Tuesday, February 19, 2008
Yahoo had a really good article today talking about consumer sentiment. Basically even through the housing boom and access to way too easy credit, consumer sentiment has been a bit wary. It was almost like everyone knew this was too good to be true.
Easy credit has led directly to a disconnect with consumer's paycheck and their ability to spend. Gas prices rise, which raises price inflation food and travel, heap on medical expenses running at high double digit growth and a melt down is inevitable.
This is called...inflation.
The problem is you don't fix inflation by lowering interest rates! You do by raising them. This puts our Fed in a bit of a bind. If the raise rates the economy tanks, if the lower them inflation goes nuts.
How bad can inflation get? Picture Europe before WWII. Literally wheelbarrows full of money to buy bread! Not worth the paper it is printed on...Not saying go dig a trench and hide, it it foretells of tougher times ahead. It also says that this doesn't get fixed with a $1200 check from the Government.
How do we cope? Get out of debt. Save and spend less than you make. Not sexy but it works!