Investing Blog

The talk of inflation has never been this high. Bernanke and company are trying very hard to keep the markets up while keeping inflation lower than the key 3%, doing so is problematic. Trying to infuse billions of dollars without making prices rise universally is against the laws of economics. So far, that extra cash has only been seen in products high in demand: sugar, corn, oil, gold, silver.

It has been suggested that the Federal Reserve will play the election year politicking game and let pre-November America be flooded with dollars. After that the expectations are for hightened interest rates to cool down the money supply and take a cut into the rise in commodities. Unfortunately this comes at the cost of devaluing homes even more. Low interest rates are good for homeowners as there is more money circulating (higher price) and a better chance a buyer will really want to buy. When you could get a home loan at around 2-3%, why wouldn’t you buy?

Today came news that the Eurozone is inflating as well to the tune of 4% this year. Business and consumer confidence in the 15 countries that make up the EU and Euro currency dropped to a 3 year low this June. This makes sense that the Euro would be heavily inflated, the high price is costing exports while calls from the US and other central banks to inflate their currency to keep a steady value. Believe it or not, central banks from around the world try to inflate equally to keep currency rates steady. The US has put a lot of pressure on the EU to inflate especially as European exports become more expensive.

So could it be that 2008 was the year of inflation now 2009 will be that of deflation. Its almost always the case that Fed policy is too strong, quarter-point drops per month are just too much to sustain. If the fed is going to do it (raise rates), expect the worst.

Round Up inflation