Wednesday, September 3, 2008

On The Road To Depression

In the most recent example of the Fed watching the wrong numbers, directors at the Federal Reserve Banks of Kansas City, Dallas and Chicago sought quarter percentage-point hikes in the discount rate before an Aug. 5 policy meeting to keep inflation at bay, Fed documents released yesterday showed.

Current price inflation is the result of money printing over recent years. It has zero to do with Federal Reserve policy over the last three to six months. It takes a long time, often years, for Fed policy to be reflected in consumer price inflation.

At present, interest rates appear to be ABOVE real rates, since, as we have pointed, out before, money supply growth has slowed to a trickle. Any further hike in rates will simply tighten credit in the economy further and plunge the economy into a Category 5 recession/depression.

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