when runaway spending occurs....and oil prices rise...ole mr inflation comes back. While everyone has been thrilled by the 40% equity rally, nobody has seemed to notice gold has climbed 19% since January...nobody has seemed to be watching oil prices go over 71 per barrel a 1.9 trillion dollar deficit, only 10% of the stimulus money spent, soon to hit us with an extra 500 billion for the down payment on the health care plan...the spending is out of control, the budget is completely screwed inside out Bernake has been trying to keep mortgages low, to aid the recovery, and they are rising and the rate is rising...FAST. The Fed needs low interest rates to stabilize the housing market and ease the squeeze on businesses...however... In April, 30 year fixed rates were at 4.85%...end of last week...5.57% 10 Year Treasurie yields were at 2.2% in January...Today?...3.95% Bond investors are cruising in to get the higher yields...the government is pushing up the yield rates to attract buyers for this mountain of money they are desperately injecting into the economy, but bond investors are only nibbling...the yields are going to have to keep going up to attract buyers, and the higher they go, the more interest our government needs to pay out. All of these factors are pointing towards high inflation, which is going to totally screw up the housing market even worse, since mortgage rates will go up, causing housing prices to fall, and bingo, the recession continues on its merry way. The Fed has no wiggle room whatsoever. They cannot keep pumping trillions of money into the US Economy to ease the recessions bottom and at the same time, they have to keep interest rates low while managing to stave off inflation, and deal with a president and congress intent on spending no matter what. Oil is going to keep going up...the price of gasoline has risen roughly 43 days in a row now national average per gallon is $2.62...end of 2008, the low was $1.62 It has increased roughly 65% since december....last summer it was over $4...the drop in oil prices by december was crucial for many people saving money...now, the rising costs are wiping out any money people are saving from their payroll "tax cuts" for people who were getting between $400 to $800 in tax cuts, that amounts to roughly $8 to $16 a week. how many gallons of gas does the average person put in their car weekly? how many miles do you drive in the average week? the average american drives 12,000 miles a year, roughly, or, 240 miles per week. if your car gets 30 miles per gallon, roughly (depending on your type of car, obviously) you need 8 gallons of gasoline per week. as of right now, if gas prices *REMAIN* (which they won't) at 2.62 per gallon nationally averaged, that means, that since early February, when the stimulus was passed on February 13th, gas prices were at roughly $1.95 per gallon, the average american will be spending 67 cents more per gallon or roughly $5.36 per week...over the course of a year, if prices remain at 2.62, that is roughly $279 extra dollars a year to the average american. Summer is when gasoline is at its highest demand, and supply is very tight. we are going to anywhere between 80-100 a barrel again, and fast. Just remember...we use 140 billion gallons of gas a year...every .50 cents per gallon gas goes up, means 70 billion less in consumer spending, which is the only thing that was being counted on to help the economy recover. If gas goes back over $3.50 per gallon, which it will, things will get exponentially worse. spending on retail sales start falling drastically, as people spend more and more on gas. the dollar is weakening with every dollar the government pumps into the system, and investors and hedge funds are buying commodities, namely oil and gold, to hedge against the fall in the dollar... gas is up from last month alone from $2.20 to $2.62. as of right now, if gas goes up another 29 cents a gallon, it effectively wipes out the $400 stimulus payroll tax credits people received, and we are essentially screwed even worse, with high inflation, high oil prices, a weak dollar, not to mention even higher unemployment, a 1.9 trillion dollar deficit and unimaginable deficits over the next decade and no way out. this is going to be ugly. buckle your seatbelts.