Michael Gracie

Inflation is a nasty bug:

To reiterate, the last time Producer prices were this high, the Fed had rates up in the double digits — not at 2%…

Here’s a chart of the prime lending rate (as published by the WSJ) during “modern economic times” (each color change represents a rate change - click for larger view)…

I’ll bet few running around today remember how ugly things were in the midsts of that mountain-in-the-middle. But Paul Volcker was scrambling (and let’s note that he has been more vocal as of late too).

Producer prices have been rising for a while, but they held off passing on costs to consumers. That game is over. So, the highly leveraged are getting killed by plummeting home prices and the savers are getting killed by just about everything else.

And you can thank your Federal Reserve for that.

Nobody got the memo, and I got all this in my feed reader simultaneously

• The Obvious, to everyone other than the NAR - Home Prices Fall 12.7% (The Big Picture)
• The Cheers, from Walmart shareholders - Consumer confidence drops in April on inflation, job worries (Associated Press)
• The Quandary, from the Taxpayer Defamation League - Bottom Falls Out of California Budget (Paul Kedrosky)
• The Expected, from those watching a little more closely - ‘Underwater’ Subprime, Alt-A Mortgages to Swell by Midyear (Bloomberg, with “expectation” here)

I’m closing my browser for the rest of the day.

UPDATE: Hearing Wal-mart cheers.

Cheer and good tidings first; light reading last

• Charlie Crist calls for an investigation of “Florida’s subprime-tainted fund.” It’s really a SIV tainted fund and a sub-prime tainted SIV, but I’ll spare you the details. More on the Florida Fund fiasco here, here, and here.
• Research In Motion: no slowdown. Is it a consumer thing? Personally, I’m very happy with my Blackberry, although I consider it a business tool.
• Myspace. Facebook. Go Wordpress!? This may sound a little outlandish now, but the open source blogging application has the install base and the development community to really put a hurting on the “traditional” fare.
• A Home Price Heat Map, compliments of Stephen Heise. Data runs from 1975 to Q3-2007. Very interesting - hit the pause button along the way.
• A reminder: next time you look into that camera someone might be recording the color of your eyes, among other things.

Again, happy holidays!

I was having dinner a few weeks back with an old friend, and the subject turned to the US economic situation. I’ve known this guy for roughly two decades and trust him like a brother; he is a very smart character who doesn’t pull punches. I was inclined to listen - the fact that he analyzes high-yield bonds for a big investment bank’s private client group certainly didn’t hurt his cause either.

I’ve believed that indebtedness at every level of our society, from federal, state and local government, right down to consumers’ credit cards, home equity lines and first mortgages, has reached epic proportions. But when this fellow said he thought we were headed for another depression, my sceptical nature reared its ugly head. I have a predilection for looking at the downside, as I started my career in restructuring situations, but I relish that downside for its opportunity and I also know that nobody likes a doomsayer. It wasn’t until I read about our nation’s savings rate hitting zero that I began to rethink his claim.
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