inflation

     As the US and global recession deepens, the monetary authorities in the UK, the EU and the US are driving interest rates to record low levels.  Today the FED cut the Federal Funds rate, the overnight lending rate to banks, to a range of zero to 0.25 percent which is the lowest rate on record.  The action is an effort to make holding cash by banks so disadvantageous that they are tempted to begin lending in order to earn a return.  The action is meant to increase the money supply, an action which is deemed safe now since its primary danger (inflation) appears as no immediate threat due to slumping demand and rapidly falling prices for everything from housing to gasoline. 

The UK just announced a disturbing level of inflation for them (4%) and it is happening in a relatively tight monetary policy environment. Unlike the FED, the European and UK central banking authorities in general have been very cautious about lowering interest rates.

The prospect of labor strikes are everywhere including the recent strike by Shell fuel truck drivers demanding an increase in salary to about £36k per year. The current price of a gallon of gasoline in the UK is about £4.80 pounds. Diesel is £5.20/gallon Just to give you an idea about the flaccid purchasing power of the dollar largely driven by our loose money policy, that's about $10 a gallon if you were renting a car here and paying in greenbacks.

Say hello to inflation. There is no doubt that a wave of inflation is setting up to wash over the U.S.