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Hey — thanks Ben. Working out well so far. November 4, 2010

Posted by WillardWhyte in Economy, Wall Street.
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That $600 billion juiced into the economy to jump-start hiring by boosting inflation and spooking folks into buying before things got more expensive?

Well, some of it seems to have leaked out into more commodity speculation, which will drive up prices nicely, but probably will leave most of us with even less disposable income after we buy cereal, beef, poultry and — it seems gasoline and distillates like heating oil this winter.

The WSJournal tells the tale here. The nut is this:

Crude oil futures shot higher on Thursday on the back of a weaker dollar following the Federal Reserve’s decision to inject $600 billion into the U.S. economy.

Futures Market News was looking down the road with this:

Consumers might want to stock up on fuel oil soon – analysts at Wall Street banks believe that oil futures might rise to over $100 per barrel for the first time since the credit crisis hit and wiped out asset classes across the board.

And from the AP regarding gasoline, consumption of which was down another 3% last week according to the Energy Department. Inventories are up as a result. But more cash chasing even high supplies means the price goes up:

The national average for a gallon of unleaded gasoline was $2.806 Thursday, according to AAA, Wright Express and Oil Price Information Service. That’s about 7 cents more than a month ago and 12 cents above a year ago. It will probably keep rising. Some analysts think the price could be a nickel to a dime more by Thanksgiving.

Ben’s betting on the fear of rising prices driving people to buy now, rather than later. That’s classical economics there folks; the data studied over 20 years shows that tendency.

But that was before everything changed, 15 million hit the bricks and stayed there and no one really thinks the bottom’s been hit. Not in their bones. Withthe current consumer mindset, the prospects of the basic necessities like heat, gas, food and medical care going up in the future means: Save more, spend less.

That’s a Depression mentality, Ben. I thought you were a big study of the Depression.

Meanwhile, domestic output is going to go down, at least as measured by GDP, because government outlays are going to go down. Consumer spending overall isn’t going to go up because your commodity inflation will simply transfer current spending levels from one household category to another — that’s mainly because we’re still deleveraging, rebuilding equity and for the most part anticipate no “real” wage gain and certain higher healthcare costs.

And any tick up in interest rates will immediately increase the cost of any debt we continue to carry, since card rates are tied to automatic inflators.

So as gas, food and lodging costs start to creep up in the next six weeks, someone gets whacked from the gift list.

Real wage growth and profit margin moderation will spark recovery, because, Bennie old buddy old pal, most of the nation has been dealing with deflation for more than a year now.

The only thing that hasn’t been deflating are prices of the basics. And now you’ve screwed that pooch too.


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