I know I’ve been writing a lot on the economy lately. I think we are at a very scary moment, and I’m not sure it’s really being addressed by either political campaign. Barclays Bank in London put out a report this morning, calling out Bernanke and the Fed.
Barclays Capital said in its closely-watched Global Outlook that US headline inflation would hit 5.5% by August and the Fed will have to raise interest rates six times by the end of next year to prevent a wage-spiral. If it hesitates, the bond markets will take matters into their own hands. “This is the first test for central banks in 30 years and they have fluffed it. They have zero credibility, and the Fed is negative if that’s possible. It has lost all credibility,” said Mr Bond.
When they say the bond markets will “take matters into their own hands”, we should realize that to some extent they already have. Even though the Fed Funds rate has held steady for three months, the ten year Treasury Bill has move up almost 100 basis points. The real problem, as I tried to point out in March, is that inflation in food is going to cause global political instability. Our faithful correspondent Rachel sends on a post from a Zimbabwean blogger, Bev Clark. This is what real inflation is like.
The last time I went shopping it took me longer to pay for my few purchases than to shop for them. The swipe machines have a limit of Z$9 billion. So go figure if you want to buy a small packet of meat,which at today’s price is, Z$151billion. Yesterday I bought a chicken for $26 billion. It looked rather strange. All bent and buckled but I bravely bought the bird needing a change from my usual beans and rice.I left it out last night to defrost and I must say that in the cold light of day it’s a bit of a sight. I threw it in the pot anyway.
With countries all over Southeast Asia blowing up from inflation, it is only a matter of time before this gets really ugly from a geopolitical point of view. When I say I don’t think either campaign is addressing the issue, I mean this. The combination of high interest rates, high unemployment, falling stock and house prices is as mean a season as you can imagine. We could quite possibly see a good number of small banks in the U.S. fail over the summer. Imagine the months just before FDR gave his first inaugural address as banks were failing–“We have nothing to fear, but fear itself”. That’s what President Obama might have to deal with.
That is the real legacy of Bush-Cheney incompetence.