Brother, Can You Spare a Dollar?

I think the old saying was "Brother, can you spare a dime?" Ahh inflation!

We've been spooked by the possibility of a huge deflationary spiral with resulting losses in employment. The consensus now is that the Great Depression 2.0 has been averted due to the actions of the Bernanke Federal Reserve. President Obama's economic team says that the economy is stabilizing and should no longer feel like its falling off a cliff.



But in the last few days, with the declining value of the dollar since its peak a few month ago, those rooting for the failure of Obama and the USA are pointing to the dollar and interest rates as signalling runaway inflation. Really?!!! I mean Really?!!! Runaway inflation?!!

Can you have it both ways? Can you really say that home prices will continue to drop or stay stagnant for several years and still have runaway inflation? Does the strengthening of the dollar not help our buying power even as it hurts US global exporting companies?

Seems to me that we are finding equilibrium with the dollar and inflation. The jump in commodities prices we've seen are a bounce off the bottom as people try to buy the last bubble.

The Federal Reserve is happy to have people fearing inflation. That means consumers will begin to buy things again for fear the price will go up. A little inflation is a welcome change from where we were just 3 months ago.

But inflation is not in the near future. Why? Because unemployment is reaching record levels. There won't be much inflation until the unemployment rate quits rising and companies actually start hiring.

What will spark this turnaround and signal to the Federal Reserve that its time to slowly begin raising interest rates to nip inflation in the bud?

I hope it's not until there is a net hiring by employers. And that will be after the Obama stimulus begins working. I am guessing that is in October, when the reporting of the stimulus effectiveness numbers is required. So that means the earliest the Fed would begin raising interest rates is at its November meeting.

What does that mean for the dollar? I think it strengthens against world currencies as the US is then on a path a recovering economy and a minor and slow period of raising interest rates.