Gas Prices

You bastage!

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Well if the fed is not continuing to print money how is the market flourishing the way it is? How are interest rates staying so low? We don’t have much inflation! REALLY?! You obviously have not went to the grocery store lately! Once the fed stops printing money, and it will happen eventually, the markets will drop like a rock. Right now the only place you can make money is in the market, that is if you have enough to take a risk.

Call it gloom and doom if you want. But I will call it the truth which a lot of people will never believe.

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The stock market and some segments of the commodities markets are high right now because capital (money) seeking a return will always flow toward the area with the anticipated highest return. With interest rates globally at an all time low, the stock market is attractive to investers and is being driven by the lack of other options that are likely to generate the same return. This has nothing to do with how much money is printed or not printed.

You seem to be confused about the Federal Reserve’s role in interest rates and printing money. The Fed does NOT have to “print money” in order to keep interest rates low. The Fed influences interest rates by altering what it charges commercial banks by controlling the Federal Funds Rate and the Discount Rate.

While these rates tend to have a knock-on effect, it isn’t absolute. The private market sets its own rate and that may or may not follow the lead that the Fed is trying to establish. Just take a look at corporate bond rates.

Your example of the grocery store shows exactly the reason why simple observations sometimes tell lies. You’re trying to predict the future based on one data point. Grocery prices in some cases are up not because the Fed is printing money, but because commodity prices are up. Why are commodity prices up? Weather, demand, speculation.

This is why the Core Inflation rate excludes highly volitle products like food and energy. Core inflation, btw, has been almost non-existant, increasing .2% in May.

And before you committ rampant calculator abuse, a .2% increase does NOT calculate out to a 2.4% annual rate of inflation. Current projections are that 2013 will see about 1.8% overall.

Besides–and this one will blow your mind–inflation, in many ways, is actually good.