It should be clear to all but the most delusional Pollyanna that higher food and energy prices, which are squeezing consumers and businesses alike, are beginning to drag the economy into a significant slowdown if not an outright classical recession. Companies from nearly every sector are reporting reduced revenues, facilities closures and job cuts. Even Starbucks is closing "underperforming" stores, blaming slower sales as consumers have less disposable income.
The U.S. automakers are teetering on the precipice of bankruptcy. They cannot sell their most profitable vehicles ( trucks and SUVs) and do not have the production to meet demand for small cars (which are marginally profitable at best).
The Wall Street Journal stated in an article that investors are surprised that banks are not taking advantage of a steep yield curve to lend profitably via the carry trade. Get it through your thick heads, banks to not have much spare capital to lend. They need nearly every cent they can raise to stay afloat.
It is the troubled banks which are prohibiting the Fed from tightening. We are all suffering to bail out the banks. Of course, if the banks were permitted to fail, we would have 1930 / 31 all over again. The Fed is truly in a bind.
I see now immediate end in sight. The Fed will stay on the sidelines and dollar hedgers and speculators will use oil as their investment of choice. This could change if and when the Fed begins a tightening policy.
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