re: trouble at mill: the fed on the treadwheel
And it can't be stopped. And it also accelerates.
Why?
From my previous post on 23 June: "Of course the elections will decide the FED's movements as well. However, any 6% rate won't touch the current 8-10% price inflation.
Then again, higher interest rates are outside the FED's control because the ECB block is ready to raise theirs, "whatever it takes". That would normally cause an outflow of funds from the US to Europe. And the US can't afford that".
COMMENT: while Bernanke is concentrating on "price inflation", he won't tell you that based on his dear Core inflation of some 3%, there is no need to increase his already 5% Funds rate.
Obviously, the FED works with 2 sets of numbers, the Core inflation and the Real inflation of some 8-10% and it is the latter he is concerned with. But he won't tell you that and Wall Street who have made a lot of money by backing the Fed, won't tell either.
However, the FED works with smoke and mirrors. There is normally a 2% spread between ECB rates and FED rates. So, if the ECB (European Bank) rate is about 3.25%, one ought to get a FED rate of some 5.25% at the moment.
Anything less and foreign money destined for paying US interest (About US$3 bill/day) on their massive debt, will be wavering and possibly flow out from the US to Europe.
It so happens that the ECB is becoming very agressive in raising rates and the mouthing about price inflation can be heard every day. (Most countries, including the ECB Block had massive increases in M3).
So, the battle about increasing interest rates between the FED and the ECB leaves Bernanke on a non-stop treadwheel with the FED following the ECB.
If the ECB decides to accelerate interest rates by say 50 points (1/2%) at a time, the FED needs to follow with the pressure mounting on the Housing sector and the flow-on effects on the US economy.
When is this treadmill going to stop? After enough damage has been done, taking into account the lag in results from rising mortgage rates?
The ECB will need to take care that its exchange rate won't firm up too much.
Gerry Readers, please do your own research and you decide if and when to buy, hold or sell any stocks or metals/commodities.
