More Than...Less Than...

This is a good one: "U.S. producer prices rose in February by the most in three months, a higher than forecasted increase."

The Producer Price Index (PPI) is a preemptive judge on inflation to come. The input costs that go into making a good/service always shows in the output price that it is sold at. With rising commodity values, the PPI is going up. The PPI rose by 1.3%.

This will carry a couple of results, and before I go on, it is important to realize that this is a direct effect of government fiscal and monetary policy. We will see the increased cost of input goods result in the inflationary prices of those goods or services. The other effect will be job cuts. The producers will start cutting jobs or wages to fight the increasing costs.

If you are a regular reader, you have heard me say something along the lines of the government is robbing its citizens wealth by inflation. Increased taxes are not popular in war times, especially for an already unpopular war. So, the government uses debt and the printing press to finance it. This results in higher inflation, which results in increased prices and/or job/wage cuts. So you also see why inflation effects the poor first and the hardest.

The other question that comes up again is what will the Feds do? They were really trying to set the table for an interest rate cut dinner. The volatile market supports this, slower consumer spending supports this, and the decreasing number of new jobs available supports this. An interest rate hike is supported by the rising and rampart level of inflation. There stuck between a rock and a hard place, but I'll tell you what they should do.

They should most definitely raise interest rates, but they won't. I expect an interest rate cut sometime late this summer. An interest rate cut is going to move us closer and closer to stagflation. Each interest rate cut that ensues will be one more nail in the coffin. It will be the beginning of the collapse of the U.S. dollar and gold will absolutely soar. When all else fails, they will begin to run the printing press. We need Paul Volcker.