[Marxism] [Pen-l] Michael Hudson: The game is over

[Louis Proyect]

>The Fed is f*cked either way: put rates up makes recession worse;
>cutting them increases inflation.

NY Times, June 21, 2008
Off the Charts
Price Increases Put Pressure on the Fed
By FLOYD NORRIS

INFLATION is suddenly turning into a worry for the Federal Reserve, 
which knows that its credibility as a central bank would be damaged 
if investors concluded it was not determined to combat the recent 
rise in prices.

It still seems unlikely that the Fed will actually raise rates in an 
election year when the economy is probably in recession. But the 
surprisingly strong increases in producer prices for May, reported by 
the government this week, increased the pressure on the Fed at least 
to sound tough about inflation.

The report showed that, over all, producer prices of finished goods 
rose 1.4 percent in May, raising the 12-month increase to 7.2 
percent. That annual gain is still smaller than the 7.8 percent 
increase reported in the year through January, a figure that was the 
highest in a quarter century.

Not since September 1981, when a severe recession brought on by a 
large Fed increase in interest rates was beginning to bring down 
inflation, has the overall producer price inflation rate been that high.

Until recently, the Fed has emphasized the so-called core rate of 
inflation, which excludes energy and food prices. But in recent 
speeches, officials have conceded the obvious fact that increases in 
those prices have been large and serious for many consumers.

The core rate is up 3.0 percent over the last 12 months, well below 
the overall rate but still higher than at any time in the last 16 
years. A Duke University/CFO Magazine poll of chief financial 
officers released this week found that 45 percent of the American 
executives said their companies had raised prices to offset their 
higher energy costs. They now expect their own firms to raise prices 
by 4.1 percent over the next 12 months — twice the rate they forecast 
nine months ago.

As yet, however, the price increases are concentrated in some areas. 
The accompanying charts show that over the last 12 months, the 
producer prices of grains soared 64.8 percent, but the producer price 
for livestock edged up just 1.5 percent. Some farmers are selling off 
cattle quickly, depressing prices, because they cannot afford to feed them.

To put the current price rises in perspective, the charts (seen here: 
http://www.nytimes.com/2008/06/21/business/21charts.html) show the 
annual rates of gain so far in this decade, as well as in the 1980s 
and 1990s. Pharmaceutical price gains, which had been slowing earlier 
in the decade, have begun to increase again.

To some extent, price changes are dependent on who uses a product, 
and how they are doing. Producer prices of lumber, widely used in 
home construction, are down 3.6 percent in the last 12 months. But 
iron and steel prices have leaped 32.6 percent. Commercial 
construction remains strong in many parts of the United States, and 
there is heavy demand in Asia.

Some industries that historically had little pricing power may be 
getting a little such power. Producer prices for motor vehicles are 
up 1.0 percent, which is better than that segment has done in recent 
years but is still low. Similarly, apparel prices edged up 0.7 
percent, which is also low but better than that industry had done 
earlier in the decade.

Over all, the producer price statistics indicate that inflation rates 
vary widely, but there are signs that even the businesses where 
prices have been weakest in recent years are starting to find ways to 
recover at least some of their higher costs.

Read Floyd Norris's blog at nytimes.com/norris