Category: Economy

by Peter Schiff
Aug 11, 2006

This week, as the Fed came through with its highly anticipated pause, it conspicuously left the door open to future rate hikes. Apparently the rhetorical vigilance took most currency traders by surprise, sending many scrambling to buy dollars. However, given that any weaker statement would have caused a stampede out of the dollar, how surprising should the tough talk have been? Any indication that this was not a “wait and see” pause would have sent both long-term interest rates and consumer prices up, undermining the “benefits” of the pause. So in an apparent attempt to have its cake and eat it too, the Fed “paused” while pretending that it really had not done so.
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Source: CNN Money . com

Right now, the central bank is trying to engineer a so-called soft landing, slowing growth and keeping inflation in check without sparking a recession. But that’s a tough task. The Fed did it under former chairman Alan Greenspan in the mid-1990s but couldn’t in 2000, and a recession followed.

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Peter Schiff
Aug 4, 2006

When combined with last week’s soft GDP numbers, today’s weak jobs report, which contained an up-tick in the unemployment rate, gives the Fed all the cover it claims to need to ignore evidence of accelerating inflation and finally come through with the highly anticipated “pause.” Global stocks, bonds, foreign currencies and gold will likely react positively to this development. However, in relatively short order, I expect U.S. markets to come under renewed selling pressure, particularly the bond market, as increasing inflation fears and diminished demand for long-term dollar denominated debt undermine the rally.

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By David McMahon

NEW YORK (Reuters) – It’s not a term economists toss about lightly, but signs of slowing growth and rising inflation in the U.S. economy have some using the “S” word: stagflation.

Combining the words stagnation and inflation, the term is used to describe periods of rising prices and a stalled economy. While the United States is far from the last severe episode of stagflation in the 1970s, when major economies were dogged by deep recessions and double-digit inflation, many economists are getting nervous.

“I think we could be headed for something like ‘stagflation lite'” said Nouriel Roubini, professor of economics at New York University and principal at the consultancy Roubini Global Economics. “We’re going to have a recession for sure, based on the shocks that are hitting the economy — including higher oil and commodities prices, rising rates and a slump in housing.”

Like most economists, Roubini doesn’t see a return to double-digit inflation, but he expects a modest creep up in consumer prices and a sharp slowdown in growth. That may bring a bear market in stocks and hurt the dollar.

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By Dennis Cauchon, USA TODAY

The federal government keeps two sets of books.

The set the government promotes to the public has a healthier bottom line: a $318 billion deficit in 2005. The set the government doesn’t talk about is the audited financial statement produced by the government’s accountants following standard accounting rules. It reports a more ominous financial picture: a $760 billion deficit for 2005. If Social Security and Medicare were included — as the board that sets accounting rules is considering — the federal deficit would have been $3.5 trillion.

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