Housing Cools, Inflation's Up. See I Told You So . . . .

Two short months ago I wrote about the unbelievable action that the Federal Reserve took to prop up our sagging stock market by injecting billions of dollars into the economy, and that it didn’t take a freshman econ whiz kid to tell that this would undoubtedly lead to an increase in the inflation rate.

Strangely enough I found very few business reporters that even discussed the impact of the Fed’s foolhardy actions, and fewer still that predicted any impact at all on the inflation rate.

I found this strange, because while I may act like I’m the smartest person in the world sometimes, I know that in reality there HAS to be one or maybe two people smarter than me.

Well, maybe not.

BusinessWeek just published an article yesterday (Oct 17) titled “Housing Cools, Inflation’s Up”. Let me cut through some of the Econ-speak and relate a few excerpts for you:

  • Two economic reports released before the start of Wall Street trading Oct. 17 more or less confirmed the market’s expectations on consumer-level inflation: running ahead of the Federal Reserve’s comfort zone, and housing: still lousy
  • The report also revealed the expected September year-over-year inflation increased by 2.8%
  • We should reach a 3.5% rate in October

And on the housing market . . .

  • Housing starts plunged 10.2% in September
  • Permits fell 7.3%
    Single family starts fell 1.7% while multifamily starts were down 34.3%
  • We will continue to expect a 20% rate of decline in residential construction in both the third and fourth quarters, following the 11.8% rate of decline in the second quarter
  • We continue to expect existing home sales to fall by 3.6% in September, while new home sales fall by 5.7% in September

So let’s recap, shall we?

Inflation is spiking largely due to the two biggest expenditures that every household has – food and energy. And the housing market apparently is still declining and hasn’t hit bottom yet. All wonderful news for working households.

But the silver lining is, of course, that the Fed’s actions have cured the volatility in the stock market, right?

Nope. At least it doesn’t look that way on the charts that I’m using. They look more like an EKG chart than they did BEFORE the Fed wizards started to meddle with the money supply.

And oh by the way – one of the best indicators of the true inflation situation is the price of gold.

When I last looked today it was trading at $762 per ounce. This time last year? $590.

Your tax dollars at work.

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