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Politics : Welcome to Slider's Dugout
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To: Kpain who wrote (7019)11/11/2007 9:35:59 AM
From: jim_p  Read Replies (2) of 50267
 
Actually there was a net decrease in fed funds of $1B last week. The media seems to ignore the maturing fed funds and only counts the new additions.

Here's a good site to track it:

gmtfo.com

As a rule war is inflationary because it most often causes deficit spending. It's the deficit spending which is the stimulus to the economy which you can have with or without war.

The issue on inflation vs. deflation is still an open question. The bursting of the housing bubble is deflationary and the unsustainable economic growth that has resulted from excess cheap money and has caused high energy prices, high food prices and wage inflation in developing countries is inflationary. In addition the declining USD is inflationary and it will soon be showing up in higher import prices.

Inflation and deflation are both bad for stocks. In a period of deflation no one spends today because prices will be lower tomorrow so the economy slows and stock prices fall. In a period of inflation long term interest rates will increase and stock prices will fall because of the competing yields with bonds.

The issue as I see it is pretty simple. Oil prices have continued to increase because of increased demand from the expanding global economy, but despite increased prices in oil we have not seen any increase the supply of oil. Without abundant energy at reasonable prices you cannot have economic growth. This is the first energy cycle in history that increased prices have not resulted increased supplies. In addition we are now at the same price level for oil on an inflation adjusted basis that caused the recessions of the late 70’s/early 80’s. While we have become more energy efficient as a country since then, the developing countries are actually less energy efficient today than we were back in the 70’s.

For the economy/stock markets to prosper we need to see oil supplies increase and prices fall and we also need to see expansion of credit and I don't see either happening in the foreseeable future. Both the lack of new energy supplies and the failure of the current credit markets are long term problems and they both will need long term solutions and no solutions are currently being presented for either problem.

Jim
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