Our Favorite Export Is Coming Back Home (and It Won't Be Pretty)
The day of reckoning is upon us, kids. Anyone else feel it?
I can save you the trouble of reading this entire short post and sum it up in two simple words: we're fucked. You're welcome.
Money growth, which had been low in 2009 after the burst in late 2008, has once again risen to worrying levels. Over the last four months, the average growth rates of broad money on the Federal Reserve Bank of St. Louis' Money of Zero Maturity and M2 Money Stock measures were up 10% and 7%, respectively. That's comparable to their growth in the 1970s.
Furthermore, oil prices are approaching $100 per barrel, and other commodity prices are strong, as well. So however successful the Fed has been in exporting inflation since 2008, its success won't last for much longer. At some point in 2011, inflation will be re-imported - and probably with a roar rather than a whisper.
When that happens, the Fed will have to raise interest rates to fight rising prices. Of course, Federal Reserve Chairman Ben Bernanke will almost certainly resist this inevitability, fudging figures and producing spurious arguments to avoid making the right decision. When the Fed does eventually raise rates, it will do so grudgingly - as it did during the period from 2004 to 2007.
We already know Bernanke doesn't have a plan and if he does, it's the sort of ass backwards, Don Quixote central banker cluck mission that can only lead to bad things. See, they tend to use flawed data or, worse, just make things up so often that even they get confused by what's actually happening versus what their models tell them should be happening.
Still waiting for that Fed exit strategy... sigh.