big trouble at mill: usd, page-18

re: trouble at mill: inflation. here we come The doctored FED CPI was 0.6%. Considering that there is a delay, the next one could be higher.

Anyway, on an annual basis it is 7.2%. To change that into real inflation, John Williams would add at least another 3%, so there is an expected total of 10.2% real CPI/annum.

It is here where the situation becomes dangerous: interest rates need to rise and that will attack the breadline: the housing sector at a stage where the beginning of a shakeout is already occurring.

A recession in housing will lead to more unemployment, less consumption, less tax and stagflation. A slowdown in the economy is not wanted just now.

For some reason, the 214 points drop of the DOW was tolerated by Bernanke and some may ask if he "froze" at a critical moment.

This drop may have forced investors to sell other shares to raise cash quickly (margins?). Oil fell to 68.48 with the USD increasing to 84.71 and a lower Gold price, coming back from 715 (now 689):

From the Hightower Report:
"The U.S. dollar index remained lower in overseas trade before cutting into its losses following CPI data, but it remained lower on the day until “French Finance Minister Thierry Breton said "everything" must be done to stop the euro rising too much against the U.S. currency.” After these comments were made public, the dollar rallied for the rest of trade and ended near its highs of the session".

So, not everyone agrees with a lower dollar for competitive reasons. It seems that the IMF has a big job ahead of it. At least the important opposing forces are now known.


Gerry