Inflationary pressure

[Charles Jannuzi]

The main reason why the fed won't cut rates now
is it feels they need cutting power if and when
the bombs start to drop on Iraq and/or another
financial panic like Asia 97 spreads worldwide
(and given how Turkey is potentially caught up in
both phenomenon, there is a connection). They
don't want to get to the point where there is
nothing much left to cut and any acts to cut
don't even have psychological impact--like the
situation in Japan. It almost seems like not
cutting had a better effect than cutting since it
sent the signal that the Fed is not in any panic
to make cuts.

Contributing to price inflation, not deflation,
in the US (which might add up to stagflation?):

1. a cheap dollar; it was already pretty cheap
against many major currencies; it's slippage has
no doubt contributed to foreign investors NOT
investing in the US markets--such as the Japanese
and their high yen.

2. artificially high prices in steel--which
affects, among other things, construction, autos
and defense.

3. artificially high prices in oil--the biggest
reason I can see this is that the Bush
administration decided to top off the strategic
petroleum reserves (already up to over 500
million barrels, but they are going to go for the
max. capacity of over 700 million barrels). It
has also encouraged other 'strategic' allies to
do the same to their own reserves. Of course, the
reserves would also be used to ease an oil spike
once the bombs do start to drop.

We'll see if the strategic plans to avoid
deflation while toppling Hussein work out the way
the ruling clique hopes. 

CJ 

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