The Fed Almost Has to Raise Interest Rates Now
Wholesale rates in the US skyrocketed to 27 year highs in July. This happened against the backdrop of home builders continuing to cut back on construction with a glut of unsold homes littering the market from Charlotte to LA.
That means that the Federal Reserve will almost certainly have to increase interest rates or risk the spectre of out of control inflation that could make the value of the US dollar worthless to the point that people would be better off burning bills this winter than spending it on a heating oil.
The Federal Reserve has been trying to avoid raising interest rates for months in an effort to let the housing market correct itself, but that attempt will surely halt to avoid risking the entire US economy.
During periods of inflation, rapid inflation or hyper inflation the cost of items go up. That means that a gallon of milk that costs $5 today, could cost $10 next month or $500 at the end of a quarter if hyper inflation kicks in. Hyperinflation has not been seen in the industrialized world in more than 75 years, but that is largely due to the tenacity of modern banking and modern central banks.
During periods of inflation it is better to own things, commodities or gold, which still have tangible value, while the value of money rapidly decreases. If the value of the dollar continues to drop month to month, you are better off investing your money in tangible items that you need now as opposed to waiting.
Conceivably, if you buy something on sale with a credit card even today, and pay it back next month with dollars that are worth less than they are today, you are actually getting a better deal (if and only if you pay off your balance, otherwise you could also see your interest rates sky rocket.)
Personally, I have had my eye on a Nokia N95 smart phone to use with my work for months now. Its on sale at Buy.com for $477. This may be the right time to buy that phone if the value of the dollar keeps dropping. Months from now the list price could be much higher as the value of the dollar drops, and it is a tool that I can utilize to get more work done efficiently.
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