New York Times
June 30, 2000
HOW INFLATION WILL WRECK THE ELECTION FOR AL GORE
By JOHN CRUDELE
GET ready for a major collision between the Fed and the White
House this fall.
As everyone knows by now, the Fed decided to leave interest rates
unchanged at its latest Open Market Committee meeting this week.
In doing so it said some things to make those who want rates to
stay put feel good, and some things that left open the door for
higher borrowing costs as the year progresses.
If the economy does slow and inflation shows no signs of picking
up, then the U.S. will be able to move into the election season
without the Fed and the White House bumping heads. And that will
be the end of the story.
But if the signals of inflation get stronger - and I'll explain
why that's a very good possibility - then this election year
could see the meanest, ugliest confrontation ever between the
executive branch of our government and monetary authorities.
And the repercussions from such a battle will not be controllable
by our officials. That's because foreign investors will get to
cast their vote for the way the American economy is being handled
by their treatment of U.S. dollar and financial markets.
The Federal Reserve has increased interest rates a half dozen
times in the past year, starting with one last June that caught
every single Wall Street expert by surprise.
The second hike also shocked the markets, which were hoping that
the Fed was just tapping on the breaks to slow the economy. Even
when the third rate increase came in the fall, Wall Street was
still in denial.
Because the Fed didn't raise rates this week, Wall Street again
has its hopes up that the Fed is finished. But don't get too
blas� about the future.
First, the only moderately troublesome inflation reports that
have been coming out of the government recently are an aberration
at best and fraud at worst.
The Fed has already publicly questioned the government's
inflation data, which showed consumer prices up 0.1 percent in
May and producer prices flat.
What bothered economists is that Washington seems to have missed
the incredible run-up in energy prices. And without those price
increases, it is impossible for the Fed or anyone else to figure
out how much the higher cost of energy is filtering through to
other products.
But here's the problem.
The statisticians who put together the inflation numbers -
especially those on consumer-price rises - say that the jump in
energy prices was missed simply because of a fluke in their
surveying system.
And they expect that the higher inflation numbers will start
re-appearing with June's numbers. I spoke with them about this,
and so have others.
The Fed's Larry Meyers has already called the government's May
employment statistics "not credible" when it showed a decline in
private industry jobs, a rise in unemployment and an increase in
overall jobs because the Census Department hired an extraordinary
number of temporary workers.
And Fed officials are constantly telling a few key private
economics firms that they need help because the government's
numbers are so unreliable.
Even if inflation stayed at current levels, prices are still up
about twice as much over the past 12 months as the previous year.
That alone should worry the Fed but it's only half the problem.
As this column has been saying for years, the Fed is mainly
concerned with the stock market bubble. The "asset inflation"
being created on Wall Street has long been bleeding into the
economy and the fear is that the U.S. will reach production
limits and prices will rise uncontrollably.
Stocks had only a modest reaction on Wednesday to the Fed's
decision to keep rates steady and fell yesterday.
But the next interest rate meeting isn't until late August.
Here's the worst case scenario, which also happens to be the most
likely.
Over the summer the stock market rises, creating more bubble
money that investors will use to put a further strain on the
nation's production capacity. At the same time, the inflation
already imbedded in the economy will start showing up in the
government's numbers on top of whatever new inflation is created
by a further inflating of the bubble.
The end result will be a strong need for the Fed to increase
interest rates right through the presidential election. This will
give the Democrats fits.* Please send e-mail to:
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Kadosh, Kadosh, Kadosh, YHVH, TZEVAOT
FROM THE DESK OF: <[EMAIL PROTECTED]>
*Mike Spitzer* <[EMAIL PROTECTED]>
~~~~~~~~ <[EMAIL PROTECTED]>
The Best Way To Destroy Enemies Is To Change Them To Friends
Shalom, A Salaam Aleikum, and to all, A Good Day.
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