The Fed is Letting the Music Play and Risking a World of Hurt

Jupiter, Fla. (PRWEB) November 4, 2007

Jack Crooks takes a look at the slumping housing market and the ongoing credit crunch. Mr. Crooks explains how inflation and the falling dollar are correlated.

The slumping housing market and the ongoing credit crunch have been a major thorn-in-the-side for the U.S. economy for many months, and conditions could get worse.

Third-quarter gross domestic product (GDP) rose 3.9%, exceeding estimates and outpacing the prior period's rate of growth. And ADP, the payroll processing company, reported the U.S. economy added 106,000 jobs in October, following strong upwards revisions in prior months. The GDP figure and the ADP report are a departure from the weak growth expectations we keep hearing about.

This data further calls into question the Fed's latest decision to cut rates again. Bernanke is threatening to further break an already-battered greenback and send inflation soaring higher. On Wednesday, Bernanke and his crew made another big decision to cut both the fed funds and the discount rate by another quarter point.

Meanwhile, core inflation is totally different than real world inflation.

Crude oil is hitting new record highs on a regular basis. It pushed above $96 per barrel this week and is making a beeline toward the $100 mark. Analysts are saying consumers can handle $90+ crude prices without taking a severe hit. Remember, crude oil fuels the entire U.S. economy, so rising prices will eventually find their way into the cost of all kinds of other goods and services farther down the chain.

It's not just oil, either. Food prices have been on the same one-way elevator; they keep going up and up. No matter what way the Fed wants to spin it, inflation is happening in key commodities that we use every day. And it's the result of too much money and credit floating around the system, which is driving up prices.

Paul Volcker stepped in as Federal Reserve Chairman in 1979. He was faced with a tough task, and he had only one legitimate solution. But he had the guts to take action. Mr. Volcker enacted a policy of tough love. He pushed interest rates sharply higher. By January 1981, the Fed Funds rate had risen to a whopping 20%.

That kind of shock forced the U.S. economy straight into a recession. What Volcker understood, and what most people fail to realize, is that a recession is not necessarily a bad thing; it's the market's way of cleansing an economy. In the end, Volcker's gutsy, decisive action was just what the doctor ordered. It broke the back of inflation and saved the dollar from ruin.

The bottom line is that the current Fed is letting the music play and risking a world of hurt for all investors. Just because "core inflation" isn't rearing its ugly head, today's Federal Reserve is doing everything it can to fend off the economy's natural cleansing cycle.

But the longer they put off paying the piper, the greater the chance inflation will heat up. The rest of the world knows this. And that's why investors are running as fast as they can out of the dollar. They have no other choice. Nobody wants to be left holding the bag. The smart money is exchanging dollars for stuff with real value.

"Moreover, the true definition of inflation is not some hand-picked basket of goods. Inflation is a decline in the purchasing power of your currency. And hopefully, Fed Chairman Bernanke takes a page from former Fed Chairman Volcker's book and decides it's time to unleash some tough love on the U.S. economy," exclaims Mr. Crooks.

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About Jack Crooks & Money and Markets

John (Jack) Crooks is the founder and president of Black Swan Capital, an independent advisory firm specializing in foreign exchange and currency markets investing for retail and institutional clients. A seasoned financial advisory with nearly 20 years of investment experience, Mr. Crooks uses both quantitative and qualitative approaches to determine the fundamental driving force(s) behind the movement of the currency, capital, and commodities markets. He is the editor of Weiss Research's latest investment offerings, World Currency Alert and World Currency Options, which were launched in August 2007.

Mr. Crooks also founded Ross International Asset Management, a discretionary money management firm specializing in global stock, bond, and currency asset management for retail clients. Previously, he was general manager of Plexus Trading, where he specialized in currency futures and commodities trading. During his successful career, Mr. Crooks served as chief currency and futures strategist of M2 Futures Inc., an investment boutique headquartered in Chicago, as well as vice president of Global Strategic Research for an international investment boutique, where he was responsible for providing daily advice and global strategy analysis.

Prior to entering the investment arena, Mr. Crooks held various corporate finance positions. He has written extensively on the subject of global currencies and international economics and has been published in Asian Times, Futures Magazine, Barron's, Bloomberg, Dow Jones Newswire, and across many financial websites. He has also appeared on Bloomberg TV and CNBC.

Mr. Crooks holds a bachelor's degree in finance from Florida State University and a master's in business administration from the University of North Texas.

Money and Markets (http://www.moneyandmarkets.com) is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Weiss Research, Inc. is located in Jupiter, Florida. For more information about our editors, or to set up an interview, please contact Jennifer Moran at 561-627-3300 or visit http://www.moneyandmarkets.com.

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