finance _34_ by lengchaimali1


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									Thinking on Artificial Inflation

A quick thought on Inflation; A question has arisen in a small dialogue
today of whether interest rates should be raised due to inflation? One
thought, which kept coming to mind, was the delicate issues with the
housing bubble. Some in the group did not believe it to be a significant
factor others were worried that a rise in interest rates would be met
with a big reaction in the stock market and also the housing markets in
many regions in the United States?

Some of us were concerned that the inflation which was being witnessed
was not due to strong consumer demand in the market place where companies
are able to charge more but because of artificial wholesale inflation
caused by fuel prices which was artificially driving up costs of every
thing else, even though we have had a steady decline in the diesel fuel
prices for five straight weeks now it has been small with the average
price still at $2.00 which is high by any relative historical

When inflation exists in items which are not consumer electives but
rather regarded as necessities, things like food, milk, fuel, etc. which
drive prices up in the markets they effect such as restaurant prices,
catering services, hotel services, private school tuition, etc. from food
these are not consumer electives but perceived necessities, which also
drive up costs in non-electives. Now if you take out the 'factored in'
costs of the food or fuel for the increases and the expectations of
consumers to higher prices due to this fact for instance the increased
costs of fuels a 6.7% increase in cartage for good to market to offset
fuel costs and let's say that 25%-100% of that is fear factor or media
hype scare to justify it. Then you could say the actual costs of the
increase should have been 3.33% to 5.66% but due to the unknown nature of
the impending melt down of the Saudi Arabian government and royal family
and companies fearing the worst the price increase would be much higher
than the actual. Both to protect the transportation company from
financial ruin with low earnings next quarter and because they can raise
prices due to perceived civil war in that region or further unrest as
Iraq's facets are not fully turned on yet. Such that even though for
instance diesel came down this week by 1.1% in line with a steady over
all average decrease from the high of five weeks the prior, would make
little difference and although the most competitive companies in shipping
will be lowering rates others may not as to make up for lost ground by
being caught off guard when reserves ran low and having to buy high at
the same time the US military reserve was stock piling in case of
emergency and could not afford to let go any supply to the private sector
to temporarily stabilize prices.

When you look at this artificial inflation caused by oil prices you have
to take this into consideration in the over all inflation situation, and
allow for things to re-stabilize things before raising rates to curb so-
called inflation. The inflation rates must be adjusted and taken out the
inherent additional costs in everything due to the increased costs in
fuel, a necessity.
So do you raise rates in times of unrest and fear and instability or do
you wait for a bit and allow a few things to come back into perspective
and stabilize in a free market setting. If you allow interest rates to
slow the flow of monies in all parts of the country now, as many are not
getting their fair share of the money flow, you will see regions come
into harder times as they have not recovered like the areas of supreme
money flows near and around Fed Banks. Larger cities, which suck money in
and allow it to flow in circles need to be adjusted first and slowly, but
not using inflation data, which is biased due to a spike in fuel. There
are very few items, which are not effected by fuel. Also let's look at
water supplies and weather effecting food prices and spikes and factor
that out too. Then we can find true inflation and I submit to you it is
small enough to call for a stern warning of future scrutiny, but not a
raise just yet, but a warning to all it will come and could come at any
time as needed or required by superior data and to give the Fed back
another lever to move in the future if needed to re-stimulate, because as
we know when fuel prices stay high for too long we get recessions. As per
historical data. As China becomes a user of more fuel, we will see demand
go up and the supply play catch up and we are 10 years out for fuel cells
and hybrids which can perform up to the abilities of reciprocating
engines. Russian oil is seven years out, so there is a gap in supply
issues and demand issues which means we will have higher prices in the
future and killing the housing market now is not good as interest rates
could significantly do that and cause consumers and middle class America
to continue to run redline in credit card debt and higher house payments,
fewer spend able dollars hurting retail, thus hurting jobs. Meaning
higher fall-out rates, distressed sales and serious issues with income to
long-term and short-term debt ratios.

Raise in interest rates>? Maybe?> But be careful we are not out of the
woods yet. Perhaps a regional outlook might be better? Interest rates in
larger growing areas could be raised slightly? For instance DC, Boston,
LA, Sacramento, Metro NV, PHX, Seattle, etc. But in other areas like
Albuquerque, El Paso, rural TX, KS, rural heartland, etc. no raise. But
the money will crosses boundaries so it would be imperative that the Fed
and the government work together on this to see that low interest small
and med sized business loans get to the sub standard markets, a one size
fits all is dangerous and as I travel the country I have to beg to differ
with some of the information put out in the Beige Sheets, some is
incorrect and inaccurate and does not paint a proper picture, the United
States is the United States and not the United Countries surely, but a
regional outlook and decision should be part of an interim game plan with
out flipping the board over and disrupt those areas which are just seeing
light at the end of the tunnel. The light is bright indeed, but certainly
they should be allowed out of the cave for some fresh oxygen long enough
to show their efforts were worthy of a job well done. Pursuit of
happiness is best served when you can taste it and understand what it
really is once in a while.

Allow parts of America that need the juice to get their filling with a
stair step approach to the problems, the real issues with real inflation.
We must not continue to judge inflation as it appears on the surface when
the real inflation is much more agile, diverse and hidden from view. A
sharp pencil approach studied by region to the dynamics of money flow is
equally as important to the rise in prices due to the undercurrents of
erosion returning Earth to Sea. I am sure when studied more closely you
will agree. If not there is a place you can go to discuss such issues.

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