The Fed is “Grounding Out” on its Second Mandate

This is a short pithy post in which I just wanted to reiterate a point I’ve made repeatedly:

NOT FIGHTING INFLATION IS COSTING US DEARLY

AND NOW IT IS DIRECTLY COSTING US JOBS.

Read this story from Yahoo Finance regarding airlines raising prices and GROUNDING PLANES due to fewer travelers.

Yahoo Finance Article

By lowering rates last fall, Bernanke et al exacerbated inflation and oil shot up since then. Look at this RIDICULOUS chart comparing oil to a short term treasury rate:

CHART

Over the past two years, as 5 year treasury note rates fell ~ 40%, the dollar plunged, and oil spiked ~ 40%. The correlation is amazing. Notice also how as rates held firm in 2007, oil prices slipped downward. With this said, Interestingly, one of the Federal Reserve’s mandates, in addition to fighting inflation, is to maintain “FULL EMPLOYMENT.” However, as it says in that linked story, now we have United laying off 1,100 employees and canning the discount Ted unit – nice work Ben – this is a direct result of gazillion dollar oil.

Americans don’t realize how much of the oil price spike is a direct result of inflation and the market’s perception that the dollar will plunge. If we make an effort to combat inflation, and take the short term pain, we can avoid the long term calamity- BUT WE WON’T – we’re too dumb for that…

7.4.08 – Editor’s note: The Fed is costing us money again – read HERE

Chris Grande

6.4.08

Editor’s addtion – here is a recent post entry of someone I like to read HERE on rates and inflation; caution he is very sarcastic but it’s fun – enjoy!

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