest to the Federal Reserve.

WATCH THE YOU TUBE VIDEO " MONEY AS DEBT" -- THE 40 MIN VERSION

You will be mad as hell when you realize how they are screwin you.

[yappnmutt]

let me essplain. there are 660 trillion dollars in bets out in the financial universe because a bunch of mathbrains and chipheads got together and convinced a bunch of pigmen that money only needed t o be recorded in the ether to count but could be spent on anything in the universe(ask branson) in reality. its been an orgy of excess that depended upon the accelerating creation of cr3dit to be sustainable. to their credit, its been a long established principle of business to share the wealth amongst the wealthy because it leads to more wealth. selfish they are not . greedy is another matter. so now here you have decelerating credit in an environment where the entire ball of magma, rock and water is leveraged 5-6 times its value in the increasingly worthless dollar. if just .15% of this trade fails the consequences could change the meaning of life for millions of people. this is why the fed and anyone who knows anything is approaching freaked out if they aren't already. the bearstearns deal signaled the fed can't fix this problem alone. it will take the entire asset base of the US banking system to backstop the entire mess. you better hope they don't mess it up. ....history says they will....

[geobushono]

That's right. We have the government we deserve and now we're all gonna pay.
Many years ago as a young contractor, I occasionally founf myself working for people who remembered the great depression and had pantrys FULL of canned goods-just in case.
I recommend we all go out and buy as many canned goods as we can afford.

[civilbehavior]

Yappnmutt,

For 2:30 in the morning you were thinking way too clearly.

99% of the people do not understand that the roller coaster has only begun only this one ends when it fails to make the curve.

Our money is worthless.

[mmckinl]

Revive inflation ?

Inflation is already here !

What Bernanke is doing is making it worse ... The poor, working and middle class will all be hit by inflation and lower savings interest while the the Federal Reserve bails out its' Members and Owners from the mess it created with deregulation, non-regulation and even cheerleading.

Time to fire the privately owned and operated Federal Reserve ... We need a public central bank that doesn't charge us interest on our own money.

[dadw5boys]

Bill Clinton increased the money supply but raised interest rate and the economy WAS KICKIN.