The economic news and market data has been interesting in the last few days. Treasury yields are going up, and the dollar is weakening against other currencies. I've also noticed that mortgage rates are inching up, as are gas prices at my pump and oil per barrel in the markets. These are bad signs that inflation may be rising. On the other hand, personal income rose but personal consumption fell. At least savings went up. Corporate profits went up and certain indexes on manufacturing and construction went up. Although overall raw manufacturing numbers went down. Manufacturing, construction, inventory holdings, and things such as that are considered economic leading indicators.
The raw numbers are still not good indicating the patient still has cancer but the cancer hasn't spread as far and as fast as last month. But we haven't reversed the cancer.
It's a challenging puzzle. What it all means is that things are not deteriorating as fast as they were. But the costs of Obama's reckless fiscal and monetary policies are starting to be borne. With a sane policy you would have a better opportunity to let the markets work, prices adjust, and workers and industries could adjust as they enter new industries and embark on entrepreneurial ventures that create new jobs and better value than the old industry. With Obamanomics, we will likely see inflation due to the print money policy of the Fed and the porkulus dollars slowly working their way through the economy.
The rub with these cartoonish policies is that we now have a catch-22.
- If the economy does come back in terms of employment and moderate growth it will come with massive inflation and higher interest rates. This would than plunge us into a new recession as we fight inflation. This would also be like taking a chainsaw to the housing market and to new business investment as borrowers face higher interest rate costs.
-If the economy doesn't come back we will have slow growth, trillions wasted, but, on the good side I guess, only low to moderate inflation because the new trillions in circulation won't go to rampant consumption that would drive up prices. People would save and business would have keep prices stable.
All in all, I tend to believe that we will not have rampant inflation because I still don't believe that the economy will grow so pressure on prices to stay low will remain stable. But we will see. Over the next two years, I predict that we will have wasted trillions, seen little growth, and we will see moderately higher inflation and higher interest rates. Bad policies don't come cheap and behind each of these numbers there is a human cost. The Obama presidency and the specific policies he has enacted, after all the Bush blaming is done, are the real tragedy of the Obama hope and change experiment. While the Obama show entertains, the soap opera is shaping up to end on a sour note. Only 3 years and 8 months to go!