Bond traders used to push rates higher at even a whiff of inflation, but with signs of rising prices now everywhere, they're overwhelmed by our desire to borrow our way to prosperity.
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On its op-ed page last Tuesday, the "New Economy Journal", aka, The Wall Street Journal, saw fit to allot a couple of column widths to Jeremy Siegel. He is another high priest from the bubble, a buy-stocks-all-the-time-and-for-the-long-run bull who folks still seem to think is thoughtful. His latest effort is a completely nonsensical argument about why inflation pressures and problems don't matter, because the bond market hasn't revolted yet. Fast and easy. In essence, his "logic" boils down to this: If we are pursuing an insane policy but the bond market hasn't freaked out, we should keep it. That's a little bit like saying drunk drivers shouldn't amend their ways so long as the police don't catch them.
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Commodity prices are rapidly increasing; the Commodity Research Bureau index of actively traded commodities is now at a level not seen since the inflation bubble of 1980. Oil stays stubbornly high, near $40 per barrel, and the Journal of Commerce Index of lightly processed commodities, once a favorite Greenspan indicator, has soared to an all-time high. And although the dollar has stabilized, it is down 25% against a basket of currencies since early 2002. Finally, the real Fed funds rate has been negative for two years and, relative to real economic growth, the most negative since the inflationary '70s.
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